APPEARANCES: 

For the Plaintiff: 

For the Defendants: 

BARACK FERRAZZANO KIRSCHBAUM & 

NAGELBERG LLP 

BY: MR. ROGER HUDSON STETSON 

200 West Madison Street 

Suite 3900 

Chicago, Illinois 60606 

(312) 984-3100 

QUARLES & BRADY LLP 

BY: MR. LEONARD STEWART SHIFFLETT 

300 North LaSalle Street 

Suite 4000 

Chicago, Illinois 60654 

(312) 715-5000 

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IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

VENTAS REALTY, LIMITED 

PARTNERSHIP, 

Plaintiff, 

V. No. 12 C 3107 

ALC CVMA, LLC, ALC GGMG, LLC, 

ALC HTIF, LLC, ALC PEDG, LLC, 

ALC TPCG, LLC, ALC TISSC, LLC, 

ALC TSKG, LLC, and ALC WRWG, 

LLC, Chicago, Illinois 

May 17, 2012 

Defendants. 9:30 a.m. 

TRANSCRIPT OF PROCEEDINGS 

BEFORE THE HONORABLE RONALD A. GUZMAN 

QUARLES & BRADY LLP 

BY: MR. JOHN A. ROTHSTEIN 

411 East Wisconsin Avenue 

Milwaukee, Wisconsin 53202 

(414) 277-5351 

Nancy C. LaBelle, CSR, RMR, CRR 

Official Court Reporter 

219 South Dearborn Street, Room 1222 

Chicago, Illinois 60604 

(312) 435-6890 

Nancy LaBellaOilnd.uscourts.aoy 

Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 1 of 14 PageID #:1295
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(Proceedings heard in open court:) 

THE CLERK: 12 C 3107, Ventas Realty v. ALC CVMA. 

MR. STETSON: Good morning, your Honor. Roger 

Stetson on behalf of the plaintiff. 

MR. ROTHSTEIN: On behalf of the defendants, your 

Honor, that have appeared thus far, it's John Rothstein and 

Len Shifflett. 

MR. SHIFFLETT: Good morning. 

THE COURT: This is a motion for expedited discovery? 

MR. STETSON: It is, your Honor. 

THE COURT: How exactly is it that you wish to 

expedite the discovery? 

MR. STETSON: We have asked for limited information 

on two issues. The first is irregularities relating to the 

leases. As you may recall, your Honor, the plaintiff is the 

owner of a number of properties where assisted living 

facilities are run. 

THE COURT: I recall. 

MR. STETSON: And on May 4th, 2012, the defendants' 

parent company, ALC, filed a Form 8-K with the SEC announcing 

that they were investigating irregularities with respect to 

certain -- with respect to the lease with my client. 

On May 9th, we asked for information -- 

THE COURT: Investigating irregularities with respect 

to the lease? 

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MR. STETSON: Yes. 

THE COURT: The lease they entered into? 

MR. STETSON: Yes. 

THE COURT: Okay. 

MR. STETSON: On May 9th, we asked for information to 

explain to us what the irregularities were or what they were 

investigating or what the circumstances were and what 

facilities they were at. We didn't receive any information 

from them. 

On May 14th, they filed a second Form 8-K discussing 

the investigation in six or seven different places relating to 

the lease with our client with no explanation of what the 

circumstances were and which facilities they were located in 

and what was going on. 

So we have filed a motion for -- to expedite 

discovery. 

I should also mention, we also received an affidavit 

from an attorney in Dalton, Georgia -- whose mother-in-law is 

at one of the facilities, Peachtree Estates -- among other 

things, stating that he has information and received 

information that certain documents are being shredded and 

destroyed at the facility. We don't know whether or not -- 

THE COURT: What's this all about? Certain documents 

are being destroyed. Irregularities regarding leases you 

entered into. Did the SEC filing indicate what the 

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irregularities were? 

MR. STETSON: No, your Honor, and -- 

THE COURT: It just said irregularities in the 

leases? 

MR. STETSON: I can read it to you, your Honor. Yes, 

that's almost precisely what it says. 

It says, The company's board of directors has 

determined to investigate possible irregularities in 

connection with the company's lease with Ventas and retained 

counsel for -- 

THE COURT: In connection with the company's lease 

with Ventas. Okay. 

MR. STETSON: So that's precisely, your Honor, what 

your question was, what we -- we've asked for limited 

discovery. We've asked for documents identifying what the 

circumstances are relating to these irregularities. We simply 

want to find out what these are so we can determine what 

rights and remedies, if any, we need to seek relating to 

these, quote, irregularities. 

So what we have done is we've served just a limited 

document request asking for documents relating to this. We -- 

two interrogatories asking the same, what these circumstances 

are, what are these irregularities. 

THE COURT: What does this have to do with the cause 

of action? 

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MR. STETSON: That we've asserted? 

THE COURT: Well, you filed -- 

MR. STETSON: Well, I don't -- 

THE COURT: -- a complaint, right? 

MR. STETSON: If it's -- well, I guess that's a 

really difficult thing for me to answer. I mean, if it's -- 

the irregularities are conduct by the defendant, it's -- 

THE COURT: Well, the breach of contract that you're 

alleging is what? 

MR. STETSON: We allege a number of breaches, your 

Honor. One of the things we allege is that the receipt of the 

notice of the revocation of the -- of the licenses to run the 

facilities, we allege that they are not in compliance with the 

law, which is one of the covenants that they make. 

THE COURT: Okay. And you have some reason to 

believe that the irregularities -- the investigation into 

irregularities described in the SEC filing has to do with your 

allegations of breach of contract? 

MR. STETSON: Yes. 

THE COURT: Okay. And why can't you just get that 

with the ordinary discovery procedures? Why do we have to 

have expedited discovery? 

MR. STETSON: Sure. Your Honor, depending what the 

irregularities are, if they're irregularities that go to the 

health and safety of the residents and the way the facilities 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 5 of 14 PageID #:1299
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are being run or it goes to harming the property relating 

to -- the Ventas' properties, then it may be the type of 

evidence and it may be the type of things that we come back in 

and ask for reconsideration of the motion for the 

receivership. It may be causing irreparable harm. We just 

want to know what it is. Because we don't have any idea how 

serious the irregularities are, that's -- that's difficult for 

me to answer. I don't know. If it has to do with the fire 

safety or something with the facilities -- there's been two 

fires in one of the facilities. 

The answer is that that's what we want to find out. 

That's why -- that's why the requests are limited solely to 

what are the circumstances and facts associated with these 

irregularities. We're not asking to open up the floodgates of 

all the discovery that we'll get through the regular process. 

But we believe it's serious enough that they filed two SEC 

filings disclosing these that we should at least know, since 

they are our properties, what they are. 

THE COURT: Are you opposing this? 

MR. ROTHSTEIN: Yes, your Honor. 

THE COURT: Why? 

MR. ROTHSTEIN: There's actually two parts of the 

motion. I'll address both. 

They also ask -- they accuse one of the -- the 

executive medical director of ALC of shredding documents, your 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 6 of 14 PageID #:1300
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Honor. This is a serious charge. And on that one, I take 

that very seriously. I spoke to that executive director, 

Mr. Mark -- Dr. Mark Schaten, and I arranged -- I said, 

anything like this, we're going forward. So I've already told 

counsel on that, I'm going to produce him next week. 

However, the condition is this individual, who on 

hearsay submitted an affidavit to this Court accusing this 

physician -- who is a board certified doctor; he's 48 years 

old; licensed in 13 states -- of shredding documents, a 

serious charge, I want a deposition of this individual who is 

making these charges and submitting this to the Court. As I 

understand from counsel, they will make this individual who 

has submitted this affidavit available to me. Prior to that 

deposition, I'm going to make Dr. Schaten, who has been 

accused of this conduct, available next week. We take that 

very seriously. 

I am going to ask the Court -- this is the second 

time in ten days now we've been hauled into court on literally 

one day's notice. It was served at 10:00 o'clock a night ago 

for today's hearing. And I wasn't given any advance notice. 

If this turns out to be a groundless charge, which I believe 

it is -- I've spoken to the doctor, there's no charge -- 

there's no basis for this, but they'll be able to examine 

him -- I'm going to ask for fees for both this hearing as well 

as the depositions of the individual who submitted this 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 7 of 14 PageID #:1301
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affidavit and the doctor. 

THE COURT: Well, let's deal with what we have right 

now. 

MR. ROTHSTEIN: Okay. We'll leave that -- 

MR. STETSON: We've agreed to the -- providing for 

the deposition. 

MR. ROTHSTEIN: Secondly, your Honor, as to the SEC, 

this has been available since May 4th. We had that hearing 

that we were here on last time before Alabama, as you know. 

Ventas appeared by counsel in that action, in that regulatory 

proceeding. If there's any concern about this May 4th matter 

before the SEC, it could have been brought to the appropriate 

authorities if there's a health/life safety. 

Now, I have spoke to -- and here's the situation, 

your Honor: ALC is a publicly reporting company. It has SEC 

obligations obviously. Under Sarbanes-Oxley, if there's any 

confidential report or complaint that's referred to the 

board -- and that's what occurred here; the board is taking 

action. It's commissioned an outside firm, not my firm, to 

handle that. It's a single report. I can -- I was authorized 

to say that. It's a single report. They're investigating it, 

which they're directed and obligated to do. 

The law provides that as for people making such 

reports, there's strict confidentiality. I've been told by 

the lawyer who is conducting this information, they only have 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 8 of 14 PageID #:1302
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a single report. They do not -- and they're not authorized to 

disclose who that is. It's contrary to what their obligations 

are. When they're done with the investigation, they'll report 

back to the board. 

But if this is a life/health safety, both 

Mr. Kinnamon, the individual who submitted this affidavit, as 

well as Ventas itself has every opportunity. They can go to 

the appropriate regulatory agencies if they think that's an 

issue. 

I can tell the Court again that the lawyer who made 

this representation to me said this is not a life/health 

issue. But, again, he does not want to make any -- you know, 

any appearances, nothing, because they're conducting the 

investigation, not my firm. 

So, in any event, your Honor, there's no emergency 

here. They can get it in the regular due course. They 

have -- 

THE COURT: What's the difference? What difference 

does it make to you whether you respond to a request for this 

information now or respond to it three weeks from now? I can 

set a discovery schedule right now and we can start discovery 

in this case. Why would you be objecting to that? 

MR. ROTHSTEIN: The only thing I can tell you, your 

Honor, is that with the normal 30 days -- I'm not going to be 

responding. I would expect counsel who is handling this 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 9 of 14 PageID #:1303
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investigation to assert the appropriate privileges. He told 

me, he said, John, we only have one report; we're going to 

investigate it; whatever we're doing is either work product or 

attorney-client; we're going to assert that. And as for the 

identity of the reporter, that's confidential by law and we're 

not going to disclose that. 

So, in any event, your Honor, the normal 30 days 

would give them an opportunity to respond. 

MR. STETSON: And I offered that to them, your Honor, 

and they rejected it. I offered them to give us written 

objections or responses of why they wouldn't give us the 

information and then we would come before you if those weren't 

acceptable. 

I asked them what provision under Sarbanes-Oxley 

prohibited them from giving us the information. They said 

they didn't know. I asked them to please figure that out and 

provide a written response so that we could analyze that. 

They rejected that proposal. They told us it was confidential 

information. I offered, we could do a protective order. We 

could have you look at the information. 

This idea that we should go in front of the 

appropriate authorities, they won't even tell us which 

facility it is. There's five different states. Which 

authorities are we supposed to go to? We don't even know what 

we're reporting to the authorities. All we know is that 

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Case: 1:12-cv-03107 Document #: 41-2 Filed: 06/05/12 Page 10 of 14 PageID #:1304
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there's an irregularity with respect to one of the facilities. 

We just want them to answer the discovery and tell us 

what's going on. 

MR. ROTHSTEIN: Your Honor, all I'm asking is that 

with respect to -- first of all, I disagree with counsel as to 

what they offered and didn't offer. 

Next is that I've never been offered the normal 30 

days to respond to discovery. That's -- 

MR. STETSON: You never asked for it. 

MR. ROTHSTEIN: -- all I'm requesting. 

THE COURT: All right. In view of the fact that 

we're talking about facilities involving the care of 

individuals who are at risk, the fact that there are state 

proceedings regarding allegations as to inappropriate 

management of those facilities, I don't see any harm, and I 

think it's appropriate, that we give plaintiff leave to 

commence discovery immediately under the parameters they've 

just indicated. 

I'm going to require a response to that discovery 

request within two weeks, whether it's the production of the 

information or objections or a mixture of both, within two 

weeks. 

A motion to compel, if necessary, can be filed 

thereafter. That motion, if it comes, is referred to the 

magistrate judge for resolution. 

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THE CLERK: May 31st. 

THE COURT: May 31st. 

As long as I have you here, we need a case schedule. 

How long will it take you to file a report suggesting the 

appropriate discovery dates, cutoff dates, and so on? 

MR. STETSON: We would be able to file -- from our 

perspective, we think we would be able to file a report 

immediately. 

THE COURT: I'm sorry? 

MR. STETSON: In very short term. Immediately. 

THE COURT: Okay. 

MR. ROTHSTEIN: Two weeks thereafter. 

MR. STETSON: I mean, we don't think it requires two 

weeks to file a schedule. We think a week would be 

sufficient. 

THE COURT: All right. I think a week is enough 

time. You have to get together and see if you can file a 

joint report. If not, file separate reports. 

Let's have a status hearing for a Rule 26 report, 

Carole, next week. 

THE CLERK: May 24th at 9:30. 

MR. ROTHSTEIN: Your Honor, is that -- I think that's 

before the time -- they just -- the plaintiffs -- we have 

worked together. They asked to amend their complaint. I 

granted that or I conceded that. They just served that 

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yesterday. So the pleadings are not even due at that time. 

THE COURT: That's okay. You know what the issues 

are. 

MR. ROTHSTEIN: That's fine. 

MR. SHIFFLETT: Your Honor, could we have 21 days to 

file an answer or otherwise plead to the complaint on behalf 

of all defendants? 

THE COURT: Sure. 21 days to answer. 

THE CLERK: June 7th. 

THE COURT: Answer or otherwise plead by June 7th. 

MR. ROTHSTEIN: And May 24th is the date for? 

THE CLERK: Status hearing. 

MR. ROTHSTEIN: Thank you. 

THE COURT: You need to file your report before that 

date. 

MR. ROTHSTEIN: Yeah. 

THE COURT: Anything else we need to address right 

now? 

MR. STETSON: No, your Honor. 

MR. ROTHSTEIN: No, your Honor. 

THE COURT: Okay. Thank you. 

MR. SHIFFLETT: Thank you. 

MR. ROTHSTEIN: Thank you. 

MR. STETSON: Thank you, your Honor. 

* 

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I certify that the foregoing is a correct transcript from the 

record of proceedings in the above-entitled matter. 

/s/ Nancy C. LaBella May 22, 2012 

Official Court Reporter 

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