Judge Temporarily Bars Cardinal's Former Leaders From Organization's Cash

Nov 29, 2017

Credit Alex Olgin / WFAE News

Just days after North Carolina's Department of Health and Human Services took control of Cardinal Innovations Healthcare, officials have found an email exchange between ousted Cardinal CEO Richard Topping and the ousted members of its board.

DHHS officials say Monday's takeover was necessary because of what they see as serious financial mismanagement by Cardinal's leaders, namely lavish spending on parties and retreats and excessive pay for the CEO and very generous severance packages for Topping and 10 other key employees.

Now there may be more.

Attorneys with North Carolina's attorney general's office argued in court Wednesday morning that some of the ousted members may have tried to move some money out of Cardinal's accounts just before state officials took control of the company on Monday.

A Mecklenburg County Superior Court judge has now granted a temporary restraining order for 10 days to stop Topping and former board members from interfering with the temporary DHHS takeover and accessing the organizations funds. 

In a largely empty courtroom, special deputy attorney general Michael Wood made clear there's concern that former CEO Richard Topping and board members are up to no good.

“It sounds like there is something in place or had been something in place to potentially take funds that belong to Cardinal that belong to the public." Wood said.

He was referring to an e-mail sent Sunday from Topping to former board chairwoman Lucy Drake. Topping refers to a brilliant idea and offers to help orchestrate a plan from the outside.

“The key, of course, is that it has to be done before the state raids – whether legal or not – the fund balance. If the money is gone they have to chase it. Since they don’t have a legal right to it they’ll never get it. If they already have it will be much harder to get it back. You can use the money to defend the money. But if it is gone you can’t use it to chase it.”

Wood said there’s concern that Topping and some former board members might try to take legal action to try and stop DHHS and get back control. DHHS said they sought the restraining order out of an abundance of caution to protect taxpayer dollars, even though Topping and the board members have no authority since they were fired and disbanded.

“We can’t have more funds going out the door for corporate pay or corporate severance or whatever that is,” Wood said. “We need to make sure those public funds are secured.”

The next step would be for the state to seek a preliminary injunction to stop Topping and board members from taking action for a longer period of time.

Former CEO Richard Topping Responds

“I’m more confused than ever. If I’m no longer the CEO and the board is no longer the board, why do we need a temporary restraining order against any of us acting in our official capacities?" asks Topping.

Cardinal has a fund balance of $140 million, essentially unrestricted  money that can be spent on just about anything.

It's this pool of money that Topping was referring to in the emails in question. He says former board member Steve Yuhasz's "brilliant idea" reference in the email was "whether or not some of Cardinal’s savings should be placed in a trust for the benefit of Cardinal’s mission and its members.” 

Topping says the trust would help continue to provide services or potentially expand services to Cardinal's members who receive Medicaid funded mental health, developmental disability services and addiction treatment in Mecklenburg and 19 other counties.

Tom Bullock: “You have mentioned to us in prior interviews that you believe North Carolina is trying to its hands on money that is by law Cardinal’s, this is the unreserved balance. Why?”

Richard Topping: “Oh, because the state continues to cut services. The state is cutting services and spending the money elsewhere. It goes into the general budget and so it's spent on other items whether it be roads, tax cuts, whatever. And so the concern at Cardinal and the concern of the board was a state takeover, which would be illegal, but a state raid on those funds. Like (what) happened on Monday. (It) would not only be illegal but when the state takes those funds. What the state is going to do is cut services.”

DHHS responded with a statement:

“DHHS cannot and will not transfer fund balances away from Cardinal. To the contrary, our objective is to ensure that Cardinal funds are spent to benefit Cardinal consumers.”

The agency confirms those dollars belong to Cardinal and can be used only as authorized under state law. DHHS has temporarily assumed management of Cardinal and is operating all financial transactions.

The statement continues, “DHHS will continue to provide very close oversight to ensure that these taxpayer dollars are being spent in accordance with the law.”  

There is no evidence by DHHS or Cardinal's interim CEO to "cut services" or "raid" the fund.

Topping says the state is taking him out of context when citing the portion of the email in which he writes about making the state chase the money.

“The state left out the first e-mail," Topping says. "And the first e-mail was the e-mail from the finance chair to legal counsel asking for a legal opinion on what the requirements are and the legality of it. So I think taking a second e-mail, which is a followup and a conversational e-mail, and taking it out of context, I think that shows really the purpose here with what DHHS is trying to do with today’s hearing. Which is an after-the-fact justification of what was an unlawful raid and seizure of Cardinal Innovations on Monday.” 

DHHS did indeed cite serious financial mismanagement as the rational for this week's takeover of Cardinal. It paid Topping nearly $1.2 million last fiscal year, well in excess of state law that was supposed to limit his salary at $204,000. It also recently paid $3.8 million in severance to Topping and three other top executives.