Years before DesignLine, general’s venture cost Carolinas HealthCare
03/22/2014 4:50 PM
03/23/2014 9:36 AM
In 2006, retired Air Force Gen. Buster Glosson, a Persian Gulf War hero who had launched a business career in Charlotte, brought a promising company to town called DesignLine that made hybrid buses.
High-profile investors lined up to back DesignLine, attracted by its green technology and Glosson’s Desert Storm cachet. But the company struggled financially, the general eventually departed, and investors lost millions when the company filed for bankruptcy protection last year.
It wasn’t the first time an ambitious Glosson-led venture unraveled.
Years earlier, the general had landed a nearly $3 billion contract to revamp the military health care system in the United Arab Emirates. Glosson didn’t have a background in health care, but from the war he knew the sheik who ran the oil-rich Middle Eastern country.
Glosson’s company, Emirates Palomar Medical Technology Services, partnered with Carolinas HealthCare System and other medical providers, sending doctors and administrators to the UAE. But in September 2001, the UAE military abruptly ended the contract, saying EPMTS was in default, according to documents obtained by the Observer.
The Carolinas HealthCare documents, obtained through a public records request, for the first time show the acrimony that flared between the hospital system and Glosson’s company over payments Carolinas HealthCare said it was owed. Ultimately, the hospital system reached a confidential settlement with the UAE military for $3 million on a $5.7 million claim.
The documents provide a window into a business run by a military commander whose second act as a Charlotte entrepreneur included two companies that ended with investors or partners scrambling to recoup their money. Some DesignLine investors said they never knew about EPMTS’ travails and wouldn’t have committed their money if they had.
Glosson, 72, says EPMTS made great strides in improving the UAE’s military health care system and lost its contract only because of concerns related to the Sept. 11 terrorist attacks. “It was simply another example of unforeseen consequences from the tragedy on 9/11,” he said.
More than a decade later, EPMTS’ abrupt closure still conjures hard feelings among former subcontractors and employees, say people who worked for EPMTS. American employees had to turn to the UAE military to get payments they were owed by Glosson’s company, said Linda Clark, a former Presbyterian Hospital administrator who moved from Charlotte to the UAE to join EPMTS in 1999.
“Gen. Glosson never reached out when the contract ended,” Clark said. “He just left us.”
Glosson, however, said EPMTS worked closely with the UAE military on the transition. He said it would have been “logistically impossible” to contact all employees and that no employees reached out to him for help with settlements.
“The intent,” he said, “was to allow each employee and subcontractor to determine whether it wanted to stay involved in the program.”
Hospitals sign on
Glosson, a Guilford County native and N.C. State graduate, joined the Air Force in 1965, flew fighter jets in Vietnam and earned acclaim during the 1991 Persian Gulf War for designing the spectacularly successful air campaign against Iraqi forces.
He gained a reputation as a hard-charging general who produced results but sometimes made enemies among his fellow commanders, according to newspaper accounts. A source who has known Glosson since his military days said the general, nicknamed “Bluster” by some, could be blunt in expressing his opinions but was also a talented leader who was adept at briefing top commanders on complex plans during the air campaign.
After the war, Glosson became the Air Force’s deputy chief of staff for plans and operations. But his ascent stalled when he was accused of interfering in another general’s promotion, and he retired in 1994 at a lower rank.
Former North Carolina Gov. Jim Martin, who had met the general while in Congress, was among local luminaries who encouraged him to move to Charlotte. “He was a military hero and a North Carolinian and we were looking for ways to include him in the Charlotte community,” Martin told the Observer.
Glosson and his wife, Vicki, bought a home near Quail Hollow Club in south Charlotte, and the general started offering consulting services and making investments.
The general’s business career took a major turn when he said he was approached by the UAE to help upgrade the country’s military health care system. From the Persian Gulf War, he knew Sheikh Zayed Bin Sultan Al Nahyan, the country’s president at the time, and his son, Sheikh Mohammed bin Zayed Al Nahyan, a military leader he would later call a friend.
Glosson’s company would oversee the massive project, but he would need hospitals to serve as subcontractors providing medical and administrative expertise. The general made his pitch to Carolinas HealthCare’s then-CEO Harry Nurkin, and in 1997 the two sides began developing plans for working together, according to the documents.
In 1998, Nurkin almost pulled the plug, telling Glosson in a letter that the venture was outside the scope of the hospital system’s mission to serve the Carolinas. But five months later, the CEO reversed course and reached an agreement with EPMTS. The documents do not explain the change of heart; Nurkin died in 2011.
Two other hospital systems – Johns Hopkins Medicine in Baltimore and Partners HealthCare in Boston – also joined in.
In May 1999, Glosson signed a 14-year contract with the General Headquarters of the UAE armed forces to modernize the military’s medical field units, train medical staff, overhaul Sheikh Zayed Military Hospital and upgrade equipment and technology, according to the documents.
In return, Glosson’s company would receive $204 million per year – or $2.9 billion over the course of the contract.
Glosson’s son, Brad, would also join the company. Brad Glosson would serve as general counsel and later chief operating officer, according to a later securities filing. He was in his late 20s when EPMTS was getting started, having graduated from Wake Forest’s law school in 1995 and then clerking for a North Carolina Court of Appeals judge, according to South Carolina Bar and North Carolina court records.
The first sign of trouble between Carolinas HealthCare and EPMTS came in early 2001, the documents show.
After a Carolinas HealthCare vice president asked EPMTS about an expected payment in February, Brad Glosson responded that the company was “at a loss to explain your belief that a payment was forthcoming” on that date, according to the documents. Instead, Glosson said EPMTS and the hospital system had agreed to delay certain payments until an audit of claims had been completed.
The Carolinas HealthCare executive, Michael Mullowney, later sent a memo to Michael Tarwater – then the hospital system’s chief operating officer and now its CEO – telling him he had an upcoming meeting with Brad Glosson and planned to “express our dismay with the manner in which this has been handled.” Brad Glosson did not respond to a request for comment.
Later that year, in October 2001, EPMTS informed Carolinas HealthCare that the UAE military had canceled the contract, effective Sept. 30. A UAE official would later tell the hospital system that the reason was “default on the part of EPMTS,” according to the documents.
Buster Glosson would tell the Observer in November 2001 that the UAE military ended the contract over allegations that EPMTS had overspent, which he said were false. But he now says he didn’t discuss 9/11 at the time because it would have been insulting to the UAE, a key U.S. ally. Only he and one other company executive were involved in “senior discussions” about 9/11, he said.
Around the same time, the UAE terminated agreements with six other U.S. companies, he said, adding that contracts canceled in the Middle East are always officially for “default.”
$5.7 million claim
The UAE military set up a committee to handle payments to EPMTS’ subcontractors, and Carolinas HealthCare submitted a claim for $5.7 million.
In a February 2002 letter to Glosson, Tarwater said he was “particularly concerned” that the UAE military maintained that EPMTS has been paid for “all amounts” through the first six quarters of the contract. The money owed to Carolinas HealthCare, he noted, included payments from the sixth quarter.
In a response to Tarwater later that month, Glosson said he believed the committee’s settlement process was the best way for the hospital to receive payment in the “shortest amount of time.” The only other option, he wrote, was to sue the military, which would be a “lengthy process at best.”
Asked whether Carolinas HealthCare believes EPMTS held onto money it should have paid subcontractors, Scott White, a spokesman for the hospital system, said: “That is one possible scenario.”
In an interview, Glosson said there was no “misappropriation by EPMTS or any of its vendors.” Cut-off dates for subcontractors to submit invoices could have led to charges rolling over into the next quarter, he added.
After negotiations with the committee, Carolinas HealthCare reached a $3 million settlement with the UAE military in March 2002. The hospital system was getting paid about 53 cents on the dollar, but the disputed amount was small compared with the hospital system’s annual revenues, now nearly a total of $8 billion.
White said Carolinas HealthCare reached an “acceptable settlement” and no longer has operations in the UAE.
The UAE, through its embassy in Washington, declined to comment.
The cancellation of EPMTS’ contract came as a shock to employees in the UAE, said Clark, the former EPMTS executive.
EPMTS employees, which included doctors and others who relocated to the UAE from Charlotte, worked on a military base in the country and felt safe, she added. Clark also said EPMTS had experienced financial problems before 9/11, noting that she did not receive her annual bonus for 2000 until she was paid by the UAE.
After the contract ended, Clark helped EPMTS employees reach contractual settlements with the UAE armed forces. The military, which she calls “incredibly gracious,” covered back pay, airline tickets, housing allowances and other payments owed by EPMTS.
Most of the 200 U.S. employees decided to complete their contracts, although some headed home, she said.
Clark, who left the UAE in 2002 to work in Atlanta but has since returned to run one of the UAE’s government-operated hospitals, blamed EPMTS’ failure on “mismanagement at the corporate level.”
“It’s complicated to do this kind of contract,” she said, “and Gen. Glosson and his son didn’t have the track record or experience to oversee such a contract, in my opinion.”
The source who has known Glosson since his military days said the general had no choice but to shut down after 9/11. But a number of subcontractors lost money through the committee settlement process, he said, and he believes the general did not do a good job of communicating with them.
“There were a lot of hard feelings,” said the source, who spoke on the condition of anonymity to protect business interests.
‘Still a fighter pilot’
Five years after EPMTS lost its contract, Glosson and his son, Brad, along with a group of investors, bought DesignLine and moved its headquarters to Charlotte from New Zealand. Buster Glosson would serve as chairman, Brad Glosson as CEO.
One former DesignLine investor said he was impressed by Buster Glosson’s military background and drawn to the promise of the company’s new technology at a time of high energy prices. Glosson also was “relentless” in pursuing him as an investor after they met at a party, he said.
“He’s an 18-karat gold salesman,” said the investor, who spoke on condition of anonymity, citing DesignLine’s involvement in litigation. “He’s selling, selling, selling all the time.”
The new company once again highlighted the general’s high-level contacts. Martin, the former governor, served on the board of directors. Former Charlotte Mayor Anthony Foxx joined the company as a lawyer in 2009 and stayed on until he became U.S. transportation secretary last year.
Martin said he had heard that Carolinas HealthCare lost money on EPMTS, but that there were also positive sides for the hospital system, including the prestige of working with premier providers such as Johns Hopkins and Partners.
“I think overall it was probably a good experience for Charlotte to have (Carolinas HealthCare) provide that kind of leadership and help another country,” said Martin, who worked for the hospital system after serving as governor.
Looking back, Martin said DesignLine’s biggest problem was lack of capital. Buster Glosson may not have been perfect in his business dealings, but he took on ambitious projects, he said.
“People who know Buster know that, at heart, he is still a fighter pilot,” Martin said. “He is trying to do bold things.”
Asked about the younger Glosson’s role as DesignLine CEO, Martin said in hindsight it might have been better to have an industry veteran in the role, but that Brad Glosson was a quick learner and a hard worker. He now appears to be affiliated with a homebuilder.
DesignLine sold buses to Charlotte’s airport and transit agencies around the country, but losses piled up, according to court documents. The Glossons left DesignLine in spring 2012, and the company filed for bankruptcy protection about a year later.
Investors lost more than $30 million in the bankruptcy, an attorney for DesignLine has said. An investment group bought the company’s assets in a bankruptcy auction and is trying to revive it under a new name, EPV Corp.
Five DesignLine investors have told the Observer they either hadn’t heard about EPMTS or knew little about the venture before they invested in the bus company.
Robert Seymour, a Charlotte oral surgeon who lost an undisclosed amount of money in DesignLine, said he had heard that some doctors were unhappy with their experience at EPMTS, but he didn’t do any further research.
“Everyone trusted (Glosson) because of what he had done in Desert Storm,” Seymour said. “I think everyone thought he is in the system, he has connections and everyone wants to work with him. It just didn’t work out too well.” Staff researcher Maria David contributed.
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