An Austin bankruptcy judge will slap contempt charges and sanctions on a Dallas-based private equity manager unless he proves that he should not receive such punishment at a hearing next month, the judge ruled early last week.
In a three-page order, U.S. Bankruptcy Judge Tony Davis of the Western District of Texas ruled Monday that unless convinced otherwise at the upcoming Dec. 20 hearing, he will find that Todd Furniss of Dallas private equity firm glendonTodd Capital attempted to conceal that he wired himself millions of dollars during a bankruptcy proceeding despite the court denying approval of the transfer.
If Judge Davis is not convinced by Furniss’ counter-argument, he said he will also slap $125,000 in punitive damages against Furniss and make him pay the attorneys’ fees of the receiver, who brought these issues to light.
Dallas bankruptcy attorney Bruce Akerly, who is representing Furniss and GTC, declined to comment on the case.
Furniss is the former CEO of Neal Richards Group, LLC, the Dallas-based healthcare real estate developer of the Forest Park hospital facilities around Texas. While in this position, he was also in control of affiliate company NRG Austin Group Development, which is the general partner of FPMC Austin Realty Partners, the holding company that owned Forest Park Medical Center’s state-of-the-art Austin campus.
FPMC Austin filed for Chapter 11 reorganization in January 2016, just months after construction was completed for the Austin medical center, which included an acute care hospital, medical offices and a 445-stall parking garage.
FMPC Austin emerged with an exit plan after a division of HCA Healthcare purchased the Austin medical center in May 2016 for $115 million. After debt payoffs, FPMC received $52 million in proceeds.
In July 2016, NRG filed a request for Judge Davis to approve a $2.875 million fee to cover an “administrative expense” allegedly owed to Furniss’ firm, glendonTodd Capital, for “extraordinary services” it provided in negotiating FMPC Austin’s sale to HCA, according to court documents.
Judge Davis ultimately denied the request in March 2017, ruling that the fees sought by GTC were neither “actual” nor “necessary,” court documents say. But evidence later revealed that Furniss had already wired the money from FPMC Austin and NRG Austin to GTC by way of two separate payments: one on Sept. 12, 2016 for $1,036,018.21 and one on Feb. 27, 2017 for $1,838,982.
What’s more, court documents say, is Furniss testified at a hearing 10 days after the Sept. 12 transfer that GTC had not received anything yet from NRG. Then, three days after the judge’s ruling against the payments, Furniss wired GTC another $1.15 million from the FPMC Austin account.
Furniss resigned as CEO of NRG in April 2017, and Judge Davis formally closed FPMC Austin’s bankruptcy three months later.
Meanwhile, Dallas attorney Howard Marc Spector became the court-appointed receiver for NRG and its affiliates in a separate case in Dallas District Judge Martin Hoffman’s court. That litigation started in September 2017, after the managers of NRG sought a receiver for NRG and its affiliates as a result of Furniss’ departure and the subsequent resignation of the rest of the managers of NRG over the next several months.
Once Judge Hoffman appointed Spector as the receiver, he tasked him with winding down NRG and paying out its creditors and members. Furniss and GTC came into the picture in the Dallas litigation in December 2017, when he filed an intervening petition requesting $2.7 million in unpaid fees related to the sale of Forest Park’s Austin hospital as well as other Forest Park properties that had filed for bankruptcy.
Spector proposed a settlement with Furniss/GTC for court approval in February 2018, which caused Dallas attorney Joel Reese to intervene on behalf of Toussaint Family Partnership, Ltd, a member and a 20 percent owner of NRG Austin.
Reese objected to Spector settling with Furniss because he felt he didn’t have enough information about the settlement to approve it on behalf of Toussaint Family Partnership.
This prompted Reese to dig deeper, and after examining bank records, he discovered the three wire transfers to GTC. He then looked at the public record in FMPC Austin’s bankruptcy case, and noticed a couple peculiar things: 1) the transfers occurred before (and, in the third transaction’s instance, in spite of) Judge Davis’ March 2017 ruling that denied NRG’s request for payment of the administrative expense to GTC, and 2) the first two wire transfers added up to $2.875 million – the exact amount of GTC’s alleged fee.
This discovery caused a game of musical chairs in legal representation in which Spector retained Reese to pursue contempt and sanctions claims against Furniss in the bankruptcy court on behalf of NRG Austin and FPMC Austin. With the help of Austin bankruptcy attorney Steve Lemmon, Reese filed a motion to reopen the bankruptcy in April, and, according to court documents, at a May 30 hearing, Judge Davis took no hesitation in granting Reese’s request: “In terms of how long it’s going to take to hear the motion to reopen, it’s going to take a nanosecond because it’s done,” the judge said. “The case is reopened.”
Since then, multiple hearings have been conducted to investigate whether Furniss and GTC will be held in contempt. Last Monday’s ruling indicates that Judge Davis has already made up his mind, but Furniss will have one last chance Dec. 20 to convince the judge otherwise.
The order said Furniss has until Dec. 3 to file a brief “no more than 10 pages” to argue why he should not be held in contempt and receive sanctions. Spector will then have until Dec. 10 to file a response, also to be “no more than 10 pages.” Then, Furniss has until Dec. 17 to file another reply, which cannot exceed five pages.
Reese admits that some may think his pursuit of Furniss “may be aggressive,” but he said his earnestness is about something much bigger: the integrity of the bankruptcy court system.
“I think the judicial process is in jeopardy when parties skirt the law and don’t follow the rules,” he said. “The judges don’t have the ability or time to independently research and review whether the lawyers and parties are following the rules. They rely on us as lawyers to tell them when there’s a serious issue.”