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Delaware Court Decides Financial Dispute Involving Prison Healthcare Company

A complaint brought in the Court of Chancery of Delaware to appraise the value of a prison healthcare company inadvertently shed light on the big business of providing contracted correctional services.

Certain shareholders of Just Care, Inc., a privately-held Delaware corporation, filed the complaint to determine the fair value of the company in an appraisal action following its acquisition by GEO Care, Inc. (formerly a subsidiary of private prison firm GEO Group). According to the complaint, GEO Care “provides government out-sourced services specializing in the management of correctional, detention, and mental health and residential treatment facilities” in the United States and abroad.

One of the disputes in the case was the value of projected cash flows from payments anticipated from the states of South Carolina and Georgia, both of which had business relationships with Just Care. At the time of the merger, Just Care operated a single facility – the 374-bed Columbia Regional Care Center in Columbia, South Carolina, which provides medical services to prisoners and detainees from South Carolina, Georgia, the U.S. Marshals Service, and Immigration and Customs Enforcement (ICE).

Georgia had not finalized plans with the company to build a facility in that state; Just Care had hoped to renovate the Bostick State Prison and turn it into a prison medical center, though that never occurred.

On April 30, 2012, as a result of the court’s deliberations, which included reports from various financial experts, the fair value of Just Care was found to be $34,244,570 rather than the $55.2 million claimed by the petitioners. The court discounted the value of Just Care’s potential contract with Georgia as being “too speculative.” GEO Care had acquired Just Care on September 30, 2009 for $40 million, with $6 million being “held in escrow to pay claims against the Company arising during the two-year period following the close of the merger, including appraisal claims and costs.”

This case is instructive in that it demonstrates the tremendous amount of cash involved when correctional services are outsourced. In this particular case, a 374-bed facility was found to be worth over $34 million, or more than $91,000 per bed. The value was based partly on the virtually guaranteed flow of taxpayer dollars to the company through government contracts.

Thus, it is not difficult to comprehend why private prison contractors like Corrections Corporations of America and GEO Group, and prison healthcare companies such as Just Care, are big money makers. The question is whether or not it is an efficient use of taxpayer funds for such companies to provide services that, until recently, had always been within the province of the public sector.

Contracting out correctional services to private, for-profit companies serves only to monetize our criminal justice system – in this case, in the amount of $34.2 million. See: Gearreald v. Just Care, Inc., Court of Chancery of the State of Delaware, C.A. No. 5233-VCP; 2012 WL 1569818.

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Related legal case

Gearreald v. Just Care, Inc.