New North Shore lawsuit lays out claims of ‘self-dealing, theft, deception’

LOVELAND — The haunting season for North Shore Manor and Columbine Management Services won’t end with Halloween.

The North Shore Manor Inc. bankruptcy is officially over, after its dismissal Friday. But by Monday evening, NSM had filed a lawsuit in Larimer County District Court alleging “intentional and deliberate acts of self-dealing, theft and deception by J. Robert Wilson … and his related entities.”

Wilson and his Columbine Management Services Inc. were the long-time managers of the North Shore Manor nursing home, and Wilson is a 15% shareholder of both the nursing-home operation and North Shore Associates, which owns the real estate at 1365 W. 29th St. upon which the nursing home sits.

SPONSORED CONTENT

People Powered: Preparing Longmont Businesses for Economic Success

Longmont Chamber and FNBO present People Powered on April 24, 2024, aiming to inform business owners about workforce development, housing, and transportation issues.

Wilson, through a spokesperson, said today that he and Columbine Health Systems have reviewed the complaint and “The complaint lacks truth and merit and was filed in response to a pending complaint Mr. Wilson filed earlier against certain partners of the North Shore business who tried to extort $10,000,000 from Mr. Wilson.”

The extortion claim was made in a petition seeking arbitration of the North Shore Associates partnership agreement, where Wilson claimed that the voting partners — there are only three, including him — secretly and improperly voted to file bankruptcy and to remove him as managing partner. Such actions, the arbitration petition said, require a 75% vote which cannot be accomplished without Wilson’s concurrence.

The North Shore Manor lawsuit lays out the claims of the majority shareholders, all of whom are heirs of the founders of North Shore, more clearly than hundreds of pages of filings that were previously filed in bankruptcy court.

Shareholders came to trust Wilson and gave him almost unilateral authority to operate the facility, only to have their trust taken advantage of by self-dealing, the filing said.

At the core of the claims are allegations, supported by an outside third-party review paid for by North Shore, that Wilson formed vendor companies to supply goods and services to the nursing home that were priced above market rates. “North Shore was vastly overpaying Wilson’s vendors” as much as 152% higher, the lawsuit alleged.

The lawsuit alleged that the practice was “siphoning,” in which profits from the nursing home — to which all stockholders were entitled to benefit — were siphoned off in the form of over-priced vendor payments to companies controlled by Wilson. The 85% of stockholders were denied access to those profits so that Wilson as a 15% owner could benefit, because he wholly owned the vendor companies.

“…the facility and its non-common owner shareholders take the brunt of the expenses and losses while the facility’s profits are moved from the common owner/controlling party’s left pocket (the facility) into his right pocket (the related parties)” or vendors, the lawsuit alleged.

Wilson claimed in his motion for arbitration that all Columbine facilities — there are 11 — were paying the same vendor rates as North Shore and those rates were often below market because of his ability to purchase in volume. He also said Columbine has been unable to secure a copy of the third-party review to see whether the conclusions are based upon apples-to-apples comparisons.

North Shore’s lawsuit further claimed that Wilson, through a newly formed company called Wapello Holdings LLC, purchased without notice to the shareholders a Bank of Oklahoma bank loan that was set to mature. The bank loan that Wilson had negotiated on behalf of North Shore gave the holder of the note “tremendous leverage over both NSA and North Shore” because it permitted the note holder to assume all rents, to force payment of default interest of 18%, and could permit foreclosure on the real estate property. 

Wilson contends that the Wapello purchase of the note was meant to protect Wilson, who had personally guaranteed the loan.

Intercepting “North Shore’s rent payments to NSA such that NSA would have no income with which to service the 2016 BOK loan” would have obvious implications for the property owners, the lawsuit said. “It (Wapello) would have rights in the real property superior to North Shore’s right to possession as tenant.”

North Shore alleged that Wilson attempted to sell the company in the summer of 2022 as part of a transaction that would transfer all of Columbine, including Wilson’s 15% share of North Shore, to a new owner as Wilson retired. Information about the deal was not disclosed to North Shore shareholders because Wilson believed it contained confidential information about Columbine’s operations. He did disclose, the lawsuit said, that he had been lending money “not memorialized in any loan agreement” to North Shore and that he expected repayment of those personal loans if the property were to be sold. He offered to buy out the other shareholders’ interests for $12 million, minus repayment of loans he had made. The net amount was said to be $7.3 million.

Wilson said in the arbitration demand that “the heirs tried to extort Bob” out of $10 million for their shares or they would “destroy Bob’s business and reputation.” 

“The heirs’ investments in NSA and NSM (both of which are in bankruptcy) are not worth anything near $10,000,000,” the arbitration demand said. NSM has since emerged from bankruptcy; NSA remains in bankruptcy, but its case is in abeyance pending the arbitration.

Finally, North Shore alleged that Wilson wrote himself checks from loan proceeds and from COVID-19 relief funds instead of paying off the BOKF loan, which was due in March this year.

The lawsuit contends that the payments to Wilson were meant to “deprive North Shore of liquidity and ensure that North Shore has no ability to repay the 2016 BOK loan,” which Wapello now holds.

Some checks written to Wilson occurred after he was removed as president and CEO of North Shore. In one case, a check for $100,000 was written to Wilson Rentals. “Upon information and belief, there was no payable to ‘Wilson Rentals’ on North Shore’s books at the time,” the lawsuit said.

The lawsuit claims breach of fiduciary duty, civil theft and conversion against Wilson. It also claims aiding and abetting breach of fiduciary duty against Wapello, Columbine and certain “John Doe” defendants, and conspiracy against all defendants.

It seeks treble damages, plus court costs and attorney fees.

The case is North Shore Manor Inc. v. J. Robert Wilson, Columbine Management Services Inc. Wapello Holdings LLC and John Does I-X, case number 2023cv30883, filed Oct. 27, 2023, in Larimer County District Court.