LOUISVILLE, Ky. (WDRB) – When Kindred Healthcare first told its shareholders in April that it bought the Louisville home of its chief financial officer for $2.15 million, the company said it had a good reason for the unusual purchase.

Kindred was trying to help its executive, Stephen Farber, escape a nasty dispute with his neighbor over a shared driveway in the upscale Glenview area off River Road.

In its annual proxy statement, Kindred said it bought Farber’s home – at a $450,000 premium over what Farber paid a year earlier – to allow for the “prompt relocation” of Farber and his family, whose “personal safety” could not be assured “if they continued to reside in the residence.”

But records in a Jefferson County court case now show that Farber had already moved from the Glenview home months before he and his wife decided to sell it to Kindred in December.

The case also reveals the extent to which Kindred has committed its corporate resources to assist Farber in the ongoing dispute with his ex-neighbor, real estate investor David Fenley.

Last August, for example, it was Kindred that hired and paid the invoices of a land surveying and engineering firm that designed a new driveway on what was then Farber’s property. The driveway, now under construction by Kindred, could cost as much as $360,000 in all, according to a deposition.

Farber also had the assistance of a Kindred attorney in negotiating with his neighbor’s attorneys and in a failed mediation with Fenley before the company bought the house. Kindred said its employee attended the mediation but not “as a representative of Kindred.”

Apparently in addition, Farber received a $250,000 “relocation” payment from Kindred in November 2015 following his move from Glenview to another area of Louisville.

The home purchase and related expenses are negligible for Kindred, a Louisville-based Fortune 500 company that generates $5 billion in annual revenue.

But a pair of corporate governance experts said Kindred’s behavior raises questions about whether a top executive has unduly benefited from the company’s resources.

“It’s very troubling,” said Nell Minow, vice chair of ValueEdge Advisors, which advises big investors like pension funds on corporate governance issues. “Executives are going to find it hard to resist the impulse to spend (company money) on themselves, and the board is there to make sure that doesn’t happen, and yet that seems to be exactly what’s happened here.”

Minow said she has trouble accepting Kindred’s claim that it was necessary for the company to buy the home to allow Farber -- whose total compensation was $2.7 million in 2015 – to move, especially if his family was in danger.

“If he is not being paid enough to handle that himself, then that raises questions about his judgment in his personal finances,” she said.

And the revelation that Farber had already moved from the Glenview home months before the company decided to buy it further undermines Kindred’s explanation, she added.

“There certainly can be no question of safety if he has already moved,” she said. “At the very least, it sounds deliberately misleading.”

John Stout, a Minneapolis lawyer who previously chaired the corporate governance committee of the American Bar Association, said the situation “obviously doesn’t reflect well on the company, and it doesn’t reflect well on how they explain this.”

Susan Moss, Kindred’s corporate spokeswoman, did not respond to a phone call and a set of emailed questions from WDRB. Moss has not responded to inquiries about the Farber home purchase since January.

Jan West, an attorney representing Kindred and Farber in the ongoing litigation over the driveway, also did not respond to a request for comment.

Kindred is “in the process of reselling” the house, according to the April filing, though it has not been listed for sale.

Executive claims neighbor threatened to shoot child

Details about Kindred’s involvement in the Farber driveway dispute have come to light only because Kindred – by virtue of buying the home – got roped into the litigation between Farber and his ex-neighbor Fenley, who is president and co-founder a commercial real estate firm called Fenley with a $445 million portfolio.

Fenley alleges that Kindred conspired with Farber to attempt to force Fenley into giving them some of his property without fair consideration.

“We think the claim is ridiculous,” said West, the Farber and Kindred attorney, at a court hearing on May 4.

Farber, a former private equity executive and CFO of Tenet Healthcare, moved to Louisville from Arizona in April 2014 to take the job with Kindred.

In court papers, Farber’s attorneys said it was Fenley’s threatening behavior that “forced” the Farbers to move from the house at 3611 Glenview Avenue in early September.

“Mr. Fenley made threats to their 4-year-old child,” West said at the May 4 hearing. “…They were afraid. They moved very, very quickly out of their home.”

In court papers, Farber claimed Fenley talked about his gun collection and told him “words to the effect” of, “people that work for me who are dependent on me, will do anything I ask them to,” and, “better make sure your boy doesn’t kick his soccer ball on my property. In Kentucky we’re allowed to shoot trespassers and I might not know it’s him.”

Dennis Murrell, one of Fenley’s attorneys, denied that Fenley threatened to shoot Farber’s child and said there is “nothing to corroborate” the allegation, such as a police report. He added that Farber didn’t mention the incident in the lawsuit he filed last September, which began the court dispute.

Kindred and Farber have also claimed in court records that the Farbers – despite their $450,000 gain on their home sale to Kindred – actually incurred a “significant financial loss” because they had spent $800,000 on renovating the 6,000-square-foot home.

In the April proxy statement, Kindred said the nominating and governance committee of its board approved the Farber home purchase and that the $2.15 million the company paid was $250,000 less than the home’s appraised value.

But court records also show that the company’s claimed discount on the home may have been more than offset by the driveway project, which Kindred said is necessary to complete before putting the property back up for sale.

Garber Chilton Engineers and Land Surveyors President David Garber said in a June 3 deposition that his company’s design work for the driveway cost about $60,000. Garber said he couldn’t say exactly what the construction cost, but, “during one of the schemes where we had retaining walls, the cost exceeded $300,000.”

Lawrence Nibur, Kindred’s development director, said in a June 21 affidavit that it’s taken “much longer than anticipated” to build the driveway in coordination with the City of Glenview.

The company has been required to construct the driveway “to level of specifications required for a highway off ramp,” including excavating about four feet of ground to install drains connecting to public sewers and raising and repaving about 75 yards of Glenview Avenue, Nibur said.

Court records show Kindred began footing the bills for the driveway project at least three months before the company decided to buy the house from the Farbers.

On Aug. 28, it was Kindred that hired the Garber Chilton firm to survey what was then Farber’s property.

Then in early November, the firm began designing a driveway that would lead to Farber’s home without touching Fenley’s property, Garber said in his deposition.

All along, Garber never met the Farbers and instead sent his invoices to Kindred, which were paid with Kindred checks, he said.

“I was just working under the assumption all this time that Kindred was just taking care of getting this resolved for (Farber),” Garber said in the deposition.

It was not until after Dec. 1 – when Fenley and Farber met in a failed mediation of their dispute – that the Farbers gave up any “hope or belief” of coming to terms with Fenley and decided to sell the home to Kindred, according to a court filing.

“They had hoped to move back into their house” until the Dec. 1 meeting, said West, the attorney for Kindred and the Farbers, in the May court hearing.

Garber did not detail the amount of driveway and surveying expenses that Kindred paid prior to closing on the Farber home on Dec. 18. But in earlier court filing, Kindred said it did not hire Kelley Construction to build the new driveway until after it bought the home.

$250,000 “relocation” payment

Fenley has also attempted to make a legal issue of Kindred’s $250,000 “relocation” payment to Farber in November by alleging that the money was actually to reimburse the cost of Farber’s home renovations.

Kindred disclosed the payment in its April proxy statement, though it did not specify whether it was for Farber’s 2015 relocation within Louisville or his earlier move from Arizona in April 2014 to take the CEO job. However, the company had already paid Farber $110,388 in relocation expenses in 2014 for the move from Arizona.

Farber must give the $250,000 back – along with “along with any related attorney’s fees and expenses” -- if he leaves the company before April 30, 2017, according to the filing.

Minow, who co-wrote a business school textbook called Corporate Governance, said it would be hard for the company to defend paying for Farber to move once he had settled in Louisville.

“A relocation fee is supposed to be for when they move in order to take the job,” said Minow. “You’re not supposed to pay for them to move because they don’t get along with their neighbor.”

Stout, who chairs the corporate governance group at the Minneapolis law firm Fredrikson & Byron, said the money Kindred has spent on Farber’s behalf is “nickels and dimes in a multi-billion-dollar company,” but it sends the wrong message about the “company culture” to Kindred’s thousands of employees.

“Integrity starts at the top, and tone at the top is important because it sets the tone for the organization,” he said. “It’s very hard to get the employees of the company to take ethics and culture seriously if the people at the top aren’t.”

But Charlie Moyer, the former dean of the University of Louisville College of Business, said Kindred’s spending on behalf of Farber could be defensible if meant keeping the company’s chief financial officer – a very important executive -- from quitting because of a personal problem.

“It may not seem equitable -- and I would certainly tend to agree with that -- but at the time you’re making the decision, it may be in the best interest of the shareholders,” said Moyer, who has served on two corporate boards. “…Sometimes you just do things that you don’t really like, but in the big picture, they make sense.”

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