Medical services provided to thousands of Cleveland patients would be at risk if a court let a third party take over Northeast Ohio Neighborhood Health Services, the health care system wrote in a recent court filing.
A private equity company filed a lawsuit against the nonprofit health center in U.S. District Court in Cleveland in May. The lender, All Pro Capital Funding, accused NEON of defaulting on an $11 million loan. It asked a federal judge to appoint a receiver, who would have power over NEON’s finances, health care facilities and properties.
NEON admitted in its response that it has more debts than it does assets. Three other companies have also filed lawsuits against NEON in the last five months for failing to pay debts.
But the nonprofit asked the judge to hold off on appointing a receiver, arguing that it would disrupt its healthcare services and cause more harm than good. NEON said it serves about 7,500 patients a year across a network of seven clinics and one mobile clinic. The nonprofit has served Cleveland’s East Side neighborhoods since the 1970s.
“Simply put, NEON continues to operate and provide invaluable services to the community,” it wrote. “Injecting All Pro’s proposed receiver at this time would severely disrupt those services.”
NEON has to comply with many rules and regulations in order to receive its government funding. A receiver would not have the necessary experience to avoid endangering these funds, the health center wrote in its filing. And NEON said the receiver could cut salaries and cause staff to leave.
All Pro Capital hasn’t responded to the latest court filing but told Signal Cleveland in June that
it “believes the appointment of a receiver is ultimately in the best interest of NEON and its stakeholders.”
The company also said that it is “aware of the important services that NEON provides in its neighborhoods and will be supportive of solutions that will allow such services to continue.”
NEON says lender ‘abruptly’ transferred money from insurance payout
NEON also blamed All Pro Capital for destroying one of the avenues to repay its debt. For months, NEON had paid its interest on-time, according to its court filing. The company said a cyberattack forced them to temporarily stop doing so – at which point All Pro Capital “abruptly” transferred $4.19 million out of a NEON bank account it had access to, the filing said. NEON wrote that it had been considering using these dollars, which were part of an insurance payout related to a calamitous fire, to refinance All Pro’s debt with a different lender.
“Not only did All Pro’s action impact NEON’s ability to refinance its debts, it also negatively impacted the services NEON provides to the community,” the organization wrote.
NEON called the terms of the loan it agreed to “onerous” and alleged in its filing that All Pro Capital’s transfer of the $4.19 million from the nonprofit’s account was fraudulent. Signal Cleveland asked Patrick Rahill, NEON’s attorney, what made the transfer fraudulent, but he declined to comment. NEON CEO Willie Austin and Chief Information Officer Alonzo Barker didn’t return calls or emails for comment.
All Pro Capital lawyers didn’t respond by the time of publication. Signal Cleveland will update this story with any comments.
NEON borrows money after ‘catastrophic’ events
Until last week, NEON hadn’t responded in court or said publicly how the lender’s request could impact its patients or services. Rahill said in court filings Friday that NEON is still able to pay its 250 employees and sustain operations at seven of its clinics.
The filing added that NEON is in discussions with “two replacement financing lenders” and that it hopes to get funding to pay off existing creditors’ claims.
Several years ago, NEON began seeking out unconventional lenders like All Pro Capital, after it suffered a series of “near-catastrophic events” that caused the organization financial distress, it wrote in the court filing.
In 2023, a partner in a NEON project to open a fresh food market was convicted in federal court of embezzling more than $800,000. A former Cleveland City Council member who championed restoring the Hough facility was sentenced to prison for stealing from the organization. Those cases, in which NEON was listed by prosecutors as a victim, came after the nonprofit was forced to close its flagship health center in Hough after the building was destroyed by fire in 2021.
The nonprofit filed a claim with the insurance company to pay for renovations, lost business and equipment. So far, though, only a portion of the insurance proceeds have been paid to NEON, and the nonprofit is in an ongoing dispute with the insurance company, NEON wrote in its filing.
In May 2022, NEON borrowed $11 million from All Pro Capital. The loan was meant, at least in part, to rebuild the Hough Health Center. As NEON received insurance proceeds from the fire, it was supposed to deposit them into a bank account to which All Pro Capital had access, as a form of collateral for the loan.
The loan would come due in a year. The initial interest rate on it was 11%, which later got bumped up to 14% after NEON asked to extend the due date of the loan until June 2024.
“Inevitably and surprising to no one, NEON was unable to repay All Pro on the final
maturity date,” NEON wrote in the July 18 filing.
The organization continued to pay interest on the loan until September 2024. Earlier that year, a cyberattack by a ransomware group restricted NEON’s access to its computer systems and billing software, wrote Charles Lytle, a NEON board member, in a declaration attached to the court filing.
“As an unfortunate consequence of the cyberattack, NEON temporarily stopped making monthly payments to All Pro,” Lytle wrote. “When NEON tried to negotiate in good faith with All Pro, All Pro responded with even more onerous interest rates and fees.”
In June, All Pro Capital told Signal Cleveland that NEON had “refused to respond to inquiries to work out a resolution” about the alleged default.
After the interest payments stopped, All Pro transferred the $4.19 million out of NEON’s bank account.
