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
Rancho Santa Fe

Tri-City lawsuit claims conflicts of interests over office building

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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9 comments

Duane Horning July 16, 2014 at 1:23 pm

This article reports only the hospital’s side of the story and is very incomplete. The article omits that the allegations are unproven and vigorously disputed, and omits entirely a related suit against the hospital.

Aaron Burgin July 16, 2014 at 2:01 pm

Duane call me so we can talk. I turned this in around midnight and had every intention of adding your clients side. 760-815-4967

rockstarz July 17, 2014 at 1:11 am

Oh tell us more please…. Reno’s push to award the Perez contract (ignored competitive bidding process etc) for her grandson to get services he otherwise wasn’t able to get (for how many years – a couple years correct?) and in the end was awarded a three quarter of a million dollar legal settlement via her pushing this poison pill contract through because her family member would gain by this agreement therefore, this poison pill contract became a priority over districts assets, competitive bidding etc. In deep so much, that she and Anderson went out of their way to “put a sock in it” by illegal and further scandalous means on another board member who brought attention at meetings to all of these known conflicts. Yes, Reno… “low down and dirty”! In over your head with so much blood… you conspired to get another board member out of your way at any cost to cover up your scheming back room deals!

Oh my. July 16, 2014 at 1:26 pm

When is a crime not a crime? Apparently when it is committed at Tri-City hospital. It is like these people feel that they can get away with murder. Oh wait – that is another storyline.

Squadron713 July 17, 2014 at 6:19 pm

Justice Delayed = Justice Denied!!!

john watson July 18, 2014 at 8:56 am

What a byzantine arrangement and conflict! Fallbrook is getting to this point as well in its byzantine arrangement.

sosocal July 22, 2014 at 1:02 pm

I keep thinking that Larry Anderson, Ian Campbell and Ed Brand must need a fourth for golf.

Mis Sulkin July 24, 2014 at 11:42 am

The sad part about all of this is the COO Casey Fatch is the one who brought the initiatives to the CEO and board. Casey is the one who had the personal relationship with Charlie Perez, often went shooting with Mr. Perez. Too bad most people do not realize the COO is the one who champions and starts everything as he puts it he runs everything the CEO is just the figurehead. Look for the docs, I am sure you will see Casey all over them. It seems easy to get on the bandwagon of rhetoric but to do some independent research and get to the root cause would be innovative. It is well known that Mr. Fatch is upset he was not selected as CEO, so now his sights are set on Mr. Moran. He would love to disrupt the turnip cart so he can say I told you so. Casey is the cancer that hurts TriCity. Not to mention his current relationship with Dr. Orna Gill, whome he lives with and TriCity donates $250,000.00 to her clinic every year. Word is he cut funding to North County Coastal and redirected everything to her clinic. Conflict of interest…. hmmm…. Wake up TriCity!

Michael Slavinski September 3, 2014 at 9:47 am

Aaron,

Thank you for putting some time into the issue, it is hard for us community members to get clear picture of all the paper flying around and hopefully you will address Mr. Horning’s interest.
Most of the reporting on all of the issues at TCHD have been pretty pathetic, watching the UT try to connect the dots between the failure of the Honorable Board to have the ex-CEO sign a termination notice to a multi-million wrongful termination suite, complete with labor experts from the rust belt, that was “way out there”, the EDD does not have enough folding chairs for Parry Mason and crew.
Keep up the good work and be honest, Tri-City is a tremendous asset to the community, it is a complicated organization but everything I have seen over the past six months provides hope for the future.

Best regards,

Comments are closed.