Sept. 10 (Bloomberg) -- Wells Fargo & Co., the fourth-largest U.S. bank by assets, won a $30 million judgment and the appointment of a permanent receiver in its lawsuit against prison-service provider Medical Development International Ltd. over the repayment of loans.
Wells Fargo, based in San Francisco, sued Ponte Vedra, Florida-based MDI in March in Delaware Chancery Court, alleging it defaulted on loans used for executive borrowing, a working farm, a biographical screenplay about Chief Executive Officer Richard Willich and payments for a Tesla Roadster.
The receiver, Ronald Winters of Alvarez & Marsal Healthcare Industry Group LLC, is authorized “to do any and all acts necessary for the proper and lawful conduct” of company affairs, lawyers for both sides said in a stipulation approved Sept. 7 by Judge Samuel Glasscock III.
MDI was in a deteriorated financial condition and wasn’t being operated in the best interests of stakeholders, the bank contended in the complaint.
MDI officials sued in state court in St. Johns County, Florida, saying Wells Fargo “abandoned its traditional role as lender and took up the role of corporate raider” to divert company assets.
The parties agreed to pay Willich about $33,000 as a September salary, and $15,000 a month through Dec. 31, as a temporary consultant, court papers show.
Winters will also have the right to make any decisions for the company, including “the authority to file for bankruptcy,” according to court papers.
“You don’t necessarily have to file for bankruptcy to go out of business,” Willich said today in a phone interview. “More than likely this will cause MDI, a company that has been in business for 20 years,” to fold, he said.
“Wells Fargo did quite well,” he said. “The amazing part of this is that 250 employees you have to lay off and go down to 25 because of these actions that had nothing to do with them,” he said.
Wells Fargo is “pleased to have some resolution of this matter and will be working to determine an appropriate course of action,” Alan Elias, a spokesman, said in an e-mailed message.
In its complaint, Wells Fargo lawyers said MDI was at risk of not obtaining renewal of “a key contract with a federal prison,” which accounted for 35 percent of its revenue, because of “MDI’s failure to pay approximately $8.3 million” to a service provider.
Attached to court papers is an article from the Florida Times-Union newspaper of Jacksonville that identifies the prison as Butner Federal Correctional Complex near Durham, North Carolina and the provider as Durham Regional Hospital, affiliated with Duke University.
The case file includes a Feb. 17 letter to Charles E. Samuels Jr., director of the Federal Bureau of Prisons, from U.S. Representatives David Price, Howard Coble and Melvin Watt, all of North Carolina, asking about MDI’s debt to the Duke medical system and questioning the bureau’s management practices at Butner.
The Delaware case is Wells Fargo Bank v. Medical Development International Ltd., CA7352, Delaware Chancery Court (Wilmington). The Florida case is MDI v. Wells Fargo Bank, CA12-0570, Florida Circuit Court, Seventh Judicial Circuit (St. Johns County).
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