Crain's Detroit Business, Feb. 24, 2014 by Crain's Detroit Business

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www.crainsdetroit.com Vol. 30, No. 8

FEBRUARY 24 – MARCH 2, 2014

$2 a copy; $59 a year

The cure for bogus bills

NAM Y. HUH/AP

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‘Coach’: A title endowed with revenue possibilities Southfield’s Towne Square may add third tower Auto intellectual property goes speed dating

Federal crackdown on Medicare fraud in metro Detroit hits it big BY CHAD HALCOM

Focus: Law

This Just In Bids for large concessions at Belle Isle unlikely this year As the state readies Belle Isle for an April state park opening, it’s seeking contractors for everything from garbage collection to building renovations. However, it does not expect to accept bids for “large concessions” operators this first year, an official said Friday. Instead, concessions for such things as canoe rentals, T-shirts, food service, mobile food and ice cream are likely to be granted under shorterterm “use permits,” officials told businesses at a forum at the Belle Isle Casino. Those are nonexclusive agreements that under state contracting rules do not require competitive bids. Most short-term special permits at Belle Isle will be handled by state staff operating from the island. Larger bids will be handled through the state’s contracts site, Buy4Michigan.com. Last week, Joe Hall, a 19year DNR employee, took over as Belle Isle Park superintendent.

he U.S. Department of Justice could dub 2013 the year its fight against Medicare billing fraud in Southeast Michigan yielded the first real payoff. Last year, the Detroit Medicare Fraud Strike Force, deployed here from Washington, and a locally organized Health Care Fraud Unit of prosecutors together brought charges in fraud schemes billing more than $380 million to the federal program. That’s more than double the bad billing amount charged in any preceding year.

Health Care Fraud Prevention and Enforcement Action Team, referred to as HEAT, to ferret out what data analysis suggested was hundreds of millions worth of fraud here. See Fraud, Page 18

BY CHAD HALCOM CRAIN’S DETROIT BUSINESS

There were plenty of moans and hand-wringing in the fallout of Detroit’s plans to change its debt structure Friday in the nation’s largest municipal bankruptcy — but the biggest bombshell may be what doesn’t change. A post-bankruptcy Detroit will maintain a defined benefit pension plan for more than 9,300 current city employees, as it has for decades, and that could be the leverage it needs to persuade retirees to approve the new plan over objections by other creditors. Keeping a defined benefit plan for current employees runs counter to a trend among businesses and government agencies, which have been generally shifting toward defined contribution plans since the 1990s. Oakland County, for example, converted to a defined contribution pension plan for its employees about 20 years ago, and Macomb County expects to put all new hires into a contribution plan starting in 2016.

ISTOCK PHOTO

See Pension, Page 17

Eastern Market turns to tax law to make upgrades BY NATHAN SKID CRAIN’S DETROIT BUSINESS

Crumbling bridges, parking lots riddled with potholes and vacant buildings — all standing within throwing distance of a thriving commercial district. Dan Carmody and his team at Eastern Market Corp. want to change all that by creating a cluster of development and capital improvements in the market through the use of a tax increment financing structure that is similar to the TIF districts that fund downtown development authorities.

The market plans to create the state’s first Targeted Redevelopment Area, which operates under state brownfield law. The creation of the TRA is just one part of Eastern Market’s strategy to push development in the outer edges of the market and make the area more welcoming to pedestrians and new businesses. Among the market’s first orders of business: more fully inform property owners and merchants about the TRA and its role in the market’s long-term vision. Some business owners don’t fulSee Market, Page 20

NATHAN SKID/CRAIN’S DETROIT BUSINESS

In a section of Detroit where a thriving commercial center coexists with vacant and rundown buildings, Eastern Market Corp. hopes to create the state’s first Targeted Redevelopment Area.

Advanced Manufacturing COMING

NEWSPAPER

Anatomy of fraud: Each case is its own story, but many have similar themes, ingredients and characters, Page 18 On the Web: A searchable database of the Medicare fraud cases in Southeast Michigan, crainsdetroit.com/medicaredata

It’s been a slow build since the strike force came to Detroit in 2009 as part of the national

CRAIN’S DETROIT BUSINESS

T The region’s big business cases of 2013, Page 11

CASE STUDIES

Post-bankruptcy Detroit to keep defined benefit pension plan

APRIL 7

ISSUE FOCUS: Companies leading the way in the use of new materials and manufacturing technology.

Ad Close: March 27 | Advertising Information: Marla Wise at mwise@crain.com or 313-446-6032.

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CRAIN’S DETROIT BUSINESS

MICHIGAN BRIEFS Stryker to buy Berchtold Holding to meet hospitals’ supplier specs Kalamazoo-based Stryker Corp. said it will purchase health care equipment manufacturer Berchtold Holding for $172 million, Modern Healthcare reported. The deal allows Stryker to broaden its product offerings when hospitals are narrowing supplier networks to gain more bargaining power by dealing with fewer suppliers offering a wider array of equipment. Berchtold, with operations in Germany and Charleston, S.C., designs surgical infrastructure equipment that, in 2013, generated about $125 million in sales. Products include surgical tables and lighting systems that will complement Stryker’s current equipment portfolio, the company said in a release.

New natural grocer with plans for Midwest claims Meijer backing Crain’s Chicago Business reported last week that a new grocery chain, Fresh Thyme Farmers Markets, plans to open more than 60 stores in the Midwest over the next five years. Besides Chicago, locations are planned for this year in Indiana and Ohio. Crain’s Chicago reported that Fresh Thyme’s website says its investors are leaders of Walker-based retailer Meijer Inc. Meijer spokes-

Battle Creek finds Kellogg’s GR plans hard to swallow News this month that Kellogg Co. would open a corporate services center in Cascade Township near Grand Rapids — and in the process move jobs from its home in Battle Creek — was greeted by surprised Battle Creek leaders in much the way a 7-year-old would react upon learning that his Frosted Flakes box contained Brussels sprouts sauteed in Kaopectate. Which is to say, they were honked off. What follows is your minimum daily adult requirement of outrage: 䡲 Former Battle Creek Mayor and former U.S. Rep. Joe Schwarz: “That’s not the way people in Battle Creek, especially those that have been here a long time and worked with Kellogg on so many issues like myself, that simply is not the type of behavior we’ve come to expect from the company.” 䡲 Jim Hettinger, former CEO of Battle Creek Unman Frank Guglielmi told the Milwaukee Business Journal that Meijer has an “investment interest” in Fresh Thyme but that the companies won’t share resources. According to the website, the company “formed quietly last year,” the result of a merger between the former Sunflower Farmers Market, a chain of groceries based in Phoenix, and Sprouts Farmers Market, a group of more than 160 stores throughout the West and Southwest.

MICH-CELLANEOUS 䡲 Grand Rapids is No. 9 in a national ranking of “Top 10 Cities for

limited: “This adds up to a community catastrophe, a monumental failure in corporate leadership, a nuclear sneak attack on a ‘partnership’ and a strangling of the infant downtown transformation in its cradle.” 䡲 Joseph Stewart, Kellogg’s former senior vice president of corporate affairs: “Kellogg’s hometown is no longer good enough for the people who are privileged to lead this great institution now. … I feel deceived and I feel disrespected and quite frankly, I feel spoken down to.” Carlos Gutierrez, CEO from 1999 to 2004, lived in Battle Creek while running Kellogg. He said the company did have issues recruiting young, single professionals because the small town didn’t offer big-city amenities.

Affordable Health Care,” conducted by Livability.com, the Grand Rapids Business Journal reports. The website points to the city’s low health care spending, accessibility to hospitals and physicians and its quality of life. Grand Rapids residents spend 31 percent less on health care than the average American. 䡲 The Flint-based Charles Stewart Mott Foundation has given $9 million for the expansion of the Michigan State University College of Human Medicine in downtown Flint, the foundation said in a news release. 䡲 The value of Michigan State University’s endowment topped

$2 billion for the first time in the 2013 fiscal year, said the university, which credits strong investment returns for helping boost its value. The endowment passed $1 billion in 2004. 䡲 Grand Rapids-based Crystal Flash has purchased Owens Petroleum Inc. and Owens Propane Service Inc. of Albion. The deal adds about 400 commercial fuel customers and 800 residential home heating customers in Michigan and northern Indiana to Crystal Flash, which has acquired seven heating fuel suppliers in the past two years. 䡲 Short’s Brewing Co. has purchased land next to its Elk Rapids

2 nna ght b. Pe Hei FeVillaling at ter S

What can you do today to stay ahead of the curve?

Find business news from around the state at crainsdetroit .com/crainsmichiganbusiness. Sign up for Crain's Michigan Business e-newsletter at crains detroit.com/emailsignup.

Macomb Automotive Suppliers Forum

brewery and plans to begin construction of expanded beer production operations this summer, MLive.com reported. The company, which distributes only in the state, said it has grown 30 percent in volume in each of the past five years. That tells you something about Michigan beer drinkers. 䡲 Ada-based Amway Corp. is the new title sponsor of the USA Today Coaches Poll, which establishes the ranking of the top 25 college football teams, MLive.com reported. The rankings will be called Amway Coaches Poll. 䡲 Gerald R. Ford International Airport in Grand Rapids was ranked the fifth-best airport of its size — 2 million to 5 million passengers — in the world by Airports Council International, the Grand Rapids Business Journal reported. The survey collects passenger feedback. 䡲 The March edition of Coastal Living magazine reports Saugatuck is one of “America’s Happiest Seaside Towns.” Considering Saugatuck is along Lake Michigan in the heart of lake-effect country, where more than 100 inches of snow has fallen this winter to date, it’s safe to deduce that the survey was conducted a while ago.

Thursday, February 27, 5:30-8:00 PM Villa Penna, 43985 Hayes Rd., Sterling Heights

• Michigan’s New Strategic Road Map to Promote, Retain and Grow the Automotive Industry Keynote by Nigel Francis (MEDC)

Speakers/Panelists

• “Ahead of the Curve” Panel Discussion - Michigan- and Macomb-led initiatives for automotive parts suppliers - What you need to know about OEM expectations and contracting strategies - Maximizing your strategic business advantages

• Q&A and Networking with Macomb automotive supply executives and automotive-focused attorneys

Nigel Francis

Mark Hackel

Tom Manganello Glenn Stevens

Mike Beck

Sr. Automotive Adviser to the State of Michigan and Sr. VP, Automotive Industry Ofﬁce, MEDC

Macomb County Executive

Chair of the Vice President, Automotive Industry MICHauto Group, Warner Norcross & Judd LLP

Vice President of Global Operations, Fori Automation

Who Should Attend? Presidents, CEOs, CFOs, Purchasing Directors, Sales Directors and other senior executives. Automotive suppliers and other manufacturers welcome.

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A BETTER PARTNERSHIP ® Macomb County Southﬁeld Midland Lansing Grand Rapids Holland Muskegon WNJ.com

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CRAIN’S DETROIT BUSINESS

February 24, 2014

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Southfield’s Towne Square complex may get 3rd tower BY KIRK PINHO CRAIN’S DETROIT BUSINESS

NAM Y. HUH/ASSOCIATED PRESS

Thanks to a recently approved $10 million endowment, on March 1 the formal job title for the University of Michigan’s Brady Hoke will be the J. Ira and Nicki Harris Family Head Football Coach.

Put me in, Coach! (THIS SPACE AVAILABLE FOR YOUR NAME)

Endowment name game comes to UM

See Tower, Page 20

IP speed dating AutoHarvest gathers partners, buffs up website BY TOM HENDERSON AND DUSTIN WALSH CRAIN’S DETROIT BUSINESS

BY BILL SHEA CRAIN’S DETROIT BUSINESS

Deep-pocketed alumni with generous school spirit have for years seen their donations commemorated by having their names formally attached to college coaching positions, especially in football. That phenomenon arrived in Michigan last week, and love or hate it, it’s not going away. The University of Michigan’s regents on Thursday approved a deal in which a $10 million endowment from an alumnus will include renaming the head football coach position as

Now might be the time for the 670,000-square-foot Towne Square office complex in Southfield to get its third building, which would make it one of the largest office complexes in metro Detroit. Southfield-based Redico LLC — which manages and owns Towne Square, northeast of Northwestern Highway between Civic Center Drive and Lahser Road — is considering a 300,000- to 350,000square-foot build-to-suit tower now that the two existing buildings in the complex have occupancy rates in the mid- to upper 90 percents, Watchowski said Dale Watchowski, CEO, COO and president of Redico. “The leasing pace has picked up, and it’s largely a reflection of an improving economy. Much of our leasing (at Towne Square) was done recently,” he said. Redico has started marketing

space at a third Class A Towne Square tower, which would need a lead tenant lined up before Redico decided to move forward with the building, Watchowski said. He declined to say how much a new tower would cost, but said the company has “a very good idea of what it would be.” Paul Choukourian, managing director of the Southfield office of Colliers International Inc., said construction costs would depend on factors such as the number of stories. For a building with eight stories or fewer, it would be $125 per square foot. That would make building costs between $37.5 million and $43.75 million, depending on the size. For a building with more than eight stories, it would be $140 per square foot. That would make building costs between $42 million and $49 million. Towne Square, which sits on 27 acres, has always been planned for three buildings, Watchowski said. “If they are in the high 90s (occupancy rate) in their current buildings, then that’s a strong indicator to build,” Choukourian said.

COURTESY OF J. IRA HARRIS

J. Ira Harris, whose foundation made the $10 million gift to UM, is a 1959 graduate of the university.

the “J. Ira and Nicki Harris Family Head Football Coach.” Brady Hoke’s job title gets that formal moniker starting March 1. His colleagues’ jobs may soon have similar names of donors, following a common trend in the Ivy League and at an increasing number of other universities. See Coach, Page 21

Slower than planned, the AutoHarvest Foundation is gaining traction in its goal of providing an online meeting place for automakers and auto suppliers, advanced manufacturers, universities and national labs to license or find intellectual property. When the TechTown-based 501(c)(3) nonprofit was announced in August 2011, co-founder and CEO Jayson Pankin, who previously spent seven years helping Delphi Corp. commercialize its intellectual property and spin off for-profit companies, hoped to go from an alpha version to beta version to final version of the technology clearinghouse’s website by the end of 2012. The final version of the website is still several months away, but AutoHarvest has been adding important partners, including the U.S. Patent and Trademark Of-

fice, and is up to 204 organizations that have put up information on their needs or capabilities at the site, autoharvest.org. AutoHarvest is an IP marPankin ketplace where researchers and companies can offer their technology and patents for possible licensing deals. If there’s interest, the parties can make arrangements for further discussion. Pankin said it’s designed to be an eBay for technology licensing. Approval is needed to use the site. At least one new spinoff company says it owes its existence, and its first federal research grant, to a successful search on the AutoHarvest website of available technologies.

Inside ROBERT CHASE

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Children’s Orchard resale chain prunes to grow, Page 6

Company index These companies have significant mention in this week’s Crain’s Detroit Business: AmeriSure Mutual Insurance . . . . . . . . . . . . . . 4 Are You a Human . . . . . . . . . . . . . . . . . . . . . . . . 7 AutoHarvest Foundation . . . . . . . . . . . . . . . . . . 3 Backstitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Beaumont Health System . . . . . . . . . . . . . . . . 14 Blue Cross Blue Shield of Mich. . . . 5, 13, 18, 19 Burns & Wilcox . . . . . . . . . . . . . . . . . . . . . . . . . 4 Butzel Long . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Center for Healthcare Research . . . . . . . . . . . . 5 CHE Trinity Health . . . . . . . . . . . . . . . . . . . . . . 14 Children’s Orchard . . . . . . . . . . . . . . . . . . . . . . 6 Colliers International . . . . . . . . . . . . . . . . . . . . . 3 Comerica Bank . . . . . . . . . . . . . . . . . . . . . . . . 12 Crittenton Hospital Medical Center . . . . . . . . 18 Detroit Medical Center . . . . . . . . . . . . . . . . 5, 14 Eastern Market . . . . . . . . . . . . . . . . . . . . . . . . . 1 Fielek Builders . . . . . . . . . . . . . . . . . . . . . . . . 12 Foodjunky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 GreenLancer Energy . . . . . . . . . . . . . . . . . . . . . 7 Harbor Health Plan . . . . . . . . . . . . . . . . . . . . . . 5 Henry Ford Health System . . . . . . . . . . . . . . . . 14 Hi-Lex Controls . . . . . . . . . . . . . . . . . . . . . . . . 13 Howard and Howard Attorneys . . . . . . . . . . . . 19 H.W. Kaufman Financial Group . . . . . . . . . . . . . 4 Immortal Investments . . . . . . . . . . . . . . . . . . . 13 iRule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Jaffe Raitt Heuer & Weiss . . . . . . . . . . . . . . . . 18 Lakeshore TolTest . . . . . . . . . . . . . . . . . . . . . . 14 Mantese Honigman Rossman and Williamson . . 12 Matta Blair . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 McLaren Health Plan . . . . . . . . . . . . . . . . . . . . . 5 McLaren Macomb . . . . . . . . . . . . . . . . . . . . . . 14 Meadowbrook Insurance Group . . . . . . . . . . . . 4 Meridian Health Plan of Michigan . . . . . . . . . . . 5 Michigan State University . . . . . . . . . . . . . . . . 21 Miller Law Firm . . . . . . . . . . . . . . . . . . . . . . . . 12 Munder Capital Management . . . . . . . . . . . . . 12 MyFab5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 New Economy Initiative for S.E. Michigan . . . . 19 NS International . . . . . . . . . . . . . . . . . . . . . . . 11 Optimal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Power Play International . . . . . . . . . . . . . . . . . 13 Plunkett Cooney . . . . . . . . . . . . . . . . . . . . . . . 18 Redico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Scripps Park Associates . . . . . . . . . . . . . . . . . 12 Shred-It Detroit . . . . . . . . . . . . . . . . . . . . . . . . 13 Style Encore . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Style Trader . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Tecumseh Products . . . . . . . . . . . . . . . . . . . . . 15 Towne Square . . . . . . . . . . . . . . . . . . . . . . . . . . 3 University of Michigan . . . . . . . . . . . . . . . . . 3, 18 Vandeveer Barzia . . . . . . . . . . . . . . . . . . . . . . . 14 VHS University Laboratories . . . . . . . . . . . . . . 14 Wisely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Department index BANKRUPTCIES . . . . . . . . . . . . . . . . . . 7 BUSINESS DIARY . . . . . . . . . . . . . . . . 16 CALENDAR . . . . . . . . . . . . . . . . . . . . 10 CLASSIFIED ADS . . . . . . . . . . . . . . . . 17 KEITH CRAIN . . . . . . . . . . . . . . . . . . . . 8

See AutoHarvest, Page 19

OPINION . . . . . . . . . . . . . . . . . . . . . . . 8 OTHER VOICES . . . . . . . . . . . . . . . . . . 9

THIS WEEK @ WWW.CRAINSDETROIT.COM

A fine MEZ Listen to students and instructors talk about how the Michigan Engineering Zone is building skills in the next generation. Watch “This Week in Crain’s” at crainsdetroit.com/video.

PEOPLE . . . . . . . . . . . . . . . . . . . . . . 16 RUMBLINGS . . . . . . . . . . . . . . . . . . . 22 WEEK ON THE WEB . . . . . . . . . . . . . . 22

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CRAIN’S DETROIT BUSINESS

Meadowbrook Insurance regroups while Kaufman and Amerisure charge ahead BY JAY GREENE CRAIN’S DETROIT BUSINESS

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After turning around its financial operations in 2002, Meadowbrook Insurance Group Inc.’s CEO Bob Cubbin faces another challenge this year to right its ship after A.M. Best downgraded its rating last August to B++ from A-. While Meadowbrook is regrouping, Southeast Michigan’s other two large property casualty insurers — H.W. Kaufman Financial Group and Amerisure Mutual Insurance Co. — are steaming ahead with doubledigit growth predictions this year. Cubbin said the Farmington Hills-based property casualty insurer, which employs 1,000 workers nationally with 250 in Michigan, has taken several steps to return to profitability. Changes included increasing workers’ compensation premiums by more than 60 percent in California and discontinuing a money-losing excess workers’ compensation business venture in Los Angeles and a liability insurance program for long-haul trucks in the Southeast. “We terminated about $120 million in business. We are in a period trying to retrench a little Cubbin bit,” Cubbin said. “Right now our goal is to stabilize our balance sheet and return to profitability in 2014.” But Meadowbrook (NYSE: MIG) still must put together at least two straight quarters in which it does not take reserve charges before investors regain confidence in the company, said Ken Billingsley, senior vice president and research analyst for Washington, D.C.based Compass Point Research & Trading LLC. For fiscal 2013 ended Dec. 31, Meadowbrook had had a net operating loss of $117.9 million, or $2.36 per share, compared with net operating loss of $28.4 million, or 57 cents per share, for the same period in 2012. Billingsley said Meadowbrook has incurred about $112 million in combined net reserve charges over the past eight financial quarters. The charges covered underwriting losses for workers’ compensation and the long-haul trucking claims in the Southeast. “Investors were surprised by the reserve charges and why the actuaries and auditors got it so wrong,” Billingsley said. “They have taken a number of actions, but we expect a slowdown. ...We estimate they will be writing 40 percent less net premiums at the end of 2014 as compared to the end of 2012.” Cubbin said Meadowbrook projects a 25 percent to 30 percent drop in premiums from about $1.1 billion written in 2012 to between $775 million to $800 million this year. In 2008, premiums written totaled $600 million. The decline in revenue was par-

tially due to Meadowbrook’s decision in 2012 to drop unprofitable long-haul trucking and L.A. workers’ comp business. Cubbin said Meadowbrook has struggled the past two years, primarily because the company didn’t increase premiums in workers’ comp as much as it needed to from 2009 to 2011. It also incurred losses from higher than expected tornado damage in the Midwest. “You set premiums to earn you a small underwriting profit,” Cubbins said. “Sometimes the actuarial team gets it wrong or something happens in the marketplace to change your calculations.” In California, Cubbin said, several court decisions led to an increase in paid claims. In addition, regulatory changes increased workers’ comp benefits there. To begin covering those higher costs, Meadowbrook in 2010 began obtaining rate increases in workers’ compensation and property casualty. In 2013, rate increases averaged 11 percent across all lines. The net result of Meadowbrook’s actions, said Cubbin, will be to improve profitability. For 2014, Meadowbrook projects net operating income to range between $25 million to $35 million, or 50 cents to 70 cents per share.

Amerisure’s story Amerisure’s total direct written premiums are expected to grow at least 10 percent this year to about $760 million from $690 million in 2013, said CEO Richard Russell. But more important, Russell said, the private stock company’s surplus grew $71 million, or 9.7 percent, to $803.9 million from $732.9 million in 2013 and is expected to grow 6.2 percent this year. “We focus on surplus accumulation,” Russell said. “We are a longtail casualty writer. We make very little money in underwriting. Investment is critical for us. We hold premium dollars for losses that go out 30 years or more. When investment yield goes down a bit, it hurts and we have to increase premiums when that happens.” Farmington Hills-based Amerisure, which serves midsize commercial companies in manufacturing, construction and health care, operates agencies in 23 states but does business in all 50. The company employs 706 workers nationally with 370 in Michigan.

Kaufman Financial’s moves At Kaufman Financial, CEO Alan Jay Kaufman said his Farmington Hills-based company’s continued diversification into brokerage, hiring key staff in New York and its three acquisitions last year bode well for continued growth. Kaufman Financial, which also owns the Burns & Wilcox insurance brokerage, projects revenue to grow 15 percent this year to $1.6 billion. Three acquisitions in 2013 added $25 million in annual revenue to Kaufman Financial, he said: New York City-based Global Excess Part-

ners, Spectius Underwriting Solutions, Ontario, Canada, and ISI Insurance Services in Uniontown, Pa. Last year, Kaufman strengthened its brokerage business by hiring two well-known executives for its growing New York office. Last June, Denis Brady was recruited as president of Burns & Wilcox Brokerage after heading up the San Francisco office of RTSpecialty LLC. In December, Evan Bull joined Burns & Wilcox after more than 20 years at the Marsh and McLennan Agency. Bull will lead a New York based specialty wholesale property team. Kaufman said the company plans to hire additional employees this year in Michigan, adding to its 240employee workKaufman force, a 19 percent increase over 2012, he said. Kaufman also includes Burns & Wilcox Brokerage, Burns & Wilcox Re, R.B. Jones; Royal Premium, a premium financing company; USReports, an inspections, audits, and risk-management company; Minuteman Adjusters; and the Chesterfield Group Ltd., a London-based insurance broker.

Projected growth Despite analyst predictions, Russell and Cubbin are predicting strong years for their main lines of workers’ compensation. Kaufman is predicting positive growth in the excess and surplus insurance lines along with its expanding brokerage business. A new report from Standard & Poor’s Ratings Services concludes that revenue for the workers’ compensation sector will likely decline in 2014. “We think the workers’ compensation space and auto liability will be very positive in 2014,” Cubbin said. “Property might not be as strong because of the storms. But our excess and surplus lines also will be robust.” Russell said premiums written for workers’ compensation, which has been the 102-year-old company’s primary product line, will grow this year with the help of sales to hospitals, assisted living facilities and other health care organizations. “We began writing health care in 2007, and it is our fastest-growing” market, said Russell, adding that health care now represents 6 percent of written premiums. Billingsley said low claims and premium increases for workers’ compensation have made it an attractive business line for insurers the past decade. “Our workers’ compensation line is our most profitable, and we expect it will continue that way,” Russell said. Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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CRAIN’S DETROIT BUSINESS

February 24, 2014

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Harbor Health, other plans expect Medicaid numbers boost BY JAY GREENE CRAIN’S DETROIT BUSINESS

Detroit Medical Center’s Harbor Health Plan Inc., the newly minted name of the former ProCare Health Plan, expects to increase its membership to 18,000 this year, up from 3,300 currently, primarily as the state expands Medicaid this spring and nearly 100,000 people with incomes below 133 percent of the federal poverty level begin to enroll in Wayne County. “When we bought ProCare in (October) 2012 (for $6 million), we felt at DMC that we wanted to have a new brand name for a fresh start,” said Greg Berger, M.D., Harbor’s chief medical officer. Berger said DMC’s own name has helped Harbor Health increase membership the past year to 3,300 from 1,900 members. Harbor Health is only licensed in Wayne County. Harbor Health this week plans to begin a marketing and advertising campaign that primarily will be on radio and cable television, said Sarah Collica, DMC’s press secretary. Nearly 100,000 of the state’s expected 470,000 uninsured people are expected to be eligible for Medicaid expansion in Wayne County, said the Ann Arbor-based Center for Healthcare Research and Transformation in a January 2013 report. Another 85,000 are expected in Oak-

Chief medical officer Greg Berger said the DMC’s name has helped Harbor Health increase membership. land, Macomb and Washtenaw counties, CHRT said. Medicaid eligibility will now cover a single adult with annual income of $15,000 or less and families of four with annual income below $34,000. Harbor expects to add members in several ways, said Berger, one of which is adding Harbor MIChild. MIChild is Michigan’s program for children of low-income working families that is part of the 17year-old federal Children’s Health Insurance Program. Some 37,500 children under age 19 whose parents are not eligible for Medicaid receive health and dental coverage for about $10 per month per family. Since Oct. 1, the Michigan Department of Community Health has been transitioning the MIChild program from Blue Cross Blue Shield of Michigan into Medicaid health

plans as part of health care reform. Blue Cross continues to cover about 6,000 MIChild members, said Blue Cross. Harbor Health Plan also hopes to pick up about 6,000 enrollees in Wayne County this spring from the state-funded adult benefit waivers program, currently administered through the Wayne County Four State Health plan. Over the next few weeks, the estimated 35,000 adult beneficiaries with incomes lower than 35 percent of the federal poverty level in Wayne County are being shifted into the Medicaid program. Those people will choose among eight Medicaid health plans in Wayne County, including Harbor Health, Midwest Health Plan, Meridian Health Plan, Molina Healthcare of Michigan, Blue Cross Complete and three other plans. Jon Cotton, president and COO of Detroit-based Meridian Health Plan of Michigan, said Meridian, the state’s largest Medicaid HMO with 290,000 members, could add up to 100,000 new members during the next year. Kathy Kendall, CEO of Flintbased McLaren Health Plan, said McLaren plans to add about 10 percent of newly eligible Medicaid enrollees in the 53 counties it operates in. “We also started enrolling MIChild and already have 3,500 children,” Kendall said. “They

are considered commercial, and the fees are lower than Medicaid.” As part of its growth strategy, Harbor Health Plan will also add a Medicare Advantage product this year and apply to the Michigan Department of Community Health in 2015 to expand its Medicaid plan into Oakland County, Berger said. “We have an incredibly big (physician) network,” Berger said. “We have more than 400 primary care physicians in Wayne County and more than 3,000 specialty doctors.” While some experts have expressed concern that the nearly 1 million newly insured people in Michigan might have problems finding primary care providers, Berger said medical access won’t be a problem. “Everybody is worried about it, but I talk with a lot of physicians and they would like to be busier than they are right now, especially at Medicare rates,” Berger said. Under Medicaid expansion, physicians have been promised to be paid Medicare rates for at least the first two years. Harbor Health is managed by DMC’s accountable-care organization, Michigan Pioneer ACO. DMC has a contract with Medicare to coordinate care for about 15,000 Medicare fee-for-service patients. Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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2014 UPCOMING

PARTNER EVENTS Coffee and Controversy - Super Utilizers of the ED: A Successful Solution The Greater Detroit Area Health Council presents featured speaker R. Corey Waller, MD, MS, FACEP, ASAM; Medical Director for Spectrum Health Medical Group Center for Integrative Medicine. For more information, contact Laurie Arora at (313) 965-4123 or larora@gdahc.org. Sponsored by Priority Health March 6 • 7:30 - 9:30 a.m. Hospice of Michigan 400 Mack Ave, Detroit GDAHC members: $25 Non-members: $35 Registration: gdahc.org Marketing & Sales Executives of Detroit (MSED) Spring Networking Event Join MSED members and friends for professional networking at the Royal Oak’s premiere entertainment complex. Bring your colleagues and make new connections with some of the top marketing and sales executives in Michigan. The evening includes appetizers and free billiards. A cash bar with happy hour specials and $2 bowling will also be available. For questions, call Meeting Coordinators at (248) 643-6590. March 19 • 5 - 7 p.m. Star Lanes at Emagine Royal Oak 200 North Main Street, Royal Oak Members: $20 Non-members: $30 Registration: msedetroit.org 7th Annual Opening Day Party at the Gem Theatre benefiting Winning Futures Get your limited ticket to this invite-only private party, and watch the game in comfort on the theater screens while having beer, wine and food all day (included). Have game tickets? Come and go all day. This is the place to be on Tiger’s Opening Day! Hosted by Bernard Financial, Farm Bureau Insurance, Fifth Third Bank, and O’Keefe March 31 • 11 a.m. - 5 p.m. The Gem Theatre 333 Madison, Detroit Tickets: $150; discounted packages available for 10+ tickets Tickets must be purchased in advance. Registration: winningfutures.org

February 24, 2014

Children’s Orchard prunes franchises to spur growth BY SHERRI WELCH

After his 2004 acquisition of Children’s Orchard, Taylor Bond’s growth plans began with the closure of nearly half of the franchises. Then came the recession. Now that banks are lending, the resale clothing chain hopes to open 10 Midwest franchises this year.

CRAIN’S DETROIT BUSINESS

When Taylor Bond acquired resale clothing chain Children’s Orchard Inc. in 2004, he set out to grow the company, oddly enough, by closing nearly half of the 80 franchises under agreements he’d inherited from the previous owner. Some were struggling or not paying the royalty fees they owed. Others were held by “hobbyist owners” who weren’t focused on growing the business or whose vision for the company didn’t dovetail with his, Bond said. As a result, Children’s Orchard didn’t renew franchise agreements for many, and other outlets closed of their own accord. After a few years, Bond was ready to expand the Ann Arbor-based chain once again. But then the recession hit. So he spent the past five years strengthening the Children’s Orchard brand and operating model. With banks beginning to lend again, the chain has set a goal to open 10 new Midwest franchises this year. Children’s Orchard is also expanding into name-brand resale for teenagers, men and women. It plans to open a second corporateowned location of a name-brand resale store chain, Style Trader LLC, aimed at teenagers and adults, late this month or early in March. The 2,500-square-foot store at Ann Arbor’s Colonnade Shopping Center will feature used clothing. The items stocked include brands like Banana Republic, GAP, DKNY, Ralph Lauren, Aeropostale and Abercrombie & Fitch. Bond expects four other Style Trader locations to open across the Midwest this year. Children’s Orchard decided to launch the new stores after customers repeatedly asked if the chain would sell items for teens and adults, as well as children, Bond said. “Getting new customers is a lot of work; you’re better off keeping the ones you’ve got,” he said. Other organizations like Plato’s Closet have expanded in the same way with good success, Bond said. The recession strengthened the nation’s bargain-hunting mentality to an all-time high, and that has remained intact even as the economy steadily improves, he said. The National Association of Resale Professionals estimates the resale industry is a $13 billion segment that’s growing. For the past two years, the industry has seen 7 percent growth in the number of stores selling used items. Value-conscious consumers and an increasing interest in recycling are driving that growth, according to the association.

New store model During the past five years, Children’s Orchard has taken advantage of lower rents, relocating many of its franchises to larger, more visible locations, said Bond, 52. That has improved merchandising and increased the amounts

ROBERT CHASE

of time and money customers are spending in the stores. The company, which employs 20 at its Ann Arbor headquarters, also introduced tent sales and instituted a guarantee that people coming in to sell items will have an offer within 20 minutes or get a $5 store credit. That’s replaced purchases made by appointment only. “It’s been an enormous success. Walk-in buying drives inventory and grows sales, and customers love (it),” Bond said. The 34 Children’s Orchard stores operating in 2012 reported average sales of just under $353,000, according to the company’s franchise disclosure statement.

Franchisee changes Children’s Orchard also increased the net worth requirements for its owners to $500,000 from the earlier requirement of a net worth of $250,000-$300,000. There’s a relationship between a person’s net worth and their business experience, Bond said. Most of the company’s franchises launched with financing secured through home equity loans, and that disappeared when home equity lines of credit began to dry up in 2007-08. Total startup costs for a Children’s Orchard franchise range from $146,200 to $297,000, according to its franchise disclosure document. Bond said the Children’s Orchard stores that remained open during the recession saw average sales growth of nearly 5 percent per year compounded over the past five years. Gross margins for resale can be 65-70 percent, generally. So if an item is priced for $1, the store paid about 35 cents for it, he said. Systemwide sales for the chain are about $12 million, and the corporate parent’s revenue is more than $1 million, Bond said. He projects that revenue will rise 5 percent this year and even more as new franchises come online.

Adult and teen stores Children’s Orchard launched Style Trader stores for teenagers and adults in June 2012, through a company-owned store at Middlebelt and Plymouth roads in Livonia. “In order to be a good franchisor, we need to be operating a store,” to test ideas before rolling

them out, Bond said. It’s too early to make claims about revenue for the Style Trader franchises, he said. But most resale businesses have revenue of $250,000 to $500,000 per year, and the corporate-owned Style Trader location is operating within that range. The total investment required to launch one of the franchises is $330,000 to $450,000, according to the company’s franchise disclosure statement. When Children’s Orchard originally tested the Style Trader format in Livonia, it offered items for children at the location, too, Bond said. “But one of the things we learned is the shopping psychology when you’re shopping for children and women’s things is different. ... When mom is shopping for kids, she’s not necessarily shopping for mom.” Children’s Orchard is following the path of competitors like Winmark Corp. (Nasdaq: WINA), which introduced women’s resale stores under the Style Encore banner last year. It also operates Plato’s Closet, Once Upon a Child, Play It Again Sports and Music Go Round. Minneapolis-based Winmark operates 12 Once Upon a Child franchises in Michigan and 14 Plato’s Closet locations, said Pete First, director of franchise development. On average, its U.S. stores under those brands generate $900,000 to more than $1 million in annual revenue, and sales have increased each of the past 10 to 12 years, he said. “The popularity of recycling and sustainability today is increasing. You’ve got a younger generation, and that’s how they’ve grown up,” First said. Winmark launched Style Encore for women last year to capitalize on the growing segment and already has 40 franchise agreements signed, including five in Michigan. The first, in Utica, began buying used items in early February to bolster its inventory and is expected to open in early April, First said. By mid-to-late summer or early fall, Winmark expects additional Style Encore stores to open in Saginaw, Portage and East Lansing. Michigan has a good customer base and affordable retail spaces that enable Winmark to set its franchisees up for success, he said. “Michigan is a good market for us, and the franchisees are great,” First said. Sherri Welch: (313) 446-1694, swelch@crain.com. Twitter: @sherriwelch

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7 startups in Google contest feel luckier Seven local startups are one step closer to pitching their business plans to Google. Google Demo Day is part of the Google for Entrepreneurs Program, with competitions being held across the U.S. One winner from each city will advance to the finals. The local finalists are: Are You A Human, Detroit, creator of PlayThru, which replaces online annoyances with games. Backstitch Inc., Detroit, which lets people build their own view of the Web by bringing together content from their favorite sites. MyFab5 LLC, Ann Arbor, a community for sharing and discovering restaurants. Foodjunky LLC, Detroit, a website that helps groups place online orders to restaurants. GreenLancer Energy Inc., Detroit, a Web-based engineering firm that helps contractors develop renewable-energy projects. iRule LLC, Detroit, creator of the iRule app that acts as a TV remote and controls other devices. Wisely Inc., Ann Arbor, whose namesake app analyzes consumer transaction data to find the best places to eat and shop nearby. From 5:30-7:30 p.m. Wednesday, finalists will make pitches to become the local winner at Grand Circus, at 1570 Woodward Ave. in Detroit and is open to the public.

BANKRUPTCIES The following businesses filed for protection in U.S. Bankruptcy Court in Detroit Feb. 14-21. Le Chateau Art Gallery & Custom Framing LLC, 15001 Charlevoix St., Grosse Pointe Park, voluntary Chapter 11. Assets and liabilities not available. Diversified Excavating LLC, 7810 Whittaker Road, Ypsilanti, voluntary Chapter 7. Assets: $73; liabilities: $338,131. Fort & Vreeland Plaza LLC and Brown’s T Market Inc., 27000 Fort Plaza, Brownstown Township, voluntary Chapter 11. Assets and liabilities not available. — Bridget Vis

CRAIN’S AMERICAN DREAMERS: IMMIGRATION SUCCESS STORIES In many ways, metro Detroit was built by the hopes and dreams of people from other countries. And foreign-born entrepreneurs will be vital to the region’s future. Crain’s Detroit Business wants to tell those stories. We are seeking nominations of immigrants who have had business success for an American Dreamers feature to be published in the June 2 issue. Nominations for yourself or someone else are due March 3. Visit crainsdetroit.com/nominate for details. For questions, contact Senior Reporter Sherri Welch at swelch@crain.com or (313) 4461694. For technical questions about the form, contact Ashley Henderson at ahenderson@crain.com or (313) 446-1685.

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CRAIN’S DETROIT BUSINESS

OPINION

Faculty must serve public needs, not own O

akland Community College faculty sent a dramatic valentine to Chancellor Tim Meyer on Feb. 14 with a vote of no-confidence. As Chad Halcom reported on Feb. 17, the turmoil at OCC is mirrored at other community colleges, where faculty members have resisted changes designed to invest resources to improve graduation rates and more closely connect to supply-and-demand needs in the job market. In particular, they resist the shifting of open teaching positions from one department to another. Employers and civic and elected leaders in Oakland need to weigh in and support Meyer and OCC’s elected board that has publicly supported the chancellor’s master plan. OCC, the state’s largest community college with 26,000 students, is uniquely positioned to make a positive difference in the region’s job market, but only if it can freely redeploy resources to best address chronic shortages of specifically skilled workers. That’s Michigan’s conundrum. Unemployment remains stubbornly high, yet employers are raiding one another because they can’t find newly minted talent to fill open jobs. Community colleges traditionally have been one of the shortest routes to landing a skilled job, whether it’s Web development and software or welding technology. Faculty members intent on preserving the status quo do not have the best interests of students, job seekers and employers — most of them taxpayers — at heart.

We all can fight health care fraud Metro Detroit is among the leaders nationwide in Medicare fraud. But thanks to aggressive investigation and prosecution, fraud may be declining in Southeast Michigan. U.S. Attorney Barb McQuade and her office and members of a special task force deserve special credit. As we report on Page 1, since a federal crackdown began in 2009, nearly 170 people have pleaded guilty, more than 30 have been convicted by juries and more than 100 await a judge or jury’s decision this year. Last year alone, federal prosecutors indicted 46 people in schemes that cost taxpayers $380 million. Fraud is “easy” when it’s other people’s (i.e., the government’s) money. But experts project that about 3 percent of all health care spending is fraudulent, or approximately $162 million in fraudulent Medicare reimbursements in Southeast Michigan alone. Consumers of health care are taking on more and more active roles in managing their own care. But it pays for everyone, from consumers to employers to health systems, to educate consumers about ways to monitor their own health care records and bills to guard against fraud.

TALK ON THE WEB From www.crainsdetroit.com Re: Raising Michigan’s minimum wage for tipped workers If my server is making $9.50 an hour, I won’t be tipping him or her 20 percent. This plan makes no sense. Linda in West Bloomfield Let’s consider the English food culture as an option. No tips at restaurants and coffee shops; employees are generally paid a living wage. Dean P. Simmer Everyone should make a living wage if it is your full-time job. Tipping is a way for business owners not to pay their employees. It would make more sense just to pay the wait staff and not expect us to tip. Banner Sign Co. It is unbelievable that a business owner thinks that a wage of $2.65 an hour is appropriate. Businesses are getting a fantastic break

Reader responses to stories and blogs that appeared on Crain’s website. Comments may be edited for length and clarity. on their labor costs. This is especially true in relation to restaurants that charge top dollar for their product. I wonder if Joe Vicari could live and support his family on a $2.65-an-hour wage. The tips are paid for by the customer. The business owner contributes nothing in relation to tips. Carolyn Mazurkiewicz Here’s hoping that everyone in this state is going to love eating out at most restaurants cafeteria-style. Freedom Trinity

Re: After years of red-tape delays, Hantz Farms nears sprouting Luckily, Hantz had the tenacity and the wherewithal to marshal

his way through the fractious and incompetent past administrations to make it to where he can now get the job done. Kudos to entrepreneurs like him who face the odds and beat through them with sheer determination and grit. Michael Hinsky I am cautiously optimistic, but this seems like progress. As a resident of Windsor working in Southeast Michigan, I’m excited to see what the future holds for Detroit. Auto Testing

Re: Michigan House panel approves income tax cut Since this “surplus” was funded by taxpaying citizens, it is only fair that they get their own money back. These dollars do not belong to the government. William J See Talk, Page 9

KEITH CRAIN: Celebrating the Newsmaker of the Year This week, Crain’s Detroit Business will honor our Newsmaker of the Year at the MotorCity Casino Hotel on Tuesday. We are pleased that our newly elected Detroit Mayor Mike Duggan will be honored, a day, as it hapDuggan pens, before he gives his first state of the address. It was a rather remarkable journey that took him from Wayne

County prosecutor to mayor, with a short stop at the Detroit Medical Center. Although I was aware of Duggan when he was prosecutor, it was only when he became CEO of the DMC that I had a chance to get to know him well. I was on the DMC board of trustees, and when it was suggested that he be the new CEO there was, needless to say, a lot of debate. The selection of a politician to run a large medical center in a ma-

jor urban city was certainly unorthodox. Hospitals have traditionally been run by either doctors with business training or specially educated executives schooled in hospital administration. Mike certainly did not fit in either of those categories. But the DMC was in dire straits and needed to take a fresh approach, which he brought. It didn’t take long for the board of trustees and the entire staff of

thousands to realize he was indeed a breath of fresh air in doing what had to be done. He didn’t always use a velvet glove, but the DMC often required strong medicine. His success there is well established. But I think his heart was always in politics, and so he took steps that would lead him to the mayor’s office. Who would have thought that after an initial misstep in filing documents, he would be able to continue his quest for victory in the primary. Duggan’s success in launching a write-in campaign is well documented and

continues to surprise many who studied the campaign. Of course, he was equally successful in the general election. The challenges he faces as a mayor operating under an emergency manager are formidable, to say the least. But the excitement and enthusiasm and well wishes of the citizens are overwhelming. Duggan has overcome a rocky road to be elected mayor of Detroit. Because of the challenges he overcame, we are pleased and proud to have named him Crain’s Newsmaker of the Year.

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OTHER VOICES: As Israel can revitalize, so can Detroit ation and hopelessness. It I recently had the honor was not a community diof participating in a misvided without common vision to Israel that focused sion. Rather, the Israel on enhancing the already discovered by our mission strong economic ties beparticipants is a land of tween Michigan and Isinspiration where the rael. spirit of innovation is As we progressed from grounded in deeply rooted Tel Aviv to Jerusalem to commitments to economic the Galilee, one common development, prosperity, theme followed us: the tale Mark Davidoff social justice, education, of two states, the State of responsibility for the environIsrael and the state of Detroit. To the amazement of first- ment, and caring for all. On our last day, we viewed a timers, what they had read and viewed through the media about reclamation project for the Jordan Israel was not the reality on the River, an effort to infuse new life ground. It was not a land of desper- into this once-flowing and thriving

historic tributary. Through a tedious effort of breaking away barriers that will free flowing water, the river is experiencing rejuvenation. Israel has overcome many obstacles. Those on the mission now appreciate both the spirit of Israel and the fact that headlines don’t always tell the story. This is the tale of the State of Israel. The tale of our beloved city of Detroit is no different. How many times have we encountered an expression of sympathy about Detroit from someone who has never taken the opportunity to visit our city? Certain media will have nonDetroiters believe that this land

too is a hopeless wasteland of blight and lawlessness, with no hope for a future. However, we also know that when we have the opportunity to host first-timers to Detroit, whether they’re from New York or New Delhi, all are amazed at what our community has to offer. Like Israel, Detroit is a community with an evolving vision of what can and should be. Like Israel, Detroit has been through many difficult moments but continues the struggle to reclaim its rightful position as one of the top places in the country to live, work and play.

Detroit is our Jordan River. Once teeming with life and vitality, our great city is in need of reclamation after years of neglect and a lack of stewardship. The efforts underway today by elected, business and community leaders are working to break the dams that have held back progress for decades. Like the spirit of those early Israeli pioneers, we will persevere until the state of Detroit’s renewal is a tale recanted around the globe. Mark Davidoff is managing partner of Deloitte LLP in Michigan.

TALK CONTINUED ■ From Page 8

Re: Other Voices: Transit needs to be everyone’s business Couldn’t agree more. Regional transit needs to be a top priority if the entire Detroit region wants to succeed in the future. Jayelaudio

Re: Mary Kramer: Find biz bashes on our calendar This is a great idea. Having a one-stop site makes life easier for the business development officer and interested executives who don’t have the time to visit numerous websites to glean this information. Thank you to Crain’s for taking the initiative. James Schmitz

Re: Editorial: Wring politics out of water authority plan I agree that politics have ruined DWSD by giving out lucrative contracts to cronies and having no able technical management at the helm. This is the reason for sinkholes, eutrophication of Lake Erie, outdated 1940s technology, etc. The counties should agree to new management by engineers and scientists. sauliussimoliunas

Re: Ficano’s State of Wayne County highlights projects, new jobs Detroit up to bat, Wayne County on deck. Using the infamous words of our illustrious former Governor Granholm, “In five years, you’ll be blown away” — and we have! Dukeoftralee

First Place Now proud Bank. to be Talmer Bank and Trust. While our name may be different, the

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you, and the personalized service they provide, are still the same. So is our strong commitment to this community. In fact, the name “Talmer” is a tribute by the Bank’s two principals to their grandfathers (named Talmage and Merzon), who both dedicated their lives to community service. What’s more, Talmer Bank, just like First Place, is a Midwest-based community bank—and one with demonstrated ﬁnancial strength. So you can count on us to take care of your business needs for many years to come. Please stop by soon. You’ll quickly discover that we’re now an even greater asset to your community.

Re: New DDOT director will oversee security camera installation in buses This is great, but why weren’t the cameras purchased from a Detroit company, or a Michigan company, or a U.S. company? Church Lady Having some of the management actually ride the buses would be an idea. Chester Marx

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CRAIN’S DETROIT BUSINESS

CALENDAR WEDNESDAY FEB. 26 Annual Legislative & Public Policy Conference. 10 a.m.-6:30 p.m. Michigan Society of Association Executives. With Gov. Rick Snyder. The state’s largest gathering of legislative, public policy and association leaders. Topics include state budget and other public policy issues, November elections and the impact of the Affordable Care Act on associations. A Capitol reception

with executives and members of the Legislature will follow the event. Lansing Center, Lansing. $125-$350. Contact: Edward Woods III, (517) 3326723; email: woods@msae.org; website: msae.org.

2014 Southeast Michigan Economic Development Outlook. 2:30-5 p.m. Commercial Real Estate Women Detroit. Representatives from the state of Michigan; Wayne, Oakland and Macomb counties; and the city of Detroit

will discuss strategies for economic development, including the types of businesses they are attempting to attract and how this will relate to opportunities in commercial real estate. With Joan Gebhardt, chairman, South-

craft College VisTaTech Center, Livonia. $35 CREW member, $70 nonmember. Contact: Norma Lee Beuter, (248) 646-9629; email: beuter@ comcast.com; website: crewdetroit.org.

east Michigan Council of Governments; Valerie Hoag, senior vice president, business development, Michigan Economic Development Corp.; Gina Cavaliere, deputy director, Wayne County Economic Development Growth Engine; and others. School-

THURSDAY FEB. 27 2014 Detroit Policy Conference. 7:30 a.m.-4 p.m. Detroit Regional Chamber. The event reinforces the message that

The market is changing. Are you ready?

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EDITOR’S NOTEBOOK Amy Haimerl is entrepreneurship editor. She can be reached at (313) 446-0416 or at ahaimerl @crain.com

law Amy Haimerl

Rhodes keeps people in mind Detroit Emergency Manager Kevyn Orr filed the long-anticipated plan of adjustment with U.S. Bankruptcy Judge Steven Rhodes on Friday. But that plan is hardly a done deal. While the goal is to create a prepackaged bankruptcy, in which all the creditors have agreed to the plan and signed off before it ever hits a judge’s desk, nobody expected that to be the case in the largest municipal bankruptcy in the country’s history. Especially not when things like pensions are at stake. So now negotiations continue while Rhodes reviews the proposal and sets the timeline. That’s a lot of pressure on Rhodes, who is essentially setting precedents in a part of the law that is murky at best. “If there’s one thing certain about the plan … it’s going to change many things very substantially,” the city’s primary bankruptcy attorney, Bruce Bennett, who works for Jones Day, said in court last Wednesday. And Rhodes has proven to be attentive to the human element of the bankruptcy, not just making the city’s more than 100,000 creditors whole. He regularly invokes the pensioners and the fate of the city’s 700,000 residents when questioning attorney’s arguments. Last week, he took an attorney to task, saying, “Every dollar (the city) spends on you, it’s a dollar less for a police officer.” That attention to the impact on people, not just bondholders or bankers, is to be expected from Rhodes, said David Tawil, who was a student of Rhodes’ at the University of Michigan law school. “He is an extremely thoughtful and thorough and understanding man,” said Tawil, who is a former bankruptcy attorney who founded New York Citybased Maglan Capital LP, a hedge fund oriented on distressed assets. “He’s an absolute gentleman.” Tawil pointed out a commonality that he has seen in most of Rhodes’ cases: a desire to move things along expeditiously. “He never wants the professionals to go ahead and tick the clock for the sake of generating fees,” he said Tawil has been surprised by a few of his former professor’s rulings. Primarily, he was stunned to see Rhodes reject a deal the city made to settle a costly pension-debt deal — a deal that was negotiated by the case’s lead mediator, Gerald Rosen, chief judge for the U.S. District Court for the Eastern District of Michigan. “To be publicly lambasted for negotiating at all is a very strange thing,” he said. Still, Tawil expects Rhodes to fight for the average citizen first and foremost. And if that means rejecting a deal that a fellow judge endorsed, so be it. After all, how Detroit emerges from bankruptcy will be Rhodes’ legacy. He won’t want just a body of law to refer to; he’s a man who will want to see the city become a thriving, viable metropolis. ISTOCK PHOTO

Big cases of 2013 E

ach year, we comb our archives and accept submissions from law firms and other sources to compile this review of the big business cases of the

year. Litigation reporter Chad Halcom searched legal records and talked with myriad sources to

Supplier price fixing In Re: Automotive Parts Antitrust Civil Litigation Instrument Panel Clusters, Dealership and End PayorActions re: Nippon Seiki Co. Ltd. et al 14 U.S. Department of Justice cases against the following companies: Diamond Electric Mfg. Co. Ltd., Panasonic Corp., Hitachi Automotive Systems Ltd., Jtekt Corp., Mitsuba Corp., Mitsubishi Electric Corp., Mitsubishi Heavy Industries Ltd., NSK Ltd., Valeo Japan Co. Ltd., Takata Corp., T.RAD Co. Ltd., Yamashita Rubber Co. Ltd., Toyo Tire & Rubber Co. Ltd. and Stanley Electric Co. Ltd.

About the case The investigation of price fixing among automotive suppliers is now the largest antitrust prosecution in U.S. history, with 17 different companies agreeing either to fines or civil lawsuit settlements in 2013. How do the fines stack up? In 2009, the U.S. Department of Justice for the first time crested $1 billion in total antitrust fines across every U.S. industry where it had pending enforcement actions. Just in the last half of 2013, it amassed that same sum against automotive suppliers alone. Fourteen suppliers — mostly Asian companies with U.S. subsidiaries or operations in metro Detroit but a few in Ohio, as well — agreed to more than $1 billion combined in criminal fines and guilty pleas on collusion charges, between July 16 and late November. Nagaoka, Japan-based Nippon Seiki Co. Ltd., which houses its NS International Ltd. headquarters in Troy, agreed separately to pay $6 million in two settlements that resolve civil lawsuits by auto dealerships and consumers in a related multi-district litigation case. That company agrees to a cash payout of $4.56 million to a class of car buyers and $1.44 million to auto dealership plaintiffs, to resolve claims of price fixing on automotive instrument panel components for itself, NS International and Ohio-based New Sabina Industries Inc. That settlement was submitted for approval Dec. 23 to civil court Judge Marianne Battani, who has yet to finalize it. The deal is the first in the far-reaching civil litigation naming companies tied to the massive global prosecution of suppliers. Justice officials believe the conspiracy affect-

compile this list of 10 significant cases from 2013. The verdicts and settlements in this report range from price fixing in the automotive supply chain (see story below) to coverage for autism therapy and bank securities investments. Case profiles, all written by Halcom, begin on this page and continue through Page 15.

CASE FILE Autism therapy. State reimbursement for Medicaid families. Page 12 Excavation site drowning. Good Samaritan’s family awarded $9.5 million. Page 12 Securities lending loss. Comerica settles over investment gone bad. Page 12 Lost Howe treasures. “Mr. Hockey” wins court faceoff over destroyed property. Page 13 Hidden fees. Blues lose case over self-insured billings. Page 13 Nurses’ wages. Four firms agree to fork over $27 million. Page 14 Lab van collision. Pastor prevails against DMC, wins $3.7 million. Page 14 Kilpatrick conspirators. Contractors settle over role in ex-mayor’s scandal. Page 14 Compressor collusion. $49 million settlement spans the globe. Page 15 ed more than 30 products worth $5 billion sold to U.S. car manufacturers in the past decade, and more than 25 million cars purchased by American consumers. The fines, almost universally reached in negotiations with companies before bringing charges in a process similar to civil settlements, totaled about $808 million when 2013 began and had topped $1.8 billion since the inception of the case as of Dec. 31 (it’s now about $2.3 billion, after a set of deals reached in January and February with Koito Manufacturing Co. Ltd. and Bridgestone Corp., both of Tokyo, and Aisan Industry Co. Ltd. of Obu, Japan). That pushed automotive ahead of air cargo transportation (at $1.9 billion total fines between 2007 and late 2013) and made automotive officially the biggest single-industry antitrust prosecution in history. Pleading guilty and agreeing to fines in Detroit’s federal court during 2013 were Diamond Electric Mfg. Co. Ltd. (July 16: $19 million); Panasonic Corp. (July 18: $45.8 million); Hitachi Automotive Systems Ltd. (Sept. 26: $195 million); Mitsuba Corp. (Sept. 26: $135 million); Mitsubishi Electric Corp. and Mitsubishi Heavy Industries Ltd. (both Sept. 26: $190 million and $14.5 million, respectively); T.RAD Co. Ltd. (Sept. 26: $13.75 million); Valeo Japan Co. Ltd. (Sept. 26: $13.6 million); Takata Corp. (Oct. 9: $71.3 million); and Stanley

Electric Co. Ltd. (Nov. 27: $1.44 million). Plea deals in Ohio courts netted more than $300 million in 2013, and a total of 26 companies and 29 auto executives have been charged since 2011.

䡲 Venues: U.S. District Court, Detroit, Judges

Marianne Battani and George Steeh; U.S. District Court, Toledo, Judge Jack Zouhary; and U.S. District Court, Cincinnati, Judge Herman Weber 䡲 Settlements: $1.01 billion (across all 17 defendant companies in 2013) 䡲 Date: July 16 through Dec. 23, 2013 䡲 Plaintiffs: U.S. Department of Justice, 14 cases. Automotive buyer plaintiffs Apex Motor Corp., Cannon Chevrolet-Oldsmobile-CadillacNissan Inc. et al for the proposed civil class of automotive dealerships affected by collusion, 1 case; end payer plaintiffs Tommy Wilson, Kim Shannon et al for the class of car buyers affected by alleged collusion. 䡲 Lead counsel: William Baer, assistant attorney general for the Antitrust Division, Department of Justice; E. Powell Miller, partner, The Miller Law Firm PC, Rochester; Robins, Kaplan, Miller & Ciresi LLP, New York City; and Cotchett Pitre & McCarthy LLP, San Francisco, for the indirect purchasers. Gerard Mantese, partner, Mantese Honigman Rossman and Williamson PC, Troy; and the Barrett Law Group PA, Nashville, Tenn., for the dealer plaintiffs. 䡲 Defendants: Panasonic Corp. and Diamond Electric Manufacturing Co. Ltd., both of Osaka, Japan (U.S. headquarters for Diamond Electric in Dundee); Hitachi Automotive Systems Ltd. (U.S. location in Farmington Hills); Jtekt Corp. (U.S. location in Plymouth); Mitsuba Corp. (U.S. location in Mt. Pleasant); Mitsubishi Electric Corp. and Mitsubishi Heavy Industries; NSK (U.S. location in Ann Arbor); T.RAD Co., Valeo Japan Co. (U.S. location in Troy); Yamashita Rubber Co.; Toyo Tire & Rubber Co. Ltd.; Stanley Electric Co. Ltd.; Nippon Seiki Co. Ltd.; New Sabina Industries Inc.; and NS International Ltd. 䡲 Lead counsel: Winston & Strawn LLP, New York City, for Nippon Seiki and affiliate companies and Panasonic; Williams & Connolly LLP, Washington, D.C., for Takata; Vinson & Elkins LLP, Washington, D.C., for Hitachi Automotive; Gibson Dunn & Crutcher LLP, San Francisco, for Mitsuba; Jenner & Block, Chicago, for Mitsubishi Electric; Hogan Lovells US LLP, San Francisco, for Mitsubishi Heavy Industries; Fried, Frank, Harris, Shriver & Jacobson LLP, New York, for T.Rad; Cleary Gottlieb Steen & Hamilton LLP, Washington, D.C., for Valeo Japan; and Simpson Thacher & Bartlett LLP, Washington, D.C., for Stanley Electric.

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Law Autism therapy Deanna Caver and Arlena Minter et al v. Janet Olszewski, James Haveman 䡲 Venue: U.S. District Court, Detroit, Judge Stephen Murphy 䡲 Case filed: Dec. 16, 2010 䡲 Settlement: $52 million, based on 2012 state budget appropriation 䡲 Date: June 13, 2013 䡲 Plaintiffs: Deanna Caver and Arlena Minter on behalf of a class of families of children with autism spectrum disorder. 䡲 Lead counsel: David Honigman and Gerard Mantese, partners, Mantese Honigman Rossman and Williamson PC, Troy 䡲 Co-counsel: John Conway, president, John J. Conway PC, Royal Oak 䡲 Defendants: Janet Olszewski, as former director of the Michigan Department of Community Health (later Olga Dazzo, then current health director James Haveman, in the same capacity) 䡲 Lead counsel: William Morris, assistant attorney general, Lansing, for Community Health

About the case Michigan could spend more than $52 million to reimburse families enrolled in the state’s Medicaid program, under the terms of a recent court settlement covering

Excavation site drowning

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Shirley Conerly and Marsha Webb, for estate of Garrett Townsend Jr. v. Scripps Park Associates LLC, Woodbridge Estates Condominium Homeowners Association, et al Niya Townsend, minor, by Shirley Conerly v. Scripps Park Associates LLC, The Slavik Co., Fielek Builders LLC, et al 䡲 Venue: Wayne County Circuit Court, Judge David Allen 䡲 Cases filed: Nov. 20, 2009, and Nov. 22, 2010 䡲 Verdict: $9.5 million (combined). Settled in 2014. 䡲 Date: May 9, 2013 䡲 Plaintiffs: Niya Townsend, daughter of the late Garrett Townsend Jr., Detroit; her mother, Shirley Conerly, and Marsha Webb, as co-representatives of the late Garrett Townsend’s estate. 䡲 Lead counsel: David Christensen and Mary Pat Rosen, partners, Charfoos & Christensen PC, Detroit, for Conerly and Webb; Robin Kyle, Kyle Law Firm, Detroit, for Niya Townsend 䡲 Defendants: Scripps Park Associates LLC, developer of Woodbridge Estates housing in Detroit, and The Slavik Co., both of Bingham Farms; Fielek Builders LLC and related companies Fielek Enterprises LLC and Fielek Construction Services LLC, all of South Lyon; Woodbridge Estates Condominium Homeowners Association, Detroit; Exspec Contracting LLC, Novi. (Exspec paid no damages.) 䡲 Lead counsel: John Mitchell, Secrest, Wardle, Lynch, Hampton, Truex & Morley PC, for the Fielek companies; Paul Johnson and Andrew Elder, attorneys, Staff Counsel, Troy, for Scripps Park and Slavik

About the case In May 2009, a 7-year-old boy fell into muddy water that had filled an excavation site at Woodbridge

applied behavior analysis treatment for young children with autism. The state Department of Community Health reached an agreement in January and obtained a dismissal in June of the 2010 lawsuit by two Detroit mothers on behalf of a class of Medicaid beneficiaries. U.S. District Judge Stephen Murphy certified that case as a class action in late 2011. Terms of the settlement call for the state Medicaid program to fund ABA therapy treatments among eligible Michigan children age 18 months to 6 years of age. Gov. Rick Snyder signed a 2012 appropriations bill that allocates about $17.5 million toward autism services, and the allocation is referenced in the settlement agreement. Based on a 66.4 percent federal Medicaid match to Michigan in fiscal 2013, it could mean total Medicaid funding for ABA therapy in the state exceeds $52 million. Several insurers nationwide have denied claims for ABA reimbursement in years past on the basis that it was experimental, but Michigan insurers have been required to cover ABA for fully insured companies since fall 2012. State officials have said a plan for Medicaid to offer ABA reimbursements was already in development; attorneys requested a budget allocation.

Estates, a project in Detroit that has encompassed new mixed-income housing built in phases. A man living near the site, Garrett Townsend Jr., went to the child’s aid and fell in the same hole. He helped EMTs lift the child to safety, but then drowned. His family alleged wrongful death, negligence, liability for dangerous premises, negligent infliction of emotional distress, predeath mental anguish and bystander claims in two lawsuits filed in 2010 and 2011 against Woodbridge developer Scripps Park Associates LLC, South Lyonbased Fielek Builders LLC and two related companies, the Woodbridge Estates Condominium Homeowners Association, Novi-based Exspec Contracting LLC and others. Scripps Park Associates is made up of Detroit developer Herbert Strather, Bingham Farms-based The Slavik Co., New York Citybased Rosenberg Housing Group Inc. and Washington, D.C.-based Premier Property Management. The company has completed more than 280 housing units at the former Jeffries West public housing development in Detroit and expects to finish more this year. The two lawsuits, one on behalf of Garrett Townsend’s daughter and one on behalf of his estate, were consolidated into one trial. Jurors in May awarded a combined $9.5 million — $7 million to the estate and $2.5 million to daughter Niya Townsend — and found the Fielek building companies were 80 percent liable for the damages, while Scripps Park was 20 percent liable. An appeal followed in July, but the companies reached a settlement out of court with the family.

Securities lending loss City of Birmingham Employees’ Retirement System, Road Commission for Oakland County et al v. Comerica Bank, Munder Capital Management 䡲 Venue: U.S. District Court, Detroit, Judge Stephen Murphy 䡲 Case filed: Aug. 14, 2009 䡲 Settlement: $11 million 䡲 Date: Dec. 27, 2013 䡲 Plaintiffs: The boards of trustees for the City of Birmingham Employees’ Retirement System, the Road Commission for Oakland County, Iron Workers Local 25 Pension Fund, Iron Workers Health Fund of Eastern Michigan, City of Monroe Employees Retirement System, Waterford Township General Employees’ Retirement System, Carpenters Pension Fund Trust-Detroit & Vicinity, and other members of a class of funds in the Comerica Bank securities lending program 䡲 Lead counsel: E. Powell Miller and Marc Newman, partners, The Miller Law Firm PC, Rochester, for the fund boards 䡲 Co-counsel: Sharon Almonrode, partner, The Miller Law Firm 䡲 Defendants: Comerica Bank, a subsidiary of Comerica Inc., Dallas; and Munder Capital Management, Birmingham, intervening/third-party defendant 䡲 Lead counsel: Thomas Bruetsch, partner, Bodman PLC, Detroit, for Comerica; Lisa Goldstein, partner, Dechert LLP, New York City, for Munder Capital

About the case Municipal and multi-employer retirement and benefit plans that took part in a Comerica Bank lending program will take an $11 million settlement for their losses from an investment vehicle that went into receivership amid the market collapse of 2008. Between 1997 and 2006, various Southeast Michigan public- and private-sector employee plans agreed to participate in the Securities Lending Program at Comerica. Under the program, the bank would lend to third parties securities they owned — usually for short sales, arbitrage or other market trading gains. Borrowers in the lending program were required to deposit cash or assets as collateral with the bank, worth 102 percent of the securities’ value. The bank could, in turn, invest that collateral and split the returns with the lenders of those securities. Comerica hired Munder Capital Management to oversee those collateral investments, and Munder placed some in medium-term notes issued by Sigma Finance Inc. The notes are described as a structured investment vehicle which invests capital in longer-term and riskier investments, such as mortgagebacked securities. Sigma Finance went into receivership in 2008, creating major losses on the collateral investments that Comerica then sought to recover from the pensions and health funds themselves. “We were not saying the bank acted in any kind of bad faith,” said E. Powell Miller, lead counsel for the class of investors. “We just don’t think they practiced enough oversight or didn’t review the investments enough to know how risky some of them were.”

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Law Lost Howe treasures Power Play International Inc., Gordie Howe v. Immortal Investments LLC, Del Reddy et al 䡲 Venue: Oakland County Circuit Court, Judge Leo Bowman 䡲 Case filed: Dec. 8, 2011 䡲 Verdict: $3 million 䡲 Date: June 18, 2013 䡲 Plaintiffs: Power Play International Inc., Rochester Hills; and Gordie Howe 䡲 Lead counsel: Steven Matta, partner, Matta Blair PLC, Bloomfield Hills 䡲 Defendants: Immortal Investments LLC, Westland; Del Reddy; Michael Reddy; and Aaron Howard 䡲 Lead counsel: Anthony Alfred Randazzo, partner, Secrest, Wardle, Lynch, Hampton, Truex and Morley PC, Troy

About the case Detroit Red Wings luminary Gordie Howe and the marketing/appearances company managed by his sons won a $3 million jury verdict last year against Howe’s former business manager, a Westland company and two other men for destroying property they were supposed to return under a prior settlement. Howe and Rochester Hills-based Power Play International Inc. in November 2008 settled a 2007 lawsuit against former Howe business manager Del Reddy; his assistant, Aaron Howard; Reddy’s father,

Hidden fees Hi-Lex Controls Inc. et al v. Blue Cross Blue Shield of Michigan 䡲 Venue: U.S. District Court, Detroit, Judge Victoria Roberts 䡲 Case filed: July 18, 2011 䡲 Judgment: $6 million (with interest); under appeal 䡲 Date: June 13, 2011 䡲 Plaintiffs: Hi-Lex Controls Inc., Litchfield; Hi-Lex America Inc. and HiLex Corp. Health and Welfare Plan, the company’s self-administered benefits program 䡲 Lead counsel: Aaron Phelps, partner, Varnum LLP, Grand Rapids 䡲 Co-counsel: Perrin Rynders, partner, Varnum LLP, Grand Rapids 䡲 Defendant: Blue Cross Blue Shield of Michigan, Detroit 䡲 Lead counsel: Thomas Van Dusen, partner, Bodman PLC, Troy 䡲 Co-counsel: G. Christopher Bernard, Bodman PLC, Ann Arbor

About the case Detroit-based Blue Cross Blue Shield of Michigan may have to pay more than $5.1 million, plus $914,000 in pre-judgment interest, after a federal judge found the insurer used a deceptive practice to hide fees and surcharges that were rolled into claims billed to self-insured employers since the 1990s. U.S. District Judge Victoria Roberts made the award to Hi-Lex Controls Inc., a Litchfield-based maker of window regulators with an automotive design center in Rochester Hills. The company has been self-insured and used the Blues as a thirdparty administrator since 1991. Roberts found that Blue Cross had concealed four fees in billing statements to Hi-Lex for employee claims — a network access fee, a contribution to the Blues’ contingency reserve, a retiree coverage surcharge and an “other-than-group

Michael Reddy; and Immortal Investments Inc., a merchandising company Michael owns. That suit had alleged Immortal Investments kept about $338,000 that Howe had earned in appearances from 2004 to 2006. The settlement in November 2008 called for the Reddys and Howard to return any property in their possession connected to Howe or his family, said Steven Matta, partner at Bloomfield Hillsbased Matta Blair PLC. However, a truck that delivered much of that property three weeks later also came with an invoice from Troy-based Shred-It Detroit Inc. indicating it had destroyed some 17 boxes of documents and eight boxes of nearly 1,400 tapes and CDs for Immortal Investments, days earlier. The Reddys and Howard did not dispute during trial that Immortal hired Shred-It Detroit to destroy the tapes and documents. The dispute in court was about whether the destroyed material had any value, and whether they had to turn over the material or simply retain nothing belonging to Howe and his family, per the language of a previous court injunction. Howe and Power Play sued for breach of the settlement agreement in 2011, and in June a civil court jury awarded them $3 million damages against all the defendants.

fee” that Blue Cross charged customers to help subsidize its Medigap coverage plan for senior citizens. At issue in this case and dozens of others in Detroit are administrative services contracts that allow self-insured employers, retirement funds, unions and other organizations to use Blue Cross’ network and administrative services to process insurance claims. Roberts found that the Blues were losing thousands of customers in the early 1990s when proposing the various fees, until it adopted a practice in late 1993 of rolling them into the category of hospital charges and not detailing them in those contracts. Evidence in the bench trial indicated the Blues’ own account representative for Hi-Lex didn’t know about the fees between 1999 and 2005, and the Blues had responded to a request for proposals from HiLex in 2003 stating that its network access fees were “N/A” and there were no other fees. Blue Cross has appealed the judgment to the 6th Circuit U.S. Court of Appeals in Cincinnati, but that court has not set a date to hear the case. Grand Rapids-based Varnum LLP has brought more than 30 lawsuits at the Detroit federal court on behalf of various self-insureds, including Hi-Lex, but the other cases are under a stay until the Hi-Lex appeal is heard. Judge Arthur Tarnow in Detroit had previously certified a class action on behalf of self-insured businesses, retirement funds and other customers who use the Blues network in a 2004 lawsuit bof the Pipefitters Local 636 Insurance Fund. But the 6th Circuit decertified the class in 2011. In September, the Blues paid a reduced $285,000 judgment to resolve the Pipefitters suit.

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Law Nurses’ wages Pat Cason-Merenda and Jeffrey Suhre et al v. Detroit Medical Center, Beaumont Health System, Henry Ford Health System, CHE Trinity Health et al 䡲 Venue: U.S. District Court, Detroit, Chief Judge Gerald Rosen 䡲 Case filed: Dec. 15, 2006 䡲 Settlement: $26.9 million (as to four hospitals; $48 million accrued to date) 䡲 Date: Oct. 24, 2013 䡲 Plaintiffs: Pat Cason-Merenda, an RN at DMC, and Jeffrey Suhre, an RN at Providence Hospital, on behalf of a class of direct patient care nurses. 䡲 Lead counsel: Mark Griffin, partner, Keller Rohrback LLP, Seattle

䡲 Defendants: Detroit Medical Center, Beaumont Health System, Henry Ford Health System, CHE Trinity Health, Mt. Clemens General Hospital Inc. (now McLaren Macomb), Oakwood Healthcare Inc., St. John Providence Health System and the former Bon Secours Cottage Health Services 䡲 Lead counsel: Sheldon Klein,

shareholder, Butzel Long PC, Bloomfield Hills, for Beaumont; David Marx and David Hanselman, McDermott Will & Emery LLP, Chicago, for Henry Ford; Thomas Demitrack, partner, Jones Day, Cleveland, for St. John Providence; and David Ettinger, Honigman Miller Schwartz and Cohn LLP, Detroit, for Mt. Clemens General

About the case Four companies agreed to nearly $27 million in combined settlements with nurses who provided direct patient care at Detroit-area acute care hospitals and alleged those hospitals conspired to keep their pay artificially low. Chief Judge Gerald Rosen in September certified a class action on behalf of more than 20,000 registered nurses, in a 2006 lawsuit alleging eight hospital systems colluded to keep pay scales lower than market forces dictate. All but one of those hospitals, Detroit Medical Center, have settled over time in various agreements over

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Norman and Debra Cress v. VHS University Laboratories Inc., Sandra Faye Willhite 䡲 Venue: Oakland County Circuit Court, Judge Daniel O’Brien 䡲 Case filed: Aug. 2, 2011 䡲 Verdict: $3.7 million 䡲 Date: March 20, 2013 䡲 Plaintiffs: Norman Cress, senior pastor of Heritage Baptist Church, Shelby Township, and wife Debra Cress 䡲 Lead counsel: Bryan Schefman, attorney, Law Offices of Bryan Schefman PC, Bloomfield Hills; Norman Lippitt, Lippitt O’Keefe PC, Birmingham 䡲 Defendants: VHS University Laboratories Inc., a research laboratory network of the Detroit Medical Center, and employee Sandra Faye Willhite 䡲 Lead counsel: William Kiriazis and Anthony Kostello, shareholders, Vandeveer Garzia PC, Troy

time totaling more than $48 million. Of these, four deals were approved in 2013, on behalf of Royal Oakbased Beaumont Health System ($11.34 million), Detroit-based Henry Ford Health System ($8.44 million), the former Mt. Clemens General Hospital (just above $2 million), now a part of McLaren Health Corp., and Livoniabased CHE Trinity Health ($5.14 million), totaling about $27 million. The hospitals had denied that any collusion took place and made no admission of liability or wrongdoing in the settlements, said Sheldon Klein, lead counsel for Beaumont and shareholder at Butzel Long PC. All of those settlements were finalized in October, but DMC con-

tinues to fight the lawsuit and obtained an order in January overturning the class certification — which could directly impact one of the largest single-hospital settlements from previous years. St. John Providence Health System signed a previous deal in which $10 million of its $13.6 million settlement was contingent on the nurses winning the certification. Rosen in late October also approved an award of just over $12 million in attorney fees for Keller Rohrback LLP and various other firms representing the nurses, plus nearly $400,000 to go in a retention fund to pay plaintiff attorney costs in a trial against DMC.

About the case

his lower spine, carpal tunnel syndrome and misaligned eyes. The laboratory did not dispute that its van had caused the crash. At issue at trial was the extent of Cress’ injuries — particularly whether the accident could have caused a closed head injury, since Cress testified he could not recall his head striking any part of the vehicle. Other damages claims such as loss of income were also in dispute, said William Kiriazis, managing shareholder at Troy-based Vandeveer Garzia PC and lead counsel for Willhite and the lab. VHS University Laboratories is a subsidiary of former DMC owner Vanguard Health Systems Inc. Bryan Schefman, Bloomfield Hills-based attorney for Cress, said head injury victims frequently do not recall a moment of impact. Jurors awarded about $3 million to Cress and another $700,000 in damages to his wife, Debra. The parties settled the lawsuit out of court.

A Shelby Township pastor and his wife won a combined $3.7 million jury verdict in March after a 2011 auto collision with a Detroit Medical Center laboratory van cost him his parish and livelihood. Sandra Willhite, an employee of VHS University Laboratories Inc. who was en route to Beaumont Health System in Royal Oak, allegedly changed lanes to avoid a vehicle ahead of her and struck the driver’s side of a Buick Enclave driven by Norman Cress, 54, of Shelby Township. Shelby Township-based Heritage Baptist Church continued to support Cress for more than a year after the crash in hopes he would recover, according to a facilitation summary. But the board of elders eventually determined he could not return to work and let him go. He alleged multiple injuries in a negligence lawsuit at Oakland County Circuit Court, including a traumatic brain injury, a herniated disc in

Kilpatrick conspirators Mccomb Interceptor Drain Drainage District, City of Detroit and Detroit Water and Sewerage Department v. Kame Kilpatrick, Lakeshore Engineering Services Inc. etc al (and related litigation claims) 䡲 Venue: U.S. District Court, Detroit, Judge Robert Cleland 䡲 Case filed: July 18, 2011 䡲 Settlement: $5.3 million (as to Lakeshore and DLZ Michigan Inc. only). 䡲 Date: Feb. 13, 2013 䡲 Plaintiffs: Mccomb Interceptor Drain Drainage District, a corporation of 11 Mccomb County municipalities chaired by county Public Works Commissioner Anthony Marrocco. Intervening plaintiffs Detroit and Detroit Water and Sewerage joined in January 2012. 䡲 Lead counsel: Jerome Watson, W. Mack Faison, principals, Miller Canfield Paddock and Stone PLC, Detroit, for the city and DWSD 䡲 Defendants: Kame Kilpatrick; Bobby Ferguson; Bernard Kilpatrick; Derrick Miller; Lakeshore Engineering Services Inc. (now Lakeshore TolTest Corp.), Detroit; Superior Engineering Associates Inc. of Southfield; Mersino Dewatering Inc. of Davison; and 32 other individual and corporate defendants, most of them already dismissed 䡲 Lead counsel: Walter Piszczatowski, partner, Hertz Schram PC, Bloomfield Hills, for Lakeshore Engineering and Chairman Avinash Rachmale. Barry Lubow, vice president and general counsel, DLZ Corp., Ohio

About the case Detroit-based Lakeshore TolTest Corp. and the Michigan subsidiary of DLZ Corp. in Columbus, Ohio, entered settlement deals worth a combined $5.3 million to end pending and prospective litigation as contractors involved in the far-flung Kilpatrick corruption scandal. Lakeshore, originally named “Company L” in a December 2010 indictment of former Detroit Mayor Kame Kilpatrick and four others, in February agreed to pay $2.57 million cash and give the city about 24 acres of land one of its companies owns near the wastewater treatment plant on Jefferson Avenue. DLZ entered a settlement of its own for about $200,000 around the same time, over and above the Lakeshore deal valued at nearly $5.1 million. The two deals supplement a 2012 agreement for Detroitbased Inland Waters Pollution Control Inc. and two other Inland companies to settle their portion of the case for $4.5 million; that brings total settlements to date to about $9.8 million. The settlements are with the city and its Detroit Water and Sewerage Department, and they resolve both potential litigation the city planned to file through Miller Canfield Paddock and Stone PLC, and some of Detroit’s claims as an intervening plaintiff in the Mccomb Interceptor See Next Page

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Law Compressor collusion In Re: Refrigerant Compressors Antitrust Litigation 䡲 Venue: U.S. District Court, Detroit, Judge Sean Cox 䡲 Case filed: June 9, 2009 䡲 Settlement: $49 million (as to four groups of companies) 䡲 Dates: May 8 and Dec. 27, 2013 (order of preliminary approval Jan. 9, 2014) 䡲 Plaintiffs: B&B Appliance Parts of Mobile Inc., Alabama, Appliance Parts Distributors Inc., Pennsylvania, and Sanden Vendo America Inc., Texas, on behalf of a class of machine parts companies, soft drink vending machine makers, refrigeration companies and others who purchased compressors from alleged colluder companies between February 2005-December 2008 䡲 Lead counsel: David Fink and Darryl Bressack, partners, Fink + Associates Law PC, Bloomfield Hills; E. Powell Miller and Marc Newman, partners, The Miller Law Firm PC, Rochester 䡲 Defendants: Tecumseh Products Co., Tecumseh Compressor Co. and Tecumseh do Brasil Ltda; Embraco North America Inc. and Whirlpool SA, Panasonic Corp. and Danfoss Flensburg GmbH. 䡲 Lead counsel: Robert Sherwood, Meredith Cohen Greenfogel &

Skirnick PC, Philadelphia, for Tecumseh; Clement Glynn, partner, Glynn & Finley LLP, Walnut Grove, Calif., and Howard Iwrey, Dykema Gossett PLLC, Detroit, for Whirlpool

About the case Ann Arbor-based Tecumseh Products Co. and two business units of Whirlpool Corp. in Benton Harbor joined with competitors in Denmark and Japan in a $49 million deal to settle allegations of price fixing in global sales of compressors. Executives at Tecumseh, two Whirlpool subsidiaries, a division of Danish parts supplier Danfoss A/S, Japan-based Panasonic Corp. and Italy-based Appliances Components Companies SpA allegedly met in secret at a hotel in Nuremberg, Germany, in 2004 as part of a plan to inflate compressor prices in the refrigeration markets. Machine parts companies B&B Appliance Parts of Mobile Inc. of Alabama and Appliance Parts Distributors Inc. of Pennsylvania, along with vending machine maker Sanden Vendo America Inc. of Dallas, have sued about 20 companies around the world — 12 of them units of Tecumseh, Danfoss, Panasonic and Whirlpool. Various civil suits over compres-

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sor sales have been consolidated before Judge Sean Cox, on behalf of direct purchasers, who bought compressors from the manufacturer, and indirect purchasers, who bought them from retailers or other third parties. The settlements affect direct purchasers only. Whirlpool subsidiaries Whirlpool SA in Brazil and Embraco North America Inc. will pay $30 million, or about 5.1 percent of sales, of “fractional compressors” using less than one horsepower, between February 2005 and December 2008, plus $500,000 in notice and administrative costs. Danfoss company Danfoss Flensburg GmbH, formerly Danfoss Compressors GmbH, will pay $3.5 million or “a percentage of sales substantially greater” than the others, plus $100,000 costs, under the terms of the same deal first proposed in court last spring. Tecumseh, along with subsidiaries Tecumseh Compressor Co. and Tecumseh do Brasil Ltda, will pay $7 million, or 2.7 percent of its sales, over the same period, plus $150,000 in costs. Panasonic entered a subsequent deal to settle its claims in the same civil lawsuit for $7.9 million. Tecumseh acknowledged in February 2009 it had received a subpoena from the U.S. Department of Justice and a request for information from the Secretariat of Economic Law of the Ministry of Justice of Brazil in a criminal investigation of compressors supplier price fixing. The company, which manufactures compressors and related products for refrigeration and cooling systems, had obtained a leniency deal with U.S. prosecutors for cooperating early with the investigation. Panasonic and Embraco North America pleaded guilty to criminal charges and agreed to pay $140.9 million in fines in late 2010.

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Drain Drainage District lawsuit. The district, made up of several Mccomb County communities, sued in 2011 over some debt it picked up from DWSD in purchasing several pump stations and interceptors — including a Sterling Heights interceptor where the city was overcharged on some repairs. The city later joined in that lawsuit. Kilpatrick; his father, Bernard Kilpatrick; and water department contractor Bobby Ferguson were convicted by jury in March after a racketeering trial involving various contracts awarded during Kilpatrick’s administration. Lakeshore allegedly was extorted by Ferguson into steering more than $12 million worth of work to Ferguson’s company on an improvement to water mains on the city’s east side. Then-CEO Avinash Rachmale was a prosecution witness against Kilpatrick and his co-defendants, as was DLZ’s former COO, Pratap Rajadhyaksha. DLZ allegedly dealt in Ferguson as a subcontractor on a 2004 bid to replace a downtown water main, despite having lower bidders. Kilpatrick and Ferguson received federal prison sentences of 28 years and 21 years, respectively, in the criminal case. The city plans to file motions for summary judgment within weeks, seeking civil damages.

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PEOPLE CONSTRUCTION Don Greenwell Jr. to executive vice president, commercial unit, Walbridge Aldinger Co., Detroit, from senior vice president, commercial unit. Also, Mark McClelland to vice president, new business development, from executive director, new business development; John Rakolta III to executive director, strategic market planning and development, from director, new business development; and George Dobrowitsky to assistant vice president, technical estimator, from director, technical estimating.

Asmar Cos. Farmington Hills. Also, Carmen Jaeger to tax manager, from vice president, senior wealth planner, Fifth Third’s Private Bank, Fifth Third, Southfield.

LAW

FINANCE Douglas

Miller

Stephanie Douglas to partner, Bush Seyferth & Paige PLLC, Troy, from associate.

Vanessa Miller to partner, Foley & Lardner LLP, Detroit, from senior counsel.

MANUFACTURING Krone

Light

Dave

Prater to president and CEO, SRG Global Warren, Inc., from vice president of engineering, commercial and program management.

Debbie Krone to Rehprincipal, mann, Ann Arbor, from senior manager. Also, Greg Light to principal,

Rehmann Financial, Farmington Hills, from senior manager; and David Tang to China business manTang ager, from senior associate, tax services. April Colvin to tax manager, Gordon Advisors PC, Troy, from controller,

MARKETING Mike Eckstein to director of business insights and analytics, Duffey Petrosky & Co., Farmington Hills, from senior vice president, group communications planning director, Prater

IN THE SPOTLIGHT

Meritor Inc., Troy, has named Sandra Quick senior vice president, general counsel and corporate secretary. She succeeds Vernon Baker, who resigned Feb. 15. Quick, 47, had been group vice president and general Quick counsel for the electronics and interiors division at Johnson Controls Inc., Plymouth. She will be in charge of legal matters and serve as the coexecutive sponsor of Meritor’s women’s resource group, which seeks to advance the careers of women at the company. Quick earned a bachelor’s degree in political science and French from Duke University, Durham, N.C., and a juris doctorate from Notre Dame University, Notre Dame, Ind.

United Road Services Inc., Romulus, has named Mark Anderson its first COO. He had been president and CEO of Inland Industrial Services Group, Detroit. Anderson, 48, earned a bachelor’s degree in business administration Anderson from Notre Dame University, Notre Dame, Ind., and an MBA from the University of Michigan’s Stephen M. Ross School of Business.

Mindshare, Team Detroit, Dearborn.

Kate MacNevin to executive director of global operations, from managing director, North America, Commonwealth, Detroit. Also, Sharon Wacker to managing director, North America, from managing director, Team Detroit, Dearborn.

NONPROFITS Norb Promo to chief development offi-

cer, Easter Seals Michigan, Auburn Hills, from deputy executive director, The Leukemia & Lymphoma Society, Madison Heights. Jeffrey Beachum to chief philanthropic director, Salvation Army Eastern Michigan Division, Southfield, from executive director, Raybourn Group International, Indianapolis, Ind. Also, John Hale to chief operations director of development, from executive director of development.

REAL ESTATE Kelly Kuc to senior controller, NAI Farbman/Farbman Group, Southfield, from senior director of property management accounting, Signature Associates Inc., Southfield. Also, Kristin Smolinski to vice president, from general manager; Betty Drapinski to vice president, from director of taxes; and

Christina DiBartolomeo to vice president of client solutions, from asset manager.

RETAIL Austin Martin to mall

manager,

Briarwood Mall, Ann Arbor, from mall manager, University Park Mall and University Center, Mishawaka, Ind. Botond Nemeth to director of operations, Hiller’s MarMartin kets, Southfield, from assistant director of operations. Also, Pam Cole to director of marketing, from vice president/regional brand leader, Doner Partners LLC, Southfield.

SERVICES Larisa Walega to director of marketing, Ziebart International Corp., Troy, from director of field marketing.

Jeffrey Anderson to director of market reporting solutions, IHS Automotive Inc., Walega Southfield, from director, consulting and analytics, Experian Automotive Inc., Farmington Hills. Hans Guilbeaux to director of information security and compliance, Assure360, Farmington Hills, from security governance manager, Ally Financial Services, Detroit.

BUSINESS DIARY CALL FOR NOMINATIONS The Engineering Society of Detroit seeks entries for its Alpha Awards for Innovation in Engineering and Technology to recognize members of those professions who develop innovative solutions to benefit the needs of the general public, business or academia. For specifics, see ww2.esd.org/ awards/alpha_awards.htm. Submit entries to Leslie Smith, lsmith@esd.org. ESD also invites entries for its Construction and Design Awards, honoring owners, designers and builders, and recognizing team achievement and innovative use of technology. At least one of the primary members of the project team must be an ESD member. Submit entries at ww2.esd.org/awards/constructiondesign.htm. Nominations deadline for both events is Feb. 28.

CONTRACTS Gale Group Inc., Farmington Hills, part of Cengage Learning Inc. and a publisher of research and reference resources, launched Career Online High School to its public library partners, allowing library patrons to earn an accredited high school diploma and credentialed career certificate. Website: gale.cengage.com.

Health Management Systems of America, Detroit, was awarded a three-year contract for the Michigan Department of Community Health’s Problem Gambling Program, which includes a 24/7 help line. Websites: hmsanet.com, michigan.gov/mdchgambling. Qualitech, Bingham Farms, a technology integrator and software re-seller, was selected by law firm Erman, Teicher, Miller, Zucker and Freedman PC, and CPA firm Mathews, Reich, Perna & Rottermond, both in Southfield, to upgrade computer networks. Website: qualitech.net. The U.S. Department of Health and Human Services’ Health Resources

and Services Administration awarded the Detroit Wayne County Health Authority, Detroit, a $1.8 million grant to allow for the expansion of an advanced education in general dentistry residency with the University of Detroit Mercy School of Dentistry and Clinic, Detroit, beginning July 1. The one-year residency will include funding for 12 primary care dental residents. Websites: dwcha.org, hrsa.gov, dental.udmercy.edu.

U.S. Army TACOM Lifecycle Management Command awarded General Dynamics Land Systems, Sterling Heights, $72.7 million under an existing contract to upgrade 12 M1A1 Abrams tanks to the M1A2 Systems Enhancement Package V2 configuration. Production will be performed by existing employees in Sterling Heights, as well as Anniston, Ala.; Tallahassee, Fla.; Lima, Ohio; and Scranton, Pa., and is expected to be completed by Dec. 31, 2015.

Brogan & Partners Advertising & Consultancy Inc., Birmingham, was selected as the lead marketing communications agency for Michigan First Credit Union, Lathrup Village. Websites: brogan.com, michiganfirst.com. Near Perfect Media LLC, Farmington Hills, a public relations and marketing firm, has added clients Socialight Cigar Lounge & Bistro and Planterra Conservatory, both in West Bloomfield Township; Tomkiw Mackewich PLC, Royal Oak; and Elizabeth’s Bridal Manor, Northville. Website: nearperfectmedia.com. DBA Worldwide, Rochester, an advertising and marketing agency, is now the agency of record for Mercy Medical Center, Des Moines, Iowa. Website: dbaworldwide.com.

EXPANSIONS G2 Consulting Group, Troy, an engineering services firm specializing in geotechnical, environmental and construction engineering services,

opened an office at 1595 Eisenhower Place, Ann Arbor. Telephone: (734) 390-9330. Website: g2consulting group.com. MJR Digital Cinemas, Bloomfield Hills, is investing $2.5 million in upgrades to its Southgate Digital Cinema 20. Renovations include a wraparound screen more than three stories high, new seats, 39-speaker sound system and lounge. Improvements are scheduled to be completed in summer. Website: mjrtheatres.com.

NEW PRODUCTS ProQuest LLC, Ann Arbor, added the South China Morning Post to its Historical Newspapers collection, giving researchers access to the publication’s digital archive from the paper’s origin in 1903 through 1991. Website: proquest.com. BorgWarner Inc., Auburn Hills, plans to introduce its Supplier Performance Monitor System of proprietary software to track its supply base in North America. BorgWarner intends to implement the software, launched in Germany and Ireland in 2012, in the United States and other parts of Europe beginning early this year, followed by India and China later in the year. Website: borgwarner.com. 1-800-LAW-FIRM PLLC, Southfield, launched the property tax widget, a free online tool that helps Michigan property owners determine if they are overpaying their property taxes. Website: 1800lawfirm.com.

STARTUPS MPM Consulting, specializing in business intelligence, Six Sigma consulting and predictive analytics, was launched by Marc Voorhees Jr. at 950 Cobblers Road, Waterford Township. Telephone: (248) 622-4088. Website: mpm-consult.com.

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Pension: Detroit bankruptcy model modifies defined benefit plan ■ From Page 1

Detroit Emergency Manager Kevyn Orr’s communications director, Bill Nowling, said Friday that other modifications to the defined benefit plan should keep its costs under control, without a more drastic change. “Generally, the city is confident that, with more conservative actuarial assumptions and management and no addition of new employees or continued COLA adjustments, the (plan) funds can perform at a level that will not increase unfunded liability,” he said. For example, the plan calls for the Police and Fire Retirement System to assume returns of no more than 6.5 percent and the General Retirement System that covers other city employees to assume a return of no more than 6.25 percent. Pension plan terms also cannot be changed for 10 years under the city’s plan of adjustment, if it is confirmed. Nowling in an email said the city expects to stop new employees from joining the defined benefit plan or vesting into it at some future point, but did not elaborate. Kriss Andrews, a former CFO for the city during the Bing administration who went on to co-found Southfield-based Alderney Advisors LLC last year, said he did not expect the continued support for a defined benefit plan. “That was the most surprising thing I saw so far in the plan today,” he said Friday. “You don’t ever know what happened behind the

scenes, and I sure don’t know, but it may very well be that asking for that (a plan conversion) was just too much. Too much for the union to swallow, or too hard to execute. But I’m still surprised they didn’t go to a (contribution) plan.”

Assumed assistance The pension plan still requires funding from the state to meet the $820 million needed to fund pension obligations to an acceptable level. Orr said Friday that he is hopeful state officials will provide the missing $350 million piece of the funding puzzle to help cover pension fund liability for roughly 22,000 retirees — over and above the $370 million to come from private foundations and $100 million that a privately managed Detroit Institute of Arts expects to raise from donors over the next 20 years. The DIA will ultimately contribute $175 million to help cover unfunded liabilities for the police and fire pension plan and $50 million to the general employees’ plan by the end of June 2023, out of funds pledged by various foundations and from donor contributions. It would contribute at least another $195 million to the general employees sometime after that, according to provisions of the plan of adjustment submitted Friday before U.S. Bankruptcy Court Judge Steven Rhodes. The plan also calls for the pen-

It may very well “ be that asking for that (a pension plan conversion) was just too much ... for the union to swallow, or too hard to execute.

”

Kriss Andrews, former Detroit CFO

sions not to pursue any claim against the DIA artwork as a city asset. Orr told reporters Friday that the funding bargain requires a “global agreement by all sides,” and if retirees choose to go after the artwork as a city asset then that money is off the table. “That money (for pensions) has to come from somewhere, and hopefully when the parties get a chance to talk further about it, they (retirees) will consider the alternatives,” Orr said. “I would certainly expect, if we reach agreement with either of the funds, they would then recommend to their constituencies that they approve it.” But a draft disclosure statement filed Friday along with the adjustment plan also details how the city’s plan meets the requirements for a

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cram-down, which is a request to confirm the plan over the objections of some creditors if at least one class of impaired creditors accepts it. Impaired creditors are those who won’t be fully repaid what they’re owed. Andrews said it’s possible the pensioners could make up two classes of impaired creditors that vote to accept that plan. “I think that is a very real possibility, despite what you’re hearing right now from unions that are feigning outrage,” he said. “Whether it’s this week, or shortly afterward, one of the creditors who has a lot more to lose is going to raise some strong objections. And the city is going to want to pick off a consent class to sign off and consent to this deal.”

Far from ready City unions and retirees, for their part, did not yet sound receptive Friday. “We are greatly disappointed that the (adjustment plan) contains debilitating and unnecessary cuts to accrued pension benefits and know the city can afford much better treatment to the people who have dedicated years of their lives in service of the city,” the General Retirement System said in a statement Friday. “Fortunately, the (plan) is a dynamic document that can be amended as mediation and negoti-

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ations move forward.” President Al Garrett of the American Federation of State, County and Municipal Employees Council 25 also decried the plan as a “gut punch” to past and present employees. “The plan essentially eliminates health care benefits for retirees and drastically cuts earned pension benefits. Retires cannot survive these huge cuts to the pensions they earned,” he said in a statement. “The plan is unfair and unacceptable. Every step of the way, Gov. (Rick) Snyder has put his political agenda ahead of the folks that that worked hard for the city.” If members of the pension funds approve the adjustment plan in a timely manner, pension benefits would be about 74 percent funded for General Retirement System and more than 94 percent in the Police and Fire fund. Orr said Friday that, without the state funding or the early approvals, general retirement system enrollees would be less than 67 percent funded and police and fire benefits would be at or slightly under 90 percent of current payouts. Foundations that have pledged to support the funding plan include the $10.9 billion Ford Foundation, New York; $8.2 billion W.K. Kellogg Foundation, Battle Creek; and the $3.3 billion Kresge Foundation, Troy. Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

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Culprits change, but health care fraud follows familiar patterns BY CHAD HALCOM CRAIN’S DETROIT BUSINESS

Each health care fraud case is its own unique story, but many deal in some of the same themes, or have similar ingredients and characters. A ringleader dreams up a plan to bill for unnecessary or bogus health care services in a health care field where he or she expects to find little oversight. Patients who need a meal or extra cash often meet one of the ringleader’s recruiters and turn over their Medicare or insurance account numbers for purposes unknown. And in some cases, a doctor, pharmacist or other medical professional gets involved in the crime. Of the $380.2 million-plus in Medicare billings pegged as fraud regionally in 2013, $225 million is attributed to oncologist Farid Fata, owner of Rochester Hills-based

Michigan Hematology Oncology Centers PC and founder of the nonprofit Swan for Life Cancer Foundation, who leased office space at Crittenton Hospital Medical Center. The U.S. Department of Justice contends Medicare actually paid at least $91 million to Fata’s company over the past six years, including $48 million for chemotherapy and other cancer drugs. Christopher Andreoff, partner at Southfield-based Jaffe Raitt Heuer & Weiss PC and defense attorney for Fata, said the doctor maintains his innocence and has sought release on bond but remains in custody awaiting trial. In another case, Babubhai Patel owned or controlled most of a network of 20 Southeast Michigan pharmacies and was the alleged ringleader in some home health care fraud and prescription fraud. More than 20 Southeast Michi-

gan pharmacies owned or controlled by Patel were used to fill prescriptions that were sold or distributed illegally, or stored in basements and returned to wholesalers. Doctors were also paid to sign prescription orders and recruiters offered $100 to people in Detroit homeless shelters and soup kitchens for their Medicare or Medicaid patient numbers. Patel, 51, of Canton Township, owned or operated pharmacies at six locations in Detroit, three in Warren, nine in Oakland County, two in Bay City and elsewhere, according to federal officials. More than $70 million of the $143.3 million of billings outlined by Justice in various 2011 court cases was tied to the Patel scheme. The indictment doesn’t break out how much money Medicare paid out in that case, but he was ordered in February 2013 to pay $19 million in

restitution, and serve 17 years in prison. Federal Medicare fraud indictments quite commonly allege about the same ratio of billings to actual reimbursements, in other cases. But federal officials in the Patel case have obtained restitution orders of more than $1.7 million for Blue Cross Blue Shield of Michigan this year alone, as a private insurer fraudulently billed along with Medicare in that scheme. Prosecutors allege more than 35 pharmacists, doctors, patient recruiters and others conspired to bill Medicare and Medicaid more than $70 million. In the Fata prosecution, federal officials allege tens of thousands of dollars were also unnecessarily billed to Blue Cross, along with Aetna Inc. and Health Alliance Plan of Michigan over and above his Medicare billings. Fata awaits a July conference date and an Aug.

12 trial on a 14-count indictment. Medicare usually pays only a fraction of claims in each alleged conspiracy by the time it is investigated and indicted by Justice officials. For example: 䡲 A 2012 indictment of social worker Louisa Thompson and codefendant Checarol Robinson for alleged bogus billing for mental health services, for example, alleges that Medicare paid out about $4 million on $20 million in claims through Detroit-based TGW Medical Inc., Caldwell Thompson Manor Inc. and P&C Adult Day Center LLC. 䡲 A 2012 prosecution of Raymond and Emelitza Arias alleges that Westland-based Elite Wellness LLC submitted $12.5 million in Medicare claims for infusion and injection therapy for treating patients with HIV, of which the program paid out about $3.8 million from 2009 through last year.

Fraud: Increased federal efforts find more health care cheats ■ From Page 1

The effort is gaining traction, according to both investigators and a Crain’s analysis of local casework and Justice data. In 2013, federal prosecutors obtained 18 local indictments against 46 defendants in fraud schemes totaling $380.2 million — fueled by $225 million in unnecessary medical treatment attributed to oncologist Farid Fata — but even without Fata that, higher than the previous record of $143.3 million in billings charged in 2011. But more significantly, that figure approaches for the first time the billing volume that experts believe is likely fraudulent within the $5 billion-plus in annual Medicare expenditures in Southeast Michigan. Since the first indictments from the increased enforcement presence came down in June 2009, nearly 170 people have pleaded guilty and nearly three dozen were convicted by juries. Another 110 await a finding by a jury or judge this year, including three who are on trial this week before U.S. District Judge Arthur Tarnow. Investigators said the success is due to a mix of cutting-edge surveillance and witness interviews that establish crossover points between one bad billing scheme and another. Over time, Justice has begun to catch criminals before they close shop and change markets as in years past, and the trickle of closed cases has become a verifiable stream.

Feeling the HEAT Local prosecutions from the national HEAT program, a collaboration between Justice and the U.S. Department of Health and Human Services, and by the local Health Care Fraud Unit, formed by U.S. Attorney Barbara McQuade in Detroit in 2010, have together roped in 341

MEDICARE INDICTMENTS Below are Medicare indictments since the U.S. Department of Justice’s Detroit Medicare Fraud Strike Force began assisting the local U.S. attorney’s office with Medicare fraud investigations. The U.S. attorney’s local Health Care Fraud Unit has collaborated with the national task force since 2010. These figures represent the combined caseloads of both teams. The first full year of the task force was 2009. Indictments for that year cover billings over several previous years. Year 2009 2010 2011 2012 2013

Billings $75.6 million $24.5 million $143.3 million $121.5 million $380.2 million

defendants in $745 million of alleged fraudulent Medicare billing schemes to date. “Based on Medicare spending data, we see per-beneficiary spending is goMcQuade ing down in this market. One possible conclusion from that is we are indeed making headway,” McQuade said. “That’s consistent with what we see, but a lot of the law enforcement community will tell you about the balloon effect, where squeezing one area (of fraud) makes another expand.” The decline in per-beneficiary spending is tentative — the most recent year available is 2010, but it shows that reimbursements from Medicare fell anywhere from $50 to $400 per enrollee in five Southeast Michigan hospital referral regions from 2009, which was the first year of strike force prosecution. The regions saw nothing but increases the preceding five years. Even so, the $10,944 average expenditure per Medicare enrollee across the region is more than the average payout in 90 percent of the 306 regions tracked nationwide. The per-beneficiary data is compiled by the Dartmouth Atlas of

Cases 11 3 11 11 18

Defendants 88 25 147 35 46

Health Care, a program of the Dartmouth Institute for Health Policy and Clinical Practice. Since January 2011, McQuade said, the amount billed to Medicare for psychotherapy locally has gone down by 70 percent, and home health care has seen reduced billings, although billings are still generally high. “We do have a recently intercepted conversation on wiretap, where two individuals were recorded saying they need to be more careful now because they’re really cracking down in this area. That’s encouraging,” McQuade said. “Does that mean criminals stop, or do they go elsewhere? That’s hard to know. But when you do bring down some of the actors, you do seem to bring down at least some of the fraud occurring along with them.” Nationwide, more than 1,500 people have been charged since March 2007 in connection with more than $5.1 billion in Medicare billings, by the strike force in nine cities where software operated by HHS found disproportionate Medicare billing volumes believed to be due to fraud. “The majority of the HEAT task force prosecutions have dealt with the worst of the worst, and blatant, egregious violations — and more power to them, because that’s my tax dollars, too,” said Mark Kopson, chairman of the health care

industry group at Bloomfield Hills-based Plunkett Cooney PC. “But unfortunately, while there will always be an element out there willing to exploit any weakKopson ness imaginable, and it’s always changing tactics, it really only represents one end of the spectrum of behaviors in the industry.” Kopson and other attorneys said increased Medicare fraud enforcement has triggered compliance work among health care providers to help develop new policies and controls or increased internal audits. For example, Crittenton Hospital Medical Center in Rochester Hills stopped charging patients fees for releasing their medical records after the August indictment of Fata, who is accused of billing for hundreds of chemotherapy sessions that were medically unnecessary. (See story, this page.) “Ideally, you do want the payer, which is Medicare here, to be careful about the money it spends. And you’d want them to be sensitive to the treatment cost it pays for,” said Nicholas Bagley, an assistant professor of health law and policy at the University of Michigan Law School and a former appellate attorney in Justice’s civil division. “But the program has been hobbled since its inception by the competing desire to make sure that Medicare doesn’t meddle in treatment decisions. Still, the fact that it’s really easy to find Medicare fraud and deter it suggests that it’s also very easy to defraud the system, and perhaps we are only scratching the surface.”

A question of traction The National Health Care Anti-Fraud Association, a Washington, D.C.based organization of public and

private health insurers and regulators, estimates 3 percent of total health care spending, or more than $60 billion per year nationwide, is misspent on fraud. That includes Medicare, Medicaid and all private insurance reimbursement. According to the Dartmouth Atlas, Medicare alone reimbursed a total of $5.39 billion in claims for 496,760 Medicare plan enrollees in Southeast Michigan in 2010, which is the most recent year available. If the 3 percent spending estimate by the Anti-Fraud Association is correct and can be applied to Medicare alone, that would mean $161.7 million of Medicare reimbursements from Southeast Michigan each year are fraudulent. Medicare fraud becomes a crime at the moment the provider submits a claim — not when or if it gets reimbursed — but defendants are charged with the amount of the total billings. A review of indictments by Crain’s suggests Medicare generally pays out 25 to 40 cents on the dollar it is billed on a fraud scheme before participants are arrested and charged. So if fraudulent spending is more than $160 million in Southeast Michigan, then local fraudulent billing claims may well exceed $400 million a year. That’s assuming, of course, that Detroit’s fraud rate is commensurate with the nation as a whole — the 2009 Strike Force assignment to Detroit is based in part on a finding of outsized billing amounts detected here by HHS Fraud Prevention System software. Peter Orszag, former U.S. Office of Management and Budget director, has said in past reports to Congress that up to 30 percent of Medicare costs could be saved by bringing high-cost hospital regions into line with lower-cost areas of the country, without negatively affecting health outcomes. So fraud may be only one factor behind inflated spending in Michigan. See Next Page

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“The bigger problem here is other forms of claim abuse, such as discretionary calls by providers, that can lead to overtreatment,” Bagley said. “In the scope of all spending, fraud is sort of the leading edge of the problem.”

‘A regional issue’ Andrew Arena, executive director of the Detroit Crime Commission, said Southeast Michigan was one of the top three regions in the country for health care fraud while he was special agent in charge at the FBI in Arena Detroit. Singlemarket fraud often has to significantly exceed national norms to be detected by HHS investigators, he said. About six years ago, some fraud scheme operators were moving to metro Detroit from Florida, a previous fraud hotbed that was facing pressure from Justice, Arena said. “Health care fraud enforcement is certainly a regional issue. Some of the schemes and practices migrate, and concentrate in certain local areas,” said Leigh McKenna, director of government and public affairs for the Anti-Fraud Association. “South Florida is a perennial area because of the large volume of beneficiaries, but you get upticks in other markets for periods of time.” Prison sentences help, officials said, but they aren’t the answer. “It’s not a problem you arrest your way out of. It’s going to have to be solved with regulation, but it’s a question of what kind of regulations would be effective,” Arena said. “You’ve (also) got to police and enforce smarter. That’s where software solutions and algorithm expertise come in. From an effectiveness standpoint, that’s what you’ve got to invest in — the technical ability to enforce.” The Centers for Medicare & Medicaid Services in 2012 launched a Program Integrity Command Center, a digital prevention and crime detection center for CMS to coordinate with law enforcement agencies that uses the Fraud Prevention Systems software’s predictive analytics to spot fraud and respond quickly to it, said Tony Salters, public affairs specialist at CMS. The result is that investigations that used to take days and weeks can now be done in a matter of hours, Salters said. Kopson agreed that new tracking technology seems to bring the hammer down faster on scams. “Real-time billing monitoring by the government has been very successful at discovering real-time fraud, and that by the time you catch up on it, the bad guy hasn’t already packed up and moved to another state, which used to be more common,” he said.

Complex cases The increased federal presence and Medicare fraud crackdown seem to have benefits in other ar-

eas of health fraud, although local investigators said it is hard to measure how much correlation exists. Blue Cross Blue Shield of Michigan, for example, tracked 132 arrests stemming from allegations of fraud against the insurer totaling $13.5 million, as of late 2013. That’s compared with 77 arrests in fraudulent claims totaling $13.1 million in 2012 and about just $8 million in fraud allegations in 2007, before the federal strike force arrived. Greg Anderson, vice president of corporate and financial investigations at Blue Cross, told Crain’s that investigations of Medicare and Blue Cross insurance fraud often overlap, and his department has a good relationship with the FBI, including sharing information on overlapping cases. But sometimes, Anderson said, the government’s own complex Medicare fraud cases consume tremendous time and effort, which can mean less time for Justice to follow up on case referrals from his company or others, he said. Blue Cross’ fraud-flagging efforts have included hiring recent veterans of the law enforcement community, offering basic and advanced investigative training, and tracking case outcomes and restitution payments over time, Anderson said. Blue Cross also said it was difficult to break out its annual arrest and fraudulent billings totals into federal cases versus state law violations, which are less likely to involve Justice officials. In 2013, the inspector general’s office also reported reaching corporate integrity agreements with two Michigan companies to change their practices and disclose more to the federal government — W.A. Foote Memorial Hospital, or Allegiance Health, in Jackson; and Jackson Cardiology Associates PC, owned by cardiologist Jashu Patel — compared with one such agreement each in 2011 and 2012 and none in 2010. Those companies were also part of a civil action in Detroit, where McQuade’s health care fraud unit intervened as a plaintiff and resolved the matter in July 2013. Patel and Jackson Cardiology agreed to pay $2.2 million in a civil settlement while Allegiance Health agreed to $1.8 million, to settle civil claims that Patel and his cardiologists performed medically inappropriate cardiac procedures, including invasive catheterizations at Allegiance Health. McQuade said her office gets data episodically that suggests the local fraud picture is improving, but it is too soon to tell if the task force’s work in Detroit is nearly done. “At some point we fully expect a decision to come down that another market needs the task force more than Detroit does, and they will move on. So in the meantime, they have been doing a lot of training and cooperating with our own staff to carry on,” she said. “Because the work (of fighting fraud) is here to stay, whether the national task force is here to be a part of it or they go their own way.” Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

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AutoHarvest: Online meeting for IP ■ From Page 3

A match made online Song Young is CEO of Optimal Inc., a Plymouth-based provider of engineering services and staffing to the auto sector. He is negotiating a license agreement for two patents with the University of Michigan for his new company, Optimal Process Technologies LLC, which was founded in Plymouth in 2012. Young said he did a search on the AutoHarvest site for something called “dissimilar material joining,” which, he said, “led to my discovery of the outstanding work done by Professor Jack Hu and his team at the University of Michigan.” While negotiating the license, Young formed Optimal Process and began applying for federal research grants, the first of which began in January, a National Science Foundation phase-one Small Business Innovative Research grant of $149,226 to investigate “joining of dissimilar materials using rivet-weld technology.” Despite taking nearly two years longer than planned to implement and the ongoing struggles with a fundraising structure, Pankin and others say the site fills a need and is living up to expectations, if not a timetable. “We have come up with a better mousetrap of open innovation,” said Pankin. His co-founder and AutoHarvest chairman is David Cole, former chairman of the Ann Arbor-based Center for Automotive Research. It is hard for Pankin to track successful matchups between companies that have technology and those seeking it. “Members voluntarily report success. We’ve had some deals close. Not a lot, because we’re still in beta,” he said. “We’re a matchmaker, not a filter. It’s technology speed dating,” he said. AutoHarvest offers a platform for parties to get together. After that, they negotiate on their own without AutoHarvest involvement. “We offer a collaboration room on the site where people can talk. But they do their formal dealmaking off the website.” “Early on, we weren’t sure you’d get the level of engagement you’d need from an online site, but we felt that what they were doing in the ecosystem was important enough to fund,” said Pam Lewis, senior program manager for the New Economy Initiative for Southeast Michigan, which granted AutoHarvest $475,000 in 2012 and $400,000 last year. “We’re pleased with their user interaction, with their number of users and members,” she said, adding that AutoHarvest won’t be a success as just a website. “An online tool is important, but it needs to ... accelerate in-person interactions.”

Profit or not AutoHarvest is limited in its ability to raise funds like a traditional startup, which would seek investors, but operating as a nonprofit is the only way to get the region’s automotive industry to buy into the concept, Pankin said. Steven Crumb, executive director of automotive open-source software nonprofit Genivi Alliance, said operating as a nonprofit fuels co-

AUTOHARVEST PROGRESS In January, U.S. Commerce Secretary Penny Pritzker told the Detroit

Economic Club that the Patent Office had signed a memorandum of understanding to share patent information on the AutoHarvest website. The U.S. Department of Defense recently entered information on 70 of its research labs nationwide into the AutoHarvest database. Ann Arbor-based InfoReady Corp. has gathered data, including contact information for researchers, from 83,000 Small Business Innovation Research grants and Small Business Technology Transfer grants made by 12 federal agencies in the past 13 years. InfoReady is developing the upgraded version of AutoHarvest’s members-only marketplace portal, due to go live by the end of summer. What AutoHarvest calls the Innovation Hub was launched on the site last year. It includes the data on the federal grants; access to a searchable database of import-export trade of more than 50 companies, including U.S. trade with the world; access to a database listing capabilities for North American manufacturers and distributors; a link to a patent brokerage; and contact information for area patent attorneys. operation for Genivi and others, like AutoHarvest. “(The auto industry) doesn’t have a lot of trust between competitors,” Crumb said. “We’ve created an atmosphere of competition; we’d have a hard time as a for-profit member organization.” Pankin said the IP site requires a budget of less than $1 million a year to operate at full capacity. By comparison, operating Genivi requires a budget of at least $1 million to $2 million, Crumb said. AutoHarvest raised more than $450,000 from grants and member fees and had $247,000 in revenue in 2012, according to its 990 tax form. Members are asked to pay fees voluntarily, Pankin said, and the organization hasn’t determined a tiered-fee structure. The Michigan Economic Development Corp. provided $50,000 to AutoHarvest in 2011 to develop the concept of online collaboration for advanced manufacturing. The New Economy Initiative for Southeast Michigan provided $875,000 in funding divided between two grants in 2012 and 2013. The foundation also received $300,000 from the Flint-based C.S. Mott Foundation to help launch operations and begin building a rudimentary alpha version of a website. Pledging support, and in some cases cash, at the time of launch were more than 60 organizations, including Ford; Chrysler Group LLC; General Motors; Ohio State University; Kettering University; Visteon Corp.; Delphi; 3M Corp.; TARDEC; Sandia National Laboratories in Albuquerque, N.M.; Michigan State University; Wayne State University; NextEnergy; and Automation Alley. Despite a tight budget, the site is progressing and will culminate with the rollout of a fully functional website. The site would include an alert system, so someone looking for something specific doesn’t have to keep checking but can be notified when data is added he or she might be interested in. “In terms of being globally live, which is the big event, we’re getting close,” Pankin said. “Summer would be nice. I don’t think there will be snow on the ground.” In addition to its small office in Detroit’s TechTown, AutoHarvest, which employs five, also has an office in the North Campus Research Complex at the University of Michigan. Eric Stief, the former director of venture development in the technology commercialization office at Wayne State University, is AutoHarvest’s senior vice president.

AutoHarvest is entering a competitive landscape between IP marketplaces, but may carve out its own niche, said Jeff Sadowski, partner and IP attorney at Royal Oak-based law firm Howard and Howard Attorneys PLLC. Sadowski said patent brokerage firms, such as Los Altos, Calif.based IP Venture Inc., have stomped out smaller IP deals by only looking for home runs. “In the beginning, firms like IP Venture covered the spectrum of all deals; now they are only looking at patent portfolios in the hundreds of millions of dollars,” Sadowski said. “If AutoHarvest can carve a niche for smaller companies looking to sell two or three patents, they are definitely going to fill a need.” One member of AutoHarvest’s Innovation Hub is a competitor, Chicago-based Intellectual Property Exchange International Inc., or IPXI, which acts as a financial exchange for licensing and trading IP rights. The for-profit exchange performs due diligence, negotiates legal documents creates a public offering-like pricing for licensing mature technology. Ian McClure, director of IPXI, said AutoHarvest has created a niche for earlier-stage tech collaboration and will create a funnel to IPXI as the technology advances. “For every R&D stage, there’s a need; companies are asking, ‘Do I spend R&D on developing this technology or look for what’s already out there?’ ” McClure said. IPXI closed its first licensing deal recently, involving 600 patents associated with organic light-emitting diode technologies for display screens from Koninklijke Philips N.V. The licenses are being sold as five square meters of OLED panels per license, which is enough for 700 smartphones, McClure said. Pankin said one advantage of being a nonprofit is that companies like IPXI aren’t seen as the enemy. “It’s collaborative. There are many ways to drive innovation,” he said. “Because we’re a nonprofit, we can be trusted. We don’t have favorite clients. We can be an open tent for everybody. We’re in the sweet spot of what innovation is supposed to mean.” Tom Henderson: (313) 446-0337, thenderson@crain.com. Twitter: @tomhenderson2 Dustin Walsh: (313) 446-6042, dwalsh@crain.com. Twitter: @dustinpwalsh

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Market: Biz district turns to tax law for upgrades Tower: ■ From Page 1

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The market wants to improve the aesthetics of the neighborhood as part of its expanded lineup of sheds and support services for entrepreneurs. Separate from the TRA planning, Eastern Market coordinates pooled resources for security, provides community kitchen space for food businesses and offers courses for entrepreneurs in training. It plans to open the district on Sundays starting in June, continue its Tuesday market days in warm-weather months (along with its regular Saturday market hours) and, long-term, offer yearround sales of foods and other products in heated sheds. Carmody has expanded the size and scope of the market since he took over as president in November 2007. He expanded the programming and foundation support, added

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ly understand the plans and are worried about extra costs or business disruption during construction. Others are worried about maintaining the integrity of a working neighborhood where meat-packing plants, specialty stores and restaurants coexist. Pushing new development to the outlying areas will allow the core of the market to keep its authenticity as a functioning food hub, said Carmody, Eastern Market president. “The west side, and heart of the market, will Carmody stay focused on businesses that are dirty and loud and make food, which might not make for a great place to live,” he said. “Our focus is to ramp up development along Gratiot Avenue and the Dequindre Cut corridor to build more diverse uses around general retail, housing and the creative class.” TRAs are similar to TIFs, except that they’re intended for brownfield improvements, including redevelopment of blighted properties and overall district improvements. The Eastern Market capital projects would include improvements like streetscape beautification, stormwater management, the removal of crumbling bridges and extensive sidewalk and street improvements. The TRA does not mean higher property tax rates. Like TIF districts, the taxes generated by increases in property value over the next 25 years in the TRA area will go into a pool held by the Detroit Brownfield Redevelopment Authority and be used to reimburse property owners in the district for rehabilitating dilapidated property, Carmody said. Terry Campbell, COO for Eastern Market Corp., said the goal is to bolster investor confidence by providing long-term revenue streams for costly improvement projects. “The TRA would allow us to focus on improvements to operations and creating new programs instead of fundraising for capital improvement projects,” she said.

■ From Page 3

more days of operation, created 10 new positions to bring the number of employees to 17 and plans to add three more. “There were good pieces in place when I got here. We just needed to build organizational capacity as the market grew,” he said. “Now we need to leverage the market to strengthen the neighborhood.”

Communication breakdown Change isn’t easy. Bert Dearing, 69, said there’s no denying that the free-wheeling culture of the neighborhood has changed. Things were a lot different when he opened Bert’s Marketplace in 1987. That’s long before the market became the regional destination it is today, drawing thousands each week. Then, rules enforcement was lax and permit compliance was casual, if not overlooked. Over the years, Dearing, a selfpronounced capitalist, said he has thrown hundreds of raves, dance parties, karaoke sessions, concerts, boxing matches and just about anything else that would fill his 22,000-square-foot complex. His outdoor barbecue and parties still draw hundreds of people every weekend. He said he was shut down in 2012 and 2013 because he didn’t work with Eastern Market Corp. on proper permits. But Dearing said, overall, he likes the direction Eastern Market is headed. “This whole thing is gonna grow, and I will fit right in and do great,” Dearing said. “Ain’t nobody stopping me.” Dan McCarthy, owner of Cost Plus Eastern Market Wine, said the biggest problem is a lack of communication between Eastern Market Corp. and the merchants. “People have been here a long time and operated a certain way,” McCarthy said. “All of a sudden a management company comes in and starts telling you what to do. Just talk to us. Become a part of the neighborhood. Don’t do things behind closed doors.” Dearing agrees. “It seems like certain business owners are in the inner circle,”

he said. Campbell said she holds regular meetings at 4 p.m. the second Thursday of every month at Eastern Market Corp.’s headquarters, but she said turnout is low. Other outreach includes sending prerecorded voicemail updates on things like parking lot construction. She said she’ll also send email or text message updates, depending on merchant preferences. “There are about 150 merchants in the district, and I might get 15 people to show up (to a meeting),” she said. McCarthy said he has never been to one of the meetings. “I have to work,” he said. “It’s just me and my wife here.”

Financial projections Carmody said he can empathize with the differing points of view of longtime business owners in the district, and that the new financial plan, including the TRA, is meant to give stakeholders in the district more stability and a roadmap for its future. If all goes well, Carmody said, the fund could generate up to $50 million over 25 years — but that depends on how much is invested. Eastern Market Corp. will still need to raise funds for its projects but will be reimbursed through the increments collected in the TRA. In 2009, the organization received $1.85 million in contributions and grants and reported total revenue of $2.84 million. In 2012, the market received $2.95 million in grants, part of a reported $4 million in total revenue. The TRA, for its part, will offer the property owners the difference between the precompletion taxes and the post-completion taxes collected on the property. “Creating a TRA gives confidence so that more people will invest in the area because it shows continuous improvement,” said COO Campbell. “There is a dedicated pool of funds for infrastructure projects and improvements.

Case study Eastern Market’s use of a TRA

has been in the making for a couple of years. In December 2012, the state passed legislation allowing for the creation of targeted redevelopment areas as a way to spur development in heavily blighted areas with clusters of 40 to 500 dilapidated parcels. There can be no more than five targeted redevelopment areas created in the state per year and a maximum of two per jurisdiction per year. Ernie Zachary, vice president of Detroit-based economic development consultant firm Zachary & Associates, said the TRA legislation was created with the market in mind. Katharine Czarnecki, director of community development for the Michigan Economic Development Corp., said Eastern Market made sense as the pilot for the program because it had a high density of blighted buildings in a relatively small footprint. “We always tossed around ideas about fixing areas that have multiple parcels and big spaces,” Czarnecki said. Zachary said one of the biggest benefits to the TRA is that it all but eliminates the need to conduct separate environmental surveys on each individual parcel. “This streamlines the process,” he said. “Environmental analysis on a parcel can cost as much as $10,000 and many of these buildings are over a century old, so who knows what’s going on underneath them?” The boundaries of Eastern Market’s proposed TRA are roughly from Wilkins Street to the north, Rivard Street to the west, St. Aubin Street to the east and the service street behind Gratiot Avenue to the south. The hope is to connect Eastern Market to the Midtown Loop Greenway bike path that runs from John R Road to Wilkins Street, and the second phase of the Dequindre Cut, which runs from Gratiot to Mack Avenue. The plans aren’t a done deal. Eastern Market Corp. is in the midst of finalizing its proposal before sending it to the city’s brownfield board for review. It will still need to be submitted to the City Council and then get signoff from the state. Carmody said Eastern Market Corp. has identified eight vacant properties for development, seven of which are located along the second phase of expansion along the Dequindre Cut. “We need to have our first major project ready to go because we don’t want to start the clock on the TRA too early,” he said. “When we get our first major project shovelready, we will start the TRA. Jay Bonahoom, co-owner of Wolverine Packing Co., which takes up about 200,000 square feet of space over five buildings on the east side of the market, said he is happy with the direction of Eastern Market, and the plans for the TRA. “There is nothing worse than stagnation and the crime that happens when there is no development,” he said. “We like to see our real estate in a thriving market.” Nathan Skid: (313) 446-1654, nskid@crain.com. Twitter: @nateskid

Towne Square is also performing better than much of the 6.1 million-square-foot Southfield Class A office market. The vacancy rate in the fourth quarter last year was 25.5 percent, according to data from the Southfield office of Newmark Grubb Knight Frank. The average asking rent was $20.13 per square foot, according to NGKF. The first tower, built in 1992, is 470,000 square feet. Its largest tenants are Southfield-based Signature Associates LLC (32,000 square feet), which handles leasing for the buildings; Southfield-based consulting firm Gabriel Roeder Smith & Co. (25,000 square feet); and the Sommers Schwartz PC law firm (25,000 square feet), according to research firm CoStar Group Inc. The second tower, built in 2002, is 200,000 square feet. Its largest tenants are FirstMerit Bank (38,000 square feet); Southfield-based Telemus Capital Partners LLC (27,500 square feet); and the land development, surveying and engineering firm Atwell LLC (22,000 square feet), according to CoStar. Terry Croad, director of the Southfield Planning Department, said site plans have not been submitted. Redico would need Planning Commission and City Council approval before it could apply for construction permits, Croad said. “We could be under construction relatively quick, given that the site was originally planned for this use,” Watchowski said. “The construction period would be typically 12 to 18 months.” Redico is also the developer of the $72 million Gateway Marketplace project in Detroit, which features the first Meijer Inc. store in the city; and the planned $150 million redevelopment of the former Michigan State Fairgrounds site into more than 1 million square feet of mixed-use space. At 5.5 million square feet, the Renaissance Center in downtown Detroit is the region’s largest office complex. The Southfield Town Center is the secondlargest at 2.2 million square feet, followed by the Galleria Officentre in Southfield at 1 million square feet. Depending on the size of the third building, Towne Square could become the third- or fourth-largest office complex in the region. Kirk Pinho: (313) 446-0412, kpinho@crain.com. Twitter: @kirkpinhoCDB

COSTAR GROUP INC.

The first tower of Towne Square, built in 1992, is 470,000 square feet.

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Coach: Not just a title; it’s also a revenue stream ■ From Page 3

“We likely will be doing this with other coaching positions,” said UM athletics director David Brandon. “I anticipate you’ll see more and more of this throughout college sports as a logical way to provide recognition (to major donors).” He declined to disclose details, but Brandon did confirm that he’s been contacted about other possible endowments and coaching job names since the Harris family deal was announced Feb. 17. Earnings from the endowment will cover at least a portion of Hoke’s $300,000 base salary. His total compensation topped $4.1 million last season, including bonuses, media appearance fees and other money, according to USA Today’s annual college football salary database. Not all is paid by the university. The $10 million comes from the J. Ira and Nicki Harris Foundation. Ira Harris, 75, graduated from UM in 1959, and the football team’s locker room and a suite at Michigan Stadium are named for his family because of past donations. Harris, who amassed his fortune as an investment banker specializing in corporate mergers and acquisitions, today is chairman of Palm Beach, Fla.-based financial consultancy J.I. Harris & Associates. Brandon and his staff first suggested the idea of endowing and naming the coaching job a couple of years ago, Harris said. “This seemed like an intriguing thing,” Harris said. Brandon said he and Chrissi Rawak, senior associate athletic director for development, came up with the naming convention. “When we were talking to them about the magnitude of a gift of $10 million, we wanted to come up with a special, meaningful way to recognize (their support),” Brandon said. “(The position naming) seemed to resonate with them.” The idea wasn’t radical. Brandon’s own formal job title is the Donald R. Shepherd Director of Athletics. Harris said he has been on UM’s endowments investment committee for more than two decades, and serves the university in other advisory roles. He and his wife are on the steering committee for the university’s $4 billion Victors for Michigan fundraising campaign. “We’ve always had the belief a strong athletics program leverages the great academic strengths of the university. It really keeps the alumni involved,” he said. “I hope it leads to more support in this capital campaign, and we can get other people to step up for other coaching positions.” Sports economists say athletic directors closely watch each other for revenue-generating ideas. “Once it gets started, then everybody starts doing it. Managers are great imitators,” said Brian Goff, an economics professor specializing in sports at Western Kentucky University. Endowments also are a way to offset departmental spending that otherwise might be criticized, he said, because large football and basketball programs are essentially “marrying a professional sports entity to a university.” “Endowments are a means of

A few good donors

BLOOMBERG

Endowed coaching positions are common in the Ivy League, where Yale’s program is directed by the “Joel E. Smilow ’54 Head Coach of Yale Football.”

Coach insignias no passing fancy Endowed coaching positions named after the donor are common in the Ivy League and increasing at colleges elsewhere. In an August 2012 story about the trend of endowed coaching jobs, The New York Times noted that former Playtex Chairman and CEO Joel Smilow was among the first donors with his name on a position at his alma mater. Thanks to the $1 million endowment he provided in 1988, the “Joel E. Smilow ’54 Head Coach of Yale Football” roams the Yale Bowl’s sideline on fall Saturdays. Before Smilow, Cornell University’s top football job became the “Roger J. Weiss ’61 Head Coach of Football” because of a 1982 endowment of $750,000 from alumnus Roger Weiss, an investment banker, The Times reported. Harvard University has 17 endowed coaching jobs along with an endowed athletic director position. Former Crimson player Thomas Stephenson, a venture capitalist and investment banker, endowed $2 million in 1994 to create the “Thomas Stephenson Family Head Coach for Harvard Football.” Not every endowment is in the donor’s own name. Former U.S. Treasury Secretary and Goldman Sachs Chairman Henry Paulson gave $2 million to Dartmouth College in 2000 to create the “Robert L. Blackman Endowed Coaching Position.” Blacktrying to put a sort of better public relations banner on it,” he said.

A Michigan man Harris said he returns to Ann Arbor for games and investment committee meetings. He and his family’s donations over the years have funded student scholarships, professorships, named chairs, buildings, facilities, medical research, a sports journalism fellowship and a center for the study of corporate finance. The Bronx-born Harris, who entered UM at age 16 and graduated at 20, joined Granbery Marache and Co., the predecessor of Chicago-

man was Paulson’s head coach at Dartmouth in 1965-67. More recently, an unnamed donor gave Stanford University an undisclosed amount to name the offensive coordinator position the “Andrew Luck Directorship of Offense.” Luck, who played for the Cardinals from 2009 to 2011, is quarterback of the Indianapolis Colts. Among other major colleges with coaching jobs named for donors are Vanderbilt University, Boston College and Northwestern University. Small schools have gotten in on the coaching job endowment action, too. In August, Lafayette College in Easton, Pa., got $2 million from the F.M. Kirby Foundation to endow the head football coaching position as the “Fred M. Kirby II ’42 Head Football Coach” after a 1940s football alumnus who died in 2011. Michigan State University doesn’t have any endowed coaches — yet. The university’s Spartan Fund advertises online the contribution level for each job, ranging from $500,000 for an assistant coach to $5 million for the head football or men’s basketball coach. One’s name can be put on MSU’s head hockey and women’s basketball coaching jobs for $2 million. All other head coaches are $1 million. — Bill Shea based Blair and Co., in 1961 as a securities salesman. He was hired by Salomon Bros. in 1968, and in 1988 became a senior partner at New Orleans-based Lazard Freres & Co. He launched his financial consulting firm in 1998. While Harris will get his family’s name on the coaching position — a formal name realistically expected to be used only in official university communications — his money doesn’t buy influence: Whenever there’s a coaching change, he doesn’t get a say in the new hire because of the donation. It “does not provide any access or influence as it related to personnel decisions,” Brandon said.

Brandon is seeking more donors like Harris because of the need for money. Coaching naming rights are another way for athletics departments to generate cash, he said. “What’s taking off is the need for fundraising. All of our (Big Ten athletics) departments crave capital to build facilities to compete at the highest level,” Brandon said. “All of these departments are out trying to maximize the opportunity to raise funding support. As you’re thinking about the inventory of recognition opportunities, it’s only natural to think about endowing positions.” UM’s budget for its 31 sports programs in the current fiscal year ending June 30 is estimated at $146.4 million in revenue and $137.5 million in spending, for a projected $8.9 million surplus. The Harris endowment will be invested as part of the university’s wider $8.4 billion endowment, which is a pool of about 7,800 separate endowments known as the University Endowment Fund. Endowment distributions in fiscal 2013 were about $276 million.

Raising revenue Since Brandon’s hiring as athletics director in 2010, the department has sought to modernize itself in a corporate fashion as it looks to raise money in the face of increasing operational expenses. The department, which has drawn criticism for raising ticket prices and creating other revenue streams from fans, has received very high-profile donations and engaged in some of Michigan’s largest capital projects. The athletics department and business school are splitting $200 million pledged to the university in September by Stephen Ross, a 1962 UM graduate whose cumulative $313 million given is the most from anyone in school history. The money will be used to pay for capital projects on what’s now known as the Stephen M. Ross Athletic Campus. The regents in November approved a $6 million plan to build an 18,000-square-foot operations center to move into one building most of the athletic department’s behind-the-scenes support work, such as maintenance shops, offices, laundry, shipping and receiving and equipment storage. The regents in May approved a $13.5 million field hockey stadium and team center, along with smaller projects such as $2.55 million to replace grass at the baseball and softball fields with synthetic turf. In March, the regents approved $5.3 million to build the threestory, 10,200-square-foot Donald R. Shepherd Softball Center. Other projects green-lighted by in recent years include $72 million in improvements, repairs and expansion of Crisler Center; $16 million in renovations for Yost Ice Arena; and a $226 million renovation of Michigan Stadium that was completed in 2011. Bill Shea: (313) 446-1626, bshea@crain.com. Twitter: @bill_shea19

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RUMBLINGS Olympians’ medals come with a price ichigan’s own Meryl Davis and Charlie White won the first Winter Games ice dancing gold medal for the United States on Feb. 17. Their victory will come with a price. Davis, of Canton Township, and White, of Bloomfield Hills, will also receive $25,000 each from the U.S. Olympic Committee for winning gold medals. The skaters, who attend the University of Michigan and train at Arctic Edge Ice Arena in Canton Township, will be required to pay income tax on their cash winnings because it’s considered earned income by the Internal Revenue Service. Depending on their tax bracket, they’ll pay up to $9,900 each in federal tax on their gold medal winnings, based on the top tax rate of 39.6 percent. The lowest rate would have them paying $2,500 each. They also will pay Michigan’s 4.25 percent income tax. Davis and White will also get $10,000 each for their bronze medals in the team figure skating event. Olympians can sometimes write off the cost of training and other expenses to lower or eliminate their tax liability. East Lansing’s Ryan Miller, Team USA’s backup ice hockey goalie and the starter for the Buffalo Sabres, will pay taxes for medaling. When the Sabres play the Red Wings at Joe Louis Arena, Miller has to pay Detroit’s

1.225 percent nonresident income tax. Miller has a $6.25 million salary this season with Buffalo, putting him in the top federal tax bracket. Some national Olympic committees, such as Russia and Italy, pay gold medal winners more than $100,000. Then there’s Great Britain, which pays them nothing — so it also doesn’t tax them. On Feb. 5, legislation was introduced in Congress to exempt U.S. Olympic athletes from paying taxes on their winnings. A similar bill was introduced during the 2012 Summer Olympics in London, but it died. The new bill remains in committee.

The Henry Ford featured in redesigned travel mag The Henry Ford graces the inside pages of the first redesigned Condé Nast Traveler magazine, now on newsstands. The luxury and lifestyle travel magazine said it asked staffers to share ideas and snapshots from their personal trips, and photographer Dewey Nicks’ visit to the museum in Dearborn last summer was included in the March issue. With the redesign, the magazine says it wants to give readers the inside scoop on the best places to visit from well-traveled, inthe-know “friends,” its editor said in an open letter on cntraveler.com. Condé Nast Traveler, launched in 1987, has more than 800,000 subscribers.

WEEK ON THE WEB FROM WWW.CRAINSDETROIT.COM, WEEK OF FEB. 15-21

Georgia resident seeks Gary Peters’ senate seat It may be easier to run for a Michigan seat in Congress from 600 miles away in Georgia than it was for Mayor Mike Duggan to get on Detroit’s mayoral primary ballot. While Duggan ended up waging a write-in candidacy after residency snafus, Georgia resident Allan Levene intends to run for Levene Michigan’s 14th District — the seat now held by Gary Peters, who is running for the U.S. Senate — from his home near Atlanta. That’s not all. He’s running for Congress in the Peach State, as well as in Hawaii and Minnesota. Huh? How? It seems the only residency requirement for congressional seats is that a candidate resides in the state he or she would represent at the time of election. Levene doesn’t have to call Michigan home during the primaries — at least that’s what he’s arguing. Georgia has its primary on May 20, and Levene told CNN that if he doesn’t win the GOP nomination there, he’ll start campaigning in Michigan, which holds its primaries Aug. 5. Why Michigan? Levene lived in West Bloomfield and Troy in the 1980s after he was recruited to work for Sperry Univac, he said. “I didn’t like driving in blizzards, but I did like the people a lot,” he wrote on his website. Still, that doesn’t fill the campaign coffers. According to the nonpartisan Center for Responsive Politics’ website OpenSecrets.org, he’s raised a mere $476 for his Georgia race and nothing for his Detroit run.

BEST FROM THE BLOGS READ THESE POSTS AND MORE AT WWW.CRAINSDETROIT.COM/BLOGS

Can restaurants pay servers?

“

Ensuring that a server won’t make less than $10.10 an hour in Michigan is one thing; paying them $10.10 an hour plus tips is quite another.

”

Nathan Skid’s “Table Talk” Detroit-area restaurant blog can be found at www.crainsdetroit.com/skid

Casino taps Forbes for key role

“

Forbes Co. Managing Partner Nate Forbes, who has made a mark on the architectural design of Rock Gaming LLC’s Ohio casinos, is getting positioned to do the same with Greektown CasinoHotel.

”

Sherri Welch’s “What’s in Store” blog on Southeast Michigan retail is at www.crainsdetroit.com/welch

Kroger opens 1st new marketplace format in state roger Co. was to open its first new Michigan “marketplace” store in Shelby Township Feb. 23. The 114,000-squarefoot store and fuel center on 23 Mile Road near Hayes Road is Kroger’s largest location in the state. In addition to groceries, the store will offer toys; home essentials; men’s, women’s and children’s apparel; and shoes from brands including Skechers, Champion, Signature by Levi Strauss & Co., Gloria Vanderbilt and Carhartt; baby items from Baby World; Fred Meyer Jewelers; an in-store location for New York-based Murray’s Cheese; and Starbucks. Kroger has a marketplace outlet in Lambertville, but that was converted from an existing store.

ON THE MOVE The Detroit City FC semipro soccer team hired Donovan Powell as general manager. Powell, 30, most recently worked in sales with the Columbus Blue Jackets of the National Hockey League.

COMPANY NEWS Shinola/Detroit LLC plans to install four city clocks — including one at Cobo Center — based on its iconic pocket watch design. Shinola President Jacques Panis did not say how much the clocks would cost, but he indicated they will be installed before daylight saving time starts March 9. The Detroit Free Press and The Detroit News will relocate to the old Federal Reserve building at 160 W. Fort St. this summer. Joyce Jenereaux, president of the Detroit Media Partnership, said in an email to employees that a long-term lease was expected to be signed in four to five weeks. The newspapers’ current building is at 615 W. Lafayette. Ann Arbor-based Oxford Cos. LLC bought the 223,000-square-foot Northeast Corporate Center office complex in Ann Arbor on Auction.com for $21.5 million, according to a news release. Key tenants are ForeSee Results Inc., the University of Michigan Health System and Chicago-based Cole Taylor Bank. Troy-based auto supplier NS International Ltd. could invest up to $6 million ito renovate former Magna International offices

it has leased in Troy at 600 Wilshire Drive, where it will move 100 employees and could add 150 more. Milwaukee-based Johnson Controls Inc., which has its Automotive Experience unit in Plymouth, plans to sell its headliner and sun visor business to an affiliate of Greenwich, Conn.-based Atlas Holdings LLC, Automotive News reported. A former Denso Corp. executive is expected to serve one year and one day in a federal prison after agreeing to plead guilty to one charge of obstruction of justice, Automotive News reported. Kazuaki Fujitani deleted numerous electronic documents after learning that the FBI executed a search warrant on the auto supplier’s U.S. subsidiary in Southfield, the U.S. Department of Justice said. Detroit-based P & B Investments Inc. sold the vacant Park Apartments building in downtown Detroit for $3.25 million in an offmarket deal to Joe Barbat, CEO and chairman of Southfield-based Wireless Toyz. Barbat said he plans $6 million in renovations and to rename it Briggs House Residence. The genetic research startup Genomenon, developed by University of Michigan pathologists Mark Kiel, Megan Lim and Kojo Elenitoba-Johnson, won the $40,000 first prize in the Michigan Collegiate Innovation Prize competition organized by the UM College of Engineering’s Center for Entrepreneurship.

OTHER NEWS Troy-based Automation Alley opened its Product Lifecycle Management Center at Oakland University to provide affordable training and certification. The Detroit City Council privatized trash pickup, approving a five-year, $120 million trash-hauling contract with Sterling Heightsbased Rizzo Environmental Services Inc. and Advanced Disposal Inc. The city announced that its $18,000per-month contract with Recycle Here for drop-off recycling would be retained at least through July 2015. Oakland Community College trustees adopted a resolution supporting Chancellor Timothy Meyer, who received a vote of no-confidence from the college’s full-time faculty. Metro Detroit median home sale prices rose from $80,000 in January 2013 to $110,000 in January 2014, but sales fell by 13.8 percent, Realcomp Ltd. reported. A new 104,000-squarefoot academic building on the Stephen M. Ross School

of Business campus and a renovation of the Kresge Business Administration Library are part of a $135 million construction project approved by University of Michigan regents. The University of Michigan Kidney Epidemiology and Cost Center in Ann Arbor was given a five-year, $8.5 million federal contract to serve as the coordinating center for the United States Renal Data System. Satisfaction with online shopping fell by 4 percentage points to a 78 on a 100-point scale in 2013, a 12year low, in the annual University of Michigan-based American Customer Satisfaction Index of retail and ecommerce. State Schools Superintendent Mike Flanagan terminated the contract giving the Education Achievement Authority, which runs 15 low-performing schools in Detroit, exclusive functions of a turnaround district that could take over more failing schools across the state, AP reported. The Michigan Public Service Commission’s fourth annual report confirmed that the state’s utility companies met their renewableenergy production goals for 2012 and hit 6.9 percent in 2013. Utilities must reach 10 percent by 2015. The Board of State Canvassers agreed to allow Raise Michigan to begin collecting signatures to place a question on the November ballot to raise the minimum wage in Michigan to $10.10 an hour, higher than the $9.50 previously discussed, from the current $7.40 by January 2017. It needs 258,088 valid signatures by May 28. Michigan lawmakers are considering a bill to provide an extra $100 million for state and local road maintenance, AP reported. Also, a panel voted to cut the state’s income tax rate from 4.25 percent to 4.05 percent by 2016, and House Republicans proposed an end to unlimited medical benefits for people in catastrophic vehicle accidents. The proposal would allow most drivers to buy $10 million in personal injury protection and guarantee a 10 percent cut in premiums for two years.

OBITUARIES E. Delbert Gray, former president and CEO of the Michigan Minority Supplier Development Council, died Feb. 13. He was 69. Angelo Henderson, a Pulitzer Prize-winning journalist who worked at the Wall Street Journal and The Detroit News and hosted the “Your Voice” program on WCHB AM 1200, died Feb. 15. He was 51.

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