The Tulare Local Healthcare District is looking to exit a leaseback arrangement it claims was set up by Dr. Benny Benzeevi, the head of Healthcare Conglomerate Associates (HCCA), the district’s former management partner. The district claims that the leaseback agreement wasn’t authorized.
While the sale and leaseback of the district’s assets was first revealed in a January lawsuit, the district has now filed another suit in the United States Bankruptcy Court — this time against Celtic Leasing, the financial entity that provided the money.
With the leaseback secured by the district’s assets, Celtic was instructed to wire a $3m loan to Tulare Asset Management, a company which was at one point registered to Benzeevi’s home address, according to the lawsuit. The district claims Benzeevi and Alan Germany, HCCA’s CFO, misrepresented Tulare Asset Management’s address to be the hospital’s, instead of Benzeevi’s home address, to prevent any delays in receiving the proceeds from the loan.
According to forms submitted to the court, Benzeevi represented himself as the Chief Executive Officer of the district, and Alan Germany, HCCA’s CFO, represented himself as the district’s Chief Financial Officer. Neither were granted those roles by the board, the district’s attorneys state.
At least one provision of the hospital’s contract with Healthcare Conglomerate Associates appears to show the company was given the authority to appoint a Chief Executive Officer, and that the appointed CEO’s authority “shall be at least as extensive as the authority the District delegated to the District’s former chief executive officer (as of the end of 2013), together with such additional authority as is provided in the District’s bylaws.”
It does not, however, state that the appointed CEO would be given the title of CEO of the district.
Marshall Grossman, an attorney representing Healthcare Conglomerate Associates, previously told the Voice that HCCA’s leaseback arrangement was “totally regular.”
“There was a $3m loan, fully documented, and fully reported, and so far as everything I know is concerned, it was in the ordinary course of business, and totally regular in every way,” Grossman said. “It’s almost as if the district is looking for stuff to throw against the wall, and look if some of it sticks.”
In the filing, the district claims that the leaseback arrangement – selling some hospital equipment to Celtic, then paying a monthly lease fee to use that equipment – was a preferential transfer of the district’s assets prior to its bankruptcy, and likely more than it would have been entitled to in bankruptcy proceedings.
Authority Given, Taken Away
The story began when HCCA was given authorization by the hospital district’s board in June 2017 to pursue a $22m loan.
Former board members Linda Wilbourn, Parmod Kumar and Richard Torrez voted in favor of authorizing the company to do so, while board members Kevin Northcraft and Mike Jamaica voted against the move.
“The resolution does not speculate a specific loan,” HCCA CFO Alan Germany said at the time. “So, we’re looking at a variety of different funding sources.”
According to the district’s filing, Germany started negotiating with Celtic for a loan in July of 2017 for as much as $20m.
“The critical factor for me is time,” Germany wrote to an official with Celtic, the district claims. “I would like to get this funded very quickly. Thank you.”
Time was of the essence, the district’s suit claims, because Dr. Parmod Kumar had been recalled, and Senovia Gutierrez was elected his replacement.
Gutierrez campaigned as being against HCCA’s contract with the district. It was likely that she would vote to remove the company’s authority to take out loans in the district’s name; as a result, the district claims that the company worked to prevent Gutierrez from taking her seat as long as possible until it could execute a loan.
At the district’s July 26, 2017 meeting, Wilbourn stated that there were “legal opinions that were not agreeing” regarding whether Gutierrez needed to legally be recognized by the board before she could take her seat. The published agenda for the day’s meeting didn’t allow for that to take place at the meeting, she said.
Gutierrez, Northcraft and Jamaica took the view that it wasn’t required — her certified election results were enough. They met on July 27 and revoked the company’s authority to seek loans, and held public meetings multiple times afterwards. All would be without Torrez and Wilbourn.
HCCA and its attorney, Bruce Greene, claimed those meetings weren’t legal or valid because the former board hadn’t recognized Gutierrez as a board member yet.
“All members of the board were advised of that by the District’s legal counsel. Unfortunately, we are continuing to see a calculated and deliberate effort to destroy our hospital. Those individuals, including the newly elected but not yet certified board member, would be much better served by spending their time educating themselves about actual hospital business instead of spending it on theatrics and meaningless antics,” a statement from Benzeevi read after the July 27 meeting.
Gutierrez was eventually seated at a September 27, 2017 meeting. By that point, the company said loans would be a necessity — Benzeevi claimed that HCCA had been footing the hospital’s bills to the tune of $7m, and it wouldn’t continue to do so in the “destructive political environment” of the time.
“Without immediate approval for the District to obtain prompt funding, the only alternative will be for HCCA to move immediately to cease operations at the Hospital and to consider immediately a plan over the next several days to close the Hospital,” Benzeevi wrote in a September 28 letter to the district’s attorneys.
The Tulare Local Healthcare District later filed bankruptcy, and voluntarily closed the hospital to prevent HCCA from doing so unilaterally.
By that point in September, however, the district claims that Benzeevi and Germany had already received $3m in proceeds from a sale and leaseback of the district’s assets nearly a month before — on August 31.
Kumar’s Attorney “Clears Up” Gutierrez’ Status
HCCA was able to convince Celtic to execute the loan, the lawsuit states, by providing the company with a letter from Michael L. Allan, a Pasadena-based attorney.
Allan had represented Kumar in July, sending a letter to the board stating that Gutierrez’ swearing-in ceremony was, in fact, a violation of the Brown Act, California’s open meetings law. Allan claimed that having three board members — Wilbourn, Northcraft, and Jamaica — present at the ceremony was a violation of the law.
The Brown Act provides an exception for purely ceremonial events, and the Tulare County District Attorney’s office later stated that no action would be taken.
“The action taken appears to demonstrate by consensus of the Board that Senovia Gutierrez has assumed office as representative for District 3, despite there having been no publication of a Notice of any planned declaration by the Board, and despite the earlier filing of a timely request for recount with the Registrar of Voters of Tulare County,” the July letter stated.
In an August 25 letter, Allan stated that representing Kumar in that action wasn’t a conflict — and that Gutierrez wasn’t yet a board member.
“The known facts suggest that compliance with statutory procedure required to commence Ms. Gutierrez term of office has not taken place, and she is not yet a director,” Allan’s August 25, 2017 letter states. “Further, if Ms. Gutierrez has failed to subscribe her oath and file it with TLHD within the time frames set forth in Government Code Section 1303, the office to which she was elected may be deemed to have fallen vacant.”
The district alleges that Celtic relied on that letter, in part, to proceed with the leaseback.