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GMF ELCM Fund L.P. v. ELCM HCRE GP LLC.

Court of Chancery of Delaware

April 3, 2019

GMF ELCM Fund L.P., et al.
v.
ELCM HCRE GP LLC, et al.

          Date Submitted: April 2, 2019

          David E. Ross, Esquire, Bradley R. Aronstam, Esquire Ross Aronstam & Moritz LLP

          Andrew White, pro se

          William B. Chandler III, Esquire Wilson Sonsini Goodrich & Rosati

          SAM GLASSCOCK III VICE CHANCELLOR

         Dear Counsel and Mr. White:

         This Letter Opinion follows the Rule to Show Cause hearing, held on March 29, 2019 at 9:30 am. I begin with a brief recitation of the facts relevant to this Opinion; I note that, after several days of hearings, [1] there is far more evidence than warrants discussion in this Opinion of limited scope.

         I. BACKGROUND

         This litigation involves a business that acquires and operates nursing homes, which once operated facilities in several states. The business consists of a complicated web of entities (the "Vehicles"). For purposes of this Opinion, rather than delve into the nuances of the business's organizational chart, I note only that some of these entities are wholly-owned by Defendant Andrew White. The Plaintiffs are investors in the Vehicles.

         The Vehicles are, simply put, in trouble. They are battling litigation and state-initiated proceedings in a number of other states, most notably Vermont and North Carolina.[2] This is not merely a case of an entity that needs a receiver to manage its business or to assist in winding up its affairs. The nature of this business is nursing care, and as a result, negligent or incompetent leadership affects vulnerable people, whose lives are affected by these Vehicles' fates; residents at the nursing homes, whose health, care, and wellbeing depend on the Vehicles' proper management. Though yet unproven in this case, there are allegations that the delivery of food for the residents has been interrupted. There is evidence that residents' rent checks have gone uncashed, leaving them to question whether their housing is assured. There is evidence that residents have been "evacuated"[3] from certain facilities. There is evidence that employees who provide direct care to residents have, on multiple occasions, not been paid on time-sometimes days or even weeks late. I note this not to suggest that cases involving other business entities lack importance, nor that they cannot also be disruptive of human lives-they can be, and often are. What I do mean to suggest is that the exigencies of this particular business compel especially focused attention.

         In light of this, the Plaintiffs-who, again, are investors in the Vehicles-filed suit on November 11, 2018, alleging breach of fiduciary duties and breach of contract. Along with the Complaint, they filed a Motion to Expedite and a Motion to Appoint a Receiver Pendente Lite. I entered an Interim Status Quo Order on December 12, 2018. A hearing on the Motion to Appoint a Receiver Pendente Lite was rescheduled on numerous occasions between December 2018 and January 2019, and was ultimately held on January 30, 2019. Various discovery motions were filed in the interim. On January 17, 2019, the Defendants filed a Motion to Stay the proceedings pending decision from a Vermont court regarding nursing facilities there; I denied the Motion to Stay on January 18, 2019.

         On the eve of the hearing on the Motion to Appoint a Receiver Pendente Lite, then-counsel for the Defendants informed the Court that Mr. White would be unable to attend because he had been admitted to the hospital and had not been cleared to travel to Delaware; as such, he could not testify at the hearing on January 30. Given that the hearing had already been rescheduled (by my count, at least three times, and on at least one occasion due to Mr. White's schedule and preferences), and given that Mr. White's counsel was present and ready to proceed, I informed the parties that the evidentiary hearing would commence without Mr. White. After that day's testimony, and based on evidence generated at that hearing, on January 30, 2019 I ordered that an interim receiver be appointed. I ordered that when Mr. White was able to travel, the evidentiary hearing would continue, at which time he could testify, and that I would then consider whether a receiver should be appointed pendente lite. With the parties' agreement, I appointed William B. Chandler III (the "Receiver") to serve as interim receiver on February 7, 2019, and ordered specifically that Mr. White cooperate with the Receiver, so that the Receiver could efficiently operate the business pending a decision on appointment pendente lite.

         The continued evidentiary hearing was held on February 14 and 15, 2019. Mr. White appeared; however, his testimony was, frankly, disturbing. It was often rambling and, to my mind, non-linear. Moreover, parts of the testimony were incomprehensible, and Mr. White needed frequent reminders to slow down and speak clearly for the court reporter. At the conclusion of the hearing, I asked the parties for additional briefing.

         On February 26, 2019, the Receiver requested an office conference, which was held on February 28. At that time, the Receiver described his interactions with Mr. White and expressed serious concern about the Vehicles' operation. The Receiver detailed instances where Mr. White was unresponsive to the Receiver's requests for information, instances where the Receiver had been blindsided with matters needing immediate attention (but of which he was informed only at the last minute), such as approving payroll, and instances where Mr. White acted unprofessionally toward the Receiver. Mr. Chandler indicated that Mr. White had not yet provided him with access to the Vehicles' bank accounts. Mr. Chandler also requested to withdraw as receiver. Mr. White's counsel attended, but was unable to explain White's lack of cooperation to my satisfaction.

         I indicated that I would grant the Receiver's motion to withdraw as soon as a successor receiver was identified. I also asked the Receiver to produce a list of the documents and information that would be necessary for a receiver to operate the Vehicles successfully, and I ordered Mr. White to produce those documents by a time certain, once identified. If he did not produce them in a timely fashion, I indicated that I would issue a Rule to Show Cause why he should not be held in contempt. Mr. Chandler filed the list of necessary items on March 1. I ordered Mr. White to produce that information by March 11, 2019.

         Meanwhile, on March 6, the Defendants' counsel filed a Motion to Withdraw their representation. On March 11, I ruled that the Defendants should find successor counsel in a timely ...


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