Lawsuit seeks to unmask nursing home owners who ‘defrauded’ creditors

By: - September 15, 2022 9:28 am

The owners of Sioux City’s Touchstone Healthcare Community now stand accused of deliberately defrauding creditors. (Photo via Google Earth)

The unidentified owners of a shuttered western Iowa nursing home mired in debt now stand accused of deliberately defrauding creditors to the tune of more than $800,000.

A federal lawsuit filed by a Pennsylvania company against the owners of Sioux City’s Touchstone Healthcare Community is seeking to “pierce the corporate veil” of Touchstone — a legal proceeding intended to identify the specific, unnamed individuals behind the company.

Court records indicate Touchstone’s corporate owner is Indian Hills Healthcare, which was organized and incorporated by Sioux City developer James C. Johnson in 2019. According to Medicare records, that limited liability company is in turn owned by a revocable trust formed by Fred Davenport Jr.

Davenport is now dead, and revocable trusts are not a matter of public record. As a result, the only known party to the trust is a western Iowa man, Larry Book.

In order to pursue its federal civil lawsuit alleging fraud on the part of Indian Hills, the Pennsylvania health care company called Healthcare Services Group, or HSG, has informed the court that it intends to seek, through the discovery process, information that will identify the individual people behind the trust.

According to HSG, Indian Hills incurred more $860,000 in debt, all of which remains unpaid, before it falsely informed creditors in August 2021 that it had it sold or transitioned its operations to a New York company called Queens Sweet Jane.

However, Indian Hills allegedly remained Touchstone’s actual owner, and neither Queens Sweet Jane or Indian Hills paid certain debts incurred after August 2021, adding to the nursing home’s debt load.

The care facility, for example, allegedly was in debt to HSG for $344,000 worth of services when HSG told Indian Hills it should deal with Queens Sweet Jane. HSG then provided an additional $139,000 in services which, when combined with the previous unpaid debt, totaled $483,000.

HSG alleges that it while provided care and services to residents of the Sioux City home, the owners of the home ignored their debt obligations and did not use resident-generated revenues, some of which came from Medicare, to pay the vendors who fed and cared for residents. “It is unclear where those funds went or to whom they were disbursed,” the lawsuit alleges.

HSG alleges Indian Hills didn’t merely go broke, but instead deliberately defrauded its vendors.

“Indian Hills’ intent to defraud its creditors is evidenced by the depth and breadth of its defaults,” HSG alleges. “Indeed, Indian Hills defaulted under its obligations with numerous creditors for services that were dutifully performed over many months.”

Lawyers for Indian Hills have yet to respond to the allegations.

The 125-bed Touchstone facility shut down earlier this summer in the wake of an emergency court ruling that stated residents of the home were in imminent danger.

Judge cites ‘imminent danger’ to residents

Months before that shutdown, four different Touchstone vendors had sued the company for an alleged failure to pay more than half a million dollars in fees for management and patient-care services.

In March, the Iowa Capital Dispatch contacted the state agency that oversees nursing homes, the Iowa Department of Inspections and Appeals, after a reporter noticed the vendors’ lawsuits. The Capital Dispatch asked DIA whether it was watching over the home and whether the owners had notified DIA of any inability to meet residents’ needs.

In response, DIA indicated it had recently been at the home to investigate a complaint, had cited the home for 10 deficiencies, and had returned to the facility to conduct the usual revisit to ensure problems had been corrected.

Three months later, on July 1, the owners of the home contacted DIA to say they could not make the payroll that was due and owing that very day. Ten days later, DIA filed court papers seeking an emergency court order appointing a receiver.

A judge issued the order that same day after concluding that conditions in the home presented “an imminent danger to the residents.”

Since January 2019, Touchstone has been cited for at least 116 regulatory violations and subjected to $195,000 in federal fines.

For four years, it was on the federal government’s list of Special-Focus Facilities – a list of some of the nation’s worst-performing nursing homes — before dropping off the list earlier list this year. It was then reinstated to the list, but by then it had already closed its doors.

Among the other lawsuits faced by Touchstone and its owner, Indian Hills Health Care is a claim by Helping Hands Nursing Solutions, a Woodbury County company that is allegedly owed $270,617.

Also, Health Dimensions Consulting, a Minnesota company, alleges it was hired by Touchstone in 2019 to provide an on-site, full-time administrator for the facility in return for $33,000 per month or 5.5% of the home’s gross monthly revenue, whichever was greater. According to HDC, Touchstone paid the fees until May 2021, at which point all payments stopped. The Minnesota company is now seeking payment for $129,000 in fees.

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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.