Erlanger Health System

Walker County, Ga., now has an outstanding bill to Erlanger Health System for $8.7 million.

U.S. District Court Judge Harold Murphy ruled Tuesday that the county owes the hospital that money because Commissioner Bebe Heiskell promised to pay back a loan from Erlanger in 2011. Murphy said that two contracts signed at the time involving the county, Erlanger and Hutcheson Medical Center's board show the county is responsible for the payment.

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Death of a Hospital

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Hutcheson Medical Center continues to be at the center of legal arguments.

"Walker County committed to paying those sums," Murphy wrote.

Stuart James, an attorney representing the county, said he plans to appeal the ruling, hoping to eventually make arguments before the Georgia Supreme Court.

"Walker County has to exercise that right of appeal so as to protect the interests of its taxpayers," James said in a statement.

But Erlanger representatives said they expect Walker County to live up to its responsibilities.

"We believe County Commissioner Bebe Heiskell continues to have great respect for Judge Murphy and the law and will honor the judgement of a federal court," said Erlanger Chief Administrative Officer Gregg Gentry.

Murphy's ruling Tuesday could be one of the final steps in a long, meandering journey that has enveloped local politicians, hospital administrators, hospital board members and a slew of attorneys. It all began in April 2011, when Hutcheson Medical Center was hemorrhaging money and on the brink of collapse.

Leaders of Hutcheson and Erlanger entered into a management agreement. Erlanger loaned Hutcheson $20 million, while Erlanger administrators ran Hutcheson's day-to-day operations.

As part of that deal, the elected officials of Catoosa and Walker counties entered into an intergovernmental agreement with the Hospital Authority, which is the board that ran Hutcheson. At the same time, the Hospital Authority also entered into an agreement with Erlanger.

In the first agreement, the counties told the Hospital Authority they would each pay up to $10 million back to Erlanger if Hutcheson didn't have the funds. In the other agreement, the Hospital Authority told Erlanger it would eventually get its money back — Catoosa and Walker counties were good for it.

About 18 months later, those tangled agreements fell apart. The Hospital Authority voted in September 2013 to end the agreement with Erlanger, believing the executives of Erlanger intentionally mismanaged Hutcheson to wipe out its competition.

In February 2014, Erlanger sued the Hospital Authority demanding its money back. In November 2014, Hutcheson filed for bankruptcy, halting Erlanger's lawsuit. ApolloMD, an Atlanta-based physician's group, offered to buy Hutcheson about a year later.

Erlanger got $2.59 million out of the purchase. This drove down the debt that Catoosa and Walker counties owed — each dropping from $10 million to $8.7 million.

Meanwhile, in December, Erlanger filed a second lawsuit, this one against Walker County. Erlanger demanded in court that Walker County pay its half of the debt, believing Walker County officials were going to be difficult to deal with. (The hospital did not file a similar lawsuit against Catoosa County, instead settling out of court for $6.25 million.)

While Erlanger asked a judge to rule that Walker County had to make its payment, the county argued it wasn't legally required to pay anything. The judge didn't go for that, saying Walker County made a promise.

"Walker County also agreed [in 2011] that its obligation to make the payments required under the Intergovernmental Agreement would be absolute and unconditional," Murphy wrote in his order Tuesday, "and that such payments would not be abated or reduced for any reason."

Pointing to the Intergovernmental Agreement, Walker County argued that Erlanger had no right to get the money. The county said only government bodies in Georgia can use that kind of agreement, and Erlanger is based in Tennessee.

Murphy said that doesn't matter. Erlanger isn't using the Intergovernmental Agreement. Instead, Erlanger is using a different agreement, one it signed with Hutcheson's board in 2011. Under that deal, the board told Erlanger it could get its money.

"Any argument to the contrary is frivolous," Murphy wrote.

Walker County also argued that nobody properly notified the county that it had to make a payment. Murphy rebutted that argument, too.

Erlanger gave Walker County notice that the hospital wanted its money in January 2014, about four months after Erlanger and Hutcheson broke up. Plus, Walker County had appointed four people to Hutcheson's board, so it should have known the money was due, Murphy said. And what's more, Walker County Attorney Don Oliver was also the Hutcheson board's attorney.

Of course, the bill could go away, if James successfully sways the Georgia Supreme Court that Murphy's logic isn't correct. At the same time, the bill could also grow.

During his order Tuesday, Murphy said the $8.7 million figure does not include interest on the 2011 loan or attorneys' fees.

The latter issue could be in a jury's hands. If Erlanger wants to argue that Walker County unnecessarily dragged this ordeal out in court, Murphy ruled, the hospital can make a case during a jury trial.

Erlanger has about 30 days to file a motion for attorneys' fees.

Contact staff writer Tyler Jett at 423-757-6476 or Follow him on Twitter @LetsJett.