Bradley Rush wants restitution. The former chief financial officer of Sunrise Senior Living launched a lawsuit on Tuesday against his former employer for breach of contract and defamation. The suit, filed in a Virginia court, claims that Rush was abruptly terminated without cause in May 2007, and that Sunrise engaged in a campaign “to impugn his good character by falsely claiming he destroyed documents.”
“Sunrise fired Mr. Rush in retaliation for his discovery and disclosure of Sunrise’s improper, and in some cases fraudulent, accounting practices, and as part of Sunrise’s campaign to make Mr. Rush the ‘fall guy’ for its improper and fraudulent behavior,” said John M. Dowd of Akin Gump Strauss Hauer & Feld LLP, Rush’s lead attorney.
The 30-page complaint details how after becoming CFO, Rush uncovered nine improper accounting practices that had been used by Sunrise before he was hired, noted Rush’s attorneys in a press statement. Rush brought the accounting problems to the attention of Sunrise senior management, its board of directors, and the Securities and Exchange Commission, added his lawyers.
The attorneys assert that while Rush was working to disclose the improper accounting – by meeting with the SEC and preparing a comprehensive restatement of Sunrise’s financial statements for the years 2003 through 2005 – senior management sold Sunrise to private investors. The sale “would result in both the elimination of SEC supervision of the company’s financial accounting, and in extraordinary profits for senior management and all of the members of Sunrise’s Board of Directors,” alleges the suit.
The complaint also asserted that Rush’s “relentless efforts to uncover and address Sunrise’s accounting improprieties threatened to thwart senior management’s plans to sell to private investors.” The attorneys emphasized that Rush did not back down from examining and reporting the questionable accounting practices he continued to find, despite pressure from management and the board. “Sunrise eventually just wanted Mr. Rush out of the way,” said Dowd, “so they fired him and made him the scapegoat.”
“The assertion there that Mr. Rush was fired because he was trying to uncover or report financial improprieties is nonsense,” wrote Sunrise spokesperson Meghan Lublin, in an e-mail response to CFO.com. “The reasons why Mr. Rush’s employment as CFO was terminated for cause, including his actions inconsistent with the company’s document preservation directives … will be demonstrated in the litigation,” she continued. Accordingly, Sunrise intends to “vigorously contest” Rush’s legal action, said Lublin.
In July 2006, Sunrise disclosed that it would restate financial results from 1999 through 2005. The adjustments related to ventures that contain partner preferences, and the timing of sale accounting and recognition of income from prior sales of real estate. At the time, the company expected that the restatement would reduce net income by between $60 million and $110 million, but that a substantial majority would be recaptured in 2006 and 2007.
Then in January, Sunrise announced that it would delay filing its restatement, adding that it would be unable to file its 2006 quarterly and annual reports by March 1, as planned. On April 23, Sunrise suspended Rush with pay after concluding “that actions taken by Mr. Rush were not consistent with the document retention directives issued by the company.” In early May, the company fired Rush for cause, adding that he would not receive severance payments that would have been due him had he resigned.
Rush’s attorneys insist that Sunrise made false allegations that Rush had destroyed documents. Instead, the suit establishes that Rush was “leading the charge” to uncover accounting improprieties that occurred before his tenure: “The truth is that he concealed nothing and there are no documents related to the company’s accounting that are missing,” Dowd states.
At its core, the lawsuit charges that Sunrise breached its contractual obligations to Rush when it abruptly terminated him without cause and deprived him of a series of options to purchase large amounts of Sunrise stock, other long term incentive plan benefits, and a substantial bonus award — all of which he rightfully earned. “Sunrise even cut off Mr. Rush’s health insurance with no advance warning to him,” Dowd said.
The complaint also seeks compensation for the irreparable damage caused to Rush’s reputation, his career prospects, earning capacity, and standing in the business community, “all of which resulted from Sunrise’s improper termination” of Rush “based on false grounds, and the related campaign to falsely defame and impugn his character,” noted the plantiff’s lawyers.
In related news, Sunrise said it received an additional extension for continued listing on the New York Stock Exchange. The extension gives the company until March 17, 2008 to file its 2006 annual report. The company also announced that it has amended its line of credit agreement to allow for an extension of time to provide the lenders with required financial reports. The $250 million bank credit facility matures on December 2, 2009.
The lenders have given the company a January 31, 2008 deadline to file its late financial reports. The company had an outstanding balance of $50 million in borrowing and $71.8 million of letters of credit outstanding under the credit agreement as of September 14, 2007.
Regulatory filing duties will fall to Sunrise’s new chief financial officer, Richard J. Nadeau, who replaced interim CFO Julie A. Pangelinan last week. Pangelinan will continue to serve as the company’s chief accounting officer.
Nadeau has been servicing as a Sunrise consultant since July, and has previous experience with restatements and selling troubled companies. Before he signed on with Sunrise, Nadeau was CFO of The Mills Corporation, a publicly-traded mall developer. He joined Mills to oversee the completion of a restatement and assist with the sale of the shopping mall company to Simon Property Group and Farallon Capital, which was completed in April.