The former owners of Watsonville Community Hospital are facing a lawsuit alleging that they took more than $3.9 million for their own use, and that their mismanagement led the hospital to bankruptcy and to the brink of financial ruin.
Halsen Healthcare was removed from its leadership role by the hospital’s board of directors in January 2021, just two years after the Los Angeles-based company made the purchase.
When reached by phone Tuesday morning, Halsen Board Chairman Dan Brothman said he knew nothing about the lawsuit, and said that he has been gone from Watsonville “for a long time.” He did not respond to a subsequent text message.
Watsonville Community Hospital is now under new management by the Pajaro Valley Health Care District (PVHCD), and is not named in the lawsuit. Spokeswoman Nancy Gere declined to comment.
Halsen purchased the hospital in 2019 for $48.8 million from Quorum Health Corporation. But the company was ousted in 2021, and Los Angeles-based Prospect Medical Holdings took over in the interim.
According to the lawsuit filed Dec. 1, Brothman and fellow Halsen executives Chief Financial Officer Edmund King and CEO Sean Fowler transferred at least $3,965,560 from the hospital to themselves, friends or family.
Halsen also “…engaged in a series of grossly negligent and/or self-interested actions…” after they took over that caused the hospital “…to be insolvent from the start of their stewardship as sole board members and officers.”
“Their oversight, or lack thereof, also resulted in a continually worsening economic catastrophe that became so severe that it ultimately precipitated the Debtors’ commencement of chapter 11 bankruptcy case,” the lawsuit states.
It was filed by Jeremy Rosenthal of Force 10 Partners LLC, the company managing the hospital’s bankruptcy.
Neither Rosenthal nor the law firm hired to oversee the lawsuit responded to calls for comment.
The lawsuit also states that Halsen transferred $2 million from the close of the sales through separate companies controlled by them, including Halsen Holdings—which was controlled by Brothman—along with Fowler’s South Texas Associates and King’s Peninsula Healthcare, the lawsuit states.
The executives maintained complete control of the hospital with no independent oversight until their removal.
When the sale closed, the lawsuit further contends, the hospital was left with just $7.7 million in cash and $20 million in debt.
It was also left with a $40 million lease obligation after Halsen sold the physical building and property to Alabama-based Medical Properties Trust.
The executives also used the hospital’s limited funds to pay themselves unearned consultant fees, above-market annual salaries, paid time off, benefits, monthly car allowances ranging from $2,299 to $4,282 and “unlimited travel and living expenses,” the lawsuit alleges.
In addition, Halsen was negligent in hiring Heroic Security—a company run by King’s friend—to provide cyber security services that were “unreliable and was never good enough to provide a minimally acceptable level of performance.”
That wreaked havoc on the hospital’s electronic medical records system, which resulted in billing and other errors.
After the hospital filed for bankruptcy, it was purchased by Pajaro Valley Healthcare District Project, bringing local control to the institution after years of corporate mismanagement.
The five-member PVHCD now oversees the hospital.
A case management conference is scheduled for March 5 in U.S. Northern District Court in San Jose.
