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KANSAS CITY - A couple took action in the U.S. District Court for the Western District of Missouri in the Western Division after a number of hospitals allegedly fell victim to a billing scheme and elaborate scam.
James and Phyllis Shaffer of Mission Hills, Kansas, shareholders of HMC/CAH Consolidated, filed the lawsuit on Aug. 8, on behalf of HMC of Missouri, after its board of directors allegedly refused to do so.
The board’s decision came after HMC had already expressed complaints against each of the defendants, and after the Shaffers allegedly pushed HMC to take legal action, according to the lawsuit. Now, the Shaffers have filed the Shareholder Derivative Complaint on behalf of HMC.
They sued for breach of fiduciary duty, civil conspiracy, fraudulent misrepresentation, fraudulent concealment, conversion, and breach of contract.
The defendants are: Health Acquisition Co. LLC (HAC of West Virginia), Empower H.I.S., a Florida LLC, Paul L. Nusbaum, Steven F. White, and Jorge A. Perez of Florida. HMC, a group of rural community hospitals, is also listed as a nominal defendant because of its connection to the case, not because the Shaffers have put any responsibility on it, according to the complaint.
The issues began on March 29, 2017, when the defendants acquired a controlling ownership interest in HMC hospitals, and headed the financial and business side of the hospitals, according to the complaint.
Before this, HMC was the owner of 100 percent of the member and shareholder interests. Now, HAC controls the majority 80 percent while HMC controls the minority 20 percent, according to the lawsuit. The Shaffers allege this business move came as a solution to the defendants’ fraudulent activity and breaches of fiduciary duty that started in early March.
It was also noted that Nusbaum and White, both of West Virginia, created HAC back in 2013 so it could lend $6 million to HMC. HMC in turn promised its member and shareholder interests in HMC Hospitals to HAC.
“On March 29, 2017, defendants fraudulently caused and induced HMC to execute that certain Conversion to Equity Agreement whereby HMC sold 80% of its ownership interests in the HMC Hospitals to defendant HAC in exchange for the cancellation of the $6 million indebtedness,” the Shaffers said in their lawsuit.
Nusbaum and White then subsequently sold half of the member interests to defendant Jorge Perez, Ricardo Perez and Carlos Perez for $6 million.
In May 2017, HMC, HMC Hospitals and HAC along with other parties executed the Transition Agreement, according to the complaint. The Shaffers claim this is how the defendants fraudulently pressured and convinced HMC to work with HAC and the other defendants on good faith that they would improve the operations of the HMC hospitals.
Empower H.I.S. allegedly was contracted to manage the billing and revenue portion for HMC hospitals under the transition agreement. It also contacted Jorge Perez to control management of the hospitals, according to the complaint.
The defendants then allegedly committed fraud when it made HMC execute the Second Amended and Restated Limited Liability Co. Agreements for all of the HMC hospitals.
The Shaffers alleged the agreement that HAC would acquire 80 percent of the shareholder interests was created so they could take part in a billing scam and other illegal activity that created a civil conspiracy.
This caused injury for not just HMC, but also its hospitals. The Shaffers said this conspiracy made falsified representation and hid certain information that would cause HMC to take part in the Conversion and Transition agreements.
The plaintiffs named Putnam County Hospital specifically and said the rural hospital suffered a billing scheme because of the conspiracy, which was investigated by a state auditor. That particular scheme is under litigation in the St. Joseph Division of the current court.
As for the other HMC hospitals, the Shaffers claimed the defendants have used their resources to create an illegal billing scheme that would increase profit but negatively impact the insurance companies involved.
The plaintiffs sued for more than $75,000 as well as punitive damages, and pre-judgment interest and attorneys’ fees.