YesCare Bankruptcy Follows Defaults, Lost Contracts, Tort Storm

When Corizon Health Inc. used a controversial legal maneuver in 2022 to cleave hundreds of millions of dollars in liabilities onto a shell company, its architects called it a business decision meant to protect the correctional healthcare company’s future operations.

But on May 8, the businesses built from Corizon’s rescued assets—YesCare Corp. and several affiliates—fell into Chapter 11, capping off years of litigation and financial struggles. The bankruptcy raises questions about the effectiveness of the legal strategy known as the Texas Two-Step, and whether incarcerated creditors may ever get paid.

The collapse was years in the making but escalated significantly in recent months as legal bills went unpaid.

Isaac Lefkowitz, YesCare’s board member who signed off on its Florida bankruptcy filing, had a blunt response after receiving a demand in January for roughly $741,000 in unpaid legal fees related to bankrupt YesCare affiliate Tehum Care Services Inc.

“I don’t negotiate with terror!” Lefkowitz said in email disclosed in court papers.

The reply came amid a series of legal and financial troubles for Lefkowitz, YesCare, and others in the wake of Tehum’s own bankruptcy, which concluded last year. Lefkowitz, several businesses he’s associated with, and former Corizon management were accused in court last month of helping shield company assets from mounting liabilities stemming from hundreds of malpractice and patient neglect suits.

The lawsuit, filed by two creditor trusts after Tehum insiders stopped making settlement payments, was yet another problem for Brentwood, Tenn.-based YesCare, which had just a lost $1 billion Alabama contract and a $307.6 million Michigan federal judgment.

Jonathan Marko, a trial lawyer representing the Michigan prisoner, called the judgment an “extinction event” but noted YesCare insiders are experts in using bankruptcy.

“They’re good at making excuses for not paying any of their bills or debts,” Marko said.

Texas Two-Step

Lefkowitz and his private equity vehicle Perigrove 1018 LLC took control of Corizon, once one of the country’s largest prison healthcare providers, in December 2021.

They soon began working with law firm White & Case LLP to develop “Project Orange,” their code name for the corporate restructuring strategy and divisional merger colloquially known as the Texas Two-Step, according to court records.

The stated goal was to minimize risks of business disruption and liquidation, position the company to win new contracts, and keep employees.

The maneuver helped shield Corizon’s valuable assets and future revenue from creditors by splitting itself into CHS TX Inc.—which held government contracts, and employees—and Tehum, which carried about $185 million in liabilities, including malpractice and wrongful death claims.

YesCare ultimately bought CHS TX, and Tehum filed for Chapter 11 in February 2023, freezing litigation.

Default

Under Tehum’s bankruptcy settlement, about $50 million was to be paid by YesCare and its subsidiaries. Lefkowitz and other insiders in exchange received protection via an injunction that channeled claims to bankruptcy trusts for creditors.

Lefkowitz and his associates defaulted in early March, forfeiting litigation protections. The trusts’ suit said Lefkowitz provided a forged bank statement to support the divisional merger and cut costs, which hurt patients.

Attorney Val Early, who represents a tort claimant in the bankruptcy, said he isn’t surprised by the default but that the question now is whether claimants can obtain compensation for their injuries.

“This whole ‘Project Orange’ thing still is a mystery to me,” Early said.

Legal Trouble

A federal jury in Detroit on April 2 delivered the $307.6 million verdict against Corizon, CHS TX, and a former Corizon physician who was found to be deliberately indifferent to inmate Kohchise Jackson’s medical needs, in violation of the Eighth Amendment. Lefkowitz appeared at the trial but invoked his Fifth Amendment privilege against self-incrimination.

Then, the same month, Alabama’s Department of Corrections canceled YesCare’s $1.06 billion contract to provide health services to 20,000 inmates at 27 facilities, citing failure to fulfill its contractual duties.

Alabama state Rep. Christopher England (D) said at an April oversight hearing that families had previously worried about incarcerated individuals being denied access to critical medical care. He also raised concerns about creditors from other states trying to seize YesCare’s Alabama assets to satisfy judgments, complicating the state’s exit from the contract.

YesCare disclosed in an April filing in a subcontractor’s lawsuit that it failed to pay more than $1.5 million since January for dental staffing, services, and equipment at Alabama facilities. YesCare’s general counsel told its outside lawyers at Rushton, Stakely, Johnston & Garrett PA that it couldn’t pay its legal bills.

The University of Maryland Faculty Physicians Inc. and 15 nonprofit physician groups also sued YesCare last month, arguing it failed to pay medical services provided to Maryland inmates while benefiting from a $680 million Maryland contract.

Lefkowitz

On April 28, Jackson and another inmate filed a RICO complaint in Michigan federal court alleging Lefkowitz operated a criminal enterprise to buy insolvent companies—including Corizon, LaVie Centers, and Genesis Healthcare—and strip their assets through sham consulting deals, then file for bankruptcy and leave creditors with the wreckage.

Lefkowitz didn’t respond to requests for comment.

The trusts separately said Lefkowitz and Perigrove siphoned about $30 million from Corizon after acquiring it, partly through no-value consulting agreements.

Lefkowitz has faced personal financial strain as well. In February he and a CHS unit sued Danila Holdings LLC in New York state court over $2.5 million payroll loan carrying a 54% interest rate and 75% default rate, alleging predatory lending and criminal usury. Lefkowitz said he personally guaranteed the loan and pledged all of his membership interest in CHS as collateral.

Early said insiders had been “wiggling and wriggling like a worm on a hook” to avoid being “eaten” by liabilities, and pointed to the name Lefkowitz allegedly chose for Tehum as symbolic of the enterprise’s legal journey.

“‘Tehum’ is a translation of the Hebrew ‘תּהוֹם’ְ , ‘meaning ‘abyss,” the trustees said in their April lawsuit. “Often used to describe a chaotic and formless state of the world.”