Firm Sues for Land Put Up for Hospital

National Medical Enterprises has begun legal proceedings to seize real estate owned by the operators of San Diego General Hospital, who owe NME $7.9 million for a facility that hasn’t held a patient since March.

In a foreclosure lawsuit filed in Superior Court on March 28, NME seeks to take over 14 pieces of land in San Diego and Riverside counties, consisting of as many as nine lots each.

The land was put up as collateral in 1989 when a group of investors bought the failing San Diego Physicians & Surgeons Hospital from NME and renamed it San Diego General. Eager to rid itself of the Southeast San Diego money-loser, NME financed the purchase.

The buyers, led by Benjamin F. Davis Jr. of Coronado and John D. Motte of Riverside County, expressed confidence that they could succeed where others had failed. They announced new programs, changed the hospital’s name and immediately began falling into debt. The hospital closed March 2.

Financial statements compiled by the hospital administration and obtained by The Times show that, by last December, the hospital had lost $4.2 million under the operation of the Davis-Motte group. That figure increased by an unknown amount in the hospital’s waning days.

The operators would need at least that $4.2 million to reopen the hospital, said Catherine Gauthier Smith, a San Diego management consultant who studied the statements for The Times.

It is not clear from the papers whether they include the $1.9 million the hospital owes the Internal Revenue Service. Even in its earliest days of operating the hospital, the Davis-Motte group went as long as six months without paying the IRS money owed for employee payroll taxes, according to the IRS.

The foreclosure suit describes the land in San Diego County and the Perris-Hemet area of Riverside County by parcel numbers only and does not say what buildings, if any, are on the properties. Neither is it clear from the lawsuit who owns which properties.

However, Davis has said repeatedly over recent months that his personal residence in Coronado--which he valued at $500,000--was on the line.

The problems reflected in the financial statements clearly would put at risk any collateral the buyers put up to seal the deal, Smith said.

“Eventually, the way this is going, they’ll lose their houses if their houses are securing this thing, because the hospital can’t generate enough money to stay afloat,” she said.

NME officials knowledgeable about the action could not be reached for comment. Neither could Davis or Motte.

Named in the seizure action are several individuals associated with San Diego General, corporations and financial institutions.

They are Davis and Motte, Alice Davis, Mary Ann Motte, Anna D. Dreilinger, Sunshine Health Systems Inc., the United States of America, Ticor Title Insurance, San Diego Wholesale Credit Assn., Coulter Leasing, Sanwa Business Credit, Bank of Coronado, IBM Credit, Arnold Corp., Kendall McGaw Laboratories; Norrell Health Care, Calgon Corp., American Shared/Curacare, Strategic Medical Resources, Acute Dialysis Exchange, Blue Chip Financial Group, Amerigroup Financial and Denrich Leasing.

Dreilinger, a physician who served as the hospital’s pathologist, said she was named in the action, apparently because she is a secured creditor.

“I had a contract to provide pathology services, and they quit paying me,” Dreilinger said. “So, in late August or early September, I filed a form with the state that gave me the status of a secured creditor in a bankruptcy.”

But she kept working at San Diego General anyway.

“For me, working at that place was a very expensive year,” she said. “I wanted to see the place survive and felt that it had a better chance with me than without me.”

Still pending with state regulators is the status of the hospital’s license, and questions over whether San Diego General diverted to other uses a $527,000 state grant that was intended to set up an obstetrics unit.