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Forum creditors take aim at $12M in donations
Tuesday hearing scheduled
YOUNGSTOWN
Forum Health’s unsecured creditors want to gobble up more than $12 million in unrestricted donations made to the charitable foundations that supported Northside Medical Center here and Trumbull Memorial Hospital in Warren.
The creditors’ attempt to seize the money from the Western Reserve Health Foundation and the Trumbull Memorial Hospital Foundation will occur in a 9:30 a.m. Tuesday hearing before Judge Kay Woods in U.S. Bankruptcy Court.
The creditors revealed their intentions to seize unrestricted donations to those foundations in an objection they filed in bankruptcy court. The objection is to the foundations’ motions to dismiss them from the Forum Health Chapter 11 bankruptcy.
“The foundations have more than $12 million in unrestricted funds that can and should be used to pay the debtors’ creditors,” lawyers for the committee of unsecured creditors wrote. If granted, the dismissal motions would wrongly deprive the creditors of that money, they wrote.
“Filing the dismissal motions is a breach of the debtors’ fiduciary duties to maximize value for their creditors,” the creditors’ lawyers argued.
In arguing for their dismissal from the bankruptcy case, foundation lawyers said the foundations have “no material obligations,” “no significant creditors,” “no reason to be in bankruptcy,” and no need for ongoing court oversight.
“The unrestricted funds may not have set restrictions, but as they are given to a charitable corporation, the funds must still be used in accordance with the charitable mission,” the foundation lawyers said in their argument against giving the money to the creditors.
Having gone through Chapter 11 reorganization bankruptcy, Forum Health’s hospitals are now owned by the Tennessee-based for-profit Community Health Systems. The sale closed last Oct. 1.
In bankruptcy law, unsecured creditors are those that don’t have a pledge of the debtor’s assets. The unsecured creditors are suppliers of goods and services to Forum’s hospitals.
Secured creditors are those to whom the debtor has pledged assets. All of Forum’s major secured creditors were paid from proceeds of the sale of Forum to CHS,
WRHF holds $4,503,549 in restricted funds, whose donors have limited their use to certain purposes, and $4,308,841 in unrestricted funds. TMHF holds $2,704,088 in restricted funds and $8,098,598 in unrestricted funds.
The foundations will no longer seek to support the hospitals, since they are now for-profit. Rather, the foundations will seek to improve the health status of the Youngstown-Warren community, they said in their dismissal motions.
If the foundations are dismissed from the bankruptcy case, they said they could begin using their unrestricted funds for that purpose, with probate court resolving the use of the restricted funds; and the foundations would be relieved “of the burden and stigma of a bankruptcy.”
The foundations’ position is supported by the charitable law section of the Ohio Attorney General’s Office.
“As charitable trusts, assets held by the foundations are impressed with the charitable purpose of the foundations and can only be used to further those charitable purposes,” and not to pay the hospitals’ creditors, lawyers for the AG’s office wrote.
Frederick S. Coombs, a Youngstown lawyer who represents the Tod Foundation, a longtime donor to WRHF, said the foundation money can’t be used to pay the hospitals’ debts and that the foundations aren’t the entities that owe money to the hospitals’ suppliers.
“They’re grasping to use money that was never given with the intent that it be used to pay the day-to-day bills of the hospital,” he said of the creditors.