Mariner Health Care Inc., the nursing-home operator, sued its former law firm for allegedly allowing $40 million from an asset sale to go to another client and trying to paper over the payment after the fact.
The money, from the $50 million sale of a medical-supply unit to Omnicare Inc., wound up going to Rubin Schron, an investor who bought some of Mariner’s real estate through a company he controlled, according to a complaint filed Nov. 9 against the law firm, Troutman Sanders LLP, in Georgia state court in Atlanta. Mariner and Schron’s company were both represented by lawyers who eventually joined Troutman Sanders, according to the complaint.
Mariner received $10 million directly for the medical-supply sale, while the rest was to be paid through an intermediary. The lawyers didn’t complete documents recording payment for the Omnicare deal until after they got a subpoena from the U.S. Justice Department, which was investigating the transaction for possible violation of kickback laws, Mariner alleged.
“If Troutman could account for the missing $40 million payment on ‘paper,’ then Schron could avoid the risk of being found guilty of violating the Anti-Kickback Statute,” according to the complaint. Atlanta-based Mariner is seeking $40 million and punitive damages.
This isn’t the only lawsuit involving Schron and Troutman Sanders. He sued in New York state court 2010, accusing the law firm of breaching fiduciary duties. That case is pending. Schron isn’t a defendant in the Mariner lawsuit.
Troutman Sanders today issued a statement calling Mariner’s claims “without merit” and saying the firm will fight the Georgia lawsuit. Steve A. Engel, an attorney for Schron, called the Georgia lawsuit “baseless.”
The law firm of Jenkens & Gilchrist represented Schron in the 2004 purchase of the Mariner real estate, according to the Georgia complaint. A few months later, most of the firm’s New York office left to join Troutman Sanders, according to the complaint. Atlanta-based Troutman Sanders was Mariner’s “outside general counsel” from April 2005 to April 2012, according to the complaint.
In 2006, the Justice Department issued a subpoena to Troutman Sanders, the Georgia suit says.
“The DOJ believed that the $40 million paid by Omnicare for MMS LLC and taken by Schron from the Mariner Merger transaction escrow account was a violation of the federal Anti-Kickback Statute,” according to the complaint. Troutman Sanders tried to account for the $40 million that had gone to Schron by characterizing it as repayment of a loan from another company he controlled, according to Mariner’s complaint.
In a 2009 civil action, the Justice Department accused Mariner, Schron and others of soliciting $50 million in kickbacks from Omnicare in exchange for the right to continue providing pharmacy services to the Mariner nursing homes. The kickbacks were disguised as a $50 million “payment to acquire a small Mariner business unit that had only two employees and was worth far less than $50 million,” the Justice Department said.
Mariner, Schron and other defendants agreed to pay $14 million to settle the case in February 2010.
L. Lin Wood, an attorney for Mariner, said today in a phone interview that the sale of Mariner Medical Supply to Omnicare wasn’t a disguised kickback. Mariner Medical Supply “was not a shell company,” Wood said. “It was a fair price for the company and Mariner is owed the $40 million.”
The case is Mariner Health Care Inc. v. Troutman Sanders LLP, State Court of Fulton County, Georgia (Atlanta).