Hints of DEMSI struggles missed

March 02--Financial pressures on Decatur Emergency Medical Services Inc. culminated in its filing last week for bankruptcy, but hints of its struggles have been available to city officials for years.

An ordinance allowed the city to revoke DEMSI's license if its finances indicated it was unable to meet city ambulance requirements, but Decatur officials have exercised little if any authority in monitoring its financial health. The Decatur EMS Committee took action against the company only after its financial problems became so severe that it was unable to meet the city's requirement that it have two ambulances in service at all times and a third ambulance in service 12 hours a day.

Court records showed numerous financial issues for DEMSI going back to at least 2008 and accelerating in 2012, when the City Council ended the company's 14-year monopoly by granting a license to Healthcare Investment Group, doing business as First Response. DEMSI is owned by Roger Stanmore, of Huntsville. He also filed for bankruptcy last week.

It was not the longstanding financial issues, but a symptom of those issues, that prompted the EMS Committee to act Feb. 21.

On Feb. 7, a payday for DEMSI employees, ongoing payroll problems prompted some employees to walk off the job. DEMSI removed all of its ambulances from service for about three hours, its second violation of the three-ambulance requirement in four months. On Feb. 21, the EMS Committee held a hearing on whether to recommend revocation of DEMSI's license. On Friday, DEMSI suspended operations altogether, although it is fighting in bankruptcy court to retain its license.

Tessa Green, DEMSI's executive assistant, said the Feb. 7 problems were the result of a cash-flow problem.

She acknowledged a Feb. 7 work stoppage, which took all DEMSI ambulances out of service for about three hours, was the result of financial issues that affected payroll. Those same issues, she said, had since prevented DEMSI from meeting the city's requirement that it have two ambulances in service at all times and a third for 12 hours a day.

Green told the committee Medicare reimbursements stopped as a result of a clerical error when a DEMSI employee failed to file required paperwork with the federal agency.

"We finally are going to get revenue in (on Monday) so we can pay our employees," Green said. "Some have been paid, but since the revenue actually stopped, it put us in a very bad predicament."

Hours after Green argued her case to the EMS Committee, another Stanmore-owned company had its own problems. Several employees of Gadsden/Etowah EMS Inc. walked off the job when, according to reports, they failed to get paid. Gadsden/Etowah EMS also filed bankruptcy Tuesday and is in the process of surrendering its state license.

In a split vote, the EMS Committee recommended the City Council revoke DEMSI's license.

The City Council was scheduled to vote Monday on whether to accept the committee's recommendation, but it canceled the hearing after DEMSI lawyers filed a motion with the bankruptcy court asking for its cancellation.

The city ambulance ordinance does not expressly require DEMSI to keep three ambulances in service, but it does authorize the city to revoke the company's license if it "fails to maintain the financial ability to comply with the terms of this chapter."

Limited authority

A problem with the ordinance, said Assistant City Attorney Chip Alexander, is it gives the city limited authority to demand financial information from the ambulance companies. The ordinance includes only one provision requiring DEMSI to provide financial disclosures. It requires the companies to file "financial statements, including a detailed listing of all assets and liabilities," on March 31 of each year.

Alexander said the ordinance leaves to the companies the decision on what financial details they want to disclose.

"It doesn't use terms that accountants agree on what is required," Alexander said. "If there is a desire (by the company) to minimize the financial difficulty of a company, it is easy to interpret 'financial statement' as virtually anything to do with finances. It has been my experience that when we have received financial statements, there has been a lot of concern about what they actually mean."

Whether or not the ordinance is precise in describing the statement DEMSI was required to file, it does require a detailed listing of liabilities. Court records show numerous liabilities in recent years, both in the form of judgments and tax liens. Did DEMSI include these liabilities in its annual financial statements?

The Daily was unable to make this determination because the city refused to provide a copy of the financial statement, which Alexander said is not a public record.

What is clear, though, is DEMSI's financial statements were not reviewed by accountants or financial experts. They are reviewed solely by an EMS Committee whose appointed and unpaid members have expertise in emergency medicine and emergency response.

"We've discussed whether we need to maybe get somebody from the city's financial department to be able to look at the annual reports," said Decatur Fire and Rescue Battalion Chief Ted McKelvey, the EMS coordinator. "I don't think anything would prevent us from having an accountant look at it, but for whatever reason that has not been done."

McKelvey said he "was just transitioning into the job" when DEMSI filed last year's annual report.

"All I can really say about the financial statements is that there were periods of time that we did not receive them in a timely fashion, and when we did receive them, none of us recall ever seeing any information in the financial statements about the tax liens," Alexander said.

The ambulance ordinance authorizes revocation of a license if a company "has willfully and knowingly violated or failed to comply with any of the provisions of this chapter," including the requirement that it provide a detailed listing of its liabilities on March 31 of each year.

State, federal liens

Whether or not DEMSI's annual statements listed all liabilities, public court records offered the city plenty of clues that the company was facing significant financial issues.

On Dec. 20, the Internal Revenue Service filed a tax lien on DEMSI's Morgan County property for tax periods ending in 2011, 2012 and 2013. The total amount of the IRS lien was $54,331. In 2011, the IRS filed a tax lien against DEMSI for $82,160, reflecting unpaid taxes for tax periods ending in 2010 and 2011.

In October 2010, the IRS filed tax liens for 10 unpaid assessments involving tax periods ending in 2008, 2009 and 2010. The amount of the lien was $581,826.

According to DEMSI's bankruptcy filing last week, it owes the IRS$785,227.

In December 2009, the state of Alabama filed a lien against DEMSI for failure to remit withholding taxes of $9,508. The following year, the state imposed a similar lien for $3,152.

Many of the liens ultimately were released, indicating payment.

DEMSI's problems with the state have not been limited to tax liens.

Lawsuits

On March 27, the state Department of Labor filed a lawsuit against the company alleging it "has failed and/or refused to secure the required workers' compensation insurance coverage and provide verification of same with the Alabama Department of Labor."

In October, the court fined DEMSI $14,300 for its continued failure to provide proof of insurance. The court said it would waive the fine if the company provided the documentation within 30 days. If it failed to meet the deadline, the court ruled, it would "grant authority to the (state) to padlock and close the business until such time as proof of coverage has been given, and all fines have been paid in full."

According to Joey Ammons, a general counsel for the state Department of Labor, DEMSI met the deadline.

"They did secure coverage within that 30 days," Ammons said.

In October 2012, Cadence Bank filed suit against DEMSI, Stanmore and two other Stanmore-owned companies, Stanmore Consortium and Gadsden Emergency Medical Services Inc. Cadence alleged DEMSI had borrowed $150,000 in 2008 and Stanmore had guaranteed the loan. The loan was not paid, according to Cadence, and the bank demanded payment from DEMSI and Stanmore of the $140,000 balance.

The bank asserted a similar claim against Gadsden EMS and Stanmore for $277,000.

In June, the Circuit Court of Madison County issued judgments for the full amount of Cadence's claims.

Last month, in a statement released by its attorney, DEMSI said debts of its owner have no effect on DEMSI because of its corporate status. Sometimes, however, such debts result in liabilities of the sort that must be disclosed in the annual financial statements provided to the city.

According to federal court records, Branch Banking and Trust Co. in November 2012 obtained a $9.37 million judgment against Stanmore and a company of his -- Hospitality Group LLC -- that was building a hotel. Collection efforts on the judgment were ongoing this month. DEMSI was not a party to the lawsuit.

At least one loan related to Hospitality Group, however, became DEMSI's responsibility.

On March 15, Ascentium Capital filed a lawsuit against DEMSI, Stanmore, Gadsden EMS and The Stanmore Consortium. According to the complaint, Hospitality Group borrowed $534,222 in 2009. Both DEMSI and Gadsden/Etowah EMS guaranteed the loans, which Hospitality Group failed to pay, Ascentium alleged. In September 2012, the Madison County Circuit Court issued a judgment against DEMSI and the other defendants for $252,949.

This was not the only time DEMSI guaranteed debts owned by other Stanmore-owned companies. According to pleadings filed by DEMSI in a federal lawsuit filed against it by Wells Fargo Bank in 2012, the company guaranteed a debt of $864,900 owed by Stanmore and his company, Urgent Medcare Inc.

Mayor Don Kyle, who worked for years as a banker, declined comment on other issues relating to DEMSI because of the pending bankruptcy case, but he said the court records cause him concern.

"I cannot evaluate a company's financial status without a complete audited report, but liens, judgments and other court actions do not generally evidence sound business practices."

Eric Fleischauer can be reached at 256-340-2435 or [email protected]. Follow him on Twitter @DD_Fleischauer.

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