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Corizon Health Bankruptcy Delayed by Revelation of Attorney’s Affair With Mediator

On November 14, 2023, the federal Bankruptcy Court for the Southern District of Texas approved a new mediator to oversee the dissolution of Corizon Health successor Tehum Care Services, Inc. Retired bankruptcy judge Christopher Sontchi replaced former Judge David Jones, who resigned after it was revealed that he shares a home with Liz Freeman, an attorney representing the other Corizon Health successor, YesCare, in settlement talks.

As PLN reported, Corizon Health moved its headquarters to Texas to take advantage of state law permitting a “divisional merger” that put most of the company’s liabilities into a new firm, Tehum, while its on-going—and profitable—business was transferred to another new firm called YesCare. [See: PLN, Aug. 2023, p.35.] Tehum promptly filed for bankruptcy in the Court, threatening nearly $1.2 billion in outstanding obligations inherited from Corizon Health, including $88 million in settlement payouts in 475 lawsuits alleging medical neglect and mistreatment.

Of those payments, 200 were owed by Corizon Health to prisoners and former prisoners before the company executed the “Texas Two-Step.” After that, Jones oversaw negotiations that were about to result in a settlement of just $8.5 million for all 200 claims, netting each prisoner as little as $5,000 after legal costs and fees. But then his affair with Freeman was reported on October 6, 2023, and Jones resigned. The U.S. Trustee Program, which provides oversight to federal bankruptcy proceedings, filed an objection to the settlement with U.S. District Judge Christopher Lopez, who granted a delay requested by creditors.

That bought time to answer questions “regarding YesCare and Tehum’s current ownership” raised by a group of U.S. Senators in a letter sent to executives of the firms on October 24, 2023. The lawmakers pointed to a $37 million bankruptcy loan to Tehum that was forgiven by Geneva Consulting LLC, a subsidiary of Genesis Healthcare. That firm is controlled by Isaac Lefkowitz, who also owns Perigrove, the investment firm that bought Corizon Health and still owns YesCare—as well as its lucrative contracts to provide prisoner healthcare, including one signed in 2022 with the Alabama Department of Corrections worth $1 billion.

One of the signers to the letter, Sen. Elizabeth Warren (D-Mass.), earlier called out Lefkowitz and Genesis Healthcare in 2021 for taking $300 million in government handouts during the COVID-19 pandemic to shower executives with huge bonuses, even as 2,800 residents in the firm’s nursing homes died of the disease. In their more recent letter, Warren and her fellow senators warned Lefkowitz that the U.S. bankruptcy system “was not designed to provide an avenue for companies to evade accountability for wrongdoing.”

But as one attorney representing the widow of an Arizona prisoner said, “These guys are playing hide-and-go-seek with all the money.” Even former Corizon Health CEO James Hyman agreed it was “essentially an old-fashioned bankruptcy fraud scheme,” at least before he dropped his wrongful dismissal suit in July 2023—perhaps after reaching an undocketed settlement with YesCare. See: Hyman v. YesCare Corp., USDC (M.D. Tenn.), Case No. 3:22-cv-01081.

Joining Warren in sending the letter were Sens. Dick Durbin (D-Ill.), Mazie Hirono (D-Hawaii), Jeff Merkley (D-Ore.), Dick Blumenthal (D-Conn.), Ron Wyden (D-Ore.), Bernie Sanders (I-Vt.), Peter Welch (D-Vt.) and Cory Booker (D-N.J.). Judge Lopez also questioned the settlement once Jones resigned, saying he “never really liked the deal.” Lopez then appointed Sontchi to replace Jones as mediator in the case, asking him to review the entire settlement and not just Jones’ conflict of interest.

“We now have better disclosure,” Lopez said, “but now folks need to rethink the deal.”

PLN will update developments in the bankruptcy case as they are available. See: In re: Tehum Care Services, Inc., USBC (S.D. Tex.), Case No. 73-90086.

Meanwhile, clients of Freeman’s former law firm, Jackson Walker, are calling for millions of dollars in refunds of fees paid in cases overseen by Jones, who was one of the country’s busiest bankruptcy judges before his affair with the attorney was exposed and he was forced to resign.  

Additional source: Business Insider, Reuters, USA Today

Related legal case

In re: Tehum Care Services, Inc.