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A Prison Medical Company Faced Lawsuits From Incarcerated People. Then It Went ‘Bankrupt.’

The prison giant Corizon spun off a new company, which could allow it to pay pennies on the dollar for medical malpractice and civil rights claims.

A collage illustration shows the Corizon headquarters sign underneath three circular photographs of people. One circle features a young man, smiling. Another circle shows a woman posing next to a young man. In the third, a couple smiles against a backdrop of palm trees. Floating around these three images are cut-out pieces of text from a court filing that contains words like “bankruptcy,” “harm,” “wrongdoing” and “incarcerated people.” Red illustrated bars lay over a corner of the Corizon headquarters.

In 2020, Jonathan Arther sued a dozen state officials and employees of the Arizona prison where, he says, his medical care was bungled so badly that he went blind in one eye. He also sued Corizon Health Inc., the private, for-profit medical contractor that the state had hired to provide care in the prison where Arther was serving time for a DUI conviction. A few weeks ago, his wife got an email offering the couple $5,000 to settle the lawsuit — an offer she found insulting. The email said there was likely not enough money to cover all the legal claims against Corizon, and the couple could take the small lump sum instead of continuing to fight in court.

This article was published in partnership with USA Today and AL.com.

There are more than 100 people like Arther, who argue the medical care they received from Corizon while they were incarcerated was negligent, or worse, and are now dealing with the fallout of the company’s complicated bankruptcy. Attorneys last month announced they had reached a tentative settlement deal in the bankruptcy and expected to bring the terms to the court next week, but the details won’t become public until that happens. Until then, the people who sued Corizon are left to wonder what compensation they’ll receive, if any.

That’s because Corizon, a company that provided healthcare in prisons and jails across the country, moved most of its debts to a new company called Tehum Care Services that then declared bankruptcy, in a controversial corporate restructuring known as a “Texas Two-Step.” Then, Corizon executives created another company to do business under a new name — YesCare — a move that critics say could allow Corizon to minimize its liability. In fact, YesCare inked a contract worth more than $1 billion in Alabama, even as Corizon’s creditors may be left empty-handed.

Tehum, the bankrupt new company created in the maneuver, owes more than $82 million to over 1,000 creditors, including former patients who were injured or neglected, former employees who were hurt on the job, hospitals, doctors’ offices, cities and states. Almost all of Corizon’s assets — worth more than $170 million, according to court papers — went to YesCare, which continues to provide healthcare at prisons and jails.

“These guys are playing hide-and-go-seek with all the money,” said Michael Crawford, the attorney for the wife of a man who died in Arizona prisons when, his family says, he was left unattended by Corizon medical staff in bed for so long that he developed bed sores that became infected by his feces. He ultimately died of septic shock. His family also got an offer of $5,000 to settle its suit.

Tehum’s top executives and attorney did not reply to multiple emails. In court documents, the company said that the Texas Two-Step (known in the business world as a “divisional merger”) was “the fairest, most value-maximizing path forward” for Corizon’s creditors. Without the maneuver, liquidating the company would have led to them receiving “pennies on the dollar” in some cases or nothing at all, YesCare said in a court filing.

But there are big questions about whether Tehum really is insolvent, or, as its creditors allege, is instead taking advantage of the bankruptcy system to avoid paying its debts. A recent article by Business Insider revealed a tangled web of companies — including both YesCare and Tehum — co-owned or managed by a small, secretive group of people who would benefit if the bankruptcy goes ahead. In a lawsuit, a former Corizon executive who was forced out called the merger “an old-fashioned bankruptcy fraud scheme — taking assets and avoiding liabilities, while draining coffers into their own pockets,” Business Insider reported.

Filings in the bankruptcy reviewed by The Marshall Project reveal the breadth of people and companies who say Tehum now owes them money. The cases are at varying stages, from people who had recently notified the courts that they intended to sue, to those who survived years of legal challenges and were set for trial, to those who went to trial and won.

The bankruptcy proceedings put them all on pause indefinitely. There’s a man who, while incarcerated in a Tennessee special needs prison, had a sexual relationship with his Corizon mental health counselor, which, “as an inmate and mental health patient,” he was “unable to give consent for,” according to his lawsuit. The counselor later admitted the inappropriate relationship to the state health department when she agreed to surrender her counseling license. There’s also a man who entered the Arizona prison system healthy, but stopped being able to walk, couldn’t tolerate light and became confused and incontinent. His lawsuit argues that Corizon employees waited months to send him to the hospital, where, by the time he was diagnosed with Valley Fever and meningitis, it had already done permanent damage to his brain and spine.

The bankruptcy does not just affect prisoners and their families. The list of creditors includes hundreds of former Corizon employees who filed over $1 million in claims with the court over unpaid workers compensation and sick and vacation days. Still other employees were left on the hook for fees and judgements they expected Corizon to cover.

“Corizon failed to pay the attorneys that were hired to defend us. It has been a nightmare for our family, to say the least,” Ashley Goetterman, the wife of a former Corizon nurse in a Michigan county jail, told The Marshall Project.

Wade Jones died in 2018 from alcohol withdrawal — a condition that is very rarely fatal, if treated — while serving a five-day sentence in the Kent County jail for a misdemeanor. Earlier this year, a jury found that Chad Goetterman and two other nurses employed by Corizon at the jail were “deliberately indifferent” to the 40-year-old’s pain and suffering and awarded his family more than $6 million.

The bankruptcy means the company has not paid the deductible on the nurses’ liability insurance, leaving them personally exposed. The law firm that represented the nurses in Jones’ suit and others also says Corizon owes more than $840,000 for its work.

Corizon was, for a time, the nation’s largest for-profit provider of correctional healthcare, operating in more than 50 facilities in 27 states. Corizon’s fortunes changed in recent years. Between 2016 and 2021, the company lost more than 25 contracts, amid lawsuits alleging subpar care. “Years of mounting costs, including litigation expenses relating to claims asserted by incarcerated individuals, threatened Corizon Health’s ability to continue as a going concern,” YesCare wrote in a court filing last year.

The divisional merger, created by Texas lawmakers decades ago, allows a company to split into two or more companies. In the 2010s, corporations began pairing the maneuver with bankruptcy to create the Texas Two-Step: Step one, divide the company and distribute most of its assets into one company and most of its debts to the other. Step two, the indebted company declares bankruptcy while the solvent company continues to do business. About a half-dozen companies have reportedly used the Texas Two-Step, but all of those attempts remain tied up in litigation.

Tehum’s creditors have tried to pursue YesCare’s money in court, arguing that the two companies are the same in practice, if not on paper, but YesCare has pushed back, saying it is a completely separate company from Corizon and not responsible for Tehum’s debts. The creditors point out that almost all of Corizon’s employees, equipment and contracts are now part of YesCare. And YesCare’s website describes Corizon’s past work as its own. “Over 40 years, the YesCare team has provided quality healthcare services to clients at more than 475 facilities serving over 1,000,000 patients across the nation,” it reads, although YesCare was incorporated last year.

A spokesperson for YesCare did not respond to a detailed list of questions.

Much of Corizon’s debt appears to be the result of not paying its bills. There are hundreds of claims worth tens of millions of dollars from hospitals, dentists, radiologists and others to whom Corizon sent prisoners who needed specialty care. There’s a bill from an orthopedic supply company in Dallas for $152.93 and one from a hospital in Missouri for $6.9 million.

The state of Arizona is one of more than a dozen government entities that say Corizon’s Texas Two-Step left them on the hook for bills Corizon promised to pay. Corizon’s contracts commonly included an “indemnity clause” that said Corizon or its insurance policies would cover the costs of any lawsuits or judgments stemming from their care. The city of St. Louis, for instance, says Corizon didn’t cover the $515,000 it was forced to pay to the family of a man who died after a stay in the county jail. Corizon’s “refusal to indemnify the city in the lawsuit was baseless and in bad faith,” the city said in court filings.

For now, Tehum’s bankruptcy is making its way through the federal court system. Attorneys for some of the company’s creditors are arguing that the Texas Two-Step amounted to fraud, urging the court to unwind the divisional merger and make YesCare’s money available to Corizon’s creditors. The $5,000 offer letters that Arther and Crawford’s client received were part of negotiations between Tehum and one of Corizon’s insurance companies, which covered only certain lawsuits in Arizona. In August, Tehum announced that it had reached a tentative deal with a committee representing all of its creditors. The details are not yet public, but Business Insider reported if the deal goes through, Tehum will provide around $30 million to cover all of its outstanding claims. After attorneys’ fees, that will leave around $20 million for creditors.

This would amount to pennies on the dollar for most of the prisoners and former Corizon employees with claims, says Valrey Earley, a bankruptcy attorney representing a prisoner in Alabama who lived in her own fecal matter for months because, she said, Corizon staff at her prison did not provide her the proper supplies after abdominal surgery.

The people in Arizona who received the $5,000 offer, like Brandi Arther, say it’s not nearly enough. After her husband Jonathan’s scheduled release from prison in 2027, the couple’s lives will be forever changed by his inability to drive or do the kind of warehouse work he used to do without his peripheral vision.

“You’re holding Jonathan responsible for what he’s done. Why wouldn’t you hold them responsible? What makes them above the law?” Brandi Arther said. “Because they know a loophole, they get to walk away with clean hands. All they’re going to do is start another business and start all over again.”

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Beth Schwartzapfel Twitter Email is a staff writer who often covers addiction and health, probation and parole, and LGBTQ+ issues. She is the reporter and host of Violation, a podcast examining an unthinkable crime, second chances, and who pulls the levers of power in the justice system.