Feds Withdraw Motion To Add Lifecare CEO Preston To False Claims Lawsuit; Say He Will Be Sued Separately
Thursday, November 5, 2015
The federal government has dropped an effort to add Life Care Centers of America chairman Forrest L. Preston as a defendant in its major "false claims" action in Federal Court in Chattanooga.
Attorneys for the government said, instead, the U.S. will "pursue its claims against Mr. Preston
in a separate civil action."
In the motion the government repeated its earlier claim that "since the filing of its complaint, the United States has uncovered evidence that revealed the extent of Mr. Preston's
involvement in the management of Life Care
, the degree to which he
was aware of complaints from his
own employees regarding the conduct at issue in this litigation, and the degree to which he
ignored corporate formalities and benefited unjustly from Life Care's unlawful conduct."
The government noted that Federal Judge Sandy Mattice held a hearing Oct. 21 and the judge observed that the government could have filed the proposed claims against Mr. Preston in a separate suit."
The original motion, filed Aug. 8, also cited "the extent to which Medicare
funds paid to Life Care
as a result of its submission of false claims have been transferred, directly or indirectly, to Mr. Preston
It said, "The United States seeks leave to allege a single claim against Preston individually for unjust enrichment."
The motion said Mr. Preston
owns all the Life Care nursing homes either in whole or part and he
was "the ultimate financial beneficiary of all revenues billed and collected, including Medicare and Medicaid
funds, by Life Care Centers of America
and its affiliated nursing homes" during the term covered by the lawsuit.
It said he
"has operated Life Care
and its related entities without regard for the separateness between himself and the corporate forms among the entities.
himself explained in a deposition in another case, 'a benefit to me is the corporation.
That's synonymous (it) really amounts to moving my own money from (my) own trousers from one pocket to another."
The motion said Life Care
is organized as an S-Corporation and all of Life Care's
income and losses "are reported on Preston's
personal tax returns and are taxed to Preston
(rather than at a corporate level)."
It said, "Preston's
control over his
unitary nursing home business also allowed him to secure significant loans on behalf of Life Care
For example, Life Care
and dozens of other Preston-owned entities borrowed hundreds of millions of dollars from GE Capital
in December 2010."
The motion said he has the sole authority to appoint and remove any member of Life Care's board of directors without cause and to amend the corporation bylaws at will.
It said he
"has further controlled Life Care
and its operations by filling open positions on the board with his
personal friends and advisors, and at times, even his
restricted who could speak directly to the board and what information individuals were allowed to share with the board.
required materials to be filtered through him before being shared with the board, and executives were not allowed to speak at board meetings unless called on by Preston
dominated Life Care
and restricted the board's ability to adequately manage and oversee the company."
It was claimed that he
was involved in numerous hiring and firing decisions, including dismissing two compliance officers.
The motion said Mr. Preston
, who is now listed as one of the richest men in America, has borrowed more than $50 million from Life Care
It says, "At times, these loans were not approved by the board and had no set repayment terms.
Moreover, Life Care
did not always secure collateral or other security from Preston