Foundation funds are separate from hospitals’ general debt

ThE Use of charitable foundation funds attached to the old Western Reserve Care System and Trumbull Memorial Hospital as collateral for cash-strapped Forum Health had the makings of a potential scandal. Trustees of those funds had to heave a sigh of relief when Forum was sold last year for a sum that satisfied its secured creditors and presumably released the funds for future charitable use.

We’re talking about $12 million or so that over the years had been donated or bequeathed to the Western Reserve and Trumbull foundations, to be used by trustees in ways that best served the hospitals and, more so, the patients.

Unfortunately, a portion of the funds came to be used as collateral, primarily for bonds that financed improvements or expansion projects.

That was an unwise decision, which, for a time, made those cumulative charitable donations of hundreds of well-meaning Mahoning Valley residents subject to confiscation by out-of-town bankers. It’s as if your uncle entrusted you with money for your education, and you used it as collateral to buy a car — and then lost your job. Not only was the bank going to take your car, but it was going to confiscate the education fund.

Fortunately, the sale of Northside Medical Center, Trumbull Memorial Hospital and Hillside Hospital and other Forum assets to the for- profit Community Health Systems provided enough money to satisfy Forum’s secure creditors. That presumably allowed the charitable foundations to be relieved of obligations they arguably should have never had.

But now, hundreds of unsecured creditors who provided goods or performed services for Forum before it went into bankruptcy, are asking the U.S. Bankruptcy Court to pay them with those charitable funds.

It’s as if you sold that hypothetical car and paid the bank in full so that your education fund was no longer being used as collateral. Just as your relieved uncle starts planning to use the money for your education, a credit card company says it has dibs on your uncle’s money.

Too far of a stretch

Certainly there is sympathy for those creditors who had the misfortune of doing business with Forum as it circled the drain. Once Forum filed for bankruptcy, their chances of being paid fell south of a long shot. That doesn’t justify their setting their sights on the assets of charitable foundations that never had a business relationship with the creditors. The foundations managed to survive over the decades with a singular purpose of providing charitable support for the nonprofit hospitals in ways that were consistent with the expressed or implied wishes of those who donated.

Broadly, those wishes can be assumed to involve providing people with some sort of support that would improve their health, treatment or well being.

Over the years we’ve seen a lot of families suggest that material tributes take the form of contributions to one of the hospital foundations in memory of a loved one. We don’t recall ever seeing an obituary in which the family asked for contributions toward satisfying the unpaid electricity bill for a bankrupt hospital.

We’re sure that the hospital’s creditors sincerely believe that they’re entitled to that money. But what they believe is of no consequence compared to the reasonable expectations of the people who donated that money in good faith.

The court should release the assets to the foundations so that their trustees can resume using the money in ways that reflect the wishes of generations of benefactors.