KPC Healthcare Holdings, Inc. Employee Stock Ownership Plan

Gamino v. KPC Healthcare Holdings, Inc., et al., No. 5:20-cv-01126 (C.D. Cal.)

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Summary of the Lawsuit

This lawsuit alleges that the fiduciaries of the KPC Healthcare Holdings, Inc. Employee Stock Ownership Plan (“ESOP”) breached their fiduciary duties, engaged in prohibited transactions and violated the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with an August 28, 2015 transaction (“2015 Transaction”) in which Dr. Kali Pradip Chaudhuri sold 100% of KPC Healthcare Holdings, Inc. stock to the KPC ESOP for an amount that was more than fair market value.

Summary of the Claims

Prior to the 2015 Transaction, in 2013, Dr. Kali Pradip Chaudhuri acquired 100% of the shares of Integrated Healthcare Holdings, Inc. Based on a purchase price of $0.203 per share and 255,307,262 shares outstanding, the Complaint alleges that indicates an implied valuation of $51,827,374. After the purchase, Integrated Healthcare Holdings, Inc. was renamed KPC Healthcare Holdings, Inc. On August 28, 2015, the ESOP purchased 100% of the stock of the Company for $217,107,262.

The Complaint alleges that Kali Pradip Chaudhuri engaged in prohibited transactions with respect to the 2015 Transaction, and that the KPC ESOP purchased KPC stock for more than 438% increase over the price that Kali Pradip Chaudhuri paid to acquire the Company less than two years before (and an even greater increase over prices at which the Company had traded publicly prior to Dr. Chaudhuri’s acquisition). The Complaint alleges that Alerus Financial, N.A., the trustee of the ESOP, breached its fiduciary duties in failing to properly investigate the fair market value of KPC stock and in failing to remedy the ESOP’s overpayment of Company stock in the 2015 Transaction. The Complaint also alleges that the Board of Directors of KPC (who also served on the committee that administers the ESOP) breached their fiduciary duties.

Class Action Allegations

This lawsuit is certified on behalf of the following class:

All participants in the KPC ESOP from August 28, 2015 or any time thereafter (unless they terminated employment without vesting in the ESOP) and those participants’ beneficiaries.

Excluded from the Class are (a) Defendants, (b) any fiduciary of the Plan; (c) the officers and directors of KPC or of any entity in which one of the individual Defendants has a controlling interest; (d) the immediate family members of any of the foregoing excluded persons, and (e) the legal representatives, successors, and assigns of any such excluded persons.

Status of the Litigation

The Complaint was filed on June 1, 2020. Defendants filed Motions to Dismiss the Complaint on September 3, 2020, which were denied by the Court on January 15, 2021.

Plaintiff filed a motion for class certification and a motion to amend the complaint.  The court held a hearing on those motions on August 6, 2021 and granted both the same day. 

Plaintiff filed an Amended Complaint on August 13, 2021. Defendants filed Motions to Dismiss the Amended Complaint on September 3, 2021, which the Court denied on November 1, 2021. 

Plaintiff filed a separate lawsuit against SPCP Group, LLC on August 27, 2021 which the Court consolidated with the original case on January 21, 2022. The Court certified the claim against SPCP on behalf of the Class on April 5, 2022. On August 15, 2022, the Court granted SPCP’s motion for summary judgment.

Settlement

After a full day of mediation with a mediator, Plaintiff and the KPC Defendants reached a settlement in principle on behalf of the Class on May 2, 2022. A formal Settlement Agreement was executed on July 22, 2022.  

After several meetings with a mediator, Plaintiff and Defendant Alerus Financial reached a settlement in principal on behalf of the Class on September 10, 2022. A formal Settlement Agreement was executed on October 7, 2022. 

Under the two Settlements, KPC Defendants are required to pay $5 million and Defendant Alerus Financial is required to pay $4 million to resolve the claims. After subtracting court-approved attorneys’ fees, expenses and class representative service award, the remaining amount of the $9 million total settlement will be distributed to participant Class members (and beneficiaries who would be entitled to payment under the terms of the Plan).  

The settlement needs to be approved by the Court, which consists of a three part process: (1) the Court granting preliminary approval of the settlement, (2) formal notice mailed to class members and class members will be provided with the ability to comment on the Settlement, and (3) the Court granting final approval of the settlement. 

 Plaintiff filed the Motion for Preliminary Approval of the KPC Settlement on July 25, 2022 and submitted supplemental information to the Court on September 9, 2022. The Court granted the Motion for Preliminary Approval of the KPC Settlement on October 7, 2022.  

Plaintiff filed the Motion for Preliminary Approval of the Alerus Settlement on October 7, 2022. A hearing on this motion is set for November 18, 2022.

Whom to Contact for More Information

If you are a member of the proposed class or you have information which might assist us in the prosecution of these allegations, please contact one of the following persons:

R. Joseph Barton, Esq. (jbarton@blockleviton.com)
Colin M. Downes, Esq. (colin@blockleviton.com)
Ming Siegel, Paralegal (ming@blockleviton.com)
Block & Leviton LLP
1633 Connecticut Ave. NW, Suite 200
Washington DC 20009
(202) 734-7046

Block & Leviton LLP is co-counsel in this litigation with Donahoo & Associates, P.C., Feinberg Jackson Worthman & Wasow LLPC, and MK LLC Law.

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