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Judge rules donations to foundations off limits in Forum bankruptcy case
YOUNGSTOWN
Representatives of philanthropic interests in the Valley expressed satisfaction with a bankruptcy judge’s decision that Forum Health’s unsecured creditors won’t be getting mil- lions in unrestricted donations to charitable foundations that supported Northside Medical Center and Trumbull Memorial Hospital.
The ruling, announced Friday, came in Judge Kay Woods’ order granting motions by the Western Reserve Health Foundation and the Trumbull Memorial Hospital Foundation to be dismissed from the Forum Health bankruptcy case. There is more than $12 million in donations.
“It enables the foundations to continue to assist qualified charities,” said James Sisek, president of Farmers Trust Co. and former president of the WRHF board of trustees.
Sisek said he was pleased with the decision because it protects the foundations “for the community and for people in the Valley.”
“On behalf of the community and the philanthropists in the community who have contributed so generously to these foundations, this is a really good day,” said Patricia Brozik, president of the Community Foundation of the Mahoning Valley.
“The donor intent was always to improve the value and the breadth and scope of health care in both communities,” Brozik said, referring to Youngstown and Warren. “This makes it much easier to comply with that donor intent,” she added.
“It looks like this money is going to stay in the Mahoning Valley to be used to support health care. It’s $12 million to support health care that we would not have had had the unsecured creditors had their way,” said Frederick S. Coombs, a Youngstown lawyer who represents the Tod Foundation, a longtime donor to WRHF.
“Unrestricted funds held by TMHF and WRHF cannot be used to pay the creditors of other debtors,” the U.S. bankruptcy court judge wrote. “TMHF and WRHF are separate and distinct nonprofit corporations, which have operated exclusively for their charitable purposes,” she wrote.
“No bankruptcy purpose would be served by the continuation of the bankruptcy case” of either foundation, the judge ruled.
Having gone through Chapter 11 bankruptcy, Forum’s hospitals were sold last fall to Community Health Systems, a Tennessee-based for-profit business.
The unsecured creditors, who do not have a pledge of Forum’s assets, are suppliers of goods and services to the Forum hospitals.
In their motions to be dismissed from bankruptcy, the foundations said they’ll no longer seek to support the hospitals, now that a for-profit business owns them. Rather, the foundations said they’ll seek to improve the health status of the Youngstown-Warren community.
In Tuesday’s bankruptcy court hearing, the unsecured creditors argued that the foundations were controlled by and inextricably linked to the hospitals, and served as the fundraising arms of their respective hospitals.
All debtors, including the foundations, have a duty to maximize value for the creditors, the unsecured creditors argued.
However, the foundations said they didn’t owe the hospitals’ creditors and that the foundations should be released from bankruptcy to fully resume their charitable missions.
The foundations’ position was supported by the Ohio Attorney General’s office, which said the foundation money can be used only for charitable purposes and not to pay hospital creditors.
The judge’s four-page ruling, accompanied by a 30-page legal memorandum explaining it, was posted less than 72 hours after a two-hour hearing on Tuesday on the dismissal motions.
“The next question is what do they do with the $12 million consistent with the charitable purpose for which they were given? It’s going to be up to their trustees and probably the involvement of the probate courts to determine where that money goes now,” Coombs said of the foundations.