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Family of Nursing Home Founder Sues Current CEO, Claims “Unbridled Greed”

Crain’s Real Estate Daily published an interesting story recently on some in-fighting between parties involved in owning and operating long-term care facilities in the area. The battle is yet another reminder of the high money stakes involved in the care of vulnerable seniors at nursing homes and other long-term care facilities. Sadly, as this case demonstrates, money and the need to maximize profit, plays a pervasive role in so much of the work that these facilites do each and every day. Those financial incentives often trickle down into mismanagement and skewed decisions that place the safety and well-being of residents in jeopardy.

The Legal Dust-Up
The dispute involves the family of the founder of the Real Estate Investment Trust (REIT), Vivo, suing the current CEO of the company. The suit includes allegations that the current CEO shifted profits into his own pockets. Words were not minced, as the family is alleging that the defendant is guilty of “unbridled greed” in seeking to maximize his own financial interests.

Vivo was founded by the late Zev Karkomi. The Chicago based company is the largest owner of long-term care facilites in the country. They own nearly 250 nursing homes and rent the facilities to other to manage.

Mr. Karkomi died in 2009. His surviving relatives continue to receive funds as a result of their inheritance connected to the business. However, according to the suit, the defendant in the case and current CEO of Vivo REIT Inc. decided to cut cash contributions to investors–including the Karkomi family–in order to increase profits by $2 million. The family was originally slated to receive a 10% rate of return on the “Class A” stocks that they owned. However, that amount was cut to 6.1% and applied retroactively, cutting out millions of dollars in returns that were slated to go to the family. The move is what prompted the lawsuit.

The underlying legal issue in the case involve basic business principes related to duties that an executive owes to shareholders or investors in a company. The exectuives usually have fiduciary duties, meaning that they must always act in the best interst of those shareholders. In this case, however, the plaintiffs are claiming that the CEO engaged in self-dealing, placing his own personal interests ahead of those whom he had a legal obligation to protect.

This latest lawsuit filed by the family is not the first in the legal wrangling between them and the current Vivo leaders. The company sued about a year ago to have its actions declared legal pursuant to a prior partnership agreement. The company also claims that the actions were needed for business reasons–to stabilize the company for the long-term.

Profits Over People
The interests involved in this suit will no doubt play out for some time. Both sides will want to maximize their own bottom lines and are likely willing to do whatever it takes legally to meet that goal. Sadly, it is usually only the residents who suffer as a result of these dust-ups. With owners and operators fighting over large profits, the actual seniors relying on proper standards to ensure their day-to-day well-being are often ignored or neglected. This is why it is vital to have advocates fighting for these seniors all the time, to help ensure their interests are respected throughout the process.

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