Members for Church Accountability Inc.
2000 Fourth Quarter
This is the quarterly newsletter of Members for Church Accountability. The objective of this organization is to promote accountability within the Seventh-day Adventist Church. MCA itself is primarily an umbrella organization within which representative/agents and their supporters can work to further this objective.
Section 1 - Financial Report
Summary financial statement for fourth quarter 2000:
Section 2 – Trustees’ Reports
Norm Smith - Secretary Treasurer
For any of you that would like to contact us by e-mail our address is: firstname.lastname@example.org. Our web site address is: http://www.advmca.org. Again we would like to encourage MCA members to read this web site and to invite their friends to read it. If you don't have access to the web, perhaps you could ask a friend who does, to let you read it. This is an economical means of spreading the word about MCA. Mailings are quite expensive by comparison. Information about a web site can spread quickly on the Internet. If each person mails the site address with their recommendation to several friends, and they in turn tell others, the word is soon passed to a large number.
There have been some positive developments which we hope we can tell more about in the next newsletter.
Section 3 - Amendments and Elections
Section 4 - Member Letters
This section is for printing the letters that members send in. It provides the means for members to communicate with one another. It is also one way that representative/agents can communicate with those in their group. Needless to say, these letters do not speak for the MCA organization itself. So far as time and budget allow, we intend to print all letters from members which appear to be written for inclusion in the newsletter (please say so if you do not wish your letter to be printed). We will print the shortest letters first. Where it seems appropriate, the editor will make comments in response to letters.
Noreen Robinson writes:
Does not say much for your credibility if the email address does not exist.
Can you please tell me who is responsible for the writing of the article and the placing of the article in the windows of our cars on Sabbath 3/2/2001. I do not read articles or letters that are not signed, so if you are not afraid of who you are, please give me your name.
WE ANSWERED: We received your note. Yes, our e-mail address does exist, however, we are not able to check it every day - it is more like once a week. As far as your mention of placing articles on windows of cars, I haven't the foggiest idea what your are talking about.
EDITORIAL COMMENT: MCA is definitely not in the business of placing things on windshields.
A reader who forgot to sign writes (in part):
Why are you not asking the ... leadership of the ... church why they are using the sacred tithe to sue the true and faithful historic seventh day adventists in Florida? Why don't you even mention this terribly wicked thing the conference has done in your newsletter? This is & has been a major & gross evil that has consumed hundreds of thousands if not millions of sacred tithe & you don't even drop a word about it. - Why Not? ... This is the very real present concern for financial accountability you should be jumping up & down about & demanding an answer to, but you are strangely & most definitely mute ...
EDITORIAL COMMENT: First we might mention that MCA does not have a theological agenda other than such basic notions such as the value of honesty. This is not to belittle theological concerns, it is just that MCA is not for that purpose. It is not our objective to determine what tithe money should be used for and what not, important as that may be. It is indeed our concern that church members should have the means to be informed about what money is being spent for in their church and how much money is spent. At present this is not generally the case, in our opinion.
We do like to pass on information about particular problems that show up in order to convince readers that problems do exist. We, however, are faced with the same problem that faces members in general in that we do not have access to needed information. The primary focus of MCA efforts is to solve the underlying problem of lack of access to information. We do not have information about the situation you mention. Even if we did, our usual approach is to state problems simply and directly. Perhaps you could be more specific about what you mean by "jumping up and down".
Lynn Sherman writes:
I just found your site and am interested in being a part of your organization. My frustration level has been high. Please send information. May God bless your endeavors. Sunlight is a wonderful disinfectant.
Tami Taylor writes:
I am interested in the case of the auditor and the SDA GC. Where is this case filed and do you have access to the court documents?
EDITORIAL COMMENT: The case is filed in the Circuit Court for Montgomery County, Maryland. We have a copy of the original complaint but we do not have direct access to subsequent documents, so our information may not be complete. Most, but not all, of the defendants have been dismissed from the case apparently on grounds of church state separation. George Grames, one of the leaders of the MCA General Conference Reform Group, provides this update:
"On December 21, 2000, upon consideration of the trial held September 18 to September 20, 2000, Judge James C. Chapin rendered his opinion. He made the following order: Defendants, Kenneth J. Mittleider, Walter E. Carson, General Conference of Seventh Day Adventists, and General Conference Corporation, are immune from Plaintiff’s defamation claim to the extent that the alleged defamatory statements were made in the context of or germane to Plaintiff’s termination by the Defendants. A separate trial shall be held to determine which statements, if any, exceeded the bounds of religious discipline."
George adds the comment, "Will the church leadership now honor their commitment to sponsor an independent investigation into the David Dennis allegations?"
Hermi Minea writes (in part):
Thank you for sending me the MCA newsletters. I fully support your endeavors to promote the concept of accountability in our church, but I am not too optimistic as regards the effect. Nevertheless, I agree with you that we have a duty to speak up and try to correct matters. Maybe one day church leaders will follow the example of the unjust judge (Lk.18:1-8) if MCA and other activists keep nagging.
Jean Brunie writes:
Bill Brunie died of cancer 1 1/2 years ago. He was interested in your work - I am a poet, musician & photographer & will let the mathematicians read your papers. Please take me off the list.
EDITORIAL REPLY: We are sorry to learn of your husband's death. We will indeed follow your request in removing your name from our member list. We do so reluctantly, of course, and should you reconsider, we would be most pleased. As you would expect, we take issue with the thought that accountability is a concern to be relegated to mathematicians or that poets, musicians and photographers are less responsible folk than others. We believe that every member should be equally concerned about the use made of the resources that God has entrusted to them. Those that I know who are active in supporting this effort are not doing so because of any fascination with the subject. Most would much rather be spending the time they give, doing something else. ( I too have a closet full of musical instruments that I would rather be playing than doing this. )
Vernon Young writes:
I've been receiving your newsletters for quite some time. I haven't been as active in the church in the past two years as I would have liked. However, in reading your web site I came across several names of people who are serving as trustees:
(1) Jerry Lastine
(2) Daniel C. McEowen
(3) William Nelton
(4) Jane Smith
Also, I'm not familiar with George Grames, Stewart Shankel or you. Could you provide a biographical sketch on each of the trustees and on Dr. Grames, Dr. Shankel and yourself. It would be helpful knowing who is in charge of this organization.
It seems like anytime anyone questions any of the leadership of the church or its practices that we become immediately branded as "troublemakers". It is good to see that someone is actually trying to do something to resolve the problems and establish some safety guidelines that will avoid the mistakes of the past. But, Mr. Smith, your group has only "applied the brakes" so to speak. It will be interesting if this will actually begin to slow down the momentum that the leadership has gained over the years. I was saddened to hear of David Dennis' dismissal when it occurred. How has he been getting on?
EDITORIAL COMMENT: It is indeed still unclear how all of this will turn out. Mr. Dennis is now in private accounting practice. As you might expect, he has had heavy legal expenses even though he has not tried to match the deep pockets of the legal team the GC has hired.
Here are brief sketches you suggested of the trustees and leaders. All are SDA church members in regular standing.
Daniel McEowen is a dentist in Maryland. He is also our resident agent for our state of incorporation.
William Nelton is an active layman in the church in Maine. He was formerly a leader in the publishing work.
Jerry Lastine is retired from denominational employment (42 years). He was a pastor for 21 years, then served in the Loma Linda Office of Planned Giving and later as Director of Trust Services of the Columbia Union Conference. He now lives in Indiana.
Jane Smith is a musician and homemaker. She does a great work keeping our member list and getting out this newsletter. She also works to keep us abreast of happenings within the church.
Norm Smith (husband of Jane) has been an SDA school teacher but now works in a research department of Lockheed Martin. He prepares the financial statement (with the accounting firm's help) and writes these comments.
George Grames, Stewart Shankel and Richard Sheldon are leaders of the MCA General Conference Reform Group. They are former faculty members of Loma Linda University. They lead the petition effort to the GC regarding the firing of David Dennis and have given untiring effort in informing the church membership of the need for concern about church accountability.
Russell Youngberg writes:
Since open access to minutes and records is probably unobtainable and could lead to misunderstandings and be material for gossip, I suggest that we rather concentrate on strengthening the audit potential and reporting mechanism and work to get the equivalent of an Investigator General who reports to a stellar laymen's committee as well as to elected officers of the GC.
At every constituency meeting auditors should highlight every known departure from GC policy, especially as relates to investments. A GC Indebtedness Control Commission should be formed and empowered. It could be our "Communicable Disease Control Center." Such a commission could have prevented the loss of some of our publishing houses, medical institutions and Harris Pine Mills. An Investment and Real Estate Transaction Supervising Committee could help.
Governance education could help immeasurably. Committee members should not hesitate to ask hard questions. Small executive committees should function to execute the will of the trustees, not passively and almost blindly turning executive functions over to the CEO and his servile administrative committee. This can be done without micromanaging. We want to assure continued denominational control but should find a way to do this while having trustee chairmen who are eminently competent in the field in which the institution functions.
Mortality and Morbidity Conferences or Clinical Pathological Conferences save lives and train physicians in our hospitals. They are not "witch hunts". We need the same for institutional and administrative morbidity and mortality. Some discrete historical documentation and dissemination could minimize disgraceful history repeating itself.
May our efforts be restorative and not primarily punitive.
EDITORIAL COMMENT: Thanks so much for your well stated comments. I believe that almost all members of MCA wish our efforts to be restorative and would like to avoid "witch hunts". You have given many suggestions that I hope our members will give serious consideration.
The overriding agreement that we hope all members of MCA share is that steps must be taken to drastically improve the accountability within the SDA church. There are, of course, differing opinions about the best approaches to accomplishing this and just what form the final outcome should take. We welcome discussion of all courteous possibilities in this newsletter. Your editor is one who is as apprehensive about the likelihood of the majority of conference administrators agreeing to any mechanism of oversight which they do not effectively control, as you are about open access to minutes and records. As long as neither may be likely to happen in the majority of conferences without some delightful surprise coming from church leaders, I might prefer asking for the alternative that is least open to manipulation by skillful politicians. I have seen too many "blue ribbon commissions" both inside and outside the church that provided no added accountability because they were suspect of being selected from among those who were overly lenient to those they were overseeing. Strong leaders have a way of influencing nominating committees and selection processes. That said, I am sure we would all agree that any approach that would increase accountability, information and candor, is well worth pursuing. Surely, the better job the conference auditors and other oversight groups do, the less there is for us members to worry about. Also, I might be less concerned about misunderstanding and gossip arising from openness and candor about minutes and records than I would be from lack of information. It seems to me that gossip and rumor flourish when factual information is lacking.
We do indeed appreciate you survey of the areas that need attention on the part of members.
Gordon Hunt writes:
Please check the following attachment for accuracy, as it is a condensed summary from your web site. I would like to freely distribute the printed copy throughout the membership. Please add comments where required.
WE ANSWERED (IN PART): (Mr. Hunts condensation is not included. We include our reply to him because it addresses several concerns that may be of interest to readers.)
Thank you for your letter. You have clearly spent considerable effort in bringing together your condensation of the MCA web site. We appreciate the effort you are willing to take. I wish that most members of the SDA church would show the level of interest and concern that you have. I presume that you are working with some group of church members, however, from your letter I was not able to tell what group. I do not find your name on our MCA member list.
Although the style of the MCA web site is not very eye-catching and might seem a bit wordy, we have spent considerable care in just how we have said things, in order to work several concerns. It is difficult to capture this same carefulness in a condensation. I have several reservations about the condensation that you have sent to us. I would find it difficult to remedy these reservations with minor editing of the condensation you sent. I am of the opinion that you would be better served in your work of bringing issues into focus, to voice your views in your own words rather than as a summary or condensation of the MCA web site. If you like the way we expressed something on the web site, you are free to quote from it if you like, of course. I have talked with George Grames about this and he is of the same opinion (George Grames is one of the leaders of the MCA General Conference Reform Group.) We would ask that in your writing you be very careful to clearly denote what is quoted from the web site and what you have written expressing your views. We may have many views in common and we would welcome your pointing members to our web site. We encourage your concern for the church. We at MCA do not, of course, suppose that we are the only group of church members concerned about events in the SDA church.
Even when not quoting, we would hope that you would be careful to distinguish between the recommendations of MCA and other recommendations that you might make, worthy as they might be. MCA has a restricted list of objectives that relate to promoting accountability in the church. We are a diverse group, and each of us doubtless has views on many subjects that others would not agree with. MCA members agree on a restricted list of objectives but have not said that they agree on a host of other topics.
One of the things we have tried to be careful of in our web site is to not present allegations as fact unless we have good documentation. We are very concerned about the fairness of presenting anything as fact that might not be the case. We are also concerned about liability. It is a bit tedious to keep saying "we have seen reports that" or "it has been alleged that" but we think that it is absolutely necessary. I can understand that this care would be even more difficult to maintain in a condensation.
Another concern is that we go out of our way to avoid words that would needlessly evoke hostility among church leaders. While we may at times need to question the actions and even motives of certain leaders, we would want to do so in a manner that leaves the best possible chance to correct the problems. When we must raise objections, we would want to be specific rather than say anything that could be taken to be a blanket condemnation of the condition of the church or the majority of its leaders.
I can understand that in your condensation you have attempted to be terse. However, in many instances the elimination in your condensation of what we said on the web site to expand on the short expressions of the notions you have selected, leaves things open to misunderstanding. We would rather that short statements of these notions not be attributed to MCA without saying all that is needed to make sure they are understood in the way they were intended.
Lastly, you include some quotations from member letters that we have quoted in our newsletters. When members write to us they expect that their letters may be included in our newsletter unless they state that they do not wish them to be. Granted our newsletters are public and you are within your rights in quoting anything you wish, however, it would seem most considerate to not requote these letters for other purposes without going to the effort to ask for the original writers concurrence.
I hope that I have not sounded negative about your effort or your concern for the church. I am cheered by your concern for needed reforms. My reservations come from my belief that we must be very careful regarding all the effects we can foresee, of the things we write and circulate.
Terry Wall writes (in part):
I appreciate the fine effort you and your organization puts forth to keep issues of accountability on the front burner.
I know your organization deals with facts, not allegations. In your 2Q2000 newsletter, you referred to receiving allegations about certain hospital administrators misconduct. In this vein, I am forwarding a copy (attachment) of the Boston Regional Medical Center's Creditor's Committee complaint in their lawsuit against the former directors and trustees of BRMC. You may or may not have an interest in browsing these allegations.
I administer a web site on Myfamily.com for friends of BRMC which has proven to be quite popular. Along with posting this complaint, I also posted a personal post which reminded readers that the complaint was only an allegation. I also pointed out several errors in the allegations. A user name and password is required to visit the site. It is open to anyone requesting a user name.
Keep up the good work.
EDITORIAL COMMENT: Thank you for your care in distinguishing allegations from established facts. It is, of course, an established fact that the allegations have been made. The most worrisome allegations are that the leaders mislead others involved and that those whose job it was to make sure they knew what was happening, didn't. We, again, as church members are not in a position to determine whether the leaders did in fact deliberately misinform creditors. There are allegations of "conflict of interest" in the intertwining board memberships of the hospital, the conferences and parent hospital groups. As we have written before, we are also concerned by the possibility of a "revolving door" situation between hospitals and conferences. Our main concern, though, is the broader one, that it is extremely hard for church members to get the accurate information needed to know what is going on between hospitals and conferences. Creditors at least have the leverage of not extending credit until information is provided, whereas, the way things are presently set up, church members have little recourse acceptable to most.
To some of us, the question of hospital debt is an extremely important one. In the late 80's there were allegations that the debt to equity ratio of the entire North American hospital system was about 2 to 1 which was said to translate to debt of about 1 billion dollars in excess of equity. It has been claimed that the situation has improved somewhat since then. 1 billion is an enormous liability. The Davenport scandal was said to involve about 40 million dollars. This would translate to something like 100 dollars per member family unit in North America. The corresponding figure for 1 billion would be 2500 dollars per family unit. It might be that many members would contribute 100 dollars to bail out the church from a bad mistake. Whether members would contribute 2500 per family to settle a situation where most of the hospitals went bankrupt if that should occur, is open to much greater question. It is a plus that leaders have attempted to put a wall of protection between hospitals and conferences by the various hospital incorporations. However, that wall is being tested in the case of Boston Regional Medical. Church leaders who serve on hospital boards generally have the liability they would encounter passed on to the conferences through indemnification clauses in the bylaws of the conferences.
Whether or not the hospital and conference situation is acceptable is a debatable question, of course. What would seem quite clear is that church members should have access to information that would let them judge the matter for themselves. When was the last time you were given information on hospital debt? When was the last time you were asked whether you want the church to be involved with the enormous debt of the hospitals? Most importantly, could a group of church members obtain direct access to the information needed to determine with certainty just what the financial situation at the hospitals is and what is the conference involvement in it? Would we be given access to information or would we simply be given reassurances that all is well, without access to corroborating evidence? It may be that the response to such inquiry would vary greatly from conference to conference.
Terry Wall's address for access permission to his web site is Tk Wall@aol.com.
George Grames, one of the leaders of the MCA General Conference Reform Group writes with the following condensation of the complaint of the committee of unsecured creditors regarding the bankruptcy of the Boston Regional Medical Center.
EDITORIAL COMMENT: We believe that it is important for members to know the nature of the allegations that the creditors are making against the churches involvement in Boston Regional Medical Center. Many of our members do not have convenient access to the internet. Unfortunately, the original complaint is 42 pages long. We are including George Grames' condensation of the complaint below. Even in a condensed form it takes a bit of concentration to follow. Our including this condensation immediately brings up the question of why we would print this condensation when we have not encouraged a condensation of our web site, mentioned above. The difference is in a different apparent level of care invested in following the intent of the original writers.
Again, readers must bear in mind that the creditors' complaint consists of allegations. We at MCA do not have access to documents that would support or disprove these allegations. Again, we state that this is an attempted condensation of the original complaint and should not be taken as legally precise. All exacting questions should refer to the original complaint. The bold type is emphasis by Grames. Here is the condensation:
COMMITTEE OF CREDITORS VS BOSTON REGIONAL MEDICAL CENTER
The Committee of creditors seeks damages arising from breaches by Boston Regional Medical Center’s officers and trustees of their fiduciary duties to Boston Regional Medical Center.
ORGANIZATIONAL CONTROL OF BOSTON REGIONAL MEDICAL CENTER
Atlantic Union Conference of Seventh Day Adventists controlled Atlantic Adventist Healthcare Corporation (AAHC). AAHC’s corporate by-laws provide that AAHC’s members consist only of members of the Executive Committee of the Atlantic Union Conference of Seventh Day Adventists.
Atlantic Adventist Healthcare Corporation controlled the interest in Boston Regional Medical Center (BRMC). The Board of Trustees of Boston Regional Medical Center (BRMC) consisted of members of the Atlantic Adventist Healthcare Corporation (AAHC) as provided in the corporate by-laws.
Atlantic Adventist Healthcare Corporation also controlled other regional Adventist corporations, including Boston Regional Medical Associates, Inc. (BRMA), Atlantic Health Resources, Inc. (AHR), Parkview Memorial Hospital, and SDA Layman’s Benevolent Association of New England, Inc., which operated Fuller Memorial Hospital.
Boston Regional Medical Associates, Inc. (BRMA) owned and managed various medical practices associated with BRMC. Members of the Board of Directors of AAHC were also members of the Board of Directors of BRMA.
Atlantic Health Resources, Inc. (AHR) owned and managed real estate owned by BRMC. Members of the Board of Directors of AAHC were also members of the Board of Directors of AHR.
The president and chief executive officer of BRMC, Charles S. Ricks, was also a member of the Board of Trustees of BRMC and a member of the Board of Directors of AAHC.
Boston Regional Medical Center made regular working capital advances to AAHC for the benefit of BRMA and AAHC. Some of the transfers were approved by the BRMC Board of Trustees as "fund balance transfers" to AAHC to "allow BRMA to discharge its obligations currently owed to BRMC." In other words, BRMC was placed in a position of discharging financial obligations to itself!
BRMC made certain transfers to AAHC or to BRMA without the approval of the Board of Trustees. In many years BRMC made such transfers and advances notwithstanding BRMC’s own significant financial difficulties. For instance, BRMC experienced a loss from operations in the fiscal year ending September 30, 1994 of approximately $2,081,805, but nevertheless transferred or advanced $3,096,404 to AAHC for the benefit of BRMA and AAHC or directly to BRMA. For the subsequent four fiscal years ending September 30, 1998 BRMC accumulated a debt of $19,691,721, but nevertheless transferred or advanced $11,033,374 to AAHC for the benefit of BRMA and AAHC or directly to BRMA.
In 1952 New England Memorial Church (NEMC) constructed a house of worship on BRMC’s property. In 1965 the Greater Boston Academy (GBA) constructed a school building on BRMC’s property. BRMC provided parking, maintenance, and security for both the church and the academy. Neither the New England Memorial Church nor the Greater Boston Academy ever paid any rent for the use of the property and the services.
On May 12, 1995 BRMC loaned $100,000 to Charles S. Ricks, president and chief executive officer of BRMC, to assist in the purchase of his residence ("Officer Loan"). The loan was to be repaid upon sale of the residence. Ricks was obligated to grant BRMC a mortgage on the residence to secure the repayment of the Officer Note. Although the documents were prepared, they were not recorded with the Registry of Deeds. Ricks subsequently sold his residence but failed to repay the loan.
On September 4, 1996, BRMC loaned $100,000 to Frances Crunk, vice-president and chief financial officer of BRMC, to assist in the purchase of her residence ("Officer Loan"). The loan was to be repaid upon sale of the residence. Crunk was obligated to grant BRMC a mortgage on the residence to secure the repayment of the Officer Note. Although the documents were prepared, they were not recorded with the Registry of Deeds. Crunk subsequently sold her residence but failed to repay the loan.
By early 1997, it was apparent that BRMC could not survive as a stand alone organization. Accordingly, Ricks, who was in control of BRMC’s day to day operations, began looking for a buyer to either partner with or purchase BRMC. As early as February, 1997, Ricks had engaged in discussions with officials of Mid-Atlantic Adventist Healthcare, the Adventist healthcare organization for the Washington, D.C. area, in an effort to prop up BRMC’s deteriorating financial condition. Among the Mid-Atlantic Adventist Healthcare officials with who Ricks spoke was Bryan Breckenridge. Breckenridge is a member of the Adventist Church. The discussions with Mid-Atlantic Adventist Healthcare did not result in any financial assistance for BRMC.
At a March 26, 1997 meeting of BRMC’s Board of Trustees, Ricks advised the Board of BRMC’s deteriorating financial condition. Ricks recommended that an investment banker be retained to assist in locating an appropriate financial partner. Accordingly, Cain Brothers, Inc., a New York investment banking firm, was retained to assist BRMC in locating a financial partner or purchaser. BRMC’s Board of Trustees abdicated all responsibility for BRMC’s future by allowing Ricks to select a financial partner or purchaser and to determine the terms of any such partnership or sale, subject only to the approval of BRMC’s members. All of BRMC’s members had irreconcilable conflict of interest. By virtue of BRMC’s insolvency, the Board of Trustees owed a fiduciary duty to the creditors.
Cain Brothers worked closely with Ricks during this process. In the meantime Ricks was continuing his discussions with Breckenridge. At a May 14, 1997 meeting of BRMC’s Board of Trustees, Ricks informed the Board that "partnership proposals" were due to Cain Brothers on May 16,1997. At the time Ricks anticipated that Breckenridge, on behalf of Mid-Atlantic Adventist Healthcare, would submit a proposal.
On May 19,1997, Tenet Health Systems offered to purchase outright substantially all of BRMC’s assets for $25,500,000. Tenet’s proposal included the property occupied by GBA and NEMC. On July 21, 1997, Tenet amended its offer to increase the purchase price to $30,000,000. Although the Tenet offer was initially received in May, 1997 and amended on July 21, 1997, Ricks did not present it to the Board of Trustees at the meeting on July 30, 1997. Although Mid-Atlantic Adventist did not submit a proposal, Ricks continued his discussions with Breckenridge.
THE DOCTORS COMMUNITY HEALTHCARE CORPORATION
Doctors Community Healthcare Corporation (DCHC) is in the business of acquiring and operating hospitals. The financing of DCHC was provided by National Century Financial Enterprises, Inc. (NCFE). In July of 1995, BRMC had entered into an accounts receivable factoring arrangement, titled "Sale and Subservicing Agreement" (S&SA), with NCFE. Under this agreement NCFE purported to purchase BRMC’s accounts receivable on a weekly basis. The S&SA constituted BRMC’s largest single source of cash to fund operations. In August of 1997, Breckenridge told Ricks that he had left Mid-Atlantic Adventist and accepted the position of President of DCHC. Breckenridge also confirmed that DCHC was interested in making a proposal to BRMC.
On August 20, 1997, DCHC made a proposal for a joint venture with BRMC. Pursuant to this joint venture, the parties would form a new corporation, which would be owned 20% by BRMC and 80% by DCHC. BRMC would contribute certain of its assets to the new corporation, but would retain ownership of approximately one-half of the property, including the portions occupied by NEMC church and the GBA school buildings. DCHC would provide cash and the assumption of liabilities sufficient to fully repay BRMC’s bonds and liabilities. DCHC’s proposal valued its contribution to the new corporation at approximately $48,000,000. DCHC did not provide any written commitment for such financing. DCHC also offered Ricks a senior management position with the new corporation. DCHC insisted that it assume responsibility for the interim management of the hospital.
ADVISE OF FINANCIAL CONSULTANTS
Cain Brothers noted that DCHC had failed to provide any proof of its ability to finance the transaction and advised Ricks to reject the DCHC proposal and pursue the Tenet proposal. Mintz, Levin, Cohn, Ferris Glovsky & Popeo, the law firm representing BRMC, likewise questioned DCHC’s ability to finance the proposed transaction and advised against accepting the DCHC proposal.
Contrary to these recommendations, Ricks decided to accept DCHC’s proposal. On September 8, 1997, Ricks executed, on behalf of AAHC, BRMC and BRMA, a formal letter of intent with DCHC. Under the letter of intent, DCHC’s contribution of cash and assumption of liabilities was increased to approximately $52,000,000, consisting of approximately $36,000,000 in cash to retire the BRMC bonds, and the assumption of approximately $16,000,000 in liabilities. The letter of intent also increased the interim line of credit from $4,500,000 to $12,000,000. Neither Ricks nor the Board of Trustees required any proof of DCHC’s ability to consummate the transaction. The Board of Trustees neither reviewed nor approved the Letter of Intent prior to its execution by Ricks.
DOCTORS COMMUNITY HEALTHCARE CORPORATION TAKES CONTROL
Ricks proceeded to negotiate (a) an asset purchase agreement; (b) a management agreement; (c) a reimbursement and pledge agreement; (d) lucrative employment packages for himself and Frances Crunk, vice-president and chief financial officer of BRMC.
Under the Asset Purchase Agreement, closing was to occur 60 days after regulatory approval, anticipated to take place in March, 1998. Although the letter of intent had obligated DCHC to submit a deposit of $500,000, the Asset Purchase Agreement did not require DCHC to submit any deposit. The working capital loan was increased to $16,000,000.
Under the Reimbursement and Pledge Agreement, BRMC agreed to indemnify DCHC for its guarantee of the interim financing to be provided by NCFE, and to secure such indemnification with a grant of a security interest in all of BRMC’s assets.
Despite BRMC’s dire financial condition, which included regular losses from operations in excess of $200,000 per month, the Management Agreement provide that DCHC would be paid $50,000 per month for "management services." The BRMC Board of trustees thus ceded control of BRMC’s operations to DCHC, an organization it had no ability to review or control. The Board of trustees failed to review or approve the Agreements, which Ricks executed on October 3,1997, on behalf of BRMC and AAHC. Although the Asset Purchase Agreement listed 27 separate schedules, none were completed or attached when Ricks executed the agreement.
Under the DCHC Agreements Ricks employment package included: (a) a salary of $280,000 per year; (b) potential bonus of up to 20% of his yearly salary; (c) a membership at the Ipswich Country Club; (d) a vehicle allowance of $670 per month; (e) an entitlement to receive stock options or participate in an annuity plan that would achieve a return of 60% of his salary when Ricks reached the age of 65; (f) six weeks paid vacation; and (g) reimbursement of up to $18,000 per year to fund a split dollar life insurance policy.
Crunk’s employment package included: (a) a salary of $181,792 per year; (b) potential bonuses of up to 20% of her yearly salary; (c) a vehicle allowance of $570 per month; (d) six weeks paid vacation; and (e) reimbursement of up to $16,000 per year to fund a split dollar life insurance policy.
DCHC AND NCFE DRIVE BRMC INTO BANKRUPTCY
Under DCHC’s control, BRMC continued to hemorrhage money. As noted in the Asset Purchase Agreement DCHC was required to make available to BRMC a working capital loan of $16,000,000. The working capital loan was to be repaid at closing. In conjunction with this obligation, NCFE provided a letter dated October 20, 1997, in which it committed to fund the working capital loan.
Instead of providing a working capital loan, NCFE instead began funneling money to BRMC through its pre-existing factoring agreement, the S&SA. Between November, 1997 and November, 1998, NCFE advanced money to BRMC by way of "funding adjustments" under the S&SA. NCFE made weekly advances to BRMC based on the amount of BRMC’s eligible accounts receivable. NCFE purported to purchase the accounts receivable on which the advances were based.
The Funding Adjustments, on the other hand, represented infusions of cash in addition to the amounts advanced to BRMC based on accounts receivable. Between November, 1997 and November, 1998, NCFE advanced in excess of $9,900,000 by way of the Funding Adjustments. The Funding Adjustments were incompatible with the terms of the S&SA, and represented a device by which NCFE avoided its obligation to lend $16,000,000 in working capital to be repaid at closing. Under the guise of factoring, NCFE made undocumented loans to BRMC, which it subsequently treated as a demand loan, repaying itself with BRMC’s accounts receivable, rather than as a term loan to be repaid at closing. The use of the Funding Adjustments to funnel cash to BRMC was a telling indication that DCHC did not have the ability to close the transaction.
DOCTORS COMMUNITY HEALTHCARE CORPORATION MISMANAGEMENT
DCHC grossly mismanaged BRMC’s operations. In early 1998, DCHC began to manipulate BRMC’s books and financial statements to make it appear stronger financially than was actually the case. DCHC adjusted BRMC’s contractual allowances to inflate the amount of BRMC’s accounts receivable and failed to book certain payables, including DCHC’s monthly management fee, to decrease BRMC’s accounts payable.
DCHC failed to pay withholding taxes in excess of $1,000,000. DCHC failed to pay insurance premiums, including the premiums for health insurance for BRMC’s employees. DCHC failed to pay BRMC’s accounts payable owed to vendors and creditors. The Board of Trustees, Ricks and Crunk should have known that the financial statements prepared by DCHC were not accurate and that DCHC was mismanaging BRMC’s operations which subsequently extended over seventeen months.
FAILURE TO CLOSE THE TRANSACTION
The sale contemplated in the Asset Purchase Agreement did not close as anticipated in
March, 1998. The approval of the Office of the Attorney General for the Commonwealth of Massachusetts was required before the transaction could be closed. The Attorney General was not provided information requested. Most importantly, DCHC and NCFE did not provide any evidence of DCHC’s ability to finance the transaction.
At the March 25, 1998 Board of Trustee meeting, Crunk reported losses for the months of November and December, 1997, and January, 1998, of $663,000, $793,000 and $109,000, respectively. The Board of Trustees should have known that DCHC would be unable to close the transaction and had a duty to terminate the Agreements and DCHC’s management of BRMC. DCHC had failed to provide any evidence of its ability to close the transaction and NCFE was improperly funneling money to BRMC by way of the Funding Adjustments.
In the fall of 1998, NCFE disclosed that it did not intend to provide long term financing for the Asset Purchase Agreement. Due to severe cash flow problems, on January 25, 1999, BRMC was forced to borrow $550,000 from NCFE. The loan was evidenced by two promissory notes, in the respective face amounts of $350,000 and $750,000. BRMC borrowed only $200,000 of the $750,000 available under the second loan. In conjunction with these loans, NCFE demanded mortgages and liens on certain property to secure the loans. BRMC was forced to agree to NCFE’s demand due to its desperate financial condition.
On January 29,1999, four days after the January 1999 Liens, DCHC notified BRMC that it was terminating the Agreements based on BRMC’s purported failure to pay DCHC’s management fees, and would not close the Asset Purchase Agreement. BRMC had labored under the Agreements for seventeen months, during which time its debts dramatically increased. BRMC had no choice but to file for Bankruptcy, and did so five days later on February 4, 1999.
We include the following blank for use in recruiting new members. ( Make lots of copies to pass around. )
MEMBERS for CHURCH ACCOUNTABILITY, INC. (MCA) APPLICATION (nl1Q99)
/__/ I wish to be a member of the General Conference Reform Group
You will receive the MCA newsletter.
Send to: Members for Church Accountability, Inc.
PO Box 1072
Morrison, CO 80465