City mental health clinic in default on bank loans

Bank of America sues BBH, says nonprofit's directors got spa treatments and boat repairs

May 12, 2011|By Scott Calvert, The Baltimore Sun

One of Baltimore's largest providers of drug treatment services is in default on loans of up to $2.5 million, its bank says, raising questions about the financial well-being of a clinic that treats hundreds of addicts in the city.

Bank of America is suing Baltimore Behavioral Health Inc. for access to its financial records, alleging that the West Pratt Street clinic is in default and has refused to provide "critical financial information." The bank also claims that clinic funds paid for board members' monthly spa services, boat repairs and personal mortgage payments, an accusation that one BBH board member dismissed as unsupported "hype."

The bank's lawsuit, filed April 29 in Baltimore Circuit Court, is the latest in a string of recent challenges for BBH. Its revenue has dropped sharply since late 2009, when state mental health officials clamped down on its ability to bill for high-cost treatment, leading to layoffs and prompting the clinic to seek a buyer for its campus.

In late December, the U.S. Department of Labor opened an inquiry into BBH's employee retirement plan after former workers said money deducted from their paychecks as far back as 2009 never reached their retirement plan accounts. A department spokesman this week declined to comment.

BBH, a private clinic that has received $65 million in government payments over the past five years, specializes in treating patients with both mental illness and drug addiction, mostly billing the Medicaid program for the poor and disabled. It says it treats 150 people a day, down from 225 a year ago.

The clinic was the subject of a Baltimore Sun investigation last year that revealed unusually high Medicaid billings and detailed the nonprofit organization's control by several family members earning six-figure salaries.

Terry T. Brown, a BBH vice president, said the clinic remains committed to treating patients at its Southwest Baltimore campus. To raise needed cash, BBH hopes to sell its buildings and then lease back some space, he said. The adjacent B&O Railroad Museum has shown interest in buying the property.

"I'm hoping we're viable to withstand the changes in our economic situation," Brown said.

Bank of America says it is demanding access to the clinic's books to conduct an audit. It claims the clinic has denied bank officials their contractual right to review those financial records for the past nine months.

The suit alleges that BBH's chief executive, William "Kris" Hathaway, has given divergent views of the clinic's finances without "any plausible explanation." Last year, according to the lawsuit, Hathaway first told the bank that BBH lost $275,000 in 2009. A few months later, he said it had actually recorded a $389,000 profit.

The lawsuit further alleges that BBH failed to tell the bank last year when it risked losing one of its clinic buildings — posted as collateral for the bank loan — through the tax sale process, after city property taxes went unpaid.

"We are concerned about the credibility of the clinic's financial information," Bank of America spokeswoman Shirley Norton said in a statement. She noted that BBH is in default on a $2 million loan made in 2004 and a $500,000 line of credit.

Norton said the bank twice offered BBH payment extensions known as forbearance agreements "because we recognize the importance of the clinic's work in the community," but that the clinic defaulted both times. The suit says BBH has missed payments totaling $156,000.

BBH has not filed a formal response to the lawsuit. But board member Jay Miller denied that the provider is in default on the largest portion of its debt, and said the dispute stems primarily from the bank's insistence that it needs an outside auditor. BBH disagrees but is willing to have its own accountant do a review with bank officials present, Miller said.

"We've cooperated with the bank, and we're still working hand in hand with the bank," said Miller, a malpractice attorney who's not related to the family that founded and still operates BBH. "This lawsuit is merely about appointing an auditor. That's our only disagreement."

Asked about Hathaway's changing description of BBH's finances, Miller attributed it to late payment receipts and a decision to move some accounting entries to prior years.

Miller was not a BBH board member when the bank first expressed concern that directors had received spa treatments and other perks. He joined late last year, after BBH dismantled its board following The Sun's investigation. State health officials at the time ordered Hathaway and five of his family members, who then controlled the eight-member board, to give up their voting rights, citing a state anti-nepotism law.

Collectively, the six family members earned $1.4 million in 2009, the most recent year for which public tax documents have been filed. The bank's lawsuit says bank officials expressed concern to Hathaway last year over what it terms the "high level of aggregate compensation."

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