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North Shore debtors may add civil suit to bankruptcy action

LOVELAND — Parties affected by the North Shore Manor bankruptcy filing made progress toward agreement on first-day court orders, but testimony Thursday indicated that the debtors and Columbine Management Systems are no closer to harmonizing “KumBaYa.”

An exasperated federal judge listened patiently to the attorney for North Shore Manor describe what he said were efforts to force North Shore into failure. The attorney for Columbine responded that the debtor’s problems were brought on by its actions, not Columbine’s. 

The judge told North Shore that if Columbine had breached a contract, the remedy was to file a lawsuit, not debate it in bankruptcy court. 

He then proceeded to accept the debtor’s versions of first-day orders that affect insurance coverage, cash management, turnover of files, and use of cash collateral.

The issue is a dual bankruptcy action filed by stockholders of North Shore Manor Inc. and North Shore Associates LLC, which owns the real estate of the skilled nursing facility at 1365 W. 29th St. in Loveland. Debtors allege that the bankruptcy action was filed because of actions of Columbine Management Services Inc., the long-time manager of the facility. CMS is a part of Columbine Health Systems, a company operated by J. Robert Wilson, who owns numerous facilities in Loveland, Fort Collins and Windsor.  

Prior to Thursday’s hearing, which was continued from a week prior, parties attempted to negotiate the so-called first-day orders. They did reach some agreements.

Then early today, attorney Aaron Garber filed a status report that outlined multiple grievances about how Columbine has handled the dissolution of the arrangement that had existed between the nursing facility and the management company.

Among them:

  • Wilson and CMS disregarded a directive from the North Shore board to seek approval of expenditures greater than $5,000.
  • John O’Brien, attorney for Columbine, has required all communication to go through him, and by email, which has slowed the transition and delayed critical services. “The arrangement is unworkable,” the report said, “because opposing counsel lacks the institutional knowledge and practical experience necessary to adequately coordinate an orderly transition.”
  • Staff — there are 170 employees at North Shore — did not receive paychecks on the normal schedule with pay delayed until Monday, March 20, even though pay was budgeted and the money was available.
  • Large groups of documents have been dumped on the debtor all at the same time.” O’Brien acknowledged that 30 years of paper records were trucked to North Shore.
  • Columbine has not provided a business contact who can help provide context for the data.
  • Columbine accounting was contacted March 9, a response was not provided until Tuesday and assistance with transfer of electronic records was delayed until Friday.
  • Columbine has said it will cut off transportation services.
  • Columbine has stopped forwarding employee job applications, but has accepted transfer applications of North Shore employees.
  • Human resources services have been cut off.
  • Pharmacy services are soon to be cut off.
  • Columbine has stopped or will stop providing intravenous antibiotics services to North Shore.
  • Columbine informed employees on Tuesday that it would cut off benefit plans on Wednesday.
  • Columbine drained the resident trust fund — money that belongs to residents for use on personal services such as haircuts — and sent the check to the debtor’s attorney, even though the bank account was controlled by North Shore and could have been accessed as normal. This resulted in overdrafts of the account.

“CMS cannot be permitted to serve the goal of Wilson, which appears to be to put this facility out of business…,” Garber wrote.

Before hearing from O’Brien, Judge Joseph Rosania Jr. said that the venue for hearing such disputes would be in a different court. “If they are in breach of contract, file a lawsuit,” he said. “I’m not sure what this (the oral complaints) are going to do here. … I don’t see things getting better based upon what was filed this week.”

Garber said he had such a lawsuit drafted.

O’Brien said the debtor’s issues were caused by the debtor, not Columbine. “This debtor was going out of business before it filed bankruptcy. It’s a fairy tale that Columbine is responsible for the poor decisions that the debtor has made.

“It is the debtor who sent in a hired gun to go in and take control of the facility. Wapello (a company Wilson formed to assume secured debt of North Shore) didn’t do that. … Not only was the management agreement terminated, but the debtor has deprived Columbine of being an effective manager. What makes Columbine nervous is that they want to operate under Columbine’s credentials but Columbine has no access to the residents.”

He said Columbine can’t be responsible for payroll because “we don’t know who has been hired or fired.”

The judge set a followup hearing for 2:30 p.m. April 25, at which time North Shore will have a month’s worth of financials for review.

“Please cooperate. Please communicate,” he concluded.

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