*** Unofficial Docket ***
Updated Wed., Oct. 6, 2017
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
THIRD DIVISION
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In re: CAREFOCUS CORPORATION, Debtor. |
) ) ) ) ) |
Chapter 11 Case No. 17-32654 |
The Players
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Individual or Entity |
Available Photo |
Role |
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CareFocus Corporation 2429 University Ave. West, Ste. 200 St. Paul, MN 55114-1541 |
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The debtor and debtor-in-possession |
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Adewale Koleosho |
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Chief Executive Officer |
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Steven B. Nosek Steven B. Nosek, P.A. 2855 Anthony Lane S, #201 St. Anthony, MN 55418 (612) 335-9171 snosek@noseklawfirm.com |
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Counsel to CareFocus |
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Yvonne R. Doose Steven B. Nosek, P.A. 2855 Anthony Lane S, #201 St. Anthony, MN 55418 (612) 335-9171 |
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Counsel to CareFocus |
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The Honorable William J. Fisher United States Bankruptcy Court 316 N. Robert St. St Paul, MN 55101 |
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The Bankruptcy Judge |
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Michael R. Fadlovich U.S. Trustee's Office 300 S. 4th St., Ste. 1015 Minneapolis, MN 55415 (612) 334-1350 |
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United States Trustee's office |
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Colin D. Kreuziger U.S. Trustee's Office 300 S. 4th St., Ste. 1015 Minneapolis, MN 55415 (612) 334-1350 |
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United States Trustee's office |
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A.J. Siddiqui CPA 2429 University Ave. West, #100 St. Paul, MN 55114 |
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Accountant for CareFocus |
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Roylene A. Champeaux Assistant United States Attorney 600 United States Courthouse 300 South Fourth Street Minneapolis, MN 55415 (612) 664-5685 Roylene.Champeaux@usdoj.gov |
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Counsel to the Internal Revenue Service |
The Proceedings
Operations & Finances
CareFocus Corporation provides a wide range of home health services. Adewale Koleosho owns 100% of the equity in CareFocus and serves as its CEO.
CareFocus filed a chapter 11 petition (Doc. 1) in the U.S. Bankruptcy Court for the District of Minnesota on Aug. 18, 2017. This is CareFocus' third chapter 11 filing; the two prior chapter 11 cases were:
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Case No. |
Petition Date |
Plan Confirmed |
Case Closed |
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May 25, 2013 |
Dec. 4, 2013 |
Feb. 10, 2014 |
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Feb. 9, 2010 |
Jan. 26, 2011 |
Apr. 22, 2011 |
CareFocus says this third chapter 11 filing was necessitated following eight to nine weeks of the U.S. Department of Treasury withholding more than $100,000 of funds payable by the Veterans Administration and the resulting extreme cash flow disruptions and default on payments to federal and state taxing authorities.
CareFocus' balance sheet (Doc. 15) dated July 31, 2017, shows $164,864 in assets and $497,026 in liabilities. Between Jan. 1 and July 31, 2017, CareFocus' income statement (Doc. 16) shows that the company generated more than $2 million in revenue and $64,000 in profit. In 2016, revenues totaled about $4 million and in 2015, revenues topped $4 million. CareFocus' 2013 Form 1120S (Doc. 18) -- prepared Aug. 25, 2017 -- shows $3.3 million in revenue and $173,000 of profit. CareFocus projects in its bankruptcy petition (Doc. 1) that funds will be available for distribution to its unsecured creditors.
After requesting (Doc. 20) and obtaining (Doc. 21) a short extension of time to file its Schedules of Assets and Liabilities and Statement of Financial Affairs, CareFocus delivered those documents (Doc. 26) to the Bankruptcy Court. CareFocus discloses that it owes $2,750 to its landlord, New Wine Church, and that its tax-related debts total:
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Taxing Authority |
Amount Owed |
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Internal Revenue Service |
$409,870 |
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Internal Revenue Service |
56,805 |
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Minnesota Unemployment Insurance |
351,135 |
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Minnesota Deptment of Revenue |
66,235 |
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Total |
$884,045 |
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and those tax obligations are secured by a variety of tax liens. In addition, CareFocus disputes any amount owed to the U.S. Department of the Treasury's Bureau of Fiscal Services which has been intercepting Veterans Administration reimbursements.
CareFocus discloses $579,281 in assets in its Schedules, consisting of no cash on hand; $559,531 of accounts receivable (in large measure, presumably, from the VA but withheld by Treasury); a $2,750 security deposit held by New Wine Church; $15,000 of office equipment; and a van valued at $2,000.
CareFocus discloses that it made three substantial payments outside the ordinary course of business within the 90-day period prior to filing its chapter 11 petition:
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Creditor |
Date |
Payment |
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AmTrust North America |
May 2017 |
$6,230 |
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Renown Investment LLC |
June 2017 |
15,000 |
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Darrel & Deborah Meade |
July 2017 |
31,300 |
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Total |
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$52,530 |
Bankruptcy Professionals
The Honorable William J. Fisher serves as the bankruptcy judge overseeing CareFocus' chapter 11 restructuring.
Steven B. Nosek and Yvonne R. Doose at Steven B. Nosek, P.A., represent CareFocus in its chapter 11 proceeding. Mr. Nosek bills $300 per hour for his legal advice and counsel, and Ms. Doose charges $200 per hour. CareFocus filed its application (Doc. 4) to employ its lawyers on the Petition Date. CareFocus paid its lawyers a $10,000 retainer shortly before the Petition Date. Judge Fisher approved (Doc. 28) the application without objection. To date, Mr. Nosek and Ms. Doose have sought and obtained payment of fees and reimbursement of expenses totaling:
Period |
Fees Requested |
Expenses Requested |
Application |
Amount Approved |
Order |
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08/17/2017 through 09/30/2017 |
$9,030.00 |
$2,402.22 |
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CareFocus also filed an application (Doc. 8) to employ A.J. Siddiqui CPA as its accountant. The accounting firm has provided payroll, Medicare reporting, tax and other services to CareFocus since 1999, and bills $200 per hour for its services. Judge Fisher approved (Doc. 29) the application without objection. To date, Mr. Siddiqui has sought and obtained payment of fees and reimbursement of expenses totaling:
Period |
Fees Requested |
Expenses Requested |
Application |
Amount Approved |
Order |
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08/17/2017 through 09/30/2017 |
$5,200.00 |
$0.00 |
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CareFocus asked (Doc. 24) Judge Fisher to find that appointment of a patient care ombudsman pursuant to § 333 of the Bankruptcy Code is unnecessary in this chapter 11 proceeding because all services are performed in patients' homes and there's no indication licensing problems or poor patient care. Without objection, following an expedited hearing (Doc. 31), Judge Fisher granted (Doc. 30) the Debtor's request without prejudice to the right of the U.S. Trustee to revisit the matter if he determines at a later date that appointment of a PCO would be appropriate.
The U.S. Trustee advised the Court in a paperless filing dated Sept. 21, 2017, that he was unable to appoint an official creditors' committee in the Debtor's chapter 11 case.
First-Day Proceedings
Judge Fisher convened a telephonic hearing (Doc. 10) on Aug. 22, 2017, to address two initial matters:
- CareFocus' request (Doc. 6) for permission to pay roughly $104,000 of accrued and unpaid pre-petition wages to about 200 mostly part-time workers, which Judge Fisher granted (Doc. 9); and
- CareFocus' request (Doc. 7) to use cash collateral securing repayment of a debt to the Internal Revenue Service and grant the IRS a replacement lien, which Judge Fisher also granted (Doc. 11) on an interim basis.
An animated audio recording of the First Day Hearing is available at no charge at:
Post-Bankruptcy Financing Activities
At the Petition Date, CareFocus owed the IRS money on account of delinquent tax obligations. That debt was secured by liens on all of CareFocus' assets. Pursuant to a Stipulation (Doc. 25), CareFocus agrees to pay the IRS $1,046.15 each month and grants the IRS a replacement post-petition lien that explicitly excludes recovery by the estate on account of the Debtor's causes of action arising under chapter 5 of the Bankruptcy Code. Judge Fisher placed his stamp of approval (Doc. 35) on this arrangement.
Suing the Government
At an expedited hearing (Doc. 31) on Sept. 13, 2017, Mr. Nosek advised Judge Fisher that CareFocus is preparing to commence an adversary proceeding against the United States to halt (and possibly recover) the Treasury Department's withholding of reimbursements due from the Department of Veterans Affairs. Mr. Nosek and Ms. Doose's first interim fee application (Doc. 37 at composite p. 10) disclosed that a complaint against Treasury was drafted on Sept. 4, 2017, and revised on Sept. 28, 2017.
CareFocus sued the U.S. Department of the Treasury, Bureau of the Fiscal Service, the U.S. Department of Health and Human Services, and the Centers for Medicare and Medicaid Services on Oct. 3, 2017 (Doc. 38) in Bankruptcy Court by filing a complaint initiating Adversary Proceeding No. 17-03112. CareFocus seeks to recover money from the government using the avoidance powers conferred on it under chapter 5 of the U.S. Bankruptcy Code. CareFocus understands that the government believes CareFocus received about $150,000 in excess payments based on Medicare audits from 15 or 16 years ago. As a result, starting in June 2017, Treasury began withheld payments due CareFocus from the Department of Veterans Affairs. CareFocus says that Treasury has intercepted about $107,000 in reimbursements and, it appears, continues to do so notwithstanding the company's chapter 11 filing. CareFocus wants Judge Fisher to order the intercepted reimbursements returned and wants the government's claims in this chapter 11 proceeding disallowed. CareFocus does not argue that any claims arising 15 or 16 years ago should have been resolved in one of the company's prior chapter 11 proceedings.
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