A federal judge ruled today that Hutcheson Medical Center owes Erlanger Health System $36.4 million.
In an order on Erlanger's motion for partial summary judgement, U.S. District Court Judge Harold Murphy said that Hutcheson needs to pay Erlanger back the $20 million it loaned Hutcheson in 2011. Murphy also said that Hutcheson owes Erlanger 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.
The lawsuits between Erlanger and Hutcheson date back to early 2011. At the time, Hutcheson was running out of money and looking for a partner. Hutcheson's leaders then signed a management agreement with Erlanger, asking Erlanger's team to run Hutcheson's day-to-day operations.
As part of the agreement, Erlanger loaned Hutcheson $20 million.
The management agreement lasted from April 2011 through September 2013. Erlanger then asked for its $20 million back. When Hutcheson did not provide the money, Erlanger field a lawsuit in U.S. District Court in February 2014.
Hutcheson then filed a counter lawsuit in June 2014, claiming Erlanger intentionally mismanaged Hutcheson from 2011-13. They said Erlanger cost them profits and committed fraud. They asked for more than $100 million in damages.
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.
Correction: A previous version of this article said that Hutcheson Medical Center held $30 million in liabilities and $80 million in assets. In fact, the hospital held $30 million in assets and $80 million in liabilities.