Looking at how busy Kindred Healthcare and Ventas have been recently on the legal front, it seems they should be getting a volume discount from their lawyers.
Late last month, the full 6th U.S. Circuit Court of Appeals in Cincinnati, on a 7-6 vote, reinstated a class-action lawsuit against the two Louisville, Ky.-based companies, which once were a single entity. The lawsuit alleges that the companies misled investors about the earnings impact of the federal Balanced Budget Act of 1997. Ventas is a real-estate investment trust spun off in 1998 from nursing-home chain Vencor, which recently changed its name to Kindred. Ventas owns most of Kindred's facilities.
Just a day before the appeals court ruling, a lawsuit filed in U.S. District Court in Louisville accused Ventas and several of its managers of fraud in relation to the real estate investment trust's 1998 split from Vencor.
Kindred, at least, had some good legal news during the last week of May. The company said it was burying another vestige of its Vencor past by making an early payment of the entire $55.8 million balance it owed HCFA for Medicare overpayments. It had agreed to repay HCFA a total of $90 million under a 1999 settlement resolving a Medicare cost report dispute. The company was supposed to pay the balance of the settlement in monthly installments through March 2004, but the payment plan came with a 13.4% annual interest rate, Kindred said.
In the shareholder lawsuit that was reinstated, shareholders who purchased Vencor stock between February 1997 and October 1997 allege that the pre-spinoff company wrongly asserted it couldn't assess the federal budget law's effect on earnings during that February to October time frame, at the end of which the company lowered fourth-quarter earnings estimates. The ruling reversed that of a three-judge panel of the 6th Circuit and of a U.S. District Court in Louisville, Ky., both of which had dismissed the suit.
The majority's opinion said the plaintiffs offered sufficient evidence to show "a strong inference that defendants knew more than they disclosed about the financial consequences of (the budget act)." The court remanded the case to the district court with an order to begin discovery proceedings. Kindred officials could not be reached for comment. A Ventas spokeswoman said the company's attorney had not yet reviewed the ruling.
The fraud lawsuit filed against Ventas accuses the company and several of its managers of fraud in relation to the real estate investment trust's 1998 split from Vencor. The real estate company emerged from the split as Ventas, relegating its previous name, Vencor, to the new management company. The plaintiffs, including two former Vencor employees, allege that the name change was a scheme to "conceal the identity" of the original Vencor and that their patient negligence claims against Vencor should be collectible from Ventas. Information about the negligence claims wasn't available.
In a written statement, Ventas denied a scheme to hide the corporation's identity, pointing to "copious public filings with the Securities and Exchange Commission, other public documents and numerous press releases" that made the name change widely known.