Tri-City lawsuit claims conflicts of interests over office building

Tri-City lawsuit claims conflicts of interests over office building
The Tri-City board is filing a lawsuit that would force the sale of the vacant building on its campus on Vista Way to the hospital for fair market value. Photo by Tony Cagala

OCEANSIDE — Tri-City Healthcare District’s former CEO and board chairwoman had illegal conflicts of interest when they pushed for the district to enter into an agreement with a Carlsbad insurance underwriter to build a medical office building on the hospital’s campus, the hospital alleges in a lawsuit filed this month.

The accusations are spelled out in the 149-page suit filed on July 3 by the district, which is seeking to void the pact between the hospital district and Medical Acquisition Co., (MAC), which the district said has left it with an unfinished project and a deal that has been to the district’s detriment.

Larry Anderson, the former CEO, board chairwoman Rosemarie Reno and an attorney with MAC each categorically denied the accusations the district made in the lawsuit.

“Everything that they have accused me of is completely false,” Anderson said. “I am really getting tired of being accused of things that are totally false, and I have been dealing with this for nine months, and clearly have more to deal with for the foreseeable future, but the accusations are false and in time everyone will see this.”

The complex development agreement called for MAC to lease district land for 50 years and build a 60,000-square-foot complex. The hospital would then lease almost half the space for $75,000 a month and prepay $7.5 million in up-front rent. MAC would use the rest of the space to house doctors from a side company it set up for spinal surgeries in Tri-City’s operation rooms, as well as other services.

As of today, the office building sits vacant on the southern edge of the campus.

The lawsuit says that Anderson pushed the lease arrangement even though it had a clause that virtually guaranteed him employment for eight years and while MAC owner and founder Charles Perez had bought him various gifts, including a home-security system, guns and other gratuities.

The original agreement had a poison-pill clause that would have forced the hospital to pay MAC $18 million if the board were to fire Anderson or his executive team. Even though the hospital board later voted to remove the language, the lawsuit says the conflict still existed at the time the deal was being negotiated.

The district terminated Anderson in October 2013, and in November of that year outlined several causes for his termination, including that he misled the district about its financial condition, pressured the former hospital financial officer to misstate financial reserves, conducted an inappropriate investigation of Carlsbad Mayor Matt Hall, spent district money for online image enhancement services and his interaction with MAC, which was deemed inappropriate.

The lawsuit also alleges that former board chairwoman Reno, who is still currently on the board, failed to recuse herself from voting on the deal even though Perez, through MAC’s services, paid for $200,000 worth of medical expenses for her grandson who had been in a car accident, and who was later hired as a company driver.

Instead of not participating in the lease negotiations, the suit alleges that Anderson and Reno were major proponents of the arrangement, with Anderson going as far as misleading the board with incomplete, faulty and misleading information about MAC, its financial strength and construction experience.

These actions, according to the lawsuit, were violations of several government codes, including 1090, which bars elected and certain appointed officials from having a financial interest in a contract made by them in their official capacity.

In certain cases, these types of conflicts can result in criminal charges being brought against the elected officials, though Tri-City legal representatives said the district was only pursuing civil remedies.

The hospital’s dealings with MAC predated the medical office building arrangement. Tri-City and MAC started doing business shortly after Anderson took over as CEO in 2009. MAC had worked with several hospitals that Anderson and Tri-City’s current CEO Casey Fatch used to run.

MAC’s business model is to pay upfront for patients’ surgeries in personal liability cases, then seek to recoup its investment from responsible parties’ insurance companies.

In addition to the conflicts of interest, the suit spells out a series of actions Anderson did on behalf of the company that were tantamount to an quid pro quo arrangement, including:


* hiring employees to mine hospital data to identify patients for MAC’s medical factoring business.

* allowing Perez to interfere with district operations

* paying MAC’s construction contractor $75,000 in district funds to settle the company’s outstanding bill with the contractor.

* paying $47,000 in district funds for the rental and purchase of a truck used for mobile advertisement of MACs services.

* causing the district to pay for the remodeling of a building at 4010 Vista Way, which it then leased to MAC, and then forgave MACs obligation to repay the district when it terminated the lease early.

* Waiving a condition of the lease arrangement that required MAC to furnish the district with a letter of credit, which MAC couldn’t obtain due to its financial distress.


The hospital is seeking to purchase the building, and voted Tuesday to file an eminent domain lawsuit, which would force the sale of the building to the hospital for fair market value.

But the board said Tuesday it would negotiate with MAC’s attorneys to come to a fair purchase price for both taxpayers and MAC.

The sides are far apart on the value of the building. Tri-City offered MAC $4.7 million, while MAC attorney Duane Horning said in a presentation to the board that the building is closer to $20.2 million.

Reno recused herself from Tuesday’s vote after seeking advice from the board’s legal counsel, Greg Moser.

When reached for comment, Reno said, “I have done nothing wrong. What the lawsuit accuses me of is low down and dirty, and I have done nothing but good for the hospital. As a registered nurse, I gave my life for the hospital.”
She also said that in 2010, she asked Moser if her grandson’s arrangement posed a conflict. She said he told her it didn’t, but later recanted.
MAC, in its own lawsuit against the district, filed in April, called the allegations of an improper relationship with Anderson “factually baseless.”

MAC’s suit alleges that the district did everything in its power to not fairly compensate the company for the medical office building, including making two inconsistent claims — that the agreement was voided and that the hospital was in breach of the agreement.

“The district has prescribed way too much power to Larry Anderson,” said Duane Horning, an attorney representing MAC in its legal actions. “He is an employee of the board, the board voted on the decisions, they weren’t subject to his control, it was the other way around.”

As for Reno, Horning said he believes there was no conflict of interest because she didn’t have a vested financial interest in her grandson’s treatment.

“The facts are correct, but they are irrelevant,” Horning said. “The fact that her adult grandson received treatment through the company’s routine medical factoring business does not result in a conflict for her.”

This story has been updated since its first posting.



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