Bank of America has sued the chief executive officer of CCS Oncology, one of the region's largest community-based cancer care providers, for at least $4.3 million, claiming the medical practice defaulted on millions of dollars in loans he personally guaranteed.
The lawsuit filed last Wednesday is the latest in a series of developments that point to deep financial troubles at CCS Oncology.
Bank of America loaned more than $16 million to CCS Oncology and related businesses two years ago, but the companies failed to meet the terms of the agreement, according to the lawsuit in federal court in Buffalo.
Dr. W. Sam Yi and his wife, Sung Eun, beginning in May pledged their own money to persuade Bank of America not to default on the overdue business loans, but the Yis never made the payments, the bank said.
The Bank of America legal action reveals new details about the challenges weighing on the practice and its top doctor.
In the most significant disclosure, Yi informed the bank in the spring that he expects CCS to bring in less money than it spends for the foreseeable future and he intends to sell or refinance the practice and its assets, according to a document filed with the lawsuit.
"It's a question of whether it can hold together," said Robert Feldman, a partner with the Gross Schuman law firm who has represented medical practices and other companies during bankruptcy proceedings and restructurings. He reviewed the bank's complaint at The News' request.
Yi declined an interview request but issued a statement on behalf of CCS that said it has been in negotiations with the bank to resolve the dispute and patients don't need to worry.
"We are hoping that a settlement avoids the need for any action to the pending lawsuit from Bank of America," the CCS statement said. "Both sides are exploring areas of agreement and possible compromises to ensure that CCS continues to provide its cutting edge care in WNY."
The new federal lawsuit is the latest piece of bad news confronting CCS Oncology, which suffered a key blow when health insurer Independent Health dropped the practice from its network last year.
The move by Independent Health took effect in December 2016 and led to an exodus of patients and oncologists from CCS, which said that it once held 30 percent of the cancer care market in the area.
Former vendors have sued CCS for nonpayment and other allegations of wrongdoing.
The News reported in the spring that the federal government is investigating CCS billing irregularities. Yi denied any wrongdoing and no charges have been filed.
And the IRS has filed tax liens against CCS while New York state has filed a tax warrant against the practice.
The latest action stems from four loans Bank of America agreed to make to CCS Oncology and related businesses --- CCS Equipment, CCS Medical, CCS Billing and a limited liability company tied to Yi --- in January 2016.
The largest of the four loans was a $10 million revolving line of credit, a standard business loan. The companies also took out a $1.5 million non-revolving equipment line of credit, a $3 million term loan credit and a $1.7 million converted term loan credit.
The loans had limits on what the companies could do with the money, such as using them for working capital or refinancing debt. The collateral for the loans included the companies' equipment and fixtures, inventory and receivables, which in this case means payments from private insurers and government payers, Feldman said.
The bank, Yi and the companies reached additional agreements that further secured the loans, according to the complaint.
But by September 2016, the bank contends, the loan was in default because the companies' ratio of cash, plus its accounts receivable and its inventory, had risen too high compared to its debt.
By December 2016, the bank refused to extend any more credit, as outlined under the loan agreement. In March, the bank announced it was accelerating the repayment of the loans.
But by May, the bank agreed to back down and to accept monthly principal payments on the revolving line of credit, of $600,000 in total. CCS also agreed to pay a $500,000 forbearance fee.
Yi also told the bank, according to the May agreement, that he was working to stabilize the practice's operations but he expects "cash-flow deficits" to continue for the foreseeable future.
Feldman, the attorney, said banks often will enter into a forbearance agreement, or two or three, to give a company more time to work out a payment schedule on a troubled loan.
"Banks are generally not in the business of putting their customers out of business," Feldman said.
An amended forbearance agreement contains language pressing Yi and CCS to sell off assets or equity interest in the companies, and to apply the proceeds to the outstanding debt.
At the same time, Yi and his wife in May personally guaranteed the companies' debts up to $300,000, according to the lawsuit. It states that the amount of the principal secured by the Yis' guaranty climbed to $3.3 million by Oct. 31.
The lawsuit also claims the Yis did not turn over to Bank of America state and federal tax refunds that they had agreed to apply to the outstanding debt.
The bank on Nov. 8 sent written notice to CCS and the Yis that the companies were in default.
That followed the companies' failure to pay $1 million in federal withholding taxes, for the tax period ending June 30, 2017. The lawsuit states CCS' total IRS obligations, including penalties, are now about $3.4 million.
The bank also states the companies failed to make the Nov. 1 principal and interest payments required under the forbearance agreement.
On Nov. 22, the bank sent a demand letter seeking the $3.3 million in guaranteed money, $537,000 in tax refund payments, any payments Yi or his wife received from CCS between September 2015 and September 2016, and $9 million now owed on the $10 million revolving line of credit.
In response, CCS paid the money that was owed on Nov. 1, but missed the payment due Dec. 1.
As a result, Bank of America said the Yis now owed the bank $4.3 million.
Feldman said he suspects Bank of America is pursuing legal action against the Yis, and not CCS directly, because the bank wants to "do nothing that interferes with patient treatment."
Feldman worked on the breakup of Promedicus Health Group, which filed for bankruptcy and affected 70,000 patients, and the Buffalo Cardiology & Pulmonary Associates. He said practices experiencing financial difficulties often lose providers to competitors, and that ends up creating further financial pressures as the providers take patients --- and revenues --- with them.
In its statement, CCS didn't respond to specifics in the lawsuit but attempted to put the best face possible on the situation.
"Despite all the challenges we have encountered in 2017, CCS has stabilized because of all the dedicated staff at CCS and support from our patients," the company said. "Our patients should have no concern about continuing to receive the high quality care from CCS."