By Dietrich Knauth
(Reuters) – Prison healthcare company Tehum Care Services received court approval on Tuesday to proceed with a new mediator who will replace former bankruptcy judge David Jones, who resigned from the bench over his romantic relationship with an attorney involved in the negotiations.
Tehum Care, which filed for bankruptcy in February to address prisoners’ medical malpractice lawsuits against its corporate predecessor Corizon Health, had reached a mediated bankruptcy settlement which would have allocated roughly $8.5 million to settle prisoners’ and former prisoners’ claims.
But before the deal was approved, attorneys for prisoners and the U.S. Department of Justice’s bankruptcy watchdog argued that the settlement was tainted because Jones, while serving as a mediator in the case, failed to disclose that he shared a home with attorney Liz Freeman, who represented Tehum’s affiliate YesCare in the talks.
The judge overseeing Tehum’s case, U.S. Bankruptcy Judge Christopher Lopez, appointed retired bankruptcy judge Christopher Sontchi to replace Jones. Lopez said at a hearing in Houston on Tuesday that Sontchi should take a fresh look at the entire settlement, rather than focusing solely on Jones’ conflict of interest.
“I never really liked the deal,” Lopez told Tehum’s attorney. “I didn’t know if the amount of money was right.”
Lopez said Tehum previously did not disclose enough information to evaluate the deal, which would have given approximately $8.5 million to 200 prisoners and former prisoners while wiping out their medical malpractice claims against Corizon and its financial backers.
The Tehum case is one of several bankruptcies impacted by the sudden resignation of Jones, who had been the nation’s busiest bankruptcy judge before he stepped down last month. Most of the fallout occurred in cases where Jones was the presiding judge, unlike the Tehum case, where he served as a mediator.
Freeman’s former law firm, Jackson Walker, is facing calls to return millions of dollars that it billed in cases overseen by Jones, and it has said that Freeman misled the firm about her relationship with the judge.
Jones did not immediately respond to a request for comment.
Freeman, through her attorney, declined to comment on Tuesday.
Attorneys for Tehum and its court-appointed creditors committee told Lopez on Tuesday that Jones’ undisclosed relationship ultimately had no impact on the proposed bankruptcy settlement. But they said that they would be open-minded about a new deal when mediation talks resume on Nov. 27.
Lopez said Tehum recently addressed some of his long-standing questions about who was calling the shots and providing funding for Tehum’s bankruptcy. Lopez had raised questions about who would benefit from the legal protections in the settlement, whether Tehum was receiving enough money for the release of legal claims, and the allocation of funds between medical malpractice claims and other creditors.
“We now have better disclosure, but now folks need to rethink the deal,” Lopez said.
Tehum revealed in recent court documents that its bankruptcy loan was provided by an affiliated entity controlled by Isaac Lefkowitz, whose investment firm Perigrove bought Corizon in 2021 and who oversaw Corizon’s 2022 division into the new companies YesCare and Tehum.
YesCare, which is not bankrupt, inherited Corizon’s operations as a prison health company, while Tehum was saddled with the existing malpractice liabilities.
Tehum previously had agreed to accept $37 million in cash to release all of its legal claims against Lefkowitz, YesCare and related companies.
The case is Tehum Care Services, U.S. Bankruptcy Court for the Southern District of Texas, No. 23-90086
For Tehum: Jason Brookner of Gray Reed & McGraw
For the U.S. Trustee: Ha Nguyen of the DOJ’s Office of the U.S. Trustee
For the creditors’ committee: Nicholas Zluticky of Stinson
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(Reporting by Dietrich Knauth)
