The status of a deed placed on Evolutions Fitness & Wellness Center could soon be solved, if the Tulare Local Healthcare District has its way. The district has filed a motion for summary judgement in the United States Bankruptcy Court, requesting Judge Rene Lastreto II to void the deed.
Officials with Healthcare Conglomerate Associates (HCCA), the hospital’s former management company, filed the deed on September 28, 2017, the same day it told employees that it could not fund their paychecks, and a day before the district filed bankruptcy.
Attorneys for the district claim in filings that the deed does not “meet the requirements for validity under California law” because Dr. Benny Benzeevi, CEO of HCCA, the only signatory on the deed, wasn’t authorized to execute the deed in any capacity. Benzeevi signed the deed with his name and with the CEO title — the district additionally states he was never appointed the CEO of the district.
“We believe the lien of the Evolutions building and adjacent property is illegal,” Kevin Northcraft, president of the hospital’s board, said in a statement to the Voice. “It has kept us from borrowing against the property to fund the reopening. We have many times asked HCCA to cancel it; but, of course, they have refused and continue to place roadblocks to reopening.”
“Their damages to our community continue,” he added.
The “short form deed of trust and assignment of rents” was taken out to secure multiple promissory notes for loans made to the district by HCCA totalling over $10m. The district’s attorneys noted in the filing that they disputed those notes as well, but that they would handle the question of their validity in a separate process.
Securing control of the Evolutions property and adjacent land would immediately open up a revenue stream for the hospital to secure its reopening by giving the hospital property it could use to secure loans.
The hospital’s bylaws state that only the president of the district’s board of directors can execute “conveyances and instruments” like the disputed deed, according to the filings, and that even if Benzeevi were the district’s CEO, the bylaws would still not allow him to execute the deed.
The district also takes on the portion of the Management Services Agreement, the contract between the district and HCCA, which would potentially have allowed the company to file the deed.
“The District hereby irrevocably appoints Manager as its attorney-in-fact coupled with an interest with full power to prepare and execute any documents, instruments and agreements, including but not limited to, any note evidencing the advance or loan and any Uniform Commercial Code financing statements, continuation statements and other security instruments as may be appropriate to perfect and continue its security interest in favor of [HCCA,]” the agreement reads.
The filings state that the only “credible meaning” of that section of the Management Services Agreement would be the right for HCCA to file a Uniform Commercial Code financing statement backing its promissory notes; additionally, because the agreement did not “adequately describe” what would be used as collateral when promissory notes were extended to the hospital, the contract would not constitute a “security agreement” that would allow HCCA to file liens against the hospital’s property.
Marshall Grossman, an attorney who formerly represented HCCA, had previously dismissed claims that the deed wasn’t authorized or legal.
“Their position is one of fiction and a lack of accuracy, which is apparent to anybody who takes a minute to read the Management Services Agreement,” Grossman told the Voice in January. “The Management Services Agreement was in full force and effect at the time these bankruptcy proceedings were filed.
“Section 4(j)(i) 2-3 expressly provides that if HCCA advances funds, then the Management Services Agreements itself creates a security interest in all district assets, which HCCA can perfect through whatever instruments may be appropriate to do so.”
Before the hospital filed bankruptcy, HCCA itself saw the value in the Evolutions building and its adjacent land. It had engaged in discussions with two companies, MedEquities Realty Trust and Leasing Innovations, in using the building as security to get up to $20m in funding.
Early plans to reopen the hospital after its bankruptcy and closure also noted the possibility of using Evolutions as a way to secure funding.
A hearing on the matter is scheduled to be held at 1:30pm on August 15 in Courtroom 13 of the United States Bankruptcy Court, 2500 Tulare St, Fresno.
This story was updated to correct a grammatical issue: the third paragraph previously stated Benzeevi was not authorized to execute the deed in “any other capacity;” that paragraph should have read “any capacity.”