A Dallas subsidiary of struggling physician practice manager Physicians Resource Group has filed for Chapter 11 bankruptcy protection. The subsidiary owns the assets of a clinic that sued PRG, alleging it failed to live up to its management contract.
PRG XIV, which filed for bankruptcy on Dec. 30, owns the assets of WSK Associates, a two-physician ophthalmology clinic in Lewisville, Texas. The clinic sued PRG on Nov. 19, 1997.
The Chapter 11 filing, in U.S. Bankruptcy Court in Dallas, occurred only a few days before discovery began in the lawsuit. Discovery is the process during which litigants are compelled to turn over evidence and be interviewed by the opposing attorneys.
The bankruptcy filing halts all progress in lawsuits involving WSK. The physicians are continuing to practice.
"The determination was made by the company that (bankruptcy court) would be the best venue to proceed with that dispute," says PRG Senior Vice President Jonathan Bond. He didn't say why bankruptcy court would be better than the U.S. District Court in Dallas, where WSK filed its lawsuit.
WSK's attorney, Bruce Howell, agrees with Bond that cases tend to move more quickly in bankruptcy court than in a lawsuit.
In the Chapter 11 filing, assets and liabilities are listed as "unknown." Unsecured creditors include PRG lender NationsBank and Stephen Ku, M.D. Ku, along with Steven Eileff, M.D., practices at WSK, whose assets PRG acquired in 1997.
PRG's finances are in such disarray that the company hasn't filed a quarterly financial report since August. It is seeking a judge's approval to extend for 90 days a Jan. 5 court deadline for submitting asset and liability information.
As of Dec. 31, 61 of PRG's 130 practices had either stopped sending management fees, withheld financial information or initiated legal proceedings against the company, according to a Jan. 4 Securities and Exchange Commission filing. Bond says he can't break down how many practices are taking each of those actions, or how many are involved in more than one.
PRG sets up a subsidiary for every practice whose assets it acquires. So far, PRG XIV is the only one in bankruptcy. Bond wouldn't say whether additional subsidiaries will file.
"It really wouldn't be appropriate for me to discuss any future planned bankruptcies at this point in time," Bond says.
The parent company has other problems.
On Jan. 12, NationsBank sent word to PRG that it would not renew its promise not to take steps against the company for defaulting on a $9.5 million loan due Dec. 31. NationsBank had agreed to PRG's request not to take action until Jan. 11.
However, as of Modern Physician's deadline, NationsBank had neither acted against PRG nor revealed what it might do.
Even though the New York Stock Exchange delisted PRG's shares on Nov. 12, there is some notable trading taking place at PRG's new home on the OTC Bulletin Board.
A New York investment group called Resurgence Asset Management in a Jan. 8 SEC filing revealed it had purchased 3.7 million shares of PRG, or almost 11% of the company's stock. That makes it PRG's largest investor, ahead of Chairman David Meyer, M.D., who controls 8.5% of the company's stock.
Meyer did not return phone calls seeking comment.
Meanwhile, Houston investor Robert Alpert, who in late 1997 spent an average of $5.43 per share, or $11.4 million, to acquire a 7.3% stake in PRG, has started unloading his shares. According to a Jan. 11 SEC filing, he has sold 335,000 shares for $120,030 -- an average of 35.8 cents per share.