Southern Inyo Healthcare District files suit against HCCA

Healthcare Conglomerate Associates (HCCA) has been hit with another lawsuit — this time, from the Southern Inyo Healthcare District.

While the district is repeating many of its officials’ prior allegations, this is the first time that the Southern Inyo district has filed suit against HCCA. It also included Vi Healthcare Finance, a healthcare financing company owned by HCCA’s CEO, Dr. Benny Benzeevi.

Those include allegations of financial mismanagement, commingling of supplies and funds with the Tulare Local Healthcare District, and purposefully hidden or withheld financial records belonging to the district.

Those allegations later led the Tulare County District Attorney’s office to search the Southern Inyo Hospital, the Tulare Regional Medical Center, and Dr. Benny Benzeevi’s personal residence.

HCCA’s attorneys have previously denied the Inyo district’s claims.

The Southern Inyo district turned to HCCA after its CEO and board had resigned; the board members that signed the contract with HCCA were appointed by the Inyo County Board of Supervisors.

At the time, HCCA’s work in Tulare — turning a failing hospital into a profitable one — appeared to be just the magic touch that Southern Inyo needed. The Inyo board brought HCCA in to run the hospital and filed Chapter 9 bankruptcy to manage the hospital’s debts.

Part of HCCA’s contract included a provision that the company would provide Southern Inyo with bankruptcy advice and consultation; additionally, the district’s contract had other key differences from the company’s contract with Tulare, including a lower management fee, no long-term partnership provisions, and no option to buy the district’s Southern Inyo Hospital.

Southern Inyo’s attorneys argue that even with those provisions, its contract with HCCA was “grossly unfavorable,” “one-sided and oppressive,” and presented to the Southern Inyo board under duress.

They point to provisions that made HCCA the district’s “exclusive special power of attorney,” the contract’s termination fee, and provisions that required the district to “indemnify, defend and hold [HCCA] harmless from and against any and all claims” yet agree to not hold it “liable to the District for any loss of use, goodwill, revenue or profits […] or any damage or expense.”

The district also makes new claims that it set up a revolving unsecured line of credit with HCCA at a 10% interest rate to ensure smooth operations and fund the district’s ongoing bankruptcy case — before HCCA started drawing on that line of credit unilaterally.

In March 2017, the district said, Benzeevi “contended that the line of credit should be paid as an administrative claim in the bankruptcy case,” which would give its debt priority over other debtors.

At the same time, district officials found out that HCCA had “failed in its duties to collect accounts receivable to fund its operations” and that its line of credit had ballooned to over $1m.

Eventually, Benzeevi offered to roll the $1m+ in debt into a new line of credit with his Vi Healthcare Finance company at the 10% rate, and provide the district with a 20% interest rate on new transactions. The shift was made “under the threat of not making payroll,” the district claims.

In order to receive the new line of credit, the district’s board had to redirect its tax revenues to Vi Healthcare Finance.

In one instance, prior to the Vi line of credit, the district claims HCCA transferred $700,000 to the Tulare Local Healthcare District under the guise of repaying HCCA’s line of credit. The district alleges that according to bank records, the line of credit was actually at $0 — the money instead went to repay past due management fees.

The district is seeking claims against HCCA for negligence, breach of fiduciary duty, and concealment, amongst others.

A status conference is scheduled to be held on August 1 at 2pm in Courtroom 11 of the Robert E. Coyle United States Courthouse, 2500 Tulare Street, Fresno.

Attorneys for HCCA did not respond to a request for comment by publication time. If one is received, this story will be updated.