Steward sues former CEO, Tenet in bid to claw back billions
Dallas-based Steward Health Care filed a lawsuit July 15 in bankruptcy court against its former chairman and CEO, Ralph de la Torre, MD, and other top system executives, claiming they conducted insider transactions that drained Steward’s assets and contributed to financial collapse.
Steward sought Chapter 11 protection May 6, 2024, and has since worked to sell or close its 31-hospitals — many of which have drawn criticism for poor working conditions, substandard patient care, aging and unsafe facilities, and have faced lawsuits filed by unpaid vendors.
Dr. de la Torre, who also drew criticism for his lavish lifestyle amid the system’s downfall, “amicably separated” from Steward on Oct. 1 and sued the Health, Education, Labor and Pensions Committee on Sept. 30 after it held him in contempt for skipping a committee hearing for which he was subpoenaed.
Steward’s 68-page lawsuit, obtained by Becker’s, outlined claims of self-dealing, breach of fiduciary duty and fraudulent transfers in its allegations. It named former Steward leaders, including Dr. de la Torre, former Steward Executive Vice President for Physician Services Michael Callum, First Bristol Corp. Co-CEO James Karam and former Steward President Sanjay Shetty, MD.
The lawsuit pointed to an $111 million dividend in January 2021, while Steward was allegedly insolvent, that was allegedly received by Steward board members including Dr. de la Torre, Mr. Callum and Mr. Karam. Dr. de la Torre received $81.5 million of the dividend and used $30 million of it to purchase a “superyacht,” the lawsuit said.
“In orchestrating the $111M Dividend, [Dr.] de la Torre was grossly negligent and breached the duties of care, loyalty and good faith that he owed to [Steward],” the lawsuit said. “[Mr.] Callum and [Mr.] Karam were likewise grossly negligent and breached their duties of care, loyalty and good faith.”
Dallas-based Tenet Healthcare was also listed as a defendant in the lawsuit regarding Steward’s purchase of five Tenet hospitals in Florida for around $1.1 billion in August 2022. The lawsuit claimed Tenet’s facilities were initially valued at $895 million by Steward, but a higher price was paid due to Dr. de la Torre’s “personal desire to build a hospital empire in the Miami area, rather than on any independent financial analysis,” the lawsuit said.
“Not only did [Steward] overpay, but [Dr.] de la Torre pushed the deal through before Steward could complete the closely-related sale of five Steward hospitals in Utah, which [Steward] expected to rely upon to provide it with the liquidity needed for the Tenet Transaction to succeed,” the lawsuit said.
Steward claimed Tenet received a fraudulent transfer in connection with the deal, which included almost $209 million in cash that Steward contributed. It argued that Steward did not receive reasonably equivalent value for the payment and was left with an “unreasonably small capital in relation to its business both before and after making such payment.”
Steward also claimed that the proceeds of its 2022 value-based care assets sale to CareMax were diverted, with only $60.5 million of the $194 million sale going to the system. It alleged that the remainder went to entities run by Dr. de la Torre and other insiders.
The lawsuit is seeking to gain hundreds of millions of dollars, hold defendants liable for damages that stem through fraud and breaches of duty and to disallow certain creditor claims.
“Dr. de la Torre disputes the allegations of wrongdoing and will vigorously defend himself against them,” a spokesperson for Dr. de la Torre said in a July 16 statement shared with Becker’s.
The lawsuit comes after Steward received bankruptcy court approval July 16 to move forward with a liquidation plan to repay creditors with the lawsuit proceeds from previous system owners and insiders, Reuters reported.
Steward plans to seek more than $3 billion in legal claims against former creditors, insurers and insiders that received payment as the system headed toward bankruptcy. Steward has said recovering 13% of the claims would be enough to cover its bankruptcy costs, Reuters reported.
Becker’s has reached out to Steward Health Care and Tenet Healthcare for comment and will update this story should more information become available.