LONG BEACH — The Klean Treatment Center has been closed since Dec. 4, and workers still have not been paid. There’s no quick fix in sight — Klean’s Los Angeles-based parent company, White Rabbit Partners, LLC, is deep in debt and at least one proposed buyout has fallen through.
White Rabbit’s financial woes started to get serious in 2017, but they have snowballed in recent months. All of the company’s treatment facilities in Washington, Oregon and California have now closed. Eighteen former Long Beach employees have filed complaints with the state, alleging the company owes them wages for more than 2,600 hours of work, worth at least $56,680. White Rabbit’s primary financial backer, Presidential Healthcare Credit Corp., is suing in U.S. District Court for $8 million. Presidential alleges White Rabbit did not cooperate with a court-ordered audit in early December and has diverted profits that should have gone toward loan repayment. And vendors were left holding large bills.
“They owe us just over $17,000,” Peninsula Pharmacies co-owner Jeff Harrell said on Dec. 19.
At a Dec. 10 hearing, a judge put White Rabbit in receivership, and Presidential began the process of seizing all of the company’s assets.
‘Starved to death’
White Rabbit CEO Andrew Spanswick blames his company’s problems on a variety of external causes.
“The actions of the bank have been immoral and based purely on greed,” he said in a Dec. 7 email that promised employees would be paid. He said changes in insurance policy were another factor causing “the devastation that is occurring in the treatment community.”
In a Nov. 5 court filing, Spanswick said a billing company “mishandled millions of dollars” before he fired them in December 2016. He also alleged Presidential had pressured his company into signing off on changes to their loan agreements, “often with Klean having 24 hours or less to review the amendment …”
He claims leaders had little choice but to sign the new agreements, because they depended on cash from Presidential to make payroll. In doing so, Spanswick said, his company unwittingly gave Presidential the power to take over.
White Rabbit’s representatives claim that in September, Presidential threatened to “systematically destroy” the Klean centers if White Rabbit didn’t voluntarily wind down its operations.
In October, Presidential allegedly took all of White Rabbit’s revenues — about $950,000 — forcing the company to borrow $500,000 from its owners.
“I personally loaned Klean $400,000 and reduced my compensation by 90 percent in October,” Spanswick wrote. Presidential, the CEO said, had “systematically starved Klean to death by taking 100 percent of our cash flow.”
In a Dec. 11 email, Spanswick hinted that he was close to finalizing a deal that would save White Rabbit.
“Tomorrow the buyout should be accepted or not, and then, if it is, I will be paying everyone. If not, then the bank will have to pay everyone,” Spanswick said. He did not respond to follow-up questions about the alleged deal.
An earlier attempt at a buyout failed after three lenders each got spooked by White Rabbit’s troubled relationship with Presidential.
In September, White Rabbit hired Agra Capital Advisors to facilitate a merger with another Southern California rehab company, Windward Way Treatment Services. Agra found a company to finance the deal. The company initially said the deal would be “easy to do,” and agreed to certain conditions, including a “bridge loan” of up to $1.5 million. Agra expected the deal to go through in late September, but the lender ultimately passed “because of fears of a purported contentious relationship” between Presidential and White Rabbit that made it “a riskier investment than expected.”
A second lender agreed to terms favorable to White Rabbit. But Presidential attorneys reportedly would not agree to the loan.
Presidential allegedly “interfered” with a proposed agreement with a third lender by insisting on unfavorable terms. In the end, those conditions “raised too much suspicion” and White Rabbit didn’t get the loan, according to court records.
No one’s getting paid
At the Dec. 10 hearing, Presidential’s lawyers said they weren’t able to audit White Rabbit’s books because the company couldn’t provide many standard financial documents. Two billing companies, for example, would not provide statements because they had cut off all services to White Rabbit, which owed one company about $132,000, and the other about $49,600.
Presidential accused White Rabbit of diverting more than $368,000 that should have gone to Presidential into their own operating accounts since September.
Despite the allegedly diverted revenues and owners’ claims that they lent their own money to make payroll, no one got paid. White Rabbit told Presidential that “it would not fund the payroll that was due on December 7, 2018 to their employees.”
Changing ‘many lives’
In court filings, Spanswick expressed considerable concern for his patients. He said a takeover would cause physical, emotional and financial distress to a population that was at “extremely high risk for suicide, homicide, and/or overdosing…”
Spanswick added, “Plus, many employees who interact with and treat patients daily would leave, causing more stress to patients.”
None of his filings mention concern for his Long Beach employees, who are spending the holiday season applying for unemployment and waiting to see if the state will be able to squeeze Presidential for overdue wages. In fact, they go almost unmentioned.
“The real story is with the banks and insurance companies that left us holding debt while they refuse to pay,” the Dec. 7 email to the Observer said. He implied others’ failure to acknowledge his good works was among the factors contributing to Klean’s demise.
“I’ve provided scholarships amounting to over $3 million in free treatment, which has changed and help save many lives,” Spanswick told the Observer.