Vanguard Healthcare files suit tied to breach of contract allegations

By Caroline Salls

Pittsburgh, Feb. 24 – Vanguard Healthcare, LLC filed a lawsuit and counterclaim Thursday against Kindred Nursing Centers East, LLC and Kindred Healthcare Operating, Inc. in connection with a facilities lease transfer transaction, according to a filing with the U.S. Bankruptcy Court for the Middle District of Tennessee.

In addition, Vanguard objected to a $610,918 claim filed by Kindred.

According to Vanguard’s complaint, the company and Kindred began discussing a plan in 2012 under which Kindred would terminate leases for 12 skilled nursing facilities that it was leasing from Ventas Health, LP.

Vanguard agreed to enter into new leases with Ventas, and Kindred, Vanguard and Vanguard’s operating companies entered into agreements under which the operating companies would assume operational control of the Ventas facilities.

In reliance on financial information provided by Kindred, Vanguard said it made a proposal, which Ventas initially rejected. At the end of 2012, however, Ventas requested, and Vanguard agreed, to renew its proposal.

The company said the renewal of its proposal was based in part on the financial statements provided by Kindred, which “demonstrated that the Ventas facilities cash-flowed and generated income in excess of expenses, rent and debt service.”

Vanguard said it entered into a master lease with Ventas on Jan. 30, 2013, and it paid Ventas a $3.38 million security deposit.

However, Vanguard said it subsequently received financial statements for the first months of 2013 that “reflected a significantly deteriorating financial performance of the Ventas facilities.”

“These statements were extremely alarming to debtor, reflecting a declining number of residents in the facilities and sharply declining financial performance,” the complaint said.

Since it had already executed a master lease with Ventas and paid a security deposit, Vanguard said it “had no option, without subjecting itself to significant financial risk, but to close the transaction.”

After taking control of the facilities, Vanguard said it found substandard and deteriorating physical conditions in the facilities, a lack of experienced operators, staffing reduced to the point that there was concern about the welfare of the patients and missing equipment.

Vanguard relinquished the facilities in August 2014.

In addition, Vanguard said it learned in January 2016 that the financial statements that Kindred provided to entice it to enter into the agreements “were materially false and misleading.”

“But for its reliance on the false financial statements that Kindred provided, debtor and the OpCos would have never entered into the OTAs or the Ventas master lease.”

The company is seeking disallowance of Kindred’s claim and is alleging that Kindred breached its contract with Vanguard.

Vanguard is a Brentwood, Tenn., long-term care provider. The company filed bankruptcy on May 6, 2016 under Chapter 11 case number 16-03296.

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