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Judge continues hearing until Friday on motion to appoint North Shore trustee

LOVELAND — U.S. Bankruptcy Judge Joseph Rosania Jr. had intended to break motions hearings in the North Shore Manor Inc. bankruptcy case into two parts — one part Thursday and one part Friday morning. 

One witness later, the first motion hearing had yet to conclude after 4 p.m., so it will continue Friday at 8:30 a.m.

The exasperated judge at one point denied a request for a recess to permit the parties to cool off and instead further admonished the parties to avoid argumentative questions.

“We’re finished for today,” the judge said as he later ended the hearing. “We’re coming back tomorrow. We’re done with Mr. Church. I’m cutting off further questions from Mr. O’Brien.”

The Mr. Church is Robert Church, the interim CEO for North Shore Manor Inc., who has been running the Loveland skilled nursing home since early March. Mr. O’Brien is John O’Brien, the Denver lawyer for Columbine Management Services Inc. and related parties. O’Brien is a Colorado partner in the Spencer Fane LLP firm.

The judge’s plan for the two days was to hear on Thursday arguments for and against a Columbine motion to appoint a public trustee to run North Shore instead of the management structure that the majority shareholders have put in place since the filing of the bankruptcy action in early March. North Shore’s attorney, Aaron Garber, called the motion for appointment of a trustee a shut-down motion and argued that it would cause the nursing home to go under.

On Friday, the judge intended to hear arguments about a motion from North Shore to permit the nursing-home company to borrow money from majority shareholders in order to pay off a loan from Wapello Holdings II LLC, another entity created by Columbine’s owner, Bob Wilson, and provide operating cash.

For the motion to appoint a trustee, Columbine claims that its interests represent the vast majority of the financial claims — 82% — that were filed by the May 15 court deadline. When Columbine managed the facility, it set up subsidiary vendor companies to provide pharmacy, supplies, transportation and other services; thus, those entities represent the majority of the financial claims.

The majority stockholders have contended, and attempted to demonstrate Thursday, that when North Shore separated itself from those relationship, the prices that it now pays for similar services was reduced. 

Church, in answer to a question from the judge, said that he had worked with about 200 nursing homes during his career. He is an employee of Eisner Advisory Group, a Florida consulting and accounting firm. Eisner is under contract with North Shore to bring the operation out of bankruptcy. He works 50 to 70 hours per week on North Shore matters, he said in testimony.

He described “threats and intimidation by Columbine” over the past months. He said he has “stabilized the employee base despite efforts to hire them away, has hired a new management company to replace Columbine, has shored up the billing process, replaced vendors, obtained insurance, put employee benefits in place, and stabilized relationships with patients.”

He noted that the census or patient count at North Shore has declined from about 103 prior to the bankruptcy filing to about 92 today, mostly because the institution doesn’t have the patient-referral resources of Columbine and has had to establish its own referral network.

“We have a good source of employees who are working hard to take care of residents’ needs,” he said. The adversarial nature of this bankruptcy “keeps employees off base a bit. There is a continuing effort to see that North Shore fails. Residents get upset, but families are affected more. Rather than just tell them (the nursing home will succeed), we try to show them through care that they’re in a good place.”

In response to Garber’s questions, Church said that the nursing home is “now paying fair market value versus cost plus” for transportation. He said the same is true for pharmaceutical services, therapy services, and general goods and supplies.

He said North Shore is generating enough revenue to pay payables as they come due. It has $1.1 million in its bank account and $1.2 million or more in accounts receivable.

Upon O’Brien’s cross examination, Church said he does not know how much Eisner is being paid but said another witness, accountant Susannah Prill, will likely know. 

Using a cash-flow projection that O’Brien called a budget, he pointed out multiple entries that differed from actual costs. The cash-flow document projected insurance costs, for example, at $87,000 for six months, when workers compensation insurance alone was billed at $64,000 for six months. 

O’Brien took issue with the cash-flow document’s numbers reflecting the proposed shareholder loan and that repayment of Wapello was not reflected. 

After O’Brien asked a question multiple times in various ways, the judge interrupted Church’s response by telling O’Brien, “I heard his response. I’m objecting to your question. You’re asking for speculation this many months out on the forecast,” Rosania said.

“Discontinue with your argumentative questioning. Ask questions without being argumentative. It borders on harassment. Stick to the facts. You’re testing my vast reservoir of patience.”

Later, he admonished O’Brien again. “That’s an exact definition of argumentative. You’re asking the witness to agree with your inference from the facts.”

O’Brien and Church also sparred about a situation in which North Shore was unsure whether Columbine had direct-debited some patient bank accounts and couldn’t get a yes or no response from Columbine. As a result, it waited to see if the money would show up in the nursing home’s bank account and when it didn’t, then reinstituted direct debits with the families involved. This resulted in delayed collection of revenue for April.

Similarly, Church said, its implementation of its own workers-compensation insurance policy was delayed because Columbine instructed its insurance company not to cooperate with North Shore.

Rosania asked Church to describe efforts that Columbine made to encourage residents of the nursing home to move. 

“I don’t know about residents, but I do know the efforts to steal employees,” Church said.

When O’Brien objected to the line of questioning, Rosania said, “It’s not illegal for Columbine to solicit employees, but it certainly is a factor in who you’d want this entity to end up with.”

Church said Columbine representatives made calls to employees and “met them in the back parking lot. This is unsettling to our employees. It creates instability, in my opinion. They’ve taken a lot of people. People have a right to go where they want to work, but this seems over the top.”

The judge also asked, “Did the actions of Columbine put residents at risk?”

“Absolutely, sir,” Church responded.

“Is the facility headed toward closure,” Rosania continued.

“No, sir,” Church said.

“Do you agree with the statement (from Columbine) that North Shore is not considering the residents?”

“That’s all we’re considering is the welfare of the residents,” Church said.

Friday’s hearing begins at 8:30 a.m. and will continue hearing arguments regarding the motion to appoint a trustee, followed by arguments about whether North Shore will be able to borrow money from majority shareholders. 

The actions filed in Federal Bankruptcy Court in Denver are North Shore Manor Inc., case number 23-10809, and North Shore Associates LLC, case number 23-10808.

Source: BizWest