$39M Settlement Reached for Mortgage Insurance Kickbacks in Florida, New Jersey

A federal magistrate has preliminarily approved three settlements totaling nearly $15 million in a national class action accusing mortgage servicers of taking kickbacks from residential insurers.

According to the complaint, the mortgage companies forced borrowers to buy inflated policies from insurers that funneled some of the money back in the guise of commissions, reimbursements and the provision of below-cost services.

Under the terms of the settlements preliminarily approval by U.S. Magistrate Jonathan Goodman of the Southern District of Florida on Aug. 10, tens of thousands of borrowers will receive between 6 percent and 10.5 percent of the premiums they were overcharged and forced to buy since 2008.

The settlements include Carrington Mortgage Services LLC, Fay Servicing LLC and Residential Credit Solutions Inc. The insurers are American Modern Home Insurance Co. and Southwest Business Corp.

The settlements include attorney fees capped at nearly $2.3 million for the plaintiffs lawyers: Adam Moskowitz, Thomas Ronzetti, Rachel Sullivan and Robert Neary of Kozyak Tropin& Throckmorton in Coral Gables; Lance Harke, Sarah Engel and Howard Bushman of Miami’s HarkeClasby& Bushman; and Aaron Podhurst, Peter Prieto, John Gravante III and Matthew Weinshall of PodhurstOrseck in Miami.

A final approval hearing is scheduled before Goodman in January.

Defense attorneys include Brian Toth of Holland & Knight in Miami; Mark Johnson, Rodger Eckelberry and Robert Tucker of Baker & Hostetler in Columbus, Ohio; Elizabeth Campbell of Locke Lord in West Palm Beach; and Keith Olin of Bressler, Amery & Ross in Fort Lauderdale.

None of the defense counsel responded to a request for comment.

The agreement comes on the heels of another force-placed insurance class action settlement worth nearly $24 million in New Jersey District Court. Judge Noel Hillman approved that settlement July 27. Nearly 75,000 people are members of that class.

The plaintiffs were represented by Moskowitz, Harke and Bushman; Peter Muhic, Donna Moffa and Samantha Holbrook of Pennsylvania’s Kessler Topaz Meltzer & Check; and a team of lawyers at Radnor.

The defendants in that case were PHH Mortgage Corp. and Assurant Insurance.

Defense attorneys Robert DiUbaldo and Frank Burt of Carlton Fields did not immediately respond to requests for comment.

Moscowitz and his team have taken a leading role in challenging force-placed insurance abuses since 2010, settling 27 class actions nationally on behalf of some 5.8 million homeowners.

“We’ve worked with 57 law firms all around the country working out these settlements,” Moscowitz said. “It’s been a wonderful experience, and we’ve really been able to transform the force-placed insurance industry.”

“Most of the conduct we complained about beginning six years ago has been prohibited, but the homeowners are still out the money they paid.”

Creditor-placed or force-placed insurance is common in the mortgage industry, where lenders require borrowers to maintain insurance on property securing a loan and can demand the purchase of new coverage in case a policy lapses.

As alleged in multiple suits and investigations around the country, including the just-settled actions, in some instances mortgage service companies have allowed insurers an exclusive right to monitor their loan portfolios and force place policies on borrowers in return for kickbacks disguised as commissions for assisting in issuing policies, expense reimbursements and payments for purported services that had nothing to do with the issuance of insurance.

Moscowitz said that about 15 class actions involving allegations of wrongdoing involving force-placed insurance were filed in the Southern District of Florida, the state where most such policies are sold.

He and his team have been involved in many of them, including a $217 million settlement with Ocwen Loan Servicing and Nationstar Mortgage in 2015.

“I do give a lot of credit to some of the early providers that decided to settle with us,” Moscowitz said. “A settlement take two parties … A lot of these [insurers] want to the right thing and protect their consumers.”

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Hold Your Applause. Ralph Lauren, Michael Kors Are Not Showing Signs of Strength, Yet

Both luxury fashion companies topped earnings estimates but sales were still weak.

By Lindsay Rittenhouse

 “Remember when Krispy Kreme first came out and you had to go to their stores to get them?” Castro said. “As soon as they expanded and customers could start getting them at the grocery store, they became not special anymore.”

Last May, facing declining sales, doughnut maker Krispy Kreme sold itself for $1.35 billion to German food conglomerate JAB Holding, the same company that agreed to take Panera Bread Co. private in April in a deal worth $7.5 billion.

Castro applies that of why Krispy Kreme lost its appeal to both Michael Kors and Ralph Lauren—to survive, they must get their products out of outlets and department stores, narrow their availability. She does not expect retailers that fall somewhere in the middle on price, including Macy’s, to have a place in the evolving retail environment.

She added: “Put your seat belts on and get ready for a wild ride.”

Click here for the original article.

Making the grade as a trial lawyer

By Mark D. Killian

Early in Javier Lopez’s career, a senior member of his then firm called him into his office and told him to take a seat.

The more experienced, well-respected trial lawyer looked young Lopez in the eye and told him he had a problem with his work. The senior litigator told Lopez that while he had considerable skills, “You are about a B-plus, maybe an A-minus, but you will never be an A-plus trial lawyer.”

“And that’s what I wanted to be,” Lopez, now a partner at Kozyak Tropin & Throckmorton in Miami, told the Young Lawyers Division board at the Bar’s Annual Convention in Boca Raton, while accepting the division’s Diversity Award.

“And, he said, ‘Do you know why? Because you put your family and your faith before your practice,’” said Lopez, adding the partner then went on telling him about family events that he had missed because he was busy at the office.

“And if you ever want to be an A-plus lawyer, that is what you’ve got to do,” Lopez said his boss told him. “I asked him if I was fired, and he said, ‘No you are not, Lopez, but you need to think about this.’”

“So I walked out of the office and I thought: Awesome!” Lopez said. “That is awesome. I can be an A-minus lawyer and have my family and my faith and my friends as my priority. And I think, to be a trial lawyer, you need those things to be the priority in your life because it is about people, how you connect with clients, how you connect with juries.”

Lopez told the assembled young lawyers that while their practices are “absolutely a priority,” it should never be “the priority.”

Click here for the original article.


Develop the right strategic moves to keep clients on track to close transactions

Queen’s Gambit

By Javier A. Lopez and Stephanie M. Gomez

The fully executed contract is ready for signatures. All too often, however, the end is not near. Instead, the game of chess begins.

With the commercial and real estate markets in flux, more real estate litigation is happening because buyers and sellers are trying to back out of closings. To help prevent an escape hatch, prepare beforehand and draft the most airtight contract possible.

Real estate investors and professionals must have safety valves placed into a sale and purchase contract, first gently and then more rigorously, to remind the buyer about the pain of backing out. Various options are available on how to dissuade a reluctant buyer from not signing a contract.

Concise Contracts

Before beginning to write a contract, prevention involves several steps. While it may sound obvious, including the closing date is crucial.

Also, a seller should specify the length of allowed extensions, limit the number of extensions, and decide on the ramifications for each extension. For example, an extension may call for a nonrefundable deposit.

If a buyer walks, he loses the property. Another option is to specify additional escrow money for each requested extension.

The agreement should specify that the deposit is held in escrow, which will be provided to a seller if a buyer walks away. Prior to closing, sellers should try to have as much money as possible on their side of the table – a significant enough amount to place a buyer in a tough spot.

Free and Clear Titles

Property must be able to be transferred with a clear title. A seller, however, may be aware of certain issues with the title and may require the buyer to assume them. In this instance, sellers must be very clear about these issues in the contract.

In a recent litigation, the buyer tried to back out of a $38 million closing allegedly due to an open litter violation against a commercial tenant. The litter consisted of a piece of plywood lying against the property’s side wall, which merely needed to be tossed in the garbage. In reality, the buyer’s concern was that the property value had dropped to $33 million.

Transparent Communications

To identify red flags from a buyer, a broker and seller must pay attention to changes in a buyer’s behavior. For example, a buyer may start communicating less frequently or continually request extensions of the closing date.

If a seller notices these changes, he should discuss them with the buyer. He also should create a comprehensive paper trail showing his adherence to the contract and write every communication as if it is going to be used as an exhibit for litigation.

If a buyer fails to remit the balance of the purchase price to the escrow agent and fails to close in a timely manner, the seller should immediately send a letter showing the default and exercising his right to terminate the agreement and retain the deposit. Should this result in litigation, the seller will be well-equipped to successfully defeat a buyer’s claims.

Reaching the Finish Line

Thinking moves ahead is important in a chess game and in closing a deal. Unforeseen circumstances, however, are a part of the process. Commercial real estate professionals should always review the draft contracts, while keeping potential litigation in mind. For any questions, they should ask the real estate attorney.

Typically, the contract will be the most scrutinized document in this type of litigation. Having safety valves in place, a clean and easily understood contract, and mechanisms to make the other side think twice before backing out will help keep the closing on track. For those engaged in a transaction, it is essential to maintain communication throughout the closing process. Following these steps will prevent the necessity of wasting time and money in litigation.

Javier A. Lopez and Stephanie M. Gomez

Javier A. Lopez, a partner with KozyakTropin& Throckmorton, and Stephanie M. Gomez, an attorney with KozyakTropin& Throckmorton, focus their practice on commercial, business, and real estate litigation. Contact Lopez at jal@kttlaw.com and contact Gomez at sgomez@kttlaw.com.

Click here for the original article.


As Alfred Angelo closes all stores, here’s what brides-to-be can do

By Alicia Robinson

Bride-to-be Darlene Mejia, 27, was waiting nervously Friday morning outside the closed Alfred Angelo store at Tyler Street and Magnolia Avenue in Riverside.

Her $1,800 dress, a strapless white gown with a full skirt and beaded bodice, was paid for and at the shop to be pressed for her July 22 wedding.

Mejia was in disbelief when she got a 6 a.m. text from her mother.

“The store’s closed,” she told Mejia. “You better go see if you can get your dress.”

She tried the phone numbers listed on a memo taped to the shop door but only got recordings. She wondered why someone from the store didn’t call her Thursday when they were still open. Fortunately for her, Mejia later recovered the dress — though her veils remain missing.

Alfred Angelo, one of the world’s largest manufacturers and retailers of wedding gowns, closed all 60 of its U.S. stores as it filed for Chapter 7 bankruptcy. The retailer, known for its Disney-themed designs, also has partnerships with some 1,400 retailers.

“I’m really trying to stay calm, but all the money we put into these dresses,” Mejia said.

By Friday afternoon, Mejia had learned the person in charge of alterations and pressing garments for the store has a Rancho Cucamonga shop where the work is done. Her cousin made calls and found it.

The dress was safe, the shopkeeper told her. As for the veils, she may buy another set but has a few days to figure that out.

Brides or bridal parties who have been affected by the sudden closures have been advised to contact attorney Patricia A. Redmond with the Miami, Fla.-based law firm Stearns Weaver Miller Weissler Alhadeff&Sitterson. Redmond could not be reached Friday and her assistant couldn’t provide any information either.

“We have no comment at this time,” she said.

Tory Dean, a manager with The Dresser Bridal Couture shop in Fullerton, said she figured something was up before the stores abruptly closed.

“We kind of got wind about it last weekend,” she said. “We had a couple walk in the door who had gone to an Alfred Angelo store in Brea by the Brea Mall, and they said that store was no longer able to order dresses — everything in the store was discounted. So they came and shopped with us.”

For Redlands bride-to-be Brenda Taylor, 37, the frustration and disappointment have led her to consider canceling her July wedding next summer.

After looking for a dress for a year, she finally found one at Alfred Angelo’s Riverside store that she liked and that came in her size — the Jasmine gown from the Disney collection. Taylor had paid for most of it and was going to complete the purchase when the dress was ready this fall, she said.

After learning the company had shut down, she tried calling different stores and rushed to one in Ontario because the phone number still worked, only to see a rack of dresses inside the locked doors, she said.

Taylor said she thinks it’s unlikely she’ll get her deposit back.

“I worked so much overtime just to pay for that. That’s like $1,000 gone, Taylor said. “I’m almost to the point where I’m saying ‘forget the wedding.’”

For rapidly approaching weddings, brides and customers of Angelo’s may be out of luck.

Corali Lopez-Castro, a partner at KozyakTropin& Throckmorton, has handled retail bankruptcies in the past.

All decisions about dresses, she said, are up to a trustee, not the company, in a Chapter 7 filing, which indicates an asset liquidation rather than a Chapter 11 restructuring.

“It would seem to me that the better course of business would be to release the dress to the customer,” Lopez-Castro said. Not doing so, she said, would be a “public relations nightmare and frankly chaos.”

Ron Friedman, a CPA and retail expert at Marcum’s Century City office and co-leader in the firm’s National Retail & Consumer Products Industry group, thinks the brides will get their dresses.

“I would be surprised if a judge didn’t give them their inventory,” he said. “It would be unusual to punish the consumer or the public. The owners of the company and the suppliers and the landlords will take the major hits.”

For any rapidly approaching weddings, Lopez-Castro suggests going to Plan B.

“The trustee is going to need some time to figure things out,” she said.

“I hope nobody has a wedding this weekend,” Friedman added. He said the judge and trustee would work together to make these decisions.

If a creditor has a lien on the inventory, they may choose to resell the dress, Lopez-Castro said. The Alfred Angelo customer could file a claim, but it “will not be worth very much.”

Anaheim resident Victor Esquivel’s fianceeAiram Arroyo put a deposit on an Alfred Angelo dress at Brea Mall.

She texted him Friday, scared, after hearing the store had closed, Esquivel said.

The two were not going to the store to see what is going on. “There’s no point in going if the store is closed,” Esquivel said.

The two are fearful that if they don’t get the dress back they won’t have enough money for another one.

“We have so many bills right now. We can’t afford another dress. It’s very stressful,” Esquivel said.

Lopez-Castro said he may be in luck as it was likely the trustee would allow customers to pay the balance instead of selling the dress in a liquidation sale. But the decision would be up to the trustee.

Friedman had a different take. The CPA said these customers would likely be treated as creditors, likely in a preferred class, because “they have deposits on a dress they are never going to get.”

Kristin Laterreur, a 32-year-old Fullerton resident, bought her gown at an Alfred Angelo location in Beverly Hills for her Nov. 3 wedding.

She heard the store had closed on social media and quickly went to the store to see if she could pick up her dress, which was in the store for alterations.

She became frustrated at the store when nobody was there or had any information for her. Other anxious customers were at the store as well.

“A couple hours ago I was crying a lot,” Laterreur said. “I’m at the point where there’s not much else I can do. I just want to know if I need to start over.”

A group of about a dozen concerned customers also gathered in front of the Alfred Angelo Bridal shop in Rancho Cucamonga on Friday morning.

A sign on the door of the store at 11540 4th St. provided the email address predmond@stearnsweaver.com for concerned customers to get more information.

Angry customers said they were frustrated they were not warned of the closure, and many were expecting a store representative to meet with them when store opened at 11 a.m.

Edith Enriquez of San Bernardino was among the crowd. Enriquez said about $1,400 had been spent on her daughter’s wedding dress, which was to be ready next month.

“They called her and they had her pick up her veil and they said, ‘don’t worry, we’ll ship your dress,’ but they never told her about the situation … it came out on the news,” Enriquez said. “We have that money invested in this dress, so in order to start looking somewhere else, we need that money to start again.”

Alma Alvarez of Ontario was also at the store Friday to see if she could pick up her daughter’s bridal gown, worth $2,500.

“It’s really sad because the girls have their dream of getting their dresses, and it’s so hard for them to earn money to pay for the dresses, so it’s hard for me to see the news of their closing,” said an emotional Alvarez. “My daughter called me to go and pick up the dress if I could.”


Affected customers looking to get a dress elsewhere may be in luck as some competitors are offering deals.

David’s Bridal will offer people with an Alfred Angelo receipt 30 percent off wedding dresses, 20 percent off bridesmaid dresses, rush fees waived and alteration services for Alfred Angelo dresses.

Pebbles Bridal, which has locations in Woodland Hills and Orange County, is also offering aid to Alfred Angelo brides.

“We know the abrupt shutdown of all Alfred Angelo stores has left many of you without a gown for your big day and we truly feel for you. Stay calm. We got this,” the group wrote in an Instagram post. The company said customers with an unfulfilled Alfred Angelo gown or bridesmaid order can contact Pebbles Bridal locations for information on new orders and off-the-rack options.

Other retailers jumped in, too:

“If you have your measurements we may be able to help, we just launched our online store and have many designers who will go above and beyond to help those who have been left high and dry,” wrote Garth Hewitt from Timeless Bridal on Alfred Angelo’s Facebook page.

After hearing about the situation, bridal gown alterations specialist Renee Young, who went to the shop in Rancho Cucamonga, said she’s reaching out to help anyone in a bind because of the closure.

“I’m offering to help out any bride that needs help (with a dress),” said Young, who said she could be reached at her home business at 909-994-8463. “They’re frantic getting their gowns. Because it’s going to be a long process, I’m offering anything they might need to help with their wedding. I also have gowns for them to purchase under 100 dollars.”

Here’s how to contact the lawyer for Alfred Angelo:

Patricia A. Redmond, Esquire Stearns Weaver Miller 150 W. Flagler St. Miami, Florida 33130 Phone: 305-789-3553 Fax: 305-789-3395 predmond@stearnsweaver.com www.stearnsweaver.com

Click here for the original article.

Yahoo Finance

What happens to your warranty if a company goes out of business?

By Tori Floyd

News that Sears Canada may not be able to operate beyond the next 12 months due to financial concerns likely has many appliance owners worried.

Major home appliance and small appliance sales have been a core part of Sears Canada’s business for decades. In fact, the company touts itself as the “number one appliance business in Canada.” There are more than a few Kenmore dishwashers and washing machines in homes across the country.

But with each appliance comes a warranty, and owners of Sears Canada appliances may be worried about the future of those warranties being honored.As Sears Canada considers putting itself up for sale, warranty holders may be asking some tough questions, such as whether their warranty will still be honoured in the future.

What happens to a warranty

Customers may feel uneasy based on recent history.

Ben Moss, a Canadian jewelry company that went into liquidation last August, told customers that their lifetime warranties would no longer be honoured.But Katherine Hutt, national spokesperson for the Better Business Bureau, says that warranties are usually accounted for when a company is undergoing a restructuring.

“In general, warranties are liabilities of a company and are factored into bankruptcy proceedings,” said Hutt.

“A company pursuing reorganization should want to retain the confidence of its customers by ensuring the continued viability of customer commitments like warranties.

Hutt adds that in a liquidation situation, the status of warranties held by customers are less certain. There is a chance they’ll be unaffected by the retailer or manufacturer’s bankruptcy if the warranty is managed by a third party.

When Ben Moss told customers their warranties wouldn’t be honoured, the Better Business Bureau advised warranty holders to file a proof of claim with the Superintendent of Bankruptcy Canada Outreach and Complaints and apply to be on the list of creditors in the event there was a settlement.But even in that case, chances were that customers would see very little actual money.

Going in with a plan

Before you even purchase a warranty, it’s best to know the fine print.

“Prior to making a purchase, consumers are encouraged to research the company offering the warranty,” said Harry Malhi, a spokesperson for the Ontario Ministry of Government and Consumer Services. He says if a company closes down, they may not be able to enforce the warranty, so it’s worth familiarizing yourself with who is responsible for honouring the warranty, and what the conditions are if the company goes out of business.

If you think a company you have a warranty with has gone out of business, consumers have two main things to check for:

  1. Is another company now responsible for enforcing the warranty? Check with the new owner to see if they will be honouring existing warranties.
  2. Has the company offering the initial warranty declared bankruptcy? If so, verify on the Superintendent of Bankruptcy Canada Outreach and Complaints site or by calling (toll free) 1-877-376-9902.

Malhi says that if no trustee is appointed in a bankruptcy case, consumers may wish to consult with a lawyer to see if they have any legal right to compensation. In Ontario, they can also contact Consumer Protection Ontario toll free at 1-800-889-9768.

The Sears Canada situation

Concerns around long-term appliance warranties first arose in the U.S. with the company that shares the same name, Sears Holdings. When rumblings of Sears’ financial troubles began in March, Florida-based lawer Coralie Lopez-Castro told Business Insider that warranties would be a huge issue, and “there’s a real risk that they will not be honoured.”

Sears Canada Inc. operates as a separate entity from the U.S. company Sears, which holds a nearly 12 per cent stake in the Canadian spin-off. Sears Canada separated from Sears Holdings in 2012.

By default, products like major appliances at Sears Canada come with a one year warranty.The extended warranties for major and small appliances, lawn and garden products, electronics, jewelry and watches, furniture, mattresses, heating and cooling systems and more are offered through Sears Protection Plans.

Depending on the product, customers are offered different options for replacement, repair and upkeep for their products.The good news is, Sears Canada says that the company has no plans change the way it honours warranties at this time:

“Sears Canada continues to honour all warranties and guarantees it makes and has no plans to change that practice,” a spokesperson for Sears Canada said in an email to Yahoo Finance Canada.

Click here for the original article.


Panic turns to relief for some brides at shuttered West Covina Alfred Angelo

By Titus Wu

As news of a bridal shop’s bankruptcy traveled, soon-to-be brides rushed to the West Covina store in a panic.

Alfred Angelo, a Florida-based nationwide chain, shut all 60 shops this week — including locations in West Covina, Brea, Rancho Cucamonga and more — as it entered Chapter 7 bankruptcy protection. The retailer, known for its Disney-themed designs, also has partnerships with some 1,400 retailers.

Word spread Friday on social media.

In West Covina, former Alfred Angelo employees who found themselves jobless Friday were still on site, handing out ordered dresses to customers.

They stopped by the wedding dress retailer in small numbers, anxiously waiting outside for employees to emerge.

Covina resident Molly Morales was picking up a dress and wedding accessories for her daughter-in-law, who’s getting married in March.

Morales said her daughter-in-law got a call Wednesday to pick up her dress and planned to come by during the weekend.

“But she got a call today that it went bankrupt,” Morales said. “She’s crying and crying. She’s hysterical. She’s freaking out, so she sent me to see if it was true.”

Despite the confusion, Morales was able to get everything from the store that morning. The items were already at the store, ready to be shipped out.

Brides or bridal parties who have been impacted by the sudden closures have been advised to contact attorney Patricia A. Redmond with the Miami-based law firm Stearns Weaver Miller Weissler Alhadeff&Sitterson. Redmond could not be reached Friday, and her assistant couldn’t provide any information either.

“We have no comment at this time,” she said.

For rapidly approaching weddings, brides and customers of Angelo’s might be out of luck.

Corali Lopez-Castro, a partner at KozyakTropin& Throckmorton, has handled retail bankruptcies in the past.

All decisions about dresses, she said, are up to a trustee, not the company, in a Chapter 7 filing, which indicates an asset liquidation vs. a Chapter 11 restructuring.

“It would seem to me that the better course of business would be to release the dress to the customer,” Lopez-Castro said. Not doing so, she said, would be a “public relations nightmare and frankly chaos.”

West Covina resident Leslie Lee, 28, was referred to Alfredo Angelo by a friend.

At the store Friday, she said she liked the service she’s received, and even left a positive review for the location on Yelp.

“Alfred Angelo was recommended by my friend. Never expected to find my dress here,” she wrote in February, giving the shop five stars.

The news of the bankruptcy took her by surprise.

“I broke down and cried,” Lee said, who found out from a friend’s Facebook post. “A couple of friends brought their dresses over here, too. They don’t know what’s going on.”

She rushed to the store to find that her dress, which cost upwards of $2,000, was safe and would still arrive in time for her wedding in November, she said.

A friend worked for Alfred Angelo, Lee said.

“She even said the employees didn’t even know about (the bankruptcy),” Lee said. “She went to work early in the morning and was told the bad news.”

Affected customers looking to get a dress elsewhere may be in luck as some competitors are offering deals.

David’s Bridal will offer people with an Alfred Angelo receipt 30 percent off wedding dresses, 20 percent off bridesmaid dresses, rush fees waived and alteration services for Alfred Angelo dresses.

Click here for the original article.


Hospital Impact—A guide to a healthcare provider bankruptcy case

By David A. Samole

Over the last few years, increased competition and reimbursement landscape challenges have led some hospitals, health systems, physician groups, assisted living facilities and other providers to file for bankruptcy.

For the remainder of 2017, due in part to the current uncertainty in the healthcare industry and its legislative oversight, more financially distressed providers are considering Chapter 11 bankruptcy to effectuate closures, consolidation, restructurings and related transactions.

Compared to a typical Chapter 11 bankruptcy case, providers confront additional parties and issues with respect to patient care and records, government receivables, reimbursement litigation and payer disputes, and other transactional aspects of their business.

To help make sense of it all, here is a rundown of what to expect:

The patient care ombudsman

Healthcare provider bankruptcies differ from standard Chapter 11 cases, as they address unique issues regarding patient care, record keeping and privacy rights, at times with intermediary oversight by a court-appointed patient care ombudsman. The Bankruptcy Code requires the appointment of a patient care ombudsman within 30 days after commencement of a “healthcare business” bankruptcy case, unless the court finds that an ombudsman is not necessary for the protection of the patients under the circumstances of the case. The ombudsman must report every 60 days regarding the quality of patient care. The fees of the ombudsman are paid by the bankruptcy estate and are entitled to administrative expense priority.

Government and private insurance company payers

Healthcare provider bankruptcies are complicated by disputed bankruptcy court jurisdiction over the provider reimbursements and payer claims reconciliation process relative to exhaustion of administrative remedies, the automatic stay, and setoff and recoupment rights, as well as disputing the treatment of provider agreement obligations in free and clear sales and/or assignments of executory contracts under Sections 363(f) and 365 of the Bankruptcy Code.

Pledging government receivables as collateral

Receivables owed from payers are often pledged as collateral to providers’ lenders. However, government account receivables are subject to federal and state “anti-assignment rules,” which require Medicare/Medicaid payments be deposited to accounts controlled solely by providers. As such, parties have government receivables deposited directly into providers’ bank accounts, and then government payments are swept daily into a second deposit account under lenders’ control.

In bankruptcy, lenders must stop these cash sweeps due to the Bankruptcy Code’s automatic stay. Chapter 11 providers and lenders enter into cash-collateral agreements subject to bankruptcy court approval, which provide for adequate protection payments and/or negotiated budgets.

Jurisdictional disputes with payers

The federal government and its contractors routinely withhold Medicare/Medicaid payments upon determining providers have been overpaid on prior claims. Under 42 U.S.C. § 405(h), federal courts may take jurisdiction over Medicare disputes only after a party exhausts applicable appeal processes within the Medicare system. Federal courts are split about whether this exhaustion of administrative remedies requirement applies in bankruptcy cases. A provider in bankruptcy currently has a petition on file with the U.S. Supreme Court for certiorari review of this issue.

Forum disputes also exist between network providers in bankruptcy and insurance company payers, as most contracts contain arbitration clauses and administrative remedies provisions. Courts disagree on the enforcement of these clauses in this context.

Payer take-backs as setoffs or recoupment

Government payments to providers are made on an interim basis under a prospective reimbursement system, resulting in payments before a determination that services rendered are covered and costs are reasonable. Based on this prospective payment system, many courts find subsequent take-backs are recoupments as part of a single, integrated and ongoing transaction between the government and provider. Insurance company payments are not made on a prospective reimbursement system where claims are vetted and approved prior to initial payment.

Yet, there are instances of payment error that trigger requests for overpayment reimbursement. Many insurance company payers resort to unilateral take-backs where they apply asserted reimbursement overpayments against a more recent valid claim of an unrelated patient. Many courts find insurance company take-backs are setoffs instead of recoupments.

This distinction between setoff and recoupment is important because setoffs are subject to the Bankruptcy Code’s automatic stay, and setoff obligations may be sold free and clear in bankruptcy sales merely attaching to sale proceeds, but not applied against a bankruptcy purchaser. Recoupments are not deemed property of the estate and may not be discharged in bankruptcy sales or plan confirmations. Both setoff and payer recoupment actions remain an equitable remedy subject to judicial determination upon challenge by a provider.

Sales of provider numbers free and clear of government payer claims

The relationship between Medicare/Medicaid programs and providers is captured in written provider agreements, which afford providers licenses/numbers to participate in Medicare/Medicaid’s prospective reimbursement program. The government argues in bankruptcy that provider agreements are executory contracts subject to the Bankruptcy Code requirement that obligations (the overpayments) must be cured before assumption and assignment to purchasers/assignees.

Providers/purchasers argue that provider licenses/numbers are not executory contracts and are licenses/assets that are sold free and clear of overpayment obligations. They argue provider licenses are not negotiated agreements like most contracts, but are regulatory form applications completed and approved by the government.

However, when government overpayment actions are deemed recoupments, this usually obviates the executory contract issue because, as noted above, many cases hold that a bankruptcy sale cannot extinguish that claim against the purchaser. Thus, settlements and work-arounds often are accomplished, such as setting up a portion of the sale proceeds in escrow or setting up a waterfall overpayment recovery scheme from: sale proceeds, then other bankruptcy estate funds on hand and finally perhaps a budgeted annual-capped amount from the purchaser.


Healthcare provider Chapter 11 cases are multifaceted with additional parties and issues than standard Chapter 11 cases. The playing field is changed for providers and payers in Chapter 11 cases, affecting the landscape of reimbursement litigation and payer disputes.

Providers should aim to move the case to the sale and/or Chapter 11 plan process expeditiously where the jurisdictional, license and setoff-recoupment issues can be teed up and addressed in short order, during which time patient care can be properly maintained pending litigation and further settlement discussions with the creditor constituents.

David A. Samole is a partner at KozyakTropin& Throckmorton, LLP in Miami, Florida. He focuses his practice on healthcare litigation, corporate bankruptcy and insolvency-related litigation matters. He represents healthcare providers in disputes with managed care companies and government payers as well as parties in corporate reorganization, liquidation, workouts and financially distressed transactions. He may be reached at das@kttlaw.com.

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To Close or Not to Close … and How to Make It Hurt if Your Buyer Walks

Commentary by Javier A. Lopez and Stephanie Moncada Gomez

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KozyakTropin& Throckmorton Top-Ranked by 2017 Chambers USA Guide in Bankruptcy/Restructuring and General Commercial Litigation

The 2017 Chambers USA Guide has ranked KozyakTropin& Throckmorton in Band 1 in the firm’s core practice areas of Bankruptcy & Restructuring and General Commercial Litigation.

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