Healthcare Conglomerate Associates (HCCA) filed a Deed of Trust against Evolutions Fitness & Wellness Center in Tulare one day before the Tulare Local Healthcare District, the legal entity which owns the gym, filed bankruptcy.
The deed was filed September 28, the same day that the hospital management company told its employees it could not immediately make its payroll obligations or continue to fund Tulare Regional Medical Center (TRMC).
Mark Levinson, an attorney for HCCA, stated in a bankruptcy court hearing Thursday that the company had, indeed, filed a deed against some of the hospital’s property.
“There is one, but there’s a story,” Levinson said.
That story is that the deed, issued against Evolutions and the land adjacent to it, backs promissory notes issued to the company under the Management Services Agreement, the contract between HCCA and the Tulare Local Healthcare District. The district is the legal entity which owns both TRMC and Evolutions.
The Deed
Filed as a “short form deed of trust and assignment of rents” on September 28 — and dated September 27 — the deed assigns Chicago Title Company as a trustee.
According to the document, the deed was taken out to secure:
- Payment “of the indebtedness evidenced by those certain Promissory Notes dated as of 7/31/2015, 7/31/2016; 12/21/2016, 12/28/2016, 12/29/2016, 12/30/2016, 12/30/2016 B, 3/31/2017, 7/21/2017, and 7/31/2017,”
- Payment “of such further sums as the then record owner of said property hereafter may borrow from [HCCA], when evidenced by another note (or notes) reciting it is so secured.”
The only signature on the deed was that of Dr. Benny Benzeevi, signed as the CEO of the Tulare Local Healthcare District on September 22.
View noteIn a lawsuit filed in Los Angeles County on September 15 — before the district filed bankruptcy, and before the deed was placed on the property — attorneys for HCCA claimed that the hospital district had not made any payments against the promissory notes.
“As provided for in these notes, HCCA has made demand for payment of the principal of the loans,” the filing reads. “The District has failed to make payment of these notes in whole or in part.”
Promissory Notes
The ten notes total $10,233,950.05 in loans made by the company to the healthcare district.
Under the agreement, the company is allowed to unilaterally make interest-bearing loans to the district at its discretion, if the district isn’t able to repay HCCA for its expenditures on behalf of the district.
“Manager shall have the right, but not the obligation, in its sole and absolute discretion, to advance funds or agree to undertake to advance funds to any Person, as a loan to the District and to meet the shortfall caused by the District’s failure,” the agreement reads.
At each point a promissory note was issued under the terms of the contract, the district would have been approached by HCCA with a “Request for Funds” and a deadline for an amount of money to be provided to HCCA.
View noteThe company is also allowed to “execute” promissory notes to the district, effectively able to request money in one hand and lend from the district, to itself, in the other.
It’s also allowed, under the contract, power of attorney to “prepare and execute” security instruments to “perfect and continue its security interest” on those loans, giving it the legal authority to unilaterally issue the deed of trust.
A Public Records Act request by the Visalia Times-Delta showed numerous instances where the only signatures on the documents were those of Benzeevi, the CEO of HCCA.
At least one, dated December 21, 2016, and provided by Benzeevi in legal filings but either not made available or not posted by the Times-Delta, shows a note from Dr. Parmod Kumar.
View note“The District is unable to advance the funds at this time,” it reads.
Tax Liens
In the process of researching this article, the Voice found multiple tax liens against for unpaid property taxes on the district’s Earlimart clinic.
Under California law, healthcare districts are tax exempt on property they own within their district.
The Earlimart clinic, however, is located inside the territory of the North Kern/South Tulare Local Healthcare District — not Tulare’s.
The district may owe up to $10,746.56 in delinquent property taxes on the Earlimart property, according to liens filed against the hospital in May by the Tulare County Tax Collector’s office.
The amount is spread across three different liens, all filed against the district and recorded on May 16, 2017.
Additionally, the State of California’s Employment Development Department filed a $11,176.73 tax lien against Healthcare Conglomerate Associates directly on October 2.
View noteRoadblock to Future Financing
The existence of such a deed on the Evolutions building could complicate the process of receiving interim financing to continue the hospital’s operations under a new operator.
HCCA had previously entertained the idea of using the Evolutions building to finance loans against the hospital, receiving information from two companies to do so.
It had engaged in discussions with two companies: MedEquities Realty Trust and Leaving Innovations.
The MedEquities proposal would have provided “an immediate combined $20,000,000 capital funding,” including a $12m “acquisition/leaseback” of Evolutions.
The Leasing Innovations loan would have provided $7m in funding and been secured by a Deed of Trust against Evolutions similar to the one that HCCA took out.
The hospital district’s post-HCCA turnaround plan would likely have used Evolutions and its adjacent land as collateral towards a loan.
The plan, submitted in court filings, stated that the district, in partnership with Community Medical Centers and Sante Health, would use “unencumbered buildings and land as collateral for an initial working capital loan with [Community.]”
Until the Healthcare Conglomerate Associates deed was filed, Evolutions was one of the district’s only pieces of unencumbered property.
