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Justice Department calls for dismissal of the Corizon bankruptcy

Dakin Campbell,Nicole Einbinder   

Justice Department calls for dismissal of the Corizon bankruptcy
Finance3 min read
  • The Justice Department's US Trustee Program has called for dismissal of Corizon Health's bankruptcy.
  • Sen. Elizabeth Warren applauded the move, saying, "Corizon does not belong in a bankruptcy court."

In the latest blowback to the correctional healthcare company formerly known as Corizon Health, the Department of Justice's US Trustee Program — the watchdog of the federal bankruptcy system — called for the dismissal of its contentious bankruptcy.

After a year of spending "considerable resources" on the case, the Trustee's filing says, there was still no approvable plan between the company and its creditors. In a mid-January motion, a committee representing prisoners who filed suit against Corizon alleging medical neglect requested that Judge Christopher Lopez dismiss the bankruptcy outright.

"The U.S. Trustee supports dismissal of the case," attorneys Ha Ngyuen and Andrew Jiménez wrote in the Friday filing. A Department of Justice spokesperson declined to comment further.

The filing is the latest government action to come after a Business Insider series last year exposed how Corizon had engaged in a controversial legal maneuver called the Texas Two-Step in an attempt to dislodge hundreds of lawsuits from prisoners and their families that alleged serious medical neglect, claims the Trustee says amount to $775 million.

Corizon split into two companies — YesCare, which got all of Corizon's active corrections contracts, and Tehum Care Services, which was saddled with the company's liabilities and then filed into bankruptcy last February.

Following BI's reporting, US senators and the Trustee intervened in the bankruptcy. In mid-October, the Trustee filed an objection to a proposed settlement deal. Later that month, a group of nine senators including Elizabeth Warren, Dick Durbin, and Bernie Sanders sent a letter to Corizon's successor companies claiming Corizon had attempted "to manipulate bankruptcy law with the aim of skirting accountability for the harms that incarcerated people have endured" under its care.

Last month, Warren followed up with a letter to the US Trustee calling on the watchdog to oppose the bankruptcy plan and join the motion to dismiss the case filed by the committee representing the prisoner plaintiffs. In that letter, Warren lauded the Trustee for filing its October objection to Corizon's bankruptcy plan.

"Corizon does not belong in a bankruptcy court and its owners must stop hiding from victims and face the consequences of their actions," Warren said in a statement to BI in response to Friday's filing.

On Friday, the Trustee also filed a scathing objection to Corizon's latest proposed settlement. That filing objects in strong terms to the "broad, sweeping releases" of liability to people and entities "who are contributing little or nothing to the Settlement Agreement, including Isaac Lefkowitz, who testified at a deposition that his contributions to the plan in exchange for his release is $10."

As BI previously reported, Lefkowitz has straddled both sides of Corizon's Two-Step — he's the sole director for Tehum and has been a director of Tehum's parent company, Perigrove 1018, and director of YesCare. He did not immediately respond to a request for comment.

The Trustee also pointed to several "potential fraudulent transfers" to companies linked to insiders, including M2LoanCo and Geneva Consulting, which manages and financially supports YesCare. BI previously reported that those transfers added up to at least $30 million.

While Corizon recently offered a larger, $54 million settlement proposal, the committee representing the current and former prisoners opposed it.

"The court is required to consider the best interests of the creditors," write Nguyen and Jiménez. "Where such a large constituency of unsecured creditors oppose the settlement, the Court should not impose the settlement on them."

Jason Brookner, an attorney representing Tehum, declined to comment. On Friday, the company filed a 60-page objection to the motion to dismiss, arguing that the "personal injury claims filed in this case may be vastly overstated" and that the court needs to give "equal (or greater weight)" to the non-tort claimant members' views on a settlement.

"The Motion to Dismiss is merely a public relations piece, which contains little more than self-serving invective, rhetoric, and hyperbole," the company's attorneys wrote in the motion. "It is unsupported by any facts or information."

But Warren backed the Trustee's decision to support dismissal. "The federal government's bankruptcy watchdog has taken a strong stand to protect against big corporations' abuse of our bankruptcy system," she said in her statement. "The judge must now follow bankruptcy law to prevent further abuse."