Residents face eviction after federal lawsuit shuts down state’s largest sober living provider

More than 250 residents of California’s largest sober living provider could face evictions on Monday, after a trustee who has steered the embattled company since September following bankruptcy proceedings moved to shut it down.

Frank Montero, CEO of TLC Residential, which operated some 31 for-profit sober living group houses in the Bay Area, including five in San Francisco, filed for Chapter 11 bankruptcy earlier this year. The filing follows a years-long legal battle with the federal government, which ultimately took control of the homes this year.

A trustee appointed to assume responsibility for managing the company last month filed a motion to convert the bankruptcy case to Chapter 7, effectively liquidating TLC Residential as of Nov. 19.

The U.S. Department of Labor filed a lawsuit in 2015 against the company over whether some residents who performed managerial duties for the homes’ operator were entitled to federal minimum wages.

Montero has argued that the house managers were not subject to the federal regulations because they are classified as residents, not employees. In exchange for services such as holding meetings and enforcing house rules, the managers were allowed to live in the homes free of charge.

“It was a volunteer position, they get free rent, utilities, premium cable, broadband, cleaning supplies, laundry. That’s pretty valuable in the Bay Area,” said Montero, adding that he adopted a structure already in place when he purchased the company from its previous owner in 2010.

The position of house manager was “voluntary, aspirational” and an important step in the residents’ recovery process, according to Montero, who added that other residents paid anywhere between $800 to $1,500 for a room with TLC.

“The only common thread among all treatment methodologies is the act of one person helping the other,” he said, adding that other sober living providers follow similar structures based on voluntary service.

Regardless, U.S. District Judge William Alsup entered a judgment in April that classified the house managers as employees and included an award of $2.3 million in back wages and liquidated damages.

Montero said that the ruling aimed to make an example of TLC and came after a “character assassination” campaign was waged against him by government officials.

“We are the largest sober living provider in the country. With the opiate crisis there’s a lot of eyes on us,” he said. “They started coming after me personally. I had to file for personal bankruptcy. They didn’t want me to run the company.”

In October, Trustee Janina Hoskins moved to convert the bankruptcy case to a Chapter 7 case, concluding that “nothing can be gained for creditors in continuing the Debtor’s business.”

“I have notified the house managers that they should inform residents in facilities that they should begin to look for alternate housing,” wrote Hoskins in her declaration.

That decision has placed dozens of TLC’s residents at risk of displacement.

“We were told that we only can stay here authorized by TLC through Monday at noon,” said Joe Felder, resident and house manager in a TLC home in Lafayette.

Without management by TLC or the government, the residents are now left to fend for themselves.

The homes previously operated by TLC were leased from individual landlords, and rents were paid to them through the company, which provided substance abuse rehabilitation services including peer counseling and drug testing.

Felder, who has been housed by TLC for the past year and shares a home with 12 other residents enrolled in the sober living program, said that he was able to negotiate directly with his landlord to allow the program’s participants to continue living there — for now.

But residents in other TLC homes may not be as fortunate.

“Some of these landlords haven’t been paid rent in a while, so I’m assuming they want to get people out, because they still have to pay their mortgages,” said Felder. “You are talking about an at-risk community. Some of these people have nowhere to go. The government is putting people at risk that really don’t need it.”

According to Felder, TLC’s transitional living model is “much needed in recovery.”

“People need this modified structure in between being on your own and being in rehab,” he said.

TLC does not accept residents with criminal or violent histories, and practices a zero tolerance policy in regard to substance abuse. The house managers serve as a contact point for other residents, enforce curfews and administer drug tests, among other things.

“How [TLC] compensated us house managers was for our leadership in the house we get somewhere to stay,” said Felder, adding that the arrangement followed the “Alcoholics Anonymous model of being a sponsor.”

“Service is the secret sauce of sobriety,” Felder said.

After the government took control of the company, Felder said he was paid $15 an hour for his managerial duties, but that the compensation does not pencil out in terms of the amount of work he actually puts in.

“If someone walks in and is triggered, and they come in and talk to me, I am not billed for that,” said Felder.

He referred to the DOL lawsuit as “government overreach.”

“They just want their payroll taxes,” said Felder. “The government doesn’t care about what works in the real world.”

Dotty Hardinger said that her ex-husband’s six-year residence at a TLC home in San Mateo has been “the longest stretch of sobriety he’s ever had.”

“It’s unconscionable to me that this was the outcome that the Department of Labor would have wanted,” she said.

A DOL spokesperson said in a statement to the Examiner that the department “strongly supports assisting Americans with addictions to get the help they need to return to our vibrant economy.”

“However when employers violate their responsibilities to their employees, as the court determined in this case, they must be held accountable,” reads the statement.

Glenn Ballard is a landlord who leases his San Jose home to TLC. He said he never had problems with the company, until it fell behind on rent payments this summer.

Ballard said that he did not move to evict TLC, because that would have meant also evicting the tenants.

With the company’s liquidation deadline looming, Ballard said that he has agreed to work with his current residents to maintain TLC’s supportive living model, and has reached out to other landlords in an effort to collectively uphold the program, but has received few responses.

“Many landlords haven’t been paid rent,” said Ballard, adding that residents will likely have to move out the TLC houses “unless they made other arrangements with the landlords.”

“I have heard in other houses that people have relapsed because of the enormous stress,” said Ballard.

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