Healthcare Conglomerate Associates (HCCA) executed a $3m sale and leaseback of some Tulare Local Healthcare District assets in August of 2017, depositing the proceeds into its own accounts instead of the district’s, according to allegations in a new lawsuit filed by the district.
The 22-page filing contains a laundry list of allegations against the company, which previously managed the Tulare Regional Medical Center until its contract to do so was rejected by the district in United States Bankruptcy Court.
The district’s attorneys also allege the company presented false financials to the district’s Board of Directors, withheld other records, transferred the district’s assets, and misappropriated bond proceeds.
“In order to secure the proceeds, HCCA wrongfully and without the District’s authorization, sold District assets to a Celtic Leasing under a leaseback arrangement,” the district claims.
The arrangement saddled the district with an $80,000 per month payment for an arrangement that, it claims, only benefited HCCA — an obligation it can’t exit out of, unless it wants to lose the assets sold off.
The $3m was allegedly received from Celtic and deposited into an account controlled by Tulare Asset Management on August 31. Public documents show HCCA’s CEO, Dr. Benny Benzeevi, listed as the Tulare Asset Management’s “manager,” and his home address as the company’s mailing address.
The district states that any loans or leaseback arrangements — to say nothing of transfers to HCCA or other companies — were unauthorized: hospital board members Kevin Northcraft, Mike Jamaica, and Senovia Gutierrez voted on July 27, 2017 to remove any authority the prior board gave for the company to pursue and execute loans under the district’s name.
HCCA — and its attorney, Bruce Greene, who also represented the district — declared during the same time period that Gutierrez wasn’t a legitimate board member, stating that the board must declare her as one during a meeting.
Former board members Linda Wilbourn and Richard Torrez backed Greene’s interpretation. That interpretation, he later stated in separate filings, was backed up by two other attorneys. One represented Dr. Parmod Kumar, whose board seat Gutierrez took over after a recall election, and the other worked for the same firm.
The sole reason for the protracted challenge to Gutierrez’ legitimacy, the district claims, was to execute loans under the authority previously given to the company by the prior board.
“On information and belief, HCCA asserted this meritless legal argument regarding Ms. Gutierrez for the sole purpose of securing loan money,” the filing states, “and/or sales proceeds at the District’s expense and for HCCA’s sole benefit.”
The Evolutions Deed
One day before the hospital district filed for Chapter 9 bankruptcy, HCCA filed a “Deed of Trust and Assignment of Rents” against Evolutions, a Tulare gym owned by the district, and a parcel of property adjacent to it.
The deed was stated to secure promissory notes and loans made by HCCA to the district, totalling $10,223,950.05.
Copies of the notes and accompanying “requests for funds” were provided to the Visalia Times-Delta in September 2017. None of those notes were signed by members of the board, but under the former contract, the company was allowed to loan money to the district even without the board’s consent.
The district, however, claims that HCCA hasn’t provided copies of those notes to them — and that the notes referred to in the deed are “fraudulent and void.”
HCCA did, however, provided a copy of a “request for funds” and its associated promissory note in court documents last year. But those documents weren’t provided to the Times-Delta in the same form as provided to the court.
The December 21 “request for funds” provided to the court had a handwritten note from Kumar, while the copy provided to the local news outlet didn’t.
“The District is unable to advance the funds at this time,” Kumar’s note on the request read. “Parmod Kumar MD, 12.2016, Vice Chairman of Board.”
Both requests are for the same amount, $1,064,729.80, but the copy provided to the Times-Delta had Benzeevi’s signature digitized and stated the funds were for “operating expenses.” The copy with Kumar’s signature stated the funds were needed to “meet the payroll due and payable to the personnel working in the District’s hospital.”
Additionally, the associated promissory note provided in court documents featured signatures from Benzeevi, Kumar, and Alan Germany, HCCA’s Chief Financial Officer. The copy provided to the Times-Delta only included Benzeevi.
“Artificially Inflating the District’s Books”
The district additionally claims that HCCA “artificially inflat[ed] the District’s books and reflect[ed] monies that were no longer held in the District’s accounts” to disguise “improper transfers of money out of the District’s accounts.”
HCCA also transferred medical equipment to Southern Inyo Healthcare District’s Southern Inyo Hospital and misappropriated medical supplies, the lawsuit alleges.
Those allegations mirror those made by the Southern Inyo district in October 2017.
The Southern Inyo district claimed that HCCA presented “incomplete or inaccurate financial reports” and extended “fictitious loans.”
At one point, the company allegedly failed to make a required “intergovernmental transfer” payment, which government entities match two-for-one. Because of the lost profit, the Southern Inyo district claims it was forced to pull money from a line of credit extended by Benzeevi’s financing company, Vi Healthcare Finance, to cover operating expenses.
Tulare’s latest suit references Southern Inyo’s allegations — but those allegations were later retracted by Southern Inyo in an agreement with HCCA to ensure the company’s speedy exit from the Southern Inyo Hospital.
In those documents, the Southern Inyo district claims Tulare may owe them upwards of $418,000.
Kevin Northcraft and Dr. Benny Benzeevi did not respond to requests for comment; if any responses are received, this article will be updated.
The full legal filing is available below.