$10M lawsuit: Aurora Health cut real estate firm from buyback deal worth millions; Aurora: No contract breach

By Scott Holland and Jonathan Bilyk | Sep 19, 2018

Aurora Health Care Sheboygan Medical Center   Royalbroil

The largest health care system in Wisconsin is asking a federal judge to toss a commercial real estate agency’s $10 million lawsuit over claims the health system allegedly cut it out of a potentially lucrative deal.

Colliers Bennett & Kahnweiler LLC sued Aurora Health Care in July in Cook County Circuit Court for breach of contract, saying the health care provider terminated a contract in April 2017 after Colliers did 20 months worth of work analyzing 51 leaseback properties being leased by Aurora and its subsidiaries. According to the July complaint, Colliers developed a plan that would allow it to buy back properties being leased from Welltower Properties, Inc., resulting in “potential savings to Aurora of hundreds of millions of dollars.”

When Aurora sought proposals in December 2014, according to Colliers, it had more than 250 locations in Wisconsin and Illinois, including 14 acute care hospitals and a psychiatric hospital, 150 physician clinic facilities, more than 70 retail pharmacies and “the largest home health care organization in Wisconsin.” Further, Colliers said, Aurora “had retained the same real estate consultants for many years and yet, it had been unable to identify a viable strategy for reducing its significant real estate expenditures.”

Colliers mentioned its proposal response, claiming “extensive experience in advising health care systems with respect to their real estate needs” and detailed the work it did to prepare a strategy. According to the complaint, Aurora only ended the deal in order to avoid paying a commission. To support that position, Colliers said Aurora used the “confidential strategic plan” and “financial analyses prepared on its behalf” to negotiate a $430 million deal to buy 18 properties from Welltower, a deal that closed in January 2018.

Colliers said it was supposed to earn $100,000 for its consultation, noting that “fee was small in light of the scope of work requested” because Colliers stood to make far more money through brokerage service fees.

The $100,000 consultation fee was split in two — the first half due within 30 days of the agreement taking effect and the remainder upon termination. And Colliers said Aurora did provide the second $50,000 in a timely fashion, it made no commissions payments because the deal ended before the Welltower deal was in place.

According to documents Colliers submitted with its complaint, the agreement called for brokerage fees in the range of 3 to 4 percent for asset acquisitions, new sale leasebacks and asset sales, 4 percent of net rental rates for lease restructures and of sublease values and 10 percent of buyout savings on lease buyouts.

Colliers also said the agreement called for both parties to abandon the other side’s proprietary information at the end of the agreement. However, Colliers asserted Aurora used the information and analyses Colliers had compiled and created to strengthen its negotiating position in completing the deal with Welltower.

Colliers said it is owed $10 million for Aurora’s alleged contract breach and mistreatment.

While Colliers filed the case in Cook County Circuit Court, Aurora removed the legal action to federal court. And on Sept. 14, Aurora Health Care filed a response to the lawsuit, including a motion to dismiss.

In a memorandum accompanying that motion, Aurora Health denied Colliers’ assertions concerning its use of the information, claiming the analyses and other information supplied by Colliers was not “confidential” or “proprietary.”

“The Agreement does not define ‘proprietary, confidential or secret’ information, which certainly does not include the strategic plans, analyses, and other work product that Colliers provided to Aurora, and for which Aurora paid, pursuant to the terms of the Agreement,” Aurora Health wrote in its memorandum.

Further, Aurora Health argued its decision to terminate Colliers “without cause was specifically authorized by the terms of the Agreement.”

Representing Colliers in the matter are attorneys from the firm of Kaplan Saunders Valente & Beninati, LLP, of Chicago.

Representing Aurora are attorneys from the firms of Kravit, Hovel & Krawczyk, of Milwaukee; and Baker & Hostetler LLP, of Chicago.

Aurora Health Care merged earlier this year with Advocate Health, the largest health system in Illinois. The new combined organization, known as Advocate Aurora Health, operates more than two dozen hospitals and hundreds of other clinics and other health care facilities, with revenue of more than $11.6 billion.

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Aurora Health Care Baker and Hostetler Circuit Court of Cook County Colliers Bennett & Kahnweiler Inc U.S. District Court for the Northern District of Illinois

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