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Retreat Behavioral Health Creditors Face Long Road to Recovery

Courtroom session relating to the bankruptcy proceedings of Retreat Behavioral Health.

News Summary

The ongoing legal proceedings surrounding Retreat Behavioral Health reveal that creditors may only recover 15-20% of owed amounts. With claims exceeding $30 million, challenges persist as the company, which closed in June 2022 amidst tragedies, navigates bankruptcy. Seven to eight entities are involved, and several settlements have been reached, including notable reductions in claims. Additionally, investigations into financial discrepancies are underway, complicating recovery efforts as many vendors and employees await payments.

Pennsylvania — The ongoing legal proceedings surrounding Retreat Behavioral Health indicate that creditors may collect only 15 to 20 percent of the amounts owed to them, according to the receiver involved in the case, James A. Young. During a recent hearing in Lancaster County, he detailed the claims made by seven to eight entities alleging that the company owed them a total of at least $30 million.

The hearing, presided over by Judge Jeffrey Conrad, was postponed when DCM LLC, a firm that claims $325,500 is owed to it, failed to have legal representation present in court, a requirement for corporate appearances. DCM LLC’s grievances arise from a lease agreement dispute it has with NRPA, the corporation that oversees Retreat’s Pennsylvania operations.

Retreat Behavioral Health, which shut down in June 2022, faced significant turmoil following the tragic suicides of its CEO, Peter Schorr, and Chief Administrative Officer, Scott Korogodsky. The closure resulted in nearly 650 employees losing their jobs, with approximately 300 of those working at the facilities located in Akron and Ephrata. The abrupt cessation of operations also left vendors with substantial unpaid invoices and patients without access to their medical records.

The financial woes of Retreat were exacerbated by its default on various loans and mortgages, with estimates indicating the company was in the hole for at least $30 million. The bankruptcy process has seen numerous claims lodged, with legal representatives seeking to negotiate settlements for the creditors. Attorney Adrienne Walker, representing Lapis Advisers—a Denver-based investment firm owed $4.8 million—has been engaged in dialogue with prominent creditors to facilitate recovery.

Among the various settlements reached, Arba Credit Investors agreed to settle for approximately $3.38 million, significantly lower than the $19 million it originally claimed. Similarly, David Silberstein, who owns a 33% stake in NRPA, accepted around $3 million versus the over $6 million he initially sought. Five other claims submitted to the receiver varied widely, suggesting that different settlement amounts were proposed based on the specific claims.

Young has identified that at least ten other entities claiming about $105,000 may see nothing returned, as he has found no substantial evidence to support their claims. Despite the disheartening projections for creditor recovery, Young revealed that $3.8 million has already been received from a federal employee retention program established during the COVID-19 pandemic.

Efforts to collect an additional $500,000 from Aetna Insurance are unlikely to succeed, as reimbursement claims have been denied. Meanwhile, Ian Lagowitz, the second receiver involved in the proceedings, is actively assessing offers to sell a 14-acre, 175-bed treatment facility located in Ephrata, with the hopes of recouping some funds for the creditors.

Judge Conrad has also ordered several insurance companies to respond to Young’s attempts to collect around $2 million in denied payments connected to Retreat’s services. Young anticipates wrapping up his role by February, although the sparse payroll records complicate the process of compensating employees who are still owed wages. A longstanding record of financial discrepancies also shows that around $3 million has been claimed by at least 46 small businesses, many of which may recover little to nothing from the bankruptcy.

The intricate ownership structure of Retreat Behavioral Health has posed additional challenges for the liquidation process, impeding recovery efforts for creditors. Since its closure, investigations into the company’s practices have been launched by both the Pennsylvania Department of Labor and Industry and the U.S. Department of Labor, primarily focusing on potential wage violations.

Earlier this year, the treatment facility in Akron was sold for $3.25 million, with negotiations for the sale of the Ephrata facility currently underway, aimed at enhancing recovery prospects for the aggrieved creditors.