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Judge to decide fate of donated funds
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U.S. Bankruptcy Judge Kay Woods
YOUNGSTOWN
The fate of more than $12 million in unrestricted donations to charitable foundations that supported Northside Medical Center here and Trumbull Memorial Hospital in Warren is now in the hands of a federal bankruptcy judge.
After a two-hour hearing Tuesday, U.S. Bankruptcy Judge Kay Woods said she’d take the matter under advisement and rule on it soon.
Forum Health’s unsecured creditors are hoping to take the money from Western Reserve Health Foundation, which supported Forum Health Northside, and the Trumbull Memorial Hospital Foundation, which supported Forum’s TMH in Warren.
The unsecured creditors, who do not have a pledge of Forum’s assets, are suppliers of goods and services to Forum’s hospitals.
Their request to get the money came in their objection to the foundations’ requests that the foundations be dismissed from the Forum bankruptcy case.
Having gone through Chapter 11 bankruptcy reorganization, Forum Health’s hospitals are owned now by the Tennessee-based for-profit Community Health Systems. The sale closed Oct. 1.
Craig E. Freeman, a New York City-based lawyer for the committee of unsecured creditors of Forum, argued that all the debtors, including the foundations, have a “duty to maximize value for the creditors.”
Freeman said the foundations are inextricably linked to Forum’s bankruptcy because they operated as the fund-raising arm of their respective hospitals.
In support of his assertions about the purpose of the foundations and the hospitals’ control over them, Freeman cited hospital and foundation documents and websites.
Judge Woods asked Freeman whether he thought the hospitals had the authority to take unrestricted foundation money to pay hospital operating expenses, including a hospital electric bill.
“The hospitals have the power to have the foundations give them the money,” Freeman replied.
“The foundations do not owe the hospitals’ creditors,” argued Edmund W. Searby of Cleveland, a lawyer for the foundations.
The foundations operated as separate entities from the hospitals and had their own grant-review committees, which made grants to the hospitals and to outside entities, he said.
“These foundations should be let out at this point to resume in full their charitable missions,” Searby told the judge.
In their motions to be dismissed from the Forum bankruptcy, the foundations said they’ll no longer seek to support the hospitals, since the hospitals are now owned by a for-profit business.
Rather, the foundations said they’ll seek to improve the health-status of the Youngstown-Warren community.
“These trusts are impressed with their charitable mission and can only be used to further those charitable purposes,” and not to pay the hospitals’ creditors, argued Trish D. Lazich, an assistant Ohio attorney general.
The fact that some donors to the foundations did not restrict their gifts to a specific purpose does not mean that unrestricted foundation funds “can be diverted to a noncharitable use,” Searby told the judge.