Friday, March 6, 2015

SEIU-UHW’s Dave Regan and Blue Wolf Capital Are Hit with Extortion Lawsuit

Dave Regan -- fresh off his failure to get the Daughters of Charity Health System to sell its six California hospitals to Blue Wolf Capital Partners -- now faces a multi-million-dollar lawsuit alleging a lengthy list of violations including extortion, civil conspiracy, and aiding and abetting.

And in case they were feeling left out of the party, both SEIU International in D.C. and Blue Wolf Capital (a private equity firm in New York) also are named as defendants in the civil suit filed by Daughters of Charity Health System (DCHS) in Santa Clara (CA) Superior Court on February 23rd.

Here's a quick summary of the 21-page suit, which seeks tens of millions of dollars in damages and attorneys fees. A full copy of the suit is below.

The lawsuit begins this way:
This is a case about a labor union and a private equity firm conspiring to hold hostage the proposed sale of Daughters of Charity Health System ("DCHS”) for illegal and extortive purposes. By using extortionist threats and bid chilling tactics to frustrate the sale as leverage for other commercial gains they seek, the Defendants have cost DCHS at a minimum tens of millions of dollars in continuing operational losses and professional fees. DCHS continues to face the possibility that the sale will not close, with potentially catastrophic consequences for DCHS's six California hospitals, thousands of employees and retirees of those hospitals, and the patients and communities whom the hospitals serve.
So what prize was Regan trying to extract through his "extortionist threats?"

Regan's goal was to extract a neutrality agreement from Prime Healthcare that would allow SEIU-UHW to unionize thousands of Prime's workers across California, according to the lawsuit.

SEIU-UHW's Dave Regan
In order to pressure Prime to sign on the dotted line, Regan threatened to block Prime’s purchase of the six Daughters of Charity hospitals.


On July 24, 2014, Regan met with Prime's CEO and told him that "Prime would never get approval from the California Attorney General unless Prime agreed to a ‘neutrality agreement’ for Prime's other hospitals in California,” according to the suit. Apparently, Regan told Prime that he has enormous influence over the Attorney General and could block the sale... that is, unless Prime gave him what he wanted.

This, my friends, is extortion -- a criminal act.

When Prime refused to cave in to Regan's threats, Regan asked Blue Wolf to compete head-to-head against Prime in the bidding war for the hospitals… even though "Blue Wolf has no experience managing, owning, or operating healthcare facilities,” says the suit. Regan told Blue Wolf that he would block all of the competing bids, thereby assuring Blue Wolf’s success in the bidding process.

According to the lawsuit, Regan approached other bidders -- such as Alecto Healthcare Services and Strategic Global Management -- and told them "to withdraw from the sale process, stating that the SEIU Defendants had selected Blue Wolf and therefore Blue Wolf was the only viable bidder." Both companies dropped out of the bidding process, according to the suit.
Blue Wolf's Adam Blumenthal
Based on Regan's promise to block all competing bids, Blue Wolf deliberately submitted a “low-ball bid” and made "unusual demands" on DCHS, says the suit. For example, the private equity fatcats demanded that DCHS negotiate only with Blue Wolf and stop negotiating with all of the other bidders. Blue Wolf also insisted that the nuns -- that is, the Daughters of Charity religious order -- use its funds to help finance Blue Wolf's purchase of the hospital chain.

According to the lawsuit, "Both conditions were unacceptable to DCHS and had not been requested by the other, qualified bidders that had already showed interest."

According to the suit, Blue Wolf submitted a cheap bid that would have loaded mountains of debt onto DCHS and allowed Blue Wolf to suck profits from the hospitals through "a lucrative management agreement with a 10-year purchase option."

Blue Wolf's bid amounted to "a classic ‘heads I win, tails you lose’ scenario” where Blue Wolf would enjoy all of the upside profits but none of the downside risk, which would instead be borne entirely by workers, patients and creditors, says the suit.

The suit says Regan also sold out SEIU-UHW’s own union members who work at the six DCHS hospitals. The lawsuit refers to Regan's secret labor contract negotiated in a back room with Blue Wolf, which Tasty highlighted in an earlier post, that would
…reduce fringe benefit costs and eliminate restrictive work rules to ensure maximum operational flexibility." Blue Wolf has estimated that this change alone would create $90 million in savings on the back of workers at the DCHS Health Facilities.
The illegal actions by SEIU-UHW, Blue Wolf, and SEIU International imposed tens of millions of dollars of additional costs on DCHS, says the suit. By scaring off bidders, Regan "chilled" the bidding process and forced DCHS to accept a lower price for the hospitals than it otherwise would have gotten. 
Ron Bloom aided Blue Wolf
Regan also delayed the entire bidding process, forcing DCHS "to burn through cash at a rate of millions of dollars each month." The lawsuit also alleges that Blue Wolf and SEIU-UHW violated confidentiality agreements signed as part of the bidding process.
The interference and bid chilling by the SEIU Defendants and Blue Wolf has cost DCHS unknown dollars of sale consideration and has created a substantial threat of irreparable injury to DCHS, including DCHS's bankruptcy and the closure of the DCHS Health Facilities.
The lawsuit ends with these paragraphs:
57. This is not a case about labor versus big companies. The CNA, SEIU Local 121 RN, and a majority of the SEIU-represented employees at DCHS who have spoken publicly, strongly support the proposed sale between DCHS and Prime and voiced their disagreement with Defendants' self-serving opposition to the sale.
58. The SEIU Defendants chose to imperil the existence of DCHS—as well as the wellbeing of its patients and employees—to gain the upper hand. in completely unrelated efforts to assert influence over unrelated hospitals owned by Prime and to enrich themselves.
59. In so doing, the SEIU Defendants turned a blind eye to the best interests of union members who work for DCHS. Most members of unions affiliated with the SEIU Defendants who work far DCHS support the sale of the Health System to Prime. They understand that this sale represents the best and only hope to keep DCHS out of bankruptcy, to ensure that the DCHS Health Facilities stay open, and to fulfill existing pension obligations.
60. The SEIU Defendants and Blue Wolf have interfered with the sale to Prime and chilled bids with callous disregard for the best interests of DCHS's or the Hospital Corporations' current or former employees, patients, creditors, or communities served. Blue Wolf's only goal is to control DCHS's assets without adequately capitalizing the hospitals or incurring any downside risk, and the SEIU Defendants' only goal is to expand membership and inflate their own influence.
61. Defendants' threats have caused DCHS and Prime millions of dollars in professional fees and legal fees; delayed the transaction process, forcing DCHS to incur millions of dollars in continued operating losses; and resulted in a lower overall purchase price. Meanwhile, DCHS faces the danger of running out of money. The DCHS Health Facilities may be forced to close, with drastic consequences to public health in the served communities. If that happens, it would be as a direct result of the Defendants' actions.