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Texas Court Asked to Appoint Receiver for Key Subsidiary of TSX Listed Northstar Healthcare, Inc. (TSX NHC) on Claims of Mismanagement and Breach of Fiduciary Duty
Date:2/17/2010

HOUSTON, Feb. 17 /PRNewswire/ --  

    
    
                             CAUSE NO. 2010-10259
    
    BRAD KOVNAT,                                    IN THE DISTRICT COURT OF
                                           
                Plaintiff,                 
                                           
    v.                                     
                                           
    THE PALLADIUM FOR SURGERY-                      HARRIS COUNTY, T E X A S
    HOUSTON, LTD., NORTHSTAR
    HEALTHCARE GENERAL PARTNER, 
    L.L.C., and NORTHSTAR HEALTHCARE 
    LIMITED PARTNER, L.L.C.,            
                                           
                Defendants.                          190th JUDICIAL DISTRICT  
    
                            PLAINTIFF'S ORIGINAL PETITION 
                      AND APPLICATION FOR APPOINTMENT OF RECEIVER 
               TO REHABILITATE DOMESTIC ENTITY, AND FOR AN ACCOUNTING
    
    TO THE HONORABLE JUDGE OF SAID COURT:
    
        Brad Kovnat, plaintiff in the above-styled and numbered cause, files 
    this complaint about Defendants, The Palladium for Surgery—Houston, Ltd., 
    a Texas limited partnership; Northstar Healthcare General Partner, L.L.C., 
    a Delaware limited liability company; and Northstar Healthcare Limited 
    Partner, L.L.C., a Delaware limited liability company.
    
                                        I.
                                 DISCOVERY LEVEL
        1.  Plaintiff intends to conduct discovery under Rule 190.4 (Level 3) 
    of the Texas Rules of Civil Procedure.
    
                                       II.
                                     PARTIES
        2.  Plaintiff is an individual residing in Harris County, Texas.  He 
    can be served through his attorneys of record below.
        3.  Defendant The Palladium for Surgery—Houston, Ltd. ("the 
    Partnership") is a Texas limited partnership existing under the Texas 
    Business Organization Act with its registered office at Post Oak Tower, 
    The Galleria, 5501 Westheimer, Ste. 1850, Houston, TX 77056, where 
    citation may be served on Stewart A. Feldman, its registered agent.
        4.  Defendant Northstar Healthcare General Partner, L.L.C., is a 
    Delaware limited liability company with its principal place of business in 
    Houston, TX.  Service may be made at the office of its registered agent, 
    Incorp Services, Inc., One Commerce Center, 1201 Orange St. #600, 
    Wilmington, DE 19889.
        5.  Defendant Northstar Healthcare Limited Partner, L.L.C., is a 
    Delaware limited liability company with its principal place of business in 
    Houston, TX.  Service may be made at the office of its registered agent, 
    Incorp Services, Inc., One Commerce Center, 1201 Orange St. #600, 
    Wilmington, DE 19889.
    
                                     III.
                            REQUESTS FOR DISCLOSURE
        6.  Pursuant to Rule 194, you are requested to disclose, within 30 
    days of service of this request, the information or material described in 
    Rule 194.2.
    
                                     IV.
                            VENUE AND JURISDICTION
        7.  The Court has jurisdiction to appoint a receiver over Defendant 
    The Palladium for Surgery—Houston, Ltd., because both Defendant's 
    registered office and principal place of business are located in Harris 
    County, Texas.  Tex. Bus. Orgs. Code Statute 11.402(b).  This matter is 
    within the jurisdictional limits of this Court.
        8.  Venue is proper in Harris County, Texas because at least one of 
    the defendants maintains its principal office within Harris County, and 
    the property and assets at issue in this action are also located within 
    Harris County.  Tex. Civ. Prac. & Rem. Code Statutes 15.001, 15.002, 
    15.005.
    
                                   V.
                           FACTUAL BACKGROUND
        9.  The Palladium is an ambulatory surgery center.  Northstar 
    Healthcare, Inc., a publicly traded company that ultimately controls 
    Palladium, appears intent on the destruction of the surgery center as an 
    on-going financial business.  The appointment of the receiver is necessary 
    to conserve the assets and business of The Palladium for Surgery-Houston, 
    Ltd., and to avoid destruction of the limited partners' interests in the 
    Partnership.
        10. The Palladium for Surgery—Houston, Ltd. is a Texas limited 
    partnership with its principal place of business in Houston, Texas.  The 
    Partnership exists solely to own and operate The Palladium for Surgery-
    Houston ("Palladium"), an ambulatory surgery center ("ASC") also based in 
    Houston.
        11. The Partnership's general partner is Northstar Healthcare General 
    Partner, L.L.C., a Delaware limited liability company.  Together with its 
    limited partner, Northstar Healthcare Limited Partner, L.L.C., also a 
    Delaware limited liability company, the two companies (collectively, "the 
    Northstar companies") own 70% of the Partnership.  The Northstar companies 
    are themselves owned by Northstar Healthcare, Inc., a Canadian corporation 
    with its principal place of business in Houston.  Northstar Healthcare 
    owns and operates a number of ASCs located throughout Texas.
        12. The remaining 30% of the Partnership is owned by a number of 
    individuals and business entities, including Plaintiff and several 
    surgeons who practice at Palladium.  At all times relevant to this action, 
    Plaintiff was and remains a limited partner in The Palladium for Surgery-
    Houston, Ltd.  
        13. The Northstar companies acquired 55% of the Partnership in May 
    2007. Shortly thereafter, the Northstar companies exercised their option 
    to acquire an additional 15% of the Partnership.  In total, the Northstar 
    companies paid approximately $76 million for their 70% stake in the 
    Partnership.  This purchase price valued the Partnership at more than $108 
    million.
        14. ASCs have become popular in recent years, as they provide patients 
    with an alternative to traditional inpatient facilities, such as large 
    hospitals.  Indeed, there are approximately 400 ASCs currently operating 
    in Texas alone.  Like traditional hospitals, ASCs are licensed and 
    regulated by the state, and provide facilities for a wide variety of 
    surgical procedures.  Physicians at Palladium, for example, perform 
    surgeries in fields such as orthopedics, pain management, and podiatry.  
    However, ASCs perform outpatient procedures exclusively, and do not 
    provide overnight care.  As a result of Palladium's focus on outpatient 
    treatment, its patients are typically discharged within hours of their 
    surgeries.  These ambulatory surgery centers have been profitable entities 
    in many different cities in Texas.  
        15. However, since the Northstar companies appointed new management in 
    2008, the Partnership's fortunes have taken a drastic turn for the worse.  
    In 2008, net income for Palladium dropped by nearly 45% from 2007 levels.  
    This poor performance accelerated in 2009, as Palladium's net income in 
    December 2009 fell by nearly 55% compared to 2008.  Palladium's 
    hemorrhaging of revenue has shown no indication of halting, as just this 
    month, partner distributions were cut by 50% due to the Northstar 
    companies' concern over recent losses and declining future revenues.
        16. The Northstar companies concede that the Partnership is in dire 
    condition.  In fact, on information and belief, the Northstar companies 
    asserted as recently as last month that the Partnership's business had 
    collapsed.  Indeed, on information and belief, the Northstar companies now 
    value their interest in the Partnership at less than $3 million.  Put 
    another way, the Northstar companies themselves admit that in little more 
    than two years, the Partnership has lost over 96% of its value and shows 
    no sign of recovery.  
        17. Although aware of the Partnership's drastic decrease in 
    profitability, the Northstar companies have failed to address its 
    deteriorating condition.  Specifically, in spite of repeated entreaties 
    from its limited partners, the Northstar companies have failed to recruit 
    additional physicians, thus denying the Partnership the much-needed 
    revenue that surgeons with healthy practices would bring.  The Northstar 
    companies have also failed to re-syndicate the Partnership—which would 
    attract physicians to work at Palladium - and have, without basis, blamed 
    Dr. Donald Kramer for their failure to act.  In fact, beyond just failing 
    to recruit partners actively, on information and belief, the Northstar 
    companies have refused to bring on qualified physicians who approached 
    them to discuss the possibility of joining the partnership.  
        18. Further, the Northstar companies have suspended development of 
    several marketing campaigns that have been extensively developed for 
    Palladium by its partners.  As a result, the Partnership has failed to 
    increase patient awareness of Palladium and its services, and other 
    sources of revenue have been squandered.  In spite of the Partnership's 
    declining condition, the Northstar companies have decreased Partnership 
    meetings, making them a quarterly, rather than monthly, occurrence. 
        19. Indeed, rather than focus on repairing the Partnership and 
    developing new sources of revenue, Northstar's management, including its 
    CEO, has engaged in wasteful and potentially damaging activities, 
    including sending pornographic email messages to Partnership employees 
    during working hours.
        20. In fact, on information and belief, the Northstar companies appear 
    to be working to destroy Palladium as an ongoing business.  On information 
    and belief, in an effort to open a new surgery center that would compete 
    with Palladium, beginning in January 2010, Northstar began recruiting 
    physicians away from Palladium.  These actions have been hidden from 
    Plaintiff.
        21. Further, on information and belief, since November 2009, the 
    Northstar companies have been attempting to shut down Palladium and to 
    then sub-lease the facility to certain members of the Partnership.  On 
    information and belief, this business opportunity has only been offered to 
    a small number of partners, and has been hidden from other partners, such 
    as Plaintiff.
        22. Finally, on information and belief, in November 2009, Northstar 
    companies attempted to sell the assets of Palladium to one of the current 
    partners for approximately $2.6 million.  This sale would have been 
    extremely detrimental to the remaining partners, and was hidden from 
    Plaintiff and the other partners.
        23. Because of the Northstar companies' aforementioned failures to 
    develop business, their numerous acts of mismanagement, and their self-
    dealing at the expense of other partners, the Partnership is in imminent 
    danger of insolvency.
        24. All other remedies at law or in equity, including the appointment 
    of a receiver for the specific assets of the defendant, are inadequate to 
    protect the Partnership and the Plaintiff in that there is not presently 
    pending any litigation that would allow Plaintiff to seek the appointment 
    of an ancillary receiver, nor does plaintiff have a cause of action that, 
    if asserted, would allow the appointment of a receiver for the Defendant's 
    specific assets.
    
                                    VI.
                             CAUSES OF ACTION
    
             First Cause of Action – Breach of Fiduciary Duty
      (Against Defendants Northstar Healthcare General Partner, L.L.C. and 
               Northstar Healthcare Limited Partner, L.L.C.)
    
        25. Plaintiff repeats and realleges each allegation set forth herein.
        26. Plaintiff and the Northstar companies are parties to the Amended 
    and Restated Partnership Agreement of The Palladium for Surgery—Houston, 
    Ltd. ("Partnership Agreement").  The Partnership Agreement governs the 
    responsibilities of the members of the Partnership.
        27. Defendant Northstar Healthcare General Partner, L.L.C. is the 
    general partner of the Partnership, and Defendant Northstar Healthcare 
    Limited Partner, L.L.C. is a limited partner in the Partnership.  Under 
    the terms of the Partnership Agreement, the Northstar companies owe a duty 
    of loyalty and a duty of care to the Partnership and its members.  
        28. Plaintiff specifically limits the scope of his cause of action to 
    events occurring after October 21, 2009.
        29. On information and belief, without informing Plaintiff or the 
    Partnership, beginning in January 2010, the Northstar companies began 
    attempting to divert the Partnership's most important assets—its 
    physicians—to a competing ambulatory surgery center.  
        30. On information and belief, the Northstar companies are offering 
    the opportunity to invest in the competing new surgery center to some 
    limited partners but not to other limited partners, including Plaintiff.
        31. On information and belief, without informing the Partnership, 
    beginning in November 2009, the Northstar companies attempted to sell 
    Palladium to one of the current partners for approximately $2.6 million.
        32. On information and belief, without informing the Partnership, 
    beginning in November 2009, the Northstar companies engaged in self-
    dealing by attempting to sub-lease Palladium to certain limited partners.  
    Under this scenario, Northstar plans to shut down Palladium entirely, and 
    lease its premises to a current partner, to the clear detriment of 
    Plaintiff and other partners.
        33. On account of the aforementioned actions, the Northstar companies 
    have breached their duties of loyalty and care owed to the Partnership.
        34. As a result of the Northstar companies' breach of their fiduciary 
    duties, the Plaintiff has been damaged in an amount within the 
    jurisdictional limits of this Court for which amount the Plaintiff sues.
        35. Accordingly, and in addition to his actual damages, the Plaintiff 
    is also entitled to exemplary damages for such breach for which amount the 
    Plaintiff hereby sues.
    
                  APPLICATION FOR APPOINTMENT OF RECEIVER
        36.  As a result of the foregoing, Plaintiff brings this action, made 
    pursuant to section 11.404 of the Business Organizations Code, to have a 
    receiver appointed for the assets and business of defendant in order to 
    bring about a rehabilitation of the Partnership.  All other requirements 
    of the law have been satisfied.
    
                          REQUEST FOR AN ACCOUNTING
        37. In spite of the Partnership's worsening condition, the Northstar 
    companies have cancelled regularly-scheduled meetings of the Partnership's 
    Board of Governors, and have kept limited partners such as Plaintiff in 
    the dark as to Palladium's current finances.  On information and belief, 
    the Northstar companies have also concealed their dealings with members of 
    the Partnership, as well as their attempts to extract business from 
    Palladium.  Accordingly, Plaintiff requests that the court enter an order 
    requiring Defendant to provide a verified accounting for the Partnership.
        38. In order to protect his rights, Plaintiff has been required to 
    retain the services of the undersigned attorney to prosecute this claim. 
    Plaintiff is entitled to an award of reasonable attorney fees and expenses 
    pursuant to Chapter 38 of the Texas Civil Practice & Remedies Code.
    
                                    VII.
                                   PRAYER
        Plaintiff submits that a receiver as the Court shall deem qualified, 
    should be appointed operating receiver of the assets and business of 
    Defendant The Palladium for Surgery—Houston, Ltd., with such powers as are 
    provided by laws of general applicability relating to receivers and such 
    other powers deemed appropriate by the Court to accomplish the 
    Partnership's rehabilitation.
    
        WHEREFORE, plaintiff requests that Defendants be cited to appear and 
    answer, and that on final trial, Plaintiff have the following:
    
        (1) Judgment, appointing a receiver as the Court deems qualified, of 
            all the assets and business of The Palladium for Surgery—Houston, 
            Ltd., with the powers described above.
        (2) All actual and exemplary damages for breach of fiduciary duty.
        (3) An order determining the amount and terms of the bonds of the 
            applicant and the receiver.
        (4) An order requiring the Northstar companies to provide an 
            accounting of the Partnership.
        (5) Cost of suit.
        (6) Such other and further relief as may be appropriate in the 
            circumstances.
    
    
    Respectfully submitted,
    SMYSER KAPLAN & VESELKA, L.L.P.
    
    By:
       Craig Smyser
       State Bar No. 18777575
       Timothy Byrd
       State Bar No. 03559050
       700 Louisiana, Suite 2300
       Houston, Texas 77002
       (713) 221-2317
       (713) 221-2320 - FAX
    ATTORNEYS FOR PLAINTIFF 
    BRAD KOVNAT

SOURCE Brad Kovnat


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SOURCE Brad Kovnat
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