South Hills Operations: Dual Sale Tracks and Wage Litigation

South Hills Operations, LLC and 21 affiliated entities filed chapter 11 petitions on May 17, 2024, in the U.S. Bankruptcy Court for the Western District of Pennsylvania. The debtors operated 13 skilled nursing facilities across Western Pennsylvania through a split structure of 13 operating companies and 9 property-owning entities. The First Day Declaration attributed the filing to a failed prepetition sale process, rising labor costs driven by post-2020 staffing shortages, inadequate Pennsylvania managed-care Medicaid reimbursement, and a pending Department of Labor wage-and-hour lawsuit alleging years of FLSA violations across multiple facilities. A separate criminal matter involving the Mt. Lebanon Operations entity added to the regulatory overhang facing the estate.

The case moved through dual DIP financing tracks, separate sale processes for the Cuarzo and Maybrook/Consulate facility groups, and a lender dispute with CIBC Bank before the Official Committee of Unsecured Creditors filed a combined liquidating plan and disclosure statement in June 2025. The court confirmed the plan on August 20, 2025, and the plan went effective on September 11, 2025, with Robert S. Bernstein serving as liquidating trustee. General unsecured creditors were projected to recover between 1% and 5% of allowed claims, while CIBC's unsecured deficiency claims were projected at less than 1% and Cuarzo deficiency claims were set at zero.

Debtor(s)	South Hills Operations, LLC (22 jointly administered entities)
Court	U.S. Bankruptcy Court, Western District of Pennsylvania
Case Number	24-21217
Petition Date	May 17, 2024
Judge	Hon. Carlota M. Bohm
Confirmation Date	August 20, 2025
DIP Facility	$38.0 million Maybrook/Consulate facility (CIBC Bank, $12.5M new money / $25.5M roll-up) and $5.74 million Cuarzo facility (GPH landlord affiliates, $2.87M new money / $2.87M roll-up)

Staffing Shortages, Medicaid Gaps, and FLSA Exposure

The debtors' portfolio was divided among four Cuarzo facilities, seven Maybrook facilities, and two Consulate facilities, all in Western Pennsylvania. The First Day Declaration described the estate as a skilled nursing platform with both OpCo and PropCo entities, with each operating company paired with a corresponding property-owning entity except for four facilities that leased from third parties. The OpCo/PropCo structure meant that the debtors' cases spanned both the operations generating revenue from patient care and the real estate underlying the facilities, creating distinct collateral pools that would drive the dual-track DIP and sale structures that followed.

Prepetition financial pressure. The debtors attributed the filing to a combination of post-2020 occupancy declines, labor shortages that increased wages and agency staffing costs, and inadequate Pennsylvania managed-care Medicaid reimbursement rates. The 13 facilities had a combined capacity of 2,046 patients across seven counties in Western Pennsylvania. Skilled nursing facilities in the region faced a structural mismatch between rising labor costs — compounded by increased reliance on temporary agency staffing after the pandemic — and Medicaid reimbursement rates that had not kept pace, squeezing margins across the platform.

Labor and regulatory exposure. A Department of Labor lawsuit filed in 2018 alleged that workers at South Hills facilities were routinely denied overtime pay for years, with approximately 6,000 workers owed $20 million in back pay and the facilities liable for an equal amount in liquidated damages. A separate criminal matter involved the Mt. Lebanon Operations entity, adding to the regulatory burden on the estate. The First Day Declaration identified the combination of the DOL litigation and the criminal exposure as central drivers of the filing, distinguishing this case from the typical skilled nursing bankruptcy driven purely by operating headwinds.

Failed prepetition sale process. The sale process was already underway before bankruptcy. Houlihan Lokey had marketed the Cuarzo facilities in 2023, and the Cuarzo side had signed transition agreements with WeCare Center. The Maybrook/Consulate side had pursued a separate Kadima Healthcare Group transaction and a broader marketing process before the chapter 11 filing. The failure of these prepetition transactions to close on their original timelines left the debtors without a going-concern exit path and contributed directly to the decision to file.

SEIU objections. The Service Employees International Union filed formal objections during the reorganization process, challenging the treatment of workers' interests in the proposed restructuring of the Pittsburgh-area nursing homes. The union's intervention reflected the broader labor dynamics that had shaped the case from the outset, with the workforce both a primary creditor constituency through the DOL wage claims and an operational stakeholder through the transition to new operators.

Dual DIP Financing Structure

The cases were not financed through a single enterprise DIP. The Maybrook/Consulate debtors and the Cuarzo debtors moved through chapter 11 on different collateral and sale tracks, reflecting the distinct real estate ownership structures and lender relationships underlying each facility group.

Maybrook/Consulate facility. The court entered a final DIP order on June 17, 2024, approving a $38.0 million facility consisting of $12.5 million of new money and a $25.5 million roll-up of prepetition secured debt. CIBC Bank, USA served as administrative agent and lender. The order granted CIBC adequate protection liens on all postpetition assets and superpriority administrative expense claims, in each case subject to a professional fee carve-out. The Maybrook/Consulate debtors were required to operate within a court-approved budget subject to a 10% permitted variance test, meaning that any material deviation from the DIP budget could trigger a default. The DIP structure effectively gave CIBC control over the pace and terms of the Maybrook/Consulate sale process, as continued funding depended on budget compliance and the debtors' adherence to sale-process milestones.

Cuarzo facility. The Cuarzo debtors received a separate final DIP order on June 14, 2024, for a $5.74 million facility split evenly between $2.87 million of new money and a $2.87 million roll-up. The lenders were GPH landlord affiliates tied to the Cuarzo real estate, meaning the DIP funding came from the same parties that owned the underlying properties. The order granted replacement liens, superpriority treatment subject to a carve-out, and budget-based use restrictions parallel to the Maybrook structure. The Cuarzo facilities were controlled by Fort Smith, Arkansas-based real estate investment trust Cuarzo Healthcare Capital. The creditor committee did not object to the combined DIP package, which totaled approximately $43.7 million across both facilities.

Cuarzo Sale to WeCare

The Cuarzo debtors pursued a private sale for the four Cuarzo facilities — Canonsburg, Monroeville, Murrysville, and Mt. Lebanon — to New York-based WeCare Center. The Cuarzo sale motion tied the transaction to assumption and assignment mechanics needed to transfer operating licenses, payor contracts, and lease agreements to the buyer in order to keep the facilities operational through the transition. Unlike the Maybrook/Consulate sale, which proceeded through a competitive auction process, the Cuarzo transaction was structured as a private sale based on the prepetition transition agreements already in place with WeCare.

The bankruptcy court approved the private sale on July 1, 2024. The four facilities represented a combined 464 beds. South Hills stated that it had no other buyers for these properties and the facilities would have closed if the sale to WeCare was not approved. The court's approval came after what was described as an 11th-hour agreement that preserved the facilities as going concerns.

Cigna objection. Cigna Health & Life Insurance filed a legal motion objecting to the sale, arguing that it would give the debtors "carte blanche" to end payor agreements without proper notice. Cigna's counsel stated that the lack of notice could negatively impact residents reliant on Cigna coverage and requested that the court halt the sale unless the debtors fully addressed the insurer's concerns. The insurer separately sought contractual protections to ensure notification if the facilities intended to terminate existing agreements as part of the sale process. The objection highlighted a recurring tension in skilled nursing facility sales: buyers may seek to renegotiate or terminate unfavorable managed-care contracts through the assumption and assignment process, leaving insurers and the patients covered by those contracts exposed during the transition.

Maybrook and Consulate Sale to Kadima

The Maybrook/Consulate sale motion proposed a stalking-horse sale to affiliates of Kadima Healthcare Group for $53.0 million plus assumed liabilities and cure costs. The motion sought a $1.325 million termination fee and up to $300,000 of expense reimbursement, with an initial overbid threshold of $54.875 million and $250,000 bid increments.

Bidding procedures. The court entered the bidding procedures order on June 14, 2024, approving the bid protections and setting a July 12, 2024 bid deadline, a July 17, 2024 auction date, and an August 5, 2024 sale hearing. The order also gave the creditor committee expanded objection deadlines and clarified the credit-bid mechanics governing CIBC's rights with respect to the sale proceeds — a significant procedural point given CIBC's dual role as DIP lender and the largest secured creditor in the Maybrook/Consulate facility group.

Sale delays and approval. The sale did not close on the original schedule. The docket reflects repeated continuances of the sale-order hearing before the court entered an agreed sale order on September 30, 2024, approving the $53 million sale of nine Western Pennsylvania nursing homes to Kadima affiliates. The delays were significant because CIBC's DIP facility imposed budget-based compliance milestones, and prolonged sale timelines increased the risk of a DIP default — a risk that materialized when CIBC sent its October 2024 default notice just days after the sale order was entered. The debtors filed a closing notice on November 8, 2024, confirming completion of the transaction.

Worker impact. The sale raised concerns about the recovery prospects for the approximately 6,000 workers with outstanding wage claims. Reporting indicated that the sale of the facilities could end workers' quest for back pay, as the transfer of substantially all assets to new operators would leave the DOL claims to be satisfied from whatever residual estate proceeds remained after secured creditors, administrative claims, and the costs of the sale process.

Department of Labor Claims and Wage Litigation

The Department of Labor filed a proof of claim asserting $41,097,761.14, composed of $20,548,880.57 in back wages and an equal amount in liquidated damages, based on alleged FLSA overtime, regular-rate, and recordkeeping violations across multiple facilities. The claim also sought injunctive relief and ongoing compliance obligations from the estate, making it both a monetary claim and a potential administrative burden on any successor operator.

On September 5, 2024, the U.S. Department of Justice entered a $35.8 million judgment against South Hills Operations. The court ruled that South Hills had "acted with malicious self-interest" in underpaying wages for 5,595 nursing home employees over a period of years. The DOJ claim represented a large administrative or priority claim against estate assets and threatened to consume a significant portion of any sale proceeds that might otherwise be available for distribution to other creditors.

Claim subordination. In October 2024, the bankruptcy court rejected a bid by the workers for $18 million in back wages, further diminishing the recovery prospects for the labor claimants. The DOL claims remained a central contested issue through the remainder of the case, with the ultimate treatment determined by the liquidating plan's class structure and the priority waterfall governing distributions from the liquidating trust.

CIBC Lender Dispute

CIBC Bank served as both DIP lender under the Maybrook/Consulate facility and a litigation counterparty through the remainder of the case. The dual role created a structural tension: CIBC had provided the financing that enabled the sale process, but the estate and the creditor committee challenged CIBC's entitlement to the full amount of its claims and the priority of its distributions.

Default and settlement attempt. On October 8, 2024, CIBC sent a notice of default under the Maybrook DIP structure. The debtors and CIBC then filed a Rule 9019 settlement motion on October 13, 2024, proposing continued use of cash collateral and DIP draws through the sale closing. The proposed settlement would have treated the drawn new-money DIP amount as an allowed superpriority claim estimated at $9.9 million and reset the carve-out to updated-budget amounts, while leaving certain post-transfer payments and fee timing for later negotiation. The settlement reflected the practical reality that the sale closing was imminent and both sides had an interest in avoiding a conversion or other disruptive default remedy.

Post-sale dispute. The CIBC dispute carried past the November 2024 sale closing. CIBC received $37,891,762.27 from the Maybrook/Consulate sale proceeds while $13,568,804.00 remained segregated and subject to competing claims. In March 2025, the committee objected to CIBC's motion to dismiss the cases, arguing that dismissal would short-circuit live estate claims including avoidance actions, lender-liability theories, insider-related claims, insurance coverage disputes, and pending adversary proceedings. The committee's objection was significant because it preserved the estate's ability to pursue affirmative recoveries against CIBC and insiders — claims that would form part of the liquidating trust's asset base under the later-filed plan. In June 2025, a bankruptcy judge approved a settlement granting CIBC priority access to the remaining funds, with CIBC claiming it was owed approximately $48 million by the debtors.

Liquidating Plan and Creditor Recoveries

The Official Committee of Unsecured Creditors filed a combined liquidating plan and disclosure statement on June 13, 2025. The plan created a liquidating trust to hold remaining cash, sale proceeds, and causes of action, with the effective date conditioned on confirmation becoming final, execution of the liquidating trust agreement, and appointment and acceptance of the liquidating trustee. The trust was designed to serve as the post-confirmation vehicle for pursuing any remaining recoveries — including potential avoidance actions, lender-liability theories, and insurance coverage claims — and distributing net proceeds according to the confirmed priority waterfall.

Class treatment. The plan projected 1% to 5% recoveries for general unsecured creditors. Class 5(a) general unsecured claims were projected to recover 1% to 5% from 45% of net liquidating trust proceeds after costs and administrative claims. Class 5(b) CIBC unsecured deficiency claims were projected at less than 1%, with payment only after Class 5(a) was paid in full. Class 5(c) Cuarzo deficiency claims were set at 0% under the Cuarzo settlement. Intercompany claims, insider claims, and equity interests were impaired with no expected recovery absent a surplus. The class structure reflected the hierarchy of competing claims against a depleted estate: secured creditors and administrative claimants — including the DOL wage judgment — consumed the bulk of available proceeds before anything reached general unsecured creditors.

Confirmation and effective date. The court confirmed the plan on August 20, 2025, designating Robert S. Bernstein as liquidating trustee. The confirmation order vested retained causes of action in the liquidating trustee, giving the trust standing to pursue affirmative litigation recoveries on behalf of the estate. The order also preserved governmental carve-outs, stating that the plan did not bar police or regulatory actions, criminal matters, or non-claim liabilities owed to the United States — a provision that kept the Mt. Lebanon criminal matter and any future DOL enforcement actions outside the plan's discharge and release provisions. The plan became effective on September 11, 2025 after all conditions precedent were satisfied or waived, and Bernstein began serving as liquidating trustee for future administration and distribution.

Post-effective administration. On January 30, 2026, Bernstein moved to disallow and expunge 24 administrative claims for failure to provide IRS Form W-9 information. The motion indicated that the trust is actively administering claims and prioritizing administrative-claim cleanup as a prerequisite to lower-priority distributions. The trust is using its plan authority to condition distributions on tax-compliance documentation, a standard practice in liquidating trust administration that ensures the trust can satisfy its own tax-reporting obligations before releasing funds.

Frequently Asked Questions

Who is the claims agent for South Hills Operations?

Omni Agent Solutions serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

What is the status of the South Hills bankruptcy case?

The court confirmed a liquidating plan on August 20, 2025, and the plan went effective on September 11, 2025. Robert S. Bernstein serves as the liquidating trustee overseeing claims administration and distributions. As of January 2026, the trust was actively administering claims and preparing for distributions.

What recoveries are projected for unsecured creditors?

The confirmed liquidating plan projected general unsecured creditor recoveries of 1% to 5% of allowed claims from net liquidating trust proceeds. CIBC's unsecured deficiency claims were projected at less than 1%, and Cuarzo deficiency claims were set at 0%.

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