Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 1 of 23

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1 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 1 of 23 James S. Brouner Texas Bar No Coit Rd., Suite 541 Dallas, Texas Phone: (972) jbrouner@weisbartlaw.net COUNSEL FOR ATLAS DENTAL MANAGEMENT d/b/a ATLAS DENTAL GROUP IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: Senior Care Centers, LLC et al. 1 DEBTORS Chapter 11 Case No (BJH) (Jointly Administered) Atlas Dental Management, LLC d/b/a Atlas Dental Group. PLAINTIFF v. ADVERSARY NO. Senior Care Centers, LLC, Bandera SCC LLC, Hearthstone SCC LLC, Hill Country SCC LLC, Hunters Pond SCC LLC, Park Bend SCC LLC, PM Management Cedar Park NC LLC, PM Management - Killeen NC LLC, PM Management Park Valley NC LLC, Presidential SCC LLC, Round Rock SSC LLC, Stonebridge SCC LCC, West Oaks SCC LLC, Westover Hills SCC LLC, Western Hills SCC LLC, Windcrest SCC LLC, CIBC Bank USA, individually and as administrative agent for CIT Finance LLC, Wells Fargo Bank, N.A., MB Financial Bank, N.A., Bankers Trust Company and Compass Bank. DEFENDANTS 1 A list of the Debtors in these jointly administered chapter 11 cases, along with the last four digits of each Debtors federal tax identification number, is attached hereto as Exhibit 1. COMPLAINT - Page 1

2 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 2 of 23 COMPLAINT FOR DECLARATORY RELIEF, IMPOSITION OF CONSTRUCTIVE TRUST, AND TURNOVER Atlas Dental Management, LLC d/b/a Atlas Dental Group ( Atlas ), a creditor and party in interest, by and through its counsel, files this Complaint for Declaratory Relief, Imposition of Constructive Trust and Turnover. In support of the claims asserted and relief requested herein, Atlas alleges as follows: I. PARTIES 1. Atlas, plaintiff herein, is a Texas limited liability company. 2. Defendant Senior Care Centers, LLC ( Senior Care ) is a Delaware limited liability company having its principal place of business at 2 Park Plaza, Suite 800, Irvine CA Senior Care may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Bandera SCC LLC ( Bandera ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Bandera may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Hearthstone SCC LLC ( Hearthstone ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Hearthstone may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Hill Country SCC LLC ( Hill Country ) is a Texas limited liability COMPLAINT - Page 2

3 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 3 of 23 company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Hill Country may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Hunters Pond SCC LLC ( Hunters Pond ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Hunters Pond may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Park Bend SCC LLC ( Park Bend ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Park Bend may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant PM Management Cedar Park NC, LLC ( Cedar Park ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Cedar Park may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant PM Management Killeen I, LLC ( Killeen ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Killeen may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX COMPLAINT - Page 3

4 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 4 of Defendant PM Management Park Valley NC, LLC ( Park Valley ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Park Valley may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Presidential SCC LLC ( Presidential ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Presidential may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Round Rock SCC LLC ( Round Rock ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Round Rock may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Stonebridge SCC LLC ( Stonebridge ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Stonebridge may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant West Oaks SCC LLC ( West Oaks ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas West Oaks may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate COMPLAINT - Page 4

5 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 5 of 23 Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Westover Hills SCC LLC ( Westover Hills ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Westover Hills may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Western Hills SCC LLC ( Western Hills ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Western Hills may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant Windcrest SCC LLC ( Windcrest ) is a Texas limited liability company having its principal place of business at 600 N. Pearl Street, Suite 1100, Dallas Texas Windcrest may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Amarillo Corporate Services, LLC, 500 Taylor Street, Suite 1100LB, Amarillo, TX Defendant CIBC Bank USA, individually and as administrative agent ( CIBC ) is an Illinois chartered financial organization having its principal place of business at 120 LaSalle Street, Chicago, Illinois CIBC may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Corporation Service Company, at 211 East 7th Street, Suite 620, Austin TX Defendant CIT Finance LLC ( CIT ) is a Delaware limited liability company having its principal place of business at One Cit Drive, Livingston, N.J CIT may be served with process by delivering a copy of the Complaint and summons via first class mail, COMPLAINT - Page 5

6 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 6 of 23 postage prepaid, to its Registered Agent C T Corporation System, at 1999 Bryan Street, Suite 900, Dallas TX Defendant Wells Fargo Bank, N.A., ( Wells Fargo ) is a California chartered financial institution having its principal place of business at 420 Montgomery Street, San Francisco, California Wells Fargo may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent Corporation Service Company, at 211 East 7th Street, Suite 620, Austin TX Defendant MB Financial Bank, N.A., ( MB Financial ) is a financial institution having its principal place of business at 800 West Madison Street, Chicago, Illinois MB Financial may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its President and Chief Executive Officer, Mark A. Hoppe, at 800 West Madison Street, Chicago, Illinois and 6611 N. River Rd., Rosemont, Illinois Defendant Bankers Trust Company ( Bankers Trust ) is a financial institution having its principal place of business at th Street, Des Moines, Iowa Bankers Trust may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent J. Michael Deege, 7 th and Locust, Box 897, Des Moines, IA Defendant Compass Bank ( Compass ) is an Alabama chartered financial institution having its principal place of business at 15 South 20 th Street, Birmingham, Alabama Compass may be served with process by delivering a copy of the Complaint and summons via first class mail, postage prepaid, to its Registered Agent C T Corporation System, at 1999 Bryan Street, Suite 900, Dallas TX Defendants Bandera, Hearthstone, Hill Country, Hunters Pond, Park Bend, Cedar Park, Killeen, Park Valley, Presidential, Round Rock, Stonebridge, West Oaks, Westover Hills, COMPLAINT - Page 6

7 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 7 of 23 Western Hills and Windcrest are hereinafter, collectively referred to as, the Facility Defendants, and each a Facility. 25. Defendants CIBC, CIT, Wells Fargo, MB Financial, Bankers Trust and Compass are hereinafter, collectively referred to as, the Lender Defendants. II. JURISDICTION AND VENUE 26. This Court has subject matter jurisdiction to hear this adversary proceeding pursuant to 28 U.S.C. 157 and 1334, and the Order of Reference for the United States District Court for the Northern District of Texas. 27. This adversary proceeding is brought pursuant to Section 541 of title 11 of the United States Code (the Bankruptcy Code ) and applicable federal and Texas law, and Rules 7001 et seq. of the Federal Rules of Bankruptcy Procedure. This action constitutes a core proceeding pursuant to 28 U.S.C. 157((b)(2)(A), (K), (M) and (O). 28. Venue is proper in this Court pursuant to 28 U.S.C and 1409(a). III. FACTUAL AND PROCEDURAL BACKGROUND 29. On or about December 4, 2018, Defendants Bandera, Hearthstone, Hill Country, Hunters Pond, Park Bend, Cedar Park, Killeen, Park Valley, Presidential, Round Rock, Stonebridge, West Oaks, Westover Hills, Western Hills and Windcrest, along with Defendant Senior Care, their parent entity, and approximately 100 other related entities each filed a voluntary petition under chapter 11 of title 11 of the Bankruptcy Code commencing their respective bankruptcy cases in this Court pursuant to Section 301(a) of the Bankruptcy Code (the Cases. ) Each Facility Defendant is a licensed operator of a skilled nursing facility or assisted living facility and is charged with the care of the residents residing at their respective 2 The Cases are jointly administered and consolidated for procedural purposes only. See Order (i) Directing Joint Administration of Chapter 11 Cases, and (ii) Granting Related Relief [BKY Doc. No. 65]. COMPLAINT - Page 7

8 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 8 of 23 facilities (collectively, the Residents, and each a Resident ). 3 This care includes assisting the Residents in obtaining routine and 24-hour emergency dental care. 4 3 Upon information and belief, the Facility Defendants are Medicaid-certified and each constitutes a Nursing facility/home under 40 TEX. ADMIN. CODE (103). Each Resident constitutes a Resident as such term is defined in 40 TEX. ADMIN. CODE (136). 4 See 40 TEX. ADMIN. CODE (a) (a facility must assist residents in obtaining routine emergency care. ) and (b), (c) and (d), which provides as follows: (b) Medicaid-certified facilities also must provide or obtain from an outside resource, in accordance with of this title (relating to Use of Outside Resources), the following dental services to meet the needs of each resident: COMPLAINT - Page 8 (1) emergency dental services, which are limited to procedures necessary to control bleeding, relieve pain, and eliminate acute infection; operative procedures which are required to prevent the imminent loss of teeth; treatment of injuries to the teeth or supporting structures. (A) Covered emergency dental procedures include, but are not limited to: (i) alleviation of extreme pain in oral cavity associated with serious infection or swelling; (ii) repair of damage from loss of tooth due to trauma (acute care only, no restoration); (iii) open or closed reduction of fracture of the maxilla or mandible; (iv) repair of laceration in or around oral cavity; (v) excision of neoplasms, including benign, malignant and premalignant lesions, tumors and cysts; (vi) incision and drainage of cellulitis; (vii) root canal therapy. Payment is subject to dental necessity review and pre- and post-operative x-rays are required; and (viii) extractions: single tooth, permanent; single tooth, primary; supernumerary teeth; soft tissue impaction; partial bony impaction; complete bony impaction; surgical extraction of erupted tooth or residual root tip. (B) Routine restorative procedures are not considered emergency procedures. Dental services not covered include, but are not limited to: (i) cleaning; (ii) filling teeth with amalgam composite, glass ionomer, or any other restorative material; (iii) cast or preformed crowns (capping); (iv) restoration of carious or noncarious permanent or primary teeth, including those requiring root canal therapy; (v) replacement or repositioning of teeth; (vi) services to the alveolar ridges or periodontium of the maxilla and the mandible, except for procedures covered under subparagraph (A) of this paragraph; and (vii) complete or partial dentures. (2) assistance to the resident, if necessary: (A) in making appointments; and (B) by arranging for transportation to and from the dentist's office. (3) prompt referral of residents with lost or damaged dentures to a dentist. (4) coordination of dental services for pediatric residents age 12 months to 21 years, in accordance with Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) guidelines. (c) Medicaid-certified facilities are not required to provide routine dental services. (d) Payment for services provided on the teeth, gums, alveolar ridges, and supporting structures are not a benefit of the Texas Medicaid Program; however, recipients with

9 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 9 of Atlas is a provider of professional dentistry services (the Dental Services ) to residents in nursing home facilities, including the Facility Defendants Residents. While the number of the Facility Residents receiving Dental Services may fluctuate, as of the Petition Date Atlas had provided such services to approximately 300 Residents for which it has not received payment. 32. The Dental Services are provided by Atlas under a Dental Services Agreement entered by and between Atlas and each Facility Defendant (the Dental Services Agreement ). 5 Under the Dental Services Agreement each Facility makes Dental Services available to their Residents in fulfillment of 42 CFR and as required by 40 TEX. ADMIN. CODE , and in accordance with a federal reimbursement regulation known as PETI (post-eligibility treatment of income), 42 CFR The Facility Defendants do not retain Atlas. Rather, when a Facility s Resident requires Dental Services the Facility refers the Resident to Atlas. 33. Some Residents may have resources to pay for the Dental Services or private insurance to cover the expense. But for many they are dependent on governmental assistance through Medicaid. These Residents usually have a monthly income from social security ( SSI ) or private employer retirement. This amount is known as applied income and paid directly to the applied income may use incurred medical expenses to pay for routine dental services and appliances. 5 Each Dental Services Agreement contains identical terms and conditions. A representative sample of the agreement is attached hereto as Exhibit CFR Section (4) (ii) states: Expenses not subject to third party payment, amounts for incurred expenses for medical or remedial care that are not subject to payment of a third party, including necessary medical or remedial care recognized under State law but not covered under the State s Medicaid plan, subject to reasonable limits the agency may establish on amounts of these expenses. COMPLAINT - Page 9

10 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 10 of 23 Resident s Facility which the Facility Defendants are required to place in a separate bank account known as the Resident Trust Account. 7 This account is where the Facility Defendants are required to hold, safeguard, manage and account for the Resident s personal funds separate from the Facility s funds. 8 Thus, the Facility Defendants hold a fiduciary duty to their Residents with regard to the Resident Trust Account Under Medicaid rules a Medicaid recipient Resident is allowed to use their applied income to pay for authorized medically necessary services, of which dental care is one. Under PETI a portion of the Resident s monthly SSI (their personal funds) are funded through Medicaid via the Texas Health and Human Services Commission ( THHSC ) and credited to the Resident Trust Account at the Facility. As conduits, custodians and intermediaries in these dental service transactions, the Facility Defendants are, in turn, are required to remit payment to Atlas for the Dental Services rendered. 10 This is accomplished through the processing of various Medicaid forms in accordance with applicable federal and Texas regulations. 35. Once the Facility obtains the consent of the Resident, Atlas obtains a signed authorization form from the Resident or his or her Responsible Party (the Resident 7 See, 40 TEX ADMIN. CODE, (b) and (a). 8 Id. 9 Id. The Facility Defendants are further required to maintain an accounting and records of Residents funds in accordance with the requirements of law for a fiduciary relationship. See, 40 TEX ADMIN. CODE, (d)(1); see also, 40 TEX. ADMIN. CODE (49) ( Fiduciary agent An individual who holds in trust another s monies. ). 10 For example, if a Resident regularly receives monthly SSI of $1,000 and Medicaid reimburses the Facility $2,000 monthly for the Resident s care, and dental services to the Resident totals $500.00, the PETI payment process would reduce future monthly SSI to $ and fund the $ dental cost through an increased Medicaid reimbursement which is credited to and for the Resident s account and paid by the Facility to Atlas. See, Md. Dep t of Health & Mental Hygiene v. Ctrs for Medicare & Medicaid Services, 542 F.3d 424, 430 (4 th Cir. 2008); Miller v. Olszewski, 2009 U.S. Dist. LEXIS (E.D. Mich., Dec. 21, 2009). COMPLAINT - Page 10

11 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 11 of 23 Authorization ). 11 Atlas conducts a dental exam and discusses treatment with the Resident or their Responsible Party and prepares an itemized treatment plan for approval which details the Dental Services and fees that Medicaid will honor, otherwise known as Incurred Medical Expense ( IME ). Once the treatment plan is approved Atlas provides the Resident the approved Dental Services. Following completion, Atlas provides THHSC an invoice for the IME for approval. Upon its review and in good order, THHSC approves the invoice by letter. 36. The approval of an IME by THHSC, in turn, allows for use of the Resident s applied income to fund the IME (the IME Funds ). This, in turn, requires the Facility to adjust the Resident s applied income and causes Medicaid to fully pay for the Resident s room and board at the Facility. Through the Resident Authorization, the Facility Defendants are authorized to fund the IME from the Resident s Trust Account. Thus, the Facility Defendants have no right or interest in or to these funds. Rather, the Facility Defendants act merely as a conduit, custodian and/or intermediary of the funds for purposes of facilitating the payment to Atlas for the Dental Services it directly provides to the Residents under and in accordance with the payment process implemented through Medicaid, a federal program, and applicable Texas regulations. To the extent they an interest in the funds that interest is a mere legal interest and do not constitute property of the estate pursuant to 11 U.S.C. 541(d). 37. Payments are due Atlas thirty (30) days from the date the Resident s applied income is adjusted. Yet despite this time requirement and the Facility Defendants agreement to remit the IME Funds timely within such 30-day period, 12 the Facility Defendants have never done so. The 11 A Responsible Party is usually a Resident s family member having the authority to make decisions on behalf of the Resident. 12 See, Exhibit 2, Dental Services Agreement, 7.2 ( [Atlas] does expect Facility and Facility does agree to remit IME Funds adjustments directly to [Atlas] in a timely manner (30) days from receipt of 1259/4808 and deposit of IME adjustments. COMPLAINT - Page 11

12 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 12 of 23 IME Funds remitted by the Facility Defendants to Atlas have always been months late and paid only after Atlas request for audits by the THHSC s Medicaid auditors. Thus, it is clear that despite their duty to ensure their Residents receive necessary Dental Services and their continued referral of Residents to Atlas for treatment, that the Facility Defendants and Senior Care, their parent, had no intention of voluntarily remitting IME Funds as required by the applicable rules and regulations, and the Dental Services Agreement. 38. Prior to the Petition Date, Atlas provided the Residents of the Facility Defendants Dental Services with an aggregate invoiced amount of IME Funds of $415, Records evidence confirmation that the Facility Defendants received IME Funds in the amount of $415, Yet these funds were not remitted to Atlas. So, what happened to the IME Funds? 39. The amended Statement of Financial Affairs ( SOFA ) show that the Facility Defendants Resident Trust Accounts are underfunded or non-existent, and some, but not all of the Facility Defendants list Atlas as the holder of an unsecured claim on their Schedule F. The Table below reflects (i) the IME Funds the Facility Defendants received attributable to Atlas pre-petition Dental Services; (ii) the Resident Trust Accounts of each Facility Defendant, if any, as reflected in their respective SOFA and the balance in said accounts (presumably as of the Petition Date; and (iii) the claim amount each Facility Defendant has scheduled for Atlas, if any. 13 Facility IME Funds Received for Pre-Petition Services Resident Trust Accounts (SOFAs) Trust Account Balance (SOFAs) Schedule F Atlas Claim Amount Bandera SCC LLC (Bandera Health & Rehab) $21, CIBC 8011 $13, $5, Hearthstone SCC LLC $31, CIBC 5871 $15, $1, This Table does not include Atlas Dental Services provided to Residents post-petition or IME Funds relating to same. COMPLAINT - Page 12

13 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 13 of 23 Hill Country SCC LLC (Hill Country Care) Hunters Pond SCC LLC (Hunters Pond) Park Bend SCC LLC (Park Bend Health Center) PM Management - Killeen I NC LLC (Rosewood) PM Management - Park Valley NC LLC (Park Valley Inn) PM Management - Cedar Park NC, LLC (Cottonwood Creek) PM Management - New Braunfels NC LLC (Sundance Inn) Presidential SCC LLC (Paramount Senior Care Center) Round Rock SSC, LLC (Trinity Care Center) $20, None N/A None $34, None N/A None $15, CIBC 5847 $9, $5, $7, RFMS 8605 $3, $3, $28, RFMS 5510 $12, $7, $15, RFMS 7541 $9, $1, $2, RFMS 5625 $15, None $54, CIBC 4314 $30, $8, $9, RFMS 5862 $32, $3, Stonebridge SCC LCC (Stonebridge H & R Center) $34, RFMS 5657 CIBC 5855 $12, $ None West Oaks SCC LLC (Senior Care of West Oaks) Western Hills SCC LLC (Senior Care of Western Hills) Westover Hills SCC LLC (Westover Hills) Windcrest SCC LCC (Senior Care of Windcrest) $40, None N/A None $36, RFMS 5852 $20, None $10, None N/A $5, $51, None N/A $5, TOTAL $415, $175, $49, COMPLAINT - Page 13

14 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 14 of Upon information and belief, the Facility Defendants and Senior Care had, at the time of the Petition Date, sufficient monies to fund the $415, in IME Funds for the unpaid Dental Services Atlas provided to the Residents. 41. The Lender Defendants assert a perfected security interest and liens in all of the Facility Defendants and Senior Care s cash and deposit accounts, including all such funds in the Debtors custody and control. This would include the Resident Trust Accounts. 42. Upon information and belief, it was Senior Care s course of business operations to have maintain three bank accounts for each Facility, one being an account for the receipt of governmental receivables. Upon further information and belief, it was Senior Care s course of operations to sweep the Facility accounts into one of three concentration accounts (the Concentration Accounts ) at the Senior Care corporate level and to disburse the funds from those accounts on a daily basis. IV. CAUSES OF ACTION COUNT ONE DECLARATORY RELIEF (ALL DEFENDANT) 43. Atlas incorporates by reference as if fully set forth herein, the allegations contained in Paragraphs 1 through Upon information and belief, Defendants allege that the Resident Trust Accounts constitute property of the Facility Defendants or Senior Care s bankruptcy estate pursuant to 11 U.S. C. 541(a). 45. The funds contained in the Resident Trust Accounts represent funds owned by the Residents and are in the custody and control of the Facility Defendants and/or Senior Care solely in their capacity as fiduciaries. Thus, the Facility Defendants and/or Senior Care have no equitable interest in the funds contained in the Resident Trust Accounts. See, 11 U.S. C. 541(a). 46. Further, as the funds contained in the Resident Trust Accounts constituted property COMPLAINT - Page 14

15 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 15 of 23 of the Residents, the Facility Defendants and/or Senior Care did not have any rights in or to those funds. As a consequence, Lender Defendants security interests and liens did not attach to such funds or accounts. See. TEX. BUS. & COMM. CODE 9.203(b). 47. As a controversy and dispute exists as to the ownership of the funds contained in the Resident Trust Accounts, Atlas requests, pursuant to FED.R.BANKR.P. 7001(2) and (9), and 28 U.S.C. 2201(a), that the Court declare that the funds contained in the Resident Trust Accounts are not the property of the Facility Defendants or Senior Care s bankruptcy estates and that Lender Defendants liens and security interest do not attach to such funds. COUNT TWO DECLARATORY RELIEF (ALL DEFENDANT) 48. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants and Senior Care disclose the existence of monies received from governmental sources, such as social security and pensions directed to fund the Residents of the Facility Defendants, i.e., applied income. They further disclose the existence of the IME Funds, monies received from the Medicaid funding through TTHSC, to fund IME s incurred by Atlas for professional dentistry services provided to the Residents of the Facility Defendants. 50. Upon information and belief, Defendants allege the IME Funds constitute property of the Facility Defendants and/or Senior Care bankruptcy estates pursuant to 11 U.S.C. 541(a). Plaintiffs allege the IME Funds are not the property of the bankruptcy-estates created upon the filings of the Voluntary Petitions by Debtors-Defendants. 51. Further, the IME funds constitute property of the Residents, the Facility Defendants and/or Senior Care did not have any rights in or to those funds. As a consequence, Lender Defendants security interests and liens did not attach to such funds or accounts. See. TEX. BUS. & COMM. CODE 9.203(b). COMPLAINT - Page 15

16 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 16 of As a controversy and dispute exists as to the ownership of the IME Funds Atlas requests, pursuant to FED.R.BANKR.P. 7001(2) and (9), and 28 U.S.C. 2201(a), that that the Court declare that the IME funds are not the property of the Facility Defendants or Senior Care s bankruptcy estates and that Lender Defendants liens and security interest do not attach to such funds. COUNT THREE DECLARATORY RELIEF (ALL DEFENDANT) 53. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs 1 through The Facility Defendants are fiduciaries with regard to the Residents and their receipt of IME Funds form Resident s social security and pensions. In such capacity, the Facility Defendants and Senior Care were mere conduits and intermediaries for purposes of implementation and processing of the federal Medicaid system. As such, their power, right and authority over the IME Funds was limited and was solely to be used for the benefit of the Residents and as directed of the Residents. 55. Atlas seeks judgment, pursuant to FED.R.BANKR.P. 7001(2) and (9), and 28 U.S.C. 2201(a), that the Facility Defendants and Senior Care may only use the power, right and authority over the IME Funds solely in accordance with the applicable federal and state law, rules and regulations in their capacity as conduits and intermediaries. COUNT FOUR DECLARATORY RELIEF (LENDER DEFENDANTS) 56. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Lender Defendants assert that their security interests and liens attach and extend to monies the Facility Defendants received from as applied income and from Medicaid reimbursement payments for purposes to fund IMEs. COMPLAINT - Page 16

17 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 17 of Atlas seeks judgment, pursuant to FED.R.BANKR.P. 7001(2) and (9), and 28 U.S.C. 2201(a), that the Lender Defendants liens and security interests do not attach to monies that constitute applied income and those received from Medicaid reimbursement payments to fund IMEs. COUNT FIVE FIDUCIARY DUTY (FACILITY DEFENDANTS AND SENIOR CARE) 59. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs 1 through The Facility Defendants and Senior Care had complete control and dominance over the IME Funds received through Medicaid reimbursement, and they had a fiduciary duty with regard to holding, safeguarding and managing those funds in the Resident Trust Accounts. Both the Residents and Atlas relied on the Facility Defendants and its controlling parent, Senior Care, to administer the IME Funds in conformance with applicable federal and state law. As a consequence, the Facility Defendants and Senior Care had a fiduciary duty to the Residents and Atlas under federal common law and under Texas law (Atlas as assignee of the Residents) 61. By not maintaining the Resident Trust Accounts properly and in accordance with the applicable federal and state law, rules and regulations for Medicaid funds and by not maintaining their books of within generally-accepted accounting practices, Facility Defendants and Senior Care received from applied income and monies received from Medicaid reimbursement payments earmarked for Atlas to fund IMEs. These actions caused an imbalance in the Resident Trust Accounts. 62. By these actions Facility Defendants and Senior Care breached their fiduciary duties to Atlas by, upon information and belief, comingling these monies or by expending these funds for other purposes, or both. These breaches resulted in injury to Atlas in the sum of $415, COMPLAINT - Page 17

18 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 18 of 23 COUNT SIX MONEY HAD AND RECEIVED (ALL DEFENDANTS) 63. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants and Senior Care received monies from applied income and monies from Medicaid reimbursement payments specifically earmarked for Atlas as approved IME Funds. These monies were placed in Facility Defendants bank accounts and, upon information and belief, swept into Senior Care s Concentration Accounts. The IME Funds, in turn may reside with Lender Defendants, or may reside within bank accounts of both. 65. Facility Defendants, Senior Care and Lender Defendants may hold monies from applied income and monies from Medicaid reimbursement payments in right of Plaintiffs to fund IMEs belonging to Atlas in the sum of $415, Consequently, Atlas seeks actual damages against the Facility Defendants, Senior Care and Lender Defendants for the IME Funds earmarked for Atlas that they received, and Atlas further seek exemplary damages against Facility Defendants, jointly and severally. COUNT SEVEN REQUEST FOR ACCOUNTING (FACILITY DEFENDANTS AND SENIOR CARE) 66. Plaintiff incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants did not properly maintain in good order the Resident Trust Accounts for the Resident as required by applicable law. In failing to do so, Facility Defendants breached their fiduciary duties, aided and abetted by Senior Care. Facility Defendants did not timely and properly fund IME s reimbursements to Atlas as required by applicable law and the Dental Services Agreements. Upon information and belief, Facility Defendants and Senior Care untraceably comingled these monies or expending these funds for other purposes, or both. 68. Atlas requests the Court order, by a date certain, in a method certain, Facility COMPLAINT - Page 18

19 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 19 of 23 Defendants and Senior Care deliver an accounting of IME s approved by THHDC for all the Facility Defendants Residents, showing the ultimate disposition of those monies, be it through the Facility Defendants accounts, Senior Care s Accounts, the Resident Trust Accounts, or as diverted to other purposes and accounts. COUNT EIGHT CONSTRUCTIVE TRUST (ALL DEFENDANTS) 69. Plaintiff incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants were mere conduits and intermediaries for the receipt and remittance of the IME Funds through Medicaid for Atlas approved Dental Services to the Facility Defendants Residents. Yet Facility Defendants failed to maintain the Resident Trust Accounts into which the IME Funds were required to be deposited in good order, in breach of their fiduciary duty. Facility Defendants did not timely and properly fund IME s reimbursements to Atlas as required by Texas law. By virtue of its course of operations, Senior Care aided and abetted the breach of fiduciary duty. Upon information and belief, Facility Defendants and Senior Care comingled these monies or expending these funds for other purposes, or both. Instead of acting as a fiduciary agent for monies from governmental sources to Atlas to fund approved IME s, the monies were diverted or transferred to Senior Care s Concentration Accounts or used for other purposes. For most, if not all, of the relevant period, Facility Defendants and Senior Care knew they were insolvent or that did not have the financial ability to satisfy their debts as they became due when they effected the transfer of the monies held in trust for and due Atlas for its Dental Services to Residents. 71. Facility Defendants received applied income funds and monies from approved Medicaid reimbursement payments earmarked for Atlas Plaintiffs to fund IMEs, but, upon information and belief, comingled these funds with Senior Care s Concentration Accounts. In COMPLAINT - Page 19

20 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 20 of 23 doing so, they fraudulently diverted the IME Funds due Atlas. Atlas has legal rights and an immediately superior right of possession to those monies to pay approved IME s. The Medicaid and Social Security programs are federal programs that require national uniformity. 72. Accordingly, Atlas requests that the Court impose a constructive trust, under federal common-law, on all accounts of the Facility Defendants and Senior Care, including, without limitation, the Concentration Accounts in an amount equal to $415, Atlas further requests immediate disbursement of those monies due Atlas. COUNT NINE RESULTING TRUST (ALL DEFENDANTS) 73. Plaintiff incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants were mere conduits and intermediaries for the receipt and remittance of the IME Funds through Medicaid for Atlas approved Dental Services to the Facility Defendants Residents. Yet Facility Defendants failed to maintain the Resident Trust Accounts into which the IME Funds were required to be deposited in good order, in breach of their fiduciary duty. Facility Defendants did not timely and properly fund IME s reimbursements to Atlas as required by Texas law. By virtue of its course of operations, Senior Care aided and abetted the breach of fiduciary duty. Upon information and belief, Facility Defendants and Senior Care comingled these monies or expending these funds for other purposes, or both. Instead of acting as a fiduciary agent for monies from governmental sources to Atlas to fund approved IME s, the monies were diverted or transferred to Senior Care s Concentration Accounts or used for other purposes. For most, if not all, of the relevant period, Facility Defendants and Senior Care knew they were insolvent or that did not have the financial ability to satisfy their debts as they became due when they effected the transfer of the monies held in trust for and due Atlas for its Dental Services to Residents. COMPLAINT - Page 20

21 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 21 of Facility Defendants received applied income funds and monies from approved Medicaid reimbursement payments earmarked for Atlas Plaintiffs to fund IMEs, but, upon information and belief, comingled these funds with Senior Care s Concentration Accounts. In doing so, they fraudulently diverted the IME Funds due Atlas. Atlas has legal rights and an immediately superior right of possession to those monies to pay approved IME s. The Medicaid and Social Security programs are federal programs that require national uniformity. 76. Accordingly, Atlas requests that the Court impose a resulting trust, under federal common-law, on all accounts of the Facility Defendants and Senior Care, including, without limitation, the Concentration Accounts in an amount equal to $415, Atlas further requests immediate disbursement of those monies due Atlas. COUNT TEN CONSTRUCTIVE TRUST TEXAS LAW (ALL DEFENDANTS) 77. Plaintiff incorporates and re-alleges the factual allegations contained in Paragraphs 1 through Facility Defendants were mere conduits and intermediaries for the receipt and remittance of the IME Funds through Medicaid for Atlas approved Dental Services to the Facility Defendants Residents. Yet Facility Defendants failed to maintain the Resident Trust Accounts into which the IME Funds were required to be deposited in good order, in breach of their fiduciary duty. Facility Defendants did not timely and properly fund IME s reimbursements to Atlas as required by Texas law. By virtue of its course of operations, Senior Care aided and abetted the breach of fiduciary duty. Upon information and belief, Facility Defendants and Senior Care comingled these monies or expending these funds for other purposes, or both. Instead of acting as a fiduciary agent for monies from governmental sources to Atlas to fund approved IME s, the monies were diverted or transferred to Senior Care s Concentration Accounts or used for other purposes. For most, if not all, of the relevant period, Facility Defendants and Senior Care knew COMPLAINT - Page 21

22 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 22 of 23 they were insolvent or that did not have the financial ability to satisfy their debts as they became due when they effected the transfer of the monies held in trust for and due Atlas for its Dental Services to Residents. 79. Facility Defendants received applied income funds and monies from approved Medicaid reimbursement payments earmarked for Atlas Plaintiffs to fund IMEs, but, upon information and belief, comingled these funds with Senior Care s Concentration Accounts. In doing so, they fraudulently diverted the IME Funds due Atlas. 80. Moreover, despite the 30-day time requirement for the Facility Defendants to remit the IME Funds to Atlas and their express agreement to do so, the Facility Defendants have never done so. The IME Funds remitted by the Facility Defendants to Atlas have always been months late and paid only after Atlas request for audits by the THHSC s Medicaid auditors. Thus, despite their duty to ensure their Residents receive necessary Dental Services and their continued referral of Residents to Atlas for treatment, that the Facility Defendants and Senior Care, their parent, had no intention of voluntarily remitting IME Funds as required by the applicable rules and regulations, and the Dental Services Agreement. 81. Through this conduct, the Facility Defendants, as directed, aided and abetted by Senior Care, the Facility Defendants and Senior Care fraudulently induced Atlas to provide the Dental Services to the Residents yet knowing that they would comply with the payment process described above as implemented by THHSC. The Facility Defendants and Senior Care 82. Given the Facility Defendants and Senior Care s breach of fiduciary duty and their fraud on Atlas, Atlas has legal rights and an immediately superior right of possession to those monies to pay approved IME s. 83. Accordingly, Atlas requests that the Court impose a constructive trust, under Texas law, on all accounts of the Facility Defendants and Senior Care, including, without limitation, the COMPLAINT - Page 22

23 Case bjh11 Doc 515 Filed 02/17/19 Entered 02/17/19 20:01:42 Page 23 of 23 Concentration Accounts in an amount equal to $415, Atlas further requests immediate disbursement of those monies due Atlas. through 83. COUNT ELEVEN ATTORNEYS FEES AND COSTS (ALL DEFENDANTS) 84. Atlas incorporates and re-alleges the factual allegations contained in Paragraphs Atlas seeks its reasonable and necessary attorney s fees and all allowable costs associated with this Complaint against Defendants, jointly and severally. See, e.g., 28 U.S.C. IV. PRAYER WHEREFORE, Atlas Dental Management, LLC d/b/a Atlas Dental Group prays that this Court grant all relief as requested above, and all and such further relief to which it is justly entitled. DATED this 17 th day of February Respectfully Submitted, /s/ James S. Brouner James S. Brouner Texas Bar No Coit Road, Suite 541 Dallas, Texas jbrouner@weisbartlaw.net COUNSEL FOR ATLAS DENTAL MANAGEMENT d/b/a ATLAS DENTAL GROUP COMPLAINT - Page 23

24 Case bjh11 Doc Filed 02/17/19 Entered 02/17/19 20:01:42 Page 1 of 2 B1040 (FORM 1040) (12/15) ADVERSARY PROCEEDING COVER SHEET (Instructions on Reverse) ADVERSARY PROCEEDING NUMBER (Court Use Only) PLAINTIFFS DEFENDANTS ATTORNEYS (Firm Name, Address, and Telephone No.) ATTORNEYS (If Known) PARTY (Check One Box Only) PARTY (Check One Box Only) Debtor U.S. Trustee/Bankruptcy Admin Debtor U.S. Trustee/Bankruptcy Admin Creditor Other Creditor Other Trustee Trustee CAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED) NATURE OF SUIT (Number up to five (5) boxes starting with lead cause of action as 1, first alternative cause as 2, second alternative cause as 3, etc.) FRBP 7001(1) Recovery of Money/Property 11-Recovery of money/property turnover of property 12-Recovery of money/property preference 13-Recovery of money/property fraudulent transfer 3 14-Recovery of money/property - other FRBP 7001(2) Validity, Priority or Extent of Lien 2 21-Validity, priority or extent of lien or other interest in property FRBP 7001(3) Approval of Sale of Property 31-Approval of sale of property of estate and of a co-owner - 363(h) FRBP 7001(4) Objection/Revocation of Discharge 41-Objection / revocation of discharge - 727(c),(d),(e) FRBP 7001(5) Revocation of Confirmation 51-Revocation of confirmation FRBP 7001(6) Dischargeability 66-Dischargeability - 523(a)(1),(14),(14A) priority tax claims 62-Dischargeability - 523(a)(2), false pretenses, false representation, actual fraud 67-Dischargeability - 523(a)(4), fraud as fiduciary, embezzlement, larceny (continued next column) FRBP 7001(6) Dischargeability (continued) 61-Dischargeability - 523(a)(5), domestic support 68-Dischargeability - 523(a)(6), willful and malicious injury 63-Dischargeability - 523(a)(8), student loan 64-Dischargeability - 523(a)(15), divorce or separation obligation (other than domestic support) 65-Dischargeability - other FRBP 7001(7) Injunctive Relief 71-Injunctive relief imposition of stay 72-Injunctive relief other FRBP 7001(8) Subordination of Claim or Interest 81-Subordination of claim or interest FRBP 7001(9) Declaratory Judgment 1 91-Declaratory judgment FRBP 7001(10) Determination of Removed Action 01-Determination of removed claim or cause Other SS-SIPA Case 15 U.S.C. 78aaa et.seq. 02-Other (e.g. other actions that would have been brought in state court if unrelated to bankruptcy case) Check if this case involves a substantive issue of state law Check if this is asserted to be a class action under FRCP 23 Check if a jury trial is demanded in complaint Demand $ 415, Other Relief Sought Imposition of constructive trust, accounting and attorneys' fess and costs.

25 Case bjh11 Doc Filed 02/17/19 Entered 02/17/19 20:01:42 Page 2 of 2 B1040 (FORM 1040) (12/15) BANKRUPTCY CASE IN WHICH THIS ADVERSARY PROCEEDING ARISES NAME OF DEBTOR BANKRUPTCY CASE NO. DISTRICT IN WHICH CASE IS PENDING DIVISION OFFICE NAME OF JUDGE RELATED ADVERSARY PROCEEDING (IF ANY) PLAINTIFF DEFENDANT ADVERSARY PROCEEDING NO. DISTRICT IN WHICH ADVERSARY IS PENDING DIVISION OFFICE NAME OF JUDGE SIGNATURE OF ATTORNEY (OR PLAINTIFF) DATE PRINT NAME OF ATTORNEY (OR PLAINTIFF) INSTRUCTIONS The filing of a bankruptcy case creates an estate under the jurisdiction of the bankruptcy court which consists of all of the property of the debtor, wherever that property is located. Because the bankruptcy estate is so extensive and the jurisdiction of the court so broad, there may be lawsuits over the property or property rights of the estate. There also may be lawsuits concerning the debtor s discharge. If such a lawsuit is filed in a bankruptcy court, it is called an adversary proceeding. A party filing an adversary proceeding must also must complete and file Form 1040, the Adversary Proceeding Cover Sheet, unless the party files the adversary proceeding electronically through the court s Case Management/Electronic Case Filing system (CM/ECF). (CM/ECF captures the information on Form 1040 as part of the filing process.) When completed, the cover sheet summarizes basic information on the adversary proceeding. The clerk of court needs the information to process the adversary proceeding and prepare required statistical reports on court activity. The cover sheet and the information contained on it do not replace or supplement the filing and service of pleadings or other papers as required by law, the Bankruptcy Rules, or the local rules of court. The cover sheet, which is largely selfexplanatory, must be completed by the plaintiff s attorney (or by the plaintiff if the plaintiff is not represented by an attorney). A separate cover sheet must be submitted to the clerk for each complaint filed. Plaintiffs and Defendants. Give the names of the plaintiffs and defendants exactly as they appear on the complaint. Attorneys. Give the names and addresses of the attorneys, if known. Party. Check the most appropriate box in the first column for the plaintiffs and the second column for the defendants. Demand. Enter the dollar amount being demanded in the complaint. Signature. This cover sheet must be signed by the attorney of record in the box on the second page of the form. If the plaintiff is represented by a law firm, a member of the firm must sign. If the plaintiff is pro se, that is, not represented by an attorney, the plaintiff must sign.