It’s official: Hutcheson Medical Center owes Erlanger Health System $36.4 million.
In an order on Erlanger’s motion for partial summary judgment, U.S. District Court Judge Harold Murphy said last week that Hutcheson needs to pay Erlanger back the $20 million it loaned Hutcheson in 2011, plus about $4 million in interest and another $12.4 million in late fees.
Murphy also dismissed two of Hutcheson’s claims for damages in its own lawsuit against Erlanger. First, Murphy said that Hutcheson gave the court no evidence that Erlanger cost Hutcheson money when the Chattanooga hospital managed Hutcheson from April 2011 through the fall of 2013.
Second, Murphy said that Hutcheson’s claim that Erlanger committed fraud against them does not hold because, again, Hutcheson’s lawyers did not present strong enough evidence.
It’s unclear how Erlanger will get $36.4 million out of a hospital that has already sold off its most valuable assets.
Murphy’s ruling could create a domino effect for taxpayers in Catoosa and Walker counties. In April 2011, the counties signed an intergovernmental agreement, telling the Hospital Authority (Hutcheson’s board) that the local governments would guarantee Erlanger’s $20 million loan. In essence, the counties agreed to split the debt if Hutcheson didn’t have the funds itself.
The reckoning had been delayed by the two lawsuits, as well as Hutcheson’s own bankruptcy filing. In November 2014, the hospital held $80 million in liabilities and $30 million in assets – hindering the hospital board’s ability to now pay this $36.4 million bill.
Asked what Erlanger’s next steps will be following Murphy’s ruling, spokeswoman Jennifer Homa wrote, “Erlanger has been and remains committed to exhausting any and all remedies available to it in order to collect on this $36,000,000 judgment.”
If nothing else, Erlanger will try to get money from the local governments in Catoosa and Walker counties.
Each of the counties’ debts has shrunk to $8.5 million because the counties received “credit” last year when Hutcheson sold its nursing home and main campus.
Catoosa County’s attorneys say they are currently negotiating a settlement with Erlanger. Walker County’s attorneys, meanwhile, are fighting Erlanger with another federal lawsuit.
Stuart James, a lawyer representing Walker County, said Erlanger has no legal right to demand money because the county is protected in the Georgia constitution by sovereign immunity. He also said the contract itself might not be valid because Hutcheson never “assigned” Erlanger the legal right to make a demand for the money. This is a legal technicality, one that Walker County sees as a big deal. Erlanger doesn’t.
On April 15, James said, Erlanger attorney Edward Marshall emailed Weldon, Hutcheson’s attorney. Discussing this lawsuit between Hutcheson and Erlanger, Marshall said Hutcheson’s board members could face paying that $36 million if they don’t agree to Erlanger’s settlement terms.
It’s unclear what those specific settlement terms are. Weldon and another Erlanger lawyer said they could not go into details. Weldon also said he didn’t know how Walker County lawyers got Marshall’s email.
But multiple sources on the board, speaking on the condition of anonymity because their fellow board members ordered them not to discuss the case publicly, told the Times Free Press that Erlanger wants the board to sign a written demand for Walker County. This “demand,” a legal document, would formally ask Walker County to make its payment to Erlanger instead of fighting the Chattanooga hospital in court.
“[Walker County is] not going to be intimidated by what ‘might’ happen,” James wrote in a news release. “We are going to move forward thoughtfully and purposefully.”
Bragman, the attorney for Erlanger, wrote in an email that James had exposed just a portion of negotiations – which the lawyers believed should be confidential.
“Erlanger made significant efforts to settle with the Hospital Authority prior to the entry of judgment,” she wrote in an email to the Times Free Press. “All of those efforts were rebuffed. Now, however, the Court has determined that the Hospital Authority owes Erlanger more than $36 million. As we’ve made clear in the past, Erlanger plans to take all reasonable and necessary legal steps to collect on the judgment.”