NOTE: This article was updated to correct a quote by Delbert Bryant, who stated that the hospital had “probably been functionally insolvent since April 2017.”
For months, Healthcare Conglomerate Associates’ (HCCA) CEO Dr. Benny Benzeevi has mounted a court challenge to see the return of his personal items and bank accounts seized by the Tulare County District Attorney’s (DA) office.
Benzeevi, whose company previously managed Tulare Regional Medical Center (TRMC), had items seized from his home in early April. At least one hearing in August focused on the seizure of his personal property; but, shortly thereafter, a warrant was approved that froze his personal Chase Bank account and two HCCA accounts.
That’s because, according to the DA’s office, Benzeevi sold hospital property to Celtic Leasing under false pretense and without legal authority in exchange for a $3m loan; that money would later be transferred to HCCA’s bank accounts, and the lion’s share would eventually end up in Benzeevi’s personal account.
Attorneys for HCCA and Benzeevi contend that the leaseback arrangement, executed in August of 2017, was a valid and legal transaction, authorized by the Tulare Local Healthcare District board.
Benzeevi’s legal team will have the chance to mount a full challenge against the seizures in a two-week long set of hearings beginning January 22, 2019. Each side will argue in front of Tulare County Superior Court Judge John Bianco, who has also approved most of the warrants issued in the ongoing investigation regarding HCCA’s time in Tulare.
“Needed To Close The Deal Very Quickly”
The DA’s office used the loan as part of its rationale to seize Benzeevi’s bank accounts, according to a copy of the warrant’s Statement of Probable Cause.
They learned more about the arrangement after deposing Delbert Bryant, the Tulare Local Healthcare District’s former controller, and serving a warrant on Celtic on January 26, 2018.
Celtic representatives cold-called Alan Germany, HCCA’s Chief Financial Officer, in July 2017, according to the affidavit. Germany was receptive, and advised that the hospital “needed to close the deal very quickly,” and that Celtic could earn the hospital’s business if they agreed to an accelerated timeline.
The $3m was deposited into a bank account belonging to Tulare Asset Management, a company that state registration documents show is wholly owned by Benzeevi; his legal team states that the company is part of HCCA.
“The contract with Celtic was a loan to TRMC, however the money was wired directly to an account owned by HCCA,” Rodney Klassen, an investigator with the district attorney’s office, wrote. “Representatives of Celtic would not have gone through with the transfer of funds had they known the account was not a TRMC account.”
“None of the funds of this transaction went to the benefit of TRMC and instead was used as a means of payment of legal fees for HCCA and into the personal account of Dr. Benzeevi,” Klassen’s statement continues.
According to the DA’s filings, Benzeevi transferred $2.4m of the funds to his personal bank account. The money was also used to pay $499,727.93 to Baker Hostetler, HCCA’s former law firm, and $133,563.38 was paid for a loan application fee to another lender for a similar leaseback the company was researching.
Even though HCCA had received the loan in August 2017, Benzeevi threatened to shut the hospital down in September if the board rescinded his ability to execute loans on the district’s behalf.
“The rescission of our ability to borrow money will mean immediate consideration of plans to close the hospital,” Benzeevi said at a September 27, 2017 meeting. “The choice is yours.”
The DA’s filings contend that the authorization Benzeevi referred to — given in June 2017 by former members of the district board — was in fact voided only a month later by Kevin Northcraft, Mike Jamaica, and Senovia Gutierrez, in one of a series of board meetings the three held.
Two days later, the board would vote to file bankruptcy. Bryant told the DA’s office that the hospital had “probably been functionally insolvent” since April 2017.
Even if the transaction were authorized, the transaction would be an illegal, self-serving transaction since Benzeevi was the CEO of the hospital, according to the DA’s filings.
“The movant […] attempts to claim the transaction benefited the hospital,” Trevor Holley, a Tulare County Deputy District Attorney, writes. “This transaction consisted of a CEO of a public hospital, owned by the taxpayers, selling three million dollars of tax payer property and then transferring the proceeds into an account under his sole control.”
Benzeevi’s Legal Team, Looking Back to Election Fight, Claims Loan Was Allowed
Benzeevi and HCCA have previously stated that, although voters chose to recall Dr. Parmod Kumar and elect Gutierrez in his place, she was not a legitimate board member until the existing board formally declared her one.
Multiple attorneys advised HCCA that Gutierrez could not exercise any power until she was declared a member of the board, a September filing claims. Opinions were given by the Baker Hostetler firm; and, in August 2017, Michael Allan also wrote an opinion supporting that view.
“Dr. Benzeevi had trusted and relied upon the Baker Hostetler firm for years and was justified in relying on their legal advice as District counsel. Moreover, the State and Ms. Gutierrez recognize that District’s counsel advised repeatedly that Ms. Gutierrez was not appropriately seated on the Board,” Elliot R. Peters, attorney for Benzeevi and HCCA, writes. “Under these circumstances, the State cannot establish probable cause that any of the crimes enumerated in the warrant were committed, as there is an overwhelming absence of any criminal intent to believe that Resolution 852 was validly rescinded.”
HCCA’s legal team additionally states that the transactions were not only legal, but explicitly allowed under the contract.
“…once HCCA received the loan proceeds, it was authorized to pay itself with those funds per the MSA. The State’s search warrant application — which omitted these key facts and misleadingly suggested otherwise — asserted that Dr. Benzeevi committed a crime, when in fact, his actions were legally authorized by contract and Board resolution,” Peters wrote in October.
With that premise, an accountant hired by Benzeevi’s legal team wrote in September that not only was the loan proper, but that the district owed HCCA at least $1.2m on top of the $3m that HCCA received from the leaseback arrangement.
The accountant, J. Duross O’Bryan, stated that Tulare Regional’s cashflow issues stemmed from a botched transition from its existing Siemens electronic health record (EHR) system to a new Cerner EHR.
The Tulare Local Healthcare District would later settle with HCCA for $1.8m to release all claims, both legal and monetary, on both sides — including a case over the $3m leaseback.
Benzeevi’s legal team filed for a summary of the transactions made with the $3m to be sealed, and the summary is unavailable in the public docket. His attorneys have stated that the public wouldn’t be interested in his finances.
“..the public has little to no interest in the account statements, account balances, transaction history, and related financial analysis of a California citizen who has neither been charged with nor convicted of a crime,” Peters wrote in October.
Benzeevi’s team has also redacted other pieces of information in the court docket, including quotes from the company’s Management Services Agreement with Tulare that are available publicly in other contexts.
Case Opened Up, Mostly
Hearings in the case were under heightened secrecy: members of the public — and writers for the Visalia Times-Delta — were barred from attending an August 17, 2018 hearing, which initially centered around the items seized from Benzeevi’s home. The following week, Bianco would authorize the freeze on Benzeevi’s accounts, which the current case deals with.
The incident led the newspaper to ask if Bianco had violated the constitution in holding the closed hearing.
He allowed the members of the press and public to attend subsequent hearings, but hearings continued to be heavily scrutinized: court staff asked Voice editor Joseph Oldenbourg, who entered the courtroom without any photography equipment, to leave a subsequent hearing; they mistakenly believed he was attending the trial to take photos, according to the Times-Delta.
The Voice has made nearly all public filings available in the case, VSW013487, available online for viewing. Filings from the earlier hearings regarding Benzeevi’s seized property have been kept confidential.