Primary Health Systems Inc.

Complex Wage Claims Pose Unique Challenge

Primary Health Systems Inc. (PHS) was an integrated health-care services company that owned and operated hospitals and related health-care businesses in and around Cleveland, Ohio. PHS and related entities filed Chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware. Following company layoffs, the Court found that former employees were entitled to recovery under the Worker Adjustment and Retraining Notification Act of 1988 (the WARN Act). After the cases were converted to Chapter 7, a long-term Stretto client was appointed as Trustee in each of the debtor companies’ cases. The Trustee subsequently engaged Stretto to assist with two particularly challenging aspects of case management – WARN Act and wage claim resolution.

Assembling a cross-discipline team of client service experts, Stretto assisted the Trustee with the tax analysis for the allowed WARN Act claims, as well as the withholdings for the claimants’ attorneys’ fee claims. Drawing on years of experience, the team assisted in the preparation of reports on the claims, associated taxes and other withholdings to ensure full compliance with strict IRS and US Trustee reporting standards, made more complicated due to two debtors and two separate bankruptcy filings.

After the resolution of hundreds of WARN Act claims in the debtors’ estates, the team contended with Chapter 11 administrative wage claims that required further detailed analysis. Unlike traditional case management, Stretto collaborated with the Trustee’s office to supplement the company’s proprietary software for the examination of the wage claims. The Regional Director on this engagement has particular skill in reviewing wage claims and is recognized as a subject-matter expert and valuable resource by his clients. Working alongside colleagues whose previous backgrounds include serving as a Trustee Administrator or paralegal, the team meticulously reviewed each of the claims’ employee and employer taxes for accuracy and validity and aided in compiling the necessary reports for the Trustee to file with the US Trustee and the Court in both cases.

The team applied an approach that was efficient, yet included a multi-review step in the process. After the final distribution was approved by the Court in both cases, the Regional Director worked with the Trustee’s office to ensure all of the WARN Act and wage claimants were provided with accurate and detailed breakdowns of their claim dividends. By providing these vital consultative services, the Stretto team delivered added value and offered the Trustee time efficiencies so he could focus on more substantive aspects of case management.