Nashville Federal Court Orders $2.76 Million Restored To Pension Plan Of Century Health Services

Archived News Release — Caution: Information may be out of date.

A federal district court in Nashville, Tenn. has ordered Century Health Services, Inc. to repay the present monetary value of $2.76 million, estimated to be at least $4.1 million, to the company’s employee stock ownership plan (ESOP), according to a court order obtained by the U.S. Department of Labor.

Century Health Services, Inc. and its 10 subsidiaries provided home health care primarily to Medicare beneficiaries throughout Tennessee. The company sponsored the pension plan for employees of Century and affiliated subsidiaries.

The court order resolves a lawsuit filed by the Labor Department on May 13, 1997 against Century Health Services and ESOP trustees George D. Gilley (a resident of Flossmoor, Illinois) and Billy Dean Goforth (a resident of Homosassa, Florida) for violations of the Employee Retirement Income Security Act (ERISA). The case was subsequently consolidated with a lawsuit filed by the Department of Justice involving Medicare fraud.

The lawsuit alleged that the defendants siphoned off assets of the plan and engaged in self- dealing which was detrimental to the ESOP. Century allegedly transferred Medicare payments to the company’s ESOP as plan contributions during 1994 to 1995 and immediately re-routed the money to the operating accounts of the company within 24 hours.

In a motion for summary judgment, the department argued that $2.76 million of plan money was transferred to two stockholders of Century without providing monetary compensation to the plan. These funds were used by Century for operating expenses. When company stock was finally transferred to the ESOP more than two years later in return for the funds, the stock allegedly had little or no value according to the court. The court found that the trustees did in fact use plan assets “for the purpose of making Century a viable concern and for their benefit as sole stockholders of Century.” Therefore, the court concluded that the defendants are liable for losses suffered by the ESOP.

The court order, entered Aug. 28, resulted from an investigation conducted by the Atlanta Regional Office of the Labor Department’s Pension and Welfare Benefits Administration into alleged violations of ERISA.

(Herman v. Gilley)
Civil Action No. 3:97-0504

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Archived News Release — Caution: Information may be out of date.