Minnesota AG seeks court oversight in dissolution of Rainbow Health

Minnesota Attorney General Keith Ellison is asking Hennepin County District Court to supervise the dissolution of Rainbow Health, a Minneapolis-based health nonprofit that abruptly halted operations in July.

In a court filing Wednesday, Ellison’s office says Rainbow Health, which provided health and social services for the LGBTQ community, has indicated it might not have enough money to fully satisfy all of its debts and obligations, including payments to employees.

Ellison has initiated a voluntary investigation into the circumstances surrounding the sudden downfall at Rainbow Health, the filing states. There are questions, Ellison says, about whether the nonprofit can prioritize payments to workers considering its significant liabilities.

“I believe court supervision is the proper next step in this case,” Ellison said in a news release. “It not only minimizes the risk of separate disputes about who gets what, it can give the employees the best shot to potentially get paid. I believe the parties can resolve these issues cooperatively and efficiently with the court’s supervision.”

Supervision is not automatically an adversarial process, Ellison said. The process lets the court direct the disposition of assets in an efficient way under a specific statutory framework.

In August, Rainbow Health told the state Attorney General’s Office (AGO) that it intended to dissolve, with a $334,000 hole in its finances. It listed assets of just over $566,000 and debts and liabilities of about $900,000.

Former union workers have been pushing for Rainbow Health to provide a final month’s worth of pay plus compensation for unused PTO.

In a Sept. 19 update to the Attorney General’s Office, Rainbow indicated all its remaining funds may be depleted by final audits and tax filings for the organization, Ellison said Wednesday.

The filing also states: “Rainbow Health stated to the AGO that the payment to employees for the thirty days’ notice falls in line with other creditor claims ... [and] alleges that the cost of dissolution, including the costs to prepare the final audits and tax filings, take priority over the thirty days’ notice payment to employees.”

But Rainbow Health also acknowledged “statutory ambiguity,” the filing states, in the priority and timeline for paying employees in a dissolution.

The nonprofit was created about six years ago with the merger of two groups, including the Minnesota AIDS Project, which dates back to the early 1980s.

Rainbow Health offered a variety of health and social service programs ranging from HIV testing and a preventive medicine pharmacy to financial assistance and case management. It provided behavioral and mental health services, as well, with some 20 practicing psychotherapists when Rainbow Health closed.