The U.S. Court of Appeals today ruled that Walker County's local government still owes Erlanger Health System $8.7 million.
The Chattanooga hospital loaned Hutcheson Medical Center's governing body $20 million in 2011, when Hutcheson was on the brink of collapse. Erlanger's loan was part of a management agreement, in which the executives of Erlanger would run Hutcheson's day-to-day operations.
As insurance for the loan, the commissioners of Catoosa and Walker counties signed an intergovernmental agreement with Hutcheson's board. If Hutcheson could not pay the money back, the counties would each pay $10 million.
The agreement between the two hospitals died in August 2013 when Hutcheson's board voted to kick out Erlanger. Hutcheson filed for Ch. 11 bankruptcy in November 2014. Thirteen months later, Hutcheson's board agreed to sell the hospital to ApolloMD, a private company the renamed the institution Cornerstone Medical Center.
When ApolloMD bought the hospital for $4.2 million, Erlanger received some of the money. In turn, the counties' debts were reduced to $8.7 million, each.
Catoosa County's commissioners settled with Erlanger in June 2016, agreeing to pay the hospital a reduced amount of $6.2 million.
Erlanger's leaders, however, decided to sue Walker County. The county's special counsel, Stuart James, argued that Erlanger didn't actually have grounds for a lawsuit.
First, he said, Erlanger was not a party to the intergovernmental agreement in which Walker County Commissioner Bebe Heiskell promised to pay off the debt. Heiskell merely promised Hutcheson's board she would pay the money. (Hutcheson's board, in turn, promised to pay Erlanger.)
Second, James argued, Walker County enjoys "sovereign immunity," meaning you can't sue a local government in Georgia - with some exceptions.
In August, U.S. District Court Judge Harold Murphy granted Erlanger summary judgment, ruling that Walker County has to pay the $8.7 million. James appealed the ruling.
But today, the 11th Circuit of the U.S Court of Appeals affirmed Murphy's ruling, saying the county is still on the hook to pay off the debt.
Heiskell lost her re-election in November to Shannon Whitfield.