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February 26, 2010 6:27 PM

Justice Department Settles Kickback Case With Troutman Sanders Partner

Posted by Brian Baxter

The former head of the real estate investments and capitalization practice groups at Troutman Sanders was one of five defendants to reach a $14 million civil settlement with federal prosecutors in Boston on Friday stemming from an alleged $50 million kickback scheme, according to an announcement by the Justice Department.

The settlement comes nearly four months after prosecutors filed civil claims against Troutman partner Leonard Grunstein, real estate investor Rubin Schron, and investment banker Murray Forman in connection to a $98 million civil settlement reached in November between the Justice Department and Covington, Ky.-based Omnicare, the nation's largest provider of pharmacy services to nursing homes.

Prosecutors had accused Omnicare of engaging in a kickback scheme with nursing homes and drug makers. In the wake of the Omnicare settlement, prosecutors filed a 32-page complaint against Grunstein, Forman, and Schron. Grunstein and Forman served as advisers to Schron--an owner of the Woolworth Building in Manhattan--on his acquisition of Mariner Health Care, a nursing home company that did business with Omnicare.

The alleged scheme involved Omnicare acquiring a Mariner subsidiary called MMS for $40 million--when the small unit that provided feeding-tube products to nursing homes had only a few million in assets. Prosecutors claimed Schron needed the cash to close a $40 million financing shortfall to operate some of the 270 nursing and long-term care facilities owned by Mariner.

LenGrunstein

Grunstein (pictured right), a well-regarded lawyer on the New York real estate scene, took a leave of absence from Troutman after the civil allegations against him arose.

On Friday the three individual defendants, as well as Mariner and another nursing home company based in Delaware called SavaSeniorCare (controlled by Forman and Grunstein), reached their own settlement with prosecutors to dismiss the civil charges. None of the defendants admitted wrongdoing as part of the agreement.

"Troutman Sanders LLP is pleased that the civil lawsuit filed by the U.S. Attorney in Boston against Leonard Grunstein and others has been dismissed with prejudice against the government," the firm said in a statement released to The Am Law Daily. "The firm supports the sense of vindication that Mr. Grunstein has expressed by his not paying any money toward the settlement and by denying any wrongdoing in the settlement agreement."

It's not clear how Grunstein won't be paying any amount towards the settlement. The 25-page agreement calls for the defendants to pay approximately $14 million--roughly $7.8 million to the U.S. government and $6.2 million to Medicaid participating states.

Bruce Singal, an attorney for Grunstein with Boston's Donoghue Barrett & Singal, was out of the office on Friday and not immediately available for comment. A call to another lawyer for Grunstein, DLA Piper's Robert Sherman, also went unreturned.

Sava said in a statement that the company, along with Grunstein and Forman, "filed a comprehensive motion to dismiss the Government's entire case against them for failure to state any legal or factual claim."

The Sava statement claims that after the government did not answer the motion, the complaint was dismissed and a settlement was reached shortly thereafter. "No payment was made to the government by Sava, Mr. Forman, or Mr. Grunstein," the Sava statement continued. "The Settlement Agreement provides for the case against the Sava Group to be dismissed with prejudice."

Glenn Hendrix, the managing partner of Atlanta's Arnall Golden Gregory and a lawyer for Sava, did not immediately respond to a request for comment. An attorney for Mariner, Roger Goldman of Latham & Watkins, also did not return a phone call.

Sources familiar with the case say that it was moving towards settlement shortly before the end of last year, when a flurry of motions to dismiss were filed by counsel for the respective defendants. The statements from Troutman and Sava provide no details about why the defendants would settle a case after it had already been dismissed.

"I suspect that if you got [Grunstein, Schron, and Forman] all in a room and asked them whose fault this was, they'd all be pointing at someone else," says one person familiar with the case. "And that's really what this transaction was about--setting up all these different entities and shells and moving pieces so that nobody had responsibility."

The government was alerted to the case by Chicago-based health care entrepreneur Adam Resnick, who filed a qui tam suit in February 2006. The government joined the case in December 2008 and filed its own suit under seal shortly thereafter.

Mary Louise Cohen, a name partner at whistleblower firm Phillips & Cohen in Washington, D.C., along with associate Tim McCormack, is representing Resnick. McCormack says that Resnick received 18 percent of last fall's $98 million Omnicare settlement.

"The exact amount of his relator share [in this settlement] has not yet been determined," McCormack adds. According to the settlement agreement, the defendants will pay Phillips & Cohen $210,617 in attorneys' fees that the firm incurred during the civil case.

Whoever is paying, the government is pleased with the settlement.

"This case reflects the Government's continuing effort to pursue those who scheme to hide illegal payments that can affect the way drugs, and other services, are delivered to nursing home residents, an especially vulnerable patient population," said U.S. Attorney for Massachusetts Carmen Ortiz in a statement.

Assistant U.S. attorneys Gregg Shapiro and Christine Wichers in Boston and Laurie Oberembt from the civil division at Main Justice in Washington, D.C., led the team prosecuting the civil case against Grunstein and the other Mariner principals.

William Kettlewell from Boston's Dwyer & Collora represented Forman, while Schron turned to Foley Hoag business crimes and government investigations chair Nicholas Theodorou. Neither lawyer immediately returned a request for comment.

Troutman declined to comment outside of its statement. Prior to joining the firm in 2004, Grunstein, a resident of Teaneck, N.J., was a partner at now-defunct Jenkens & Gilchrist.

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