Like many contractors in the District, JMC Associates’ fundamental asset seemed to be its connection to the mayor. For nearly a decade, the mental health services firm thrived on city contracts designed to help the city’s mentally ill. In 1986, when the District needed emergency beds and other services for former patients from St. Elizabeths, the District tapped JMC for the first time. After 10 years of increasing business with the city, the for-profit firm filed Chapter 11 in U.S. Bankruptcy Court in March, claiming that the District’s delinquent contract payments had pushed the company into insolvency. But a closer look at JMC’s operating history suggests that the company was not simply a casualty of the District’s budget crisis.
According to people involved in the mental health field, JMC was incorporated by a group of people distinguished less by their clinical or social service expertise than their connections in District political circles. Bankruptcy filings show that JMC’s executives lived very well, enjoying six-figure salaries subsidized by $4 million a year in District contracts. While doing business with the city, the company’s officers acquired expensive cars; JMC’s president purchased a vacation home in swank Martha’s Vineyard—she also took out a massive personal loan from the company. In the process, JMC fell behind on rent payments for residential properties whose owners lost hundreds of thousands of dollars when the company went in the tank. And as a result, JMC left hundreds of its mentally ill clients at risk of losing their housing and clinical services. Last year, advocates for the mentally ill asked the D.C. Office of the Inspector General to investigate allegations that Social Security and other benefits paid to JMC on clients’ behalf are missing. And now, dozens of staff members who haven’t been paid in months are walking out the doors of JMC residential facilities, leaving many vulnerable, seriously ill patients to fend for themselves.
To some longtime mental health officials, the story of JMC’s collapse and the damage inflicted to it has on others doesn’t come as much of a shock. In the heyday of Mayor Marion Barry’s early administrations, District government contracts were considered booty, part of the spoils of victory to be doled out to friends and backers. Dozens of Barry associates made their fortunes running overpriced homeless shelters, drug counseling programs of dubious value, and self-esteem classes for women in prison. But in the late 1980s, the federal indictments of a handful of the mayor’s close associates brought down the curtain on an era, and the subsequent election of Mayor Sharon Pratt Kelly was thought to signal a permanent end to the gravy train. Despite the best efforts of Kelly and an aggressive U.S. Attorney, a coterie of Barry associates continued to personally enrich themselves while the clients they were supposed to service languished. But in an odd twist of fate, the city’s financial crisis may do what years of grand jury probes, criminal prosecutions, and congressional investigations could not—put an end to business as usual.
JMC is one of a handful of city vendors that sprung up in the 1980s after a federal judge ordered the District government to develop community-based mental health services as an alternative to St. Elizabeths Hospital. In 1986, JMC won a contract to provide community-based emergency crisis beds for the mentally ill. The company promptly donated $1,000 to Citizens to Re-elect Mayor Barry, according to the Washington Post.
But halfway through its first year, according to the Post, JMC lost its contract when Department of Human Services (DHS) officials realized that the company had no facilities in which to treat patients. Two days after the cancellation, though, DHS reinstated the contract, saying the District was committed to minority business development. (JMC was one of the few minority-owned mental health firms in the city.) Even after JMC acquired a facility in 1986, questions remained. According to accounts in the Post that year (and one staff member at the city’s mental health commission), JMC’s services—which were conceived as a lower-cost alternative to hospitalization—actually cost three times as much per patient as St. Elizabeths.
That kind of math doesn’t seem to favor a city struggling to provide services on a limited budget, but JMC had other factors working in its favor. JMC’s chief executive officer is John Clyburn, a longtime associate and supporter of Barry’s and a businessman who built a computer company on city contracts worth over $3 million in the mid-1980s, according to the book Dream City. In 1989, after a 17-month FBI undercover investigation, Clyburn was indicted in three separate federal criminal cases for allegedly conspiring with former DHS Director David Rivers to steer $3 million in city and federal contracts to companies owned either by Clyburn or his friends. One of those companies was JMC, which is owned by Clyburn’s associate Carla Jones Mumby (now Carla Burrell). All the cases against Rivers and Clyburn ended in either acquittals or dismissals in 1990 and 1991. (Rivers is not employed by JMC, but he is listed in the bankruptcy filing as a landlord to whom JMC has been paying $1,100 a month for a house at 1527 North Carolina Ave. NE, which Rivers once owned in a trust with Clyburn and his wife, according to city property records.)
According to JMC’s incorporation papers, Clyburn was not one of the company’s founders. But in late 1993 and early 1994, property owners who rented houses to JMC say they started getting phone calls and correspondence from Clyburn, who identified himself as JMC’s chief executive. They say JMC staffers told them Clyburn had been brought in to straighten out the firm’s financial troubles. According to the bankruptcy filing, he became one of four staffers at the company earning at least $100,000 a year. JMC officials did not respond to requests for comment.
The company’s president and board chairwoman is Carla Burrell. According to an account in the Post, Clyburn knew Burrell from a drug-counselor training seminar he ran under a DHS contract in the 1980s. Burrell was one of his trainees. She was also overheard in FBI wiretaps discussing JMC’s city contracts with Clyburn during the federal investigation of his businesses, according to one DHS official involved with the case and Post articles on the trial. Burrell was never charged in the case.
Burrell’s name also surfaced in the 1989 trial of Rayful Edmond, one of the city’s most infamous drug dealers, who was pivotal in expanding the District’s crack cocaine market in the late 1980s. During the trial, the star witness, Edmond confidante Alta Rae Zanville, testified that she sold drugs to Burrell, according to an account in the Post. Burrell denied the allegation. (D.C. Superior Court records show Burrell has never been arrested in the District for anything but disorderly conduct in 1990, for which she was tried and found not guilty.)
Several people who have worked with Burrell either as landlords or through the mental health commission describe the 45-year-old woman as flashy, hot-tempered, and never in the office. When JMC filed bankruptcy, Burrell was pulling down $158,000 a year. She told creditors at a May 3 meeting that she was also getting $50,000 annual bonuses. In 1990, according to city property records, she bought a $225,000 town house on the District’s 16th Street Gold Coast, and in 1992 she purchased a $200,000 condo in Martha’s Vineyard, according to property records there.
Bankruptcy filings indicate she also owns two houses that she rents to her own company. The court files show JMC was paying Burrell a hefty $2,800 a month for one house at 1100 Euclid Street NW that she bought for $90,000 in 1987, according to city land records.
The company apparently has been good to her in other ways. Bankruptcy filings show that JMC purchased a 1988 Mercedes-Benz, which landlords and a staff member say Burrell drove regularly.
Even with that perk and her $158,000 annual salary, Burrell’s personal finances seem to have been as troubled as her company’s. In October last year, Industrial Bank threatened to foreclose on her 16th Street house, according to documents filed with the D.C. Recorder of Deeds. And in the May 3 creditors meeting, Burrell revealed that she had borrowed $659,000 from JMC, which she has been paying back for about six years with the hefty year-end bonuses she has been receiving, according to several creditors who attended the meeting. Two of those creditors say that when a lawyer for one of the landlords asked Burrell how she had spent more than half a million dollars of the company’s money, Burrell had said she wasn’t sure, but that she believed that she spent it on “furnishings.”
All the extraordinary spending apparently left little funding for the core business at JMC, according to Dr. Andres Olaciregui, JMC’s medical director for seven years. On March 27, he walked out the door because he could no longer abide the meager level of funding provided at JMC to actually service the needs of clients. He was owed two months’ salary at the time.
He says that patients at some of JMC’s homes across from the St. Elizabeths campus were stealing toilet paper and sandwiches from their vocational training programs because JMC was not providing them. Olaciregui says, “Those patients are not getting food, patients are not getting daily living care. The heat is not working in some places.”
“You have many other private practice providers that have had these problems,” says Olaciregui. “But none of them have gone to the extreme as JMC.”
He says JMC’s apartment building on Spring Road was without heat for two months this winter because the company had not paid the bills. Olaciregui says patients told him they were too scared to protest the conditions because they had been threatened with re-hospitalization. Olaciregui also says he was informed that one patient who had been receiving $70,000 a year in pension benefits had only about $8,000 in an account maintained by JMC at the time Olaciregui left the company. (This charge was one of several forwarded by mental health advocates to the Office of the Inspector General to investigate.)
In February, Olaciregui says he was working in the clinic in the basement of JMC’s office at 300 I St. NE when officers from the U.S. Marshal’s Service arrived to take away every last piece of furniture in the clinic because the building owner wanted to evict JMC for nonpayment of rent. Later in the day, he says, someone from a catering company also showed up at the office, asking, “Where’s the party?” Apparently, the company’s management was dining in the upstairs office suite. “They really knew how to live,” says Olaciregui.
Joyce O’Reilly used to own an apartment building at 1437 Spring Road that housed 32 JMC clients. O’Reilly says that not only was JMC getting city contract funds for the clients in the building, but that it was receiving Tenant Assistance Program (TAP) funds and Section 8 vouchers from the city’s public and assisted housing department for nearly half of her tenants. Yet in spite of those funding streams, JMC had trouble meeting its obligations. “It was difficult all along,” says O’Reilly. She says JMC would fall months behind in rent payments and that the water was constantly being shut off in the building. O’Reilly says she was unable to evict JMC and eventually became so far behind on her mortgage payments that she lost possession of the building in 1994.
Murray Netzer also rented houses to JMC for years. He took an interest in the clients who lived in his properties and helped the company make electrical repairs on other JMC buildings. His daughter, Jan Snyder, manages her parents’ business when they are away. She says JMC had never been great at paying bills on time, but that the company was usually never more than two weeks late on the rent, at least not until 1993. That year, the company fell behind more than $30,000 in rent on three of the Netzers’ buildings.
Snyder says Burrell repeatedly promised that JMC would catch up on the payments, and even offered to pay 8-percent interest on the outstanding balances carried over into 1994. At JMC’s request, 72-year-old Murray Netzer agreed to renovate another house he owned so the firm could rent the space for more mental health commission clients. Snyder says her father sank more than $150,000 into the renovations, but in 1995, when the building was finished, JMC didn’t move in, and the Netzers were forced to take out a mortgage to cover the cost. And the Netzers never saw a dime of the promised back rent, much less the interest.
When JMC filed bankruptcy in March, the document showed it owed the Netzers $109,000 in back rent dating back three years. Snyder is livid. “JMC takes total advantage of my parents,” she says. Snyder suspects that JMC officials were aware that the Netzers owned their property free and clear, and that since they didn’t hold mortgages on the properties, they were in comparatively little danger of losing them if JMC fell behind in rent payments. “It’s a damn shame that my parents trusted them for as long as they did,” says Snyder. “My mother to this very day still thinks JMC will come up with a payment plan. I think it’s hopeless.”
Most of the landlords listed as creditors in JMC’s bankruptcy filings did not wish to speak for attribution, fearing that they might jeopardize any chance they have of getting some money from JMC. But privately they tell stories similar to Snyder’s. Snyder says JMC officials blamed the District for the company’s delinquent rent, arguing that the city was behind in its $355,000 monthly payments to the company, which was the firm’s sole source of income.
To be sure, over the past year plenty of District contractors have had trouble paying their bills because they haven’t been paid on time, but even that kind of dysfunction doesn’t fully explain JMC’s inability to live up to its financial commitments—especially considering that JMC started having problems several years before the District hit rock bottom.
JMC started falling behind on its federal withholding taxes in the early 1990s, according to documents filed with the Recorder of Deeds. In September 1992, the IRS put a lien on the company for $309,998, which JMC did not pay off until July 1994. In February 1993, JMC arranged for a $1.2-million line of credit from Industrial Bank, secured with its District contracts. JMC arranged for the city to deposit its monthly contract payments directly with Industrial Bank, which would then lend JMC 80 percent of the face value of each invoice to meet “working capital” obligations.
Two years later, when the District ran out of money to pay its vendors, the bank cut off JMC’s cash flow and tried to force it to pay off a $665,000 outstanding balance. JMC fought back, arguing that the District was falling behind in its contract payments, not JMC, and the dispute ended up in litigation in D.C. Superior Court last summer. JMC tried to enjoin the bank from cutting off its line of credit, and in an affidavit filed in the suit, Clyburn wrote that he had the connections to ensure that JMC would be among those paid by the impoverished District. “Through my direct efforts, JMC was able to obtain more expeditious payment to [Industrial Bank] by the controller of the District of Columbia.” But the bank informed JMC that it would be keeping any payments from the District to pay off the outstanding balance and would not extend any more funds to JMC.
Last summer, JMC stopped paying its employees, and they quit in droves, according to DHS officials. As services deteriorated, the special master appointed to oversee the city’s mental health commission and a committee set up to monitor community-based care asked the city’s inspector general to audit JMC. (The Inspector General’s office has not responded to advocates’ requests for information about the investigation.) In August, the District renewed three of JMC’s contracts.
The District’s mental health commission has known for at least a year that JMC was in trouble according to Bob Moon, a member of the committee that monitors the city’s mental health system. The city was in a bind, according to Moon. The services JMC provides are mandated by a 20-year-old court order known as the Dixon decree, which requires the District to provide community-based care to mentally ill people who were formerly hospitalized. The city needed the services supplied by JMC to remain in compliance and avoid being held in contempt and fined by the federal judge who monitors the decree.
One of the District’s largest mental health contractors, JMC provided services to more than 300 people. As a result, even advocates for the mentally ill have been conflicted about what to do about the failing company. In spite of the negative comments about patient care from Olaciregui, Moon says JMC’s services were never particularly bad. He adds that the health and well-being of the clients never appeared to be in jeopardy until fairly recently. In fact, on several occasions, members of the Dixon monitoring committee attempted to help JMC get paid in order to maintain a safety net under the clients the company serves.
“Our position has been that we’re looking at client outcomes. We’ve never taken a position about the providers as long as the clients are doing well,” says Moon.
Between the efforts of Clyburn and advocates on the Dixon committee, JMC was paid by the District the full amount of its monthly contract payments up through February this year. But by March, JMC owed property owners six to eight months’ back rent, and several of the landlords began taking steps to have the U.S. Marshal’s Service evict JMC from their buildings. At that point, according to Moon, members of the mental health commission and the Dixon committee met with DHS Director Vernon Hawkins to ask about the possibility of another vendor’s assuming JMC’s contracts so that mentally ill residents would not have to be moved from their homes.
Hawkins asked them to be patient and told them the District had issued JMC a “notice of cure,” giving the company 10 days to correct violations of its contracts. Clyburn, meanwhile, was furiously negotiating with the landlords, promising payments to stave off the evictions, according to property owners. Aware that they would be evicting poor, mentally ill people along with the deadbeat company, the landlords backed off. But seven days after receiving the notice of cure, JMC filed for Chapter 11 in U.S. Bankruptcy Court, preventing property owners like the Netzers from evicting the company and complicating efforts by the city to finally cancel JMC’s contracts.
The bankruptcy filing indicates that JMC is at least $1.6 million in the hole. The company’s largest debt stems from unpaid employee withholding taxes. JMC owes the IRS $288,245, it owes the District $237,000 in employment taxes, and its bankruptcy does not alter those obligations.
Burrell owes the company a hefty amount of money (the actual figure is in dispute, but the bankruptcy filing actually lists the debt as a “receivable” and an asset of $659,187), but she is also a creditor in her own company’s bankruptcy filing. Burrell claims she is owed another $46,400 for unidentified expenses, according to court records, yet many of the staff members who haven’t been paid are not even listed in the records, says the Dixon committee’s Moon.
The only source of income JMC has to pay off any of the creditors is its contracts with the commission on mental health, but several of those contracts have now lapsed and the city is refusing to renew them. JMC is fighting back. Last week, JMC refused to cooperate with mental health commission officials seeking to move JMC’s clients to other facilities after the water was shut off in several residential facilities on May 1, according to the buildings’ owner.
Over the weekend, JMC barred commission staff from entering any of the company’s facilities and refused to turn over the patients’ medical records so that they could be moved to another vendor’s facilities. JMC also filed a motion in court demanding all the city’s documents showing how the commission has monitored JMC’s contract. Commission staffers are now enlisting the police to help make the patient transfers, according to several landlords.
The U.S. Trustee’s office has notified the landlords that it is going to ask the judge on the case to place JMC into Chapter 7 because the company hasn’t made payments to its creditors and because it doesn’t have access to any more funds from the city or its line of credit. The move might sound the death knell for JMC. As Olaciregui points out, “If you’re getting $1 million and you’re spending $2 million, eventually life is going to catch up with you.”—Stephanie Mencimer