Lawsuit Enters Medical Center’s Muddled Financial Picture : Courts: Former CEO of Beverly Hills Hospital says he was tricked into selling his interest in the facility.

Stanley Diller, the former chief executive of Beverly Hills Hospital and Medical Center, has filed a lawsuit accusing the company that now owns the hospital and a former business associate of tricking him into selling his interest in the 241-bed facility.

In the lawsuit filed Jan. 15 in Los Angeles Superior Court, Diller said he was induced to sell his stake in the hospital after Judah Hertz, the other major shareholder, told him he wanted out of the business because of ill health.

Diller and Hertz, the principal shareholders in Hospital Affiliates of Florida, whose principal asset was Beverly Hills Hospital, sold their shares in the company in December to Beverly Hills Medical Holdings for $2.25 million. Diller and Hertz had purchased the hospital a year earlier from Republic Health Corp. of Dallas.

At the time of the sale, hospital administrator Louis Pontarelli said the hospital’s financial problems were so serious that it would be necessary to close it and lay off 280 employees. Completion of the sale, however, allowed the hospital to remain in limited operation, with about 100 employees. The hospital is on Pico Boulevard in Los Angeles, just south of Beverly Hills.

In his lawsuit, Diller accused the new owners and Hertz of conspiring to force him out. He is asking the court to rescind the sale and is seeking damages for defamation.

Diller disputed contentions by Hertz and others that the medical center was in poor financial condition at the time of the sale, insisting that he sold his shares only after Hertz urged him to do so.

The former chief executive said he learned after the sale that Hertz continued his involvement in the hospital. In the suit, he accused his former business partner of misrepresenting the financial condition of the hospital and orchestrating the closing and the layoffs to “loot the assets of the corporation.”

Hertz said in an interview, however, that his role in the company was that of a silent partner.

“He (Diller) was the guy who wrote the checks,” Hertz said. “He was the CEO of the hospital. He ran everything. I had little to do with it. I couldn’t do anything without him.”

Asked about Diller’s contention that Hertz tricked him into selling his share of the hospital, Hertz said: “It was a good deal and (Diller) made a lot of money. No one ever tricked him.”

Diller founded the hospital in 1974 and ran it for seven years until it was sold in 1981 to Hospital Corp. of America, which sold it to Republic.

Diller and Hertz both acknowledge that when they sold their shares in the company in December, the medical center was in arrears in its payment of employee payroll taxes to the state and federal government. Diller said the amount due in payroll taxes was about $500,000; Hertz and Robert Kasirer, the principal owner of Beverly Hills Medical Holdings, which purchased the hospital, put the figure at $700,000.

Diller and Hertz also said the hospital was in default on loans to First Charter Bank of Beverly Hills and Republic Health Corp., and behind in its payments to vendors.

At the same time, employees complained that their health insurance had been canceled because the premiums had not been paid. A spokesman for the insurer, Provident Life & Casualty, said the hospital’s contract was canceled in November.

Robert Uyeda, chief of medical staff for the hospital, said that before the sale, supplies and staffing were at times inadequate. Diller acknowledged that there were shortages of supplies from time to time, but he said they were never serious and did not affect the quality of care.

“There was never a surgery canceled because of shortage of supplies,” he said.

In separate interviews, Diller and Hertz gave differing accounts of the hospital’s financial condition at the time of the sale.

Diller said that in spite of some “short-term cash-flow problems . . . there was never any question that the company was financially sound.”

Hertz, however, said the hospital’s problems were far more serious.

“In his lawsuit, (Diller) said we were making a fortune,” Hertz said. “If we were, I wasn’t aware of it.”

Kasirer said the hospital’s files were a shambles, making it difficult to determine just how much is owed to, or by, the hospital. “We have been trying to reconcile everything, but it has been very difficult,” he said.

Both Kasirer and Hertz denied Diller’s contention that Hertz has remained a silent partner in the hospital. “No way is he involved,” Kasirer said.

“I am not involved whatsoever with the new company,” Hertz said.

Kasirer said he plans to renovate the hospital extensively, transforming it into a surgical center specializing in cosmetic and orthopedic surgery and gynecological care.

“It’s our goal to remodel the hospital as fast as we can to create a hospital that is state of the art,” Kasirer said.