Arbitrator Determines Sutter Health Met Fiduciary Duty at Marin General Hospital
A decision by an independent arbitrator finds that Sutter Health complied with its fiduciary duties to Marin General Hospital (MGH) and affirms that Sutter Health does not owe any monies to MGH related to Sutter’s long-held practice of pooling financial resources for the benefit of Sutter’s network of care.
“We were always confident that we met our fiduciary obligations to Marin General Hospital, invested an appropriate amount of capital and left the hospital in a strong financial position,” said Sutter Health President and CEO Pat Fry.
The arbitrator found that Sutter Health’s practice of pooling excess working capital from its affiliates was understood by the District and consistent with the agreement between the two parties. This approach, which is common among large organizations, allows Sutter Health to build and upgrade facilities, purchase lifesaving technology, fund new services and help critically needed health care facilities through financial hardships.
Specific findings in the arbitrator’s ruling include:
- “The MGH Board of Directors and Sutter met their fiduciary duties when they ensured that the corporation was operated in accordance with its Articles of Incorporation and its Bylaws, and complied with the financial policies and other policies it was required to comply with as detailed in the Bylaws including the Equity Cash Transfer Policy. In addition, ‘transferring funds’ was expressly permitted under the provisions of the (agreement)” (page 32 lines 4-9)
- The District had agreed to the Equity Cash Transfer Policy and thus to sharing its revenues with the Sutter affiliates through integrated corporate and financial governance. The cash generated by MGH while an Affiliate of Sutter did not ‘belong’ to MGH, it was to be used to further the charitable purposes set forth in the Articles and implemented by the By-laws of Sutter.” (page 32 lines 25-28)
- The arbitrator rejected the District’s two key claims: that Sutter Health violated its fiduciary duty and breached its charitable trust through its practice of sharing financial resources to benefit the entire Sutter Health network. The arbitrator ruled that “There was no breach of charitable trust” and that the equity cash transfer practice “did not constitute breach of any fiduciary or contractual duties on the part of Sutter.” (page 25, footnote 6; page 33, line 3-5)
- “Sutter had no legal obligation to leave reserves other than $5 million in cash and $20 million in accounts receivables, plus $5 million in the Foundation, which Sutter did.” (page 35, lines 4-7)
- Sutter made appropriate and necessary purchases of capital equipment during the transition period, contrary to the District’s allegations; the Arbitrator decided, “with reference to capital expenditures, Sutter satisfied all fiduciary and contractual duties of prudent management of MGH and [District’s] claims for any additional expenditures or reserves to replace capital equipment are denied.” (Page 41, lines 1-4)
- The District interfered with Sutter’s sublease of space in 1350 S. Eliseo in Greenbrae, finding the conduct to be illegal and ordering they immediately cease and desist. This follows a favorable trial court decision whereby the Superior Court denied the District’s attempt to take the property pursuant to Eminent Domain. (page 62, lines 4-5)
- The individuals sued by the District were completely exonerated.
“We are extremely pleased that the arbitrator found that Sutter Health and its individual directors, Robert Heller, Ed Berdick and David Bradley, fulfilled all fiduciary duties to Marin General Hospital,” said Fry.
“Sutter Health not only met the fiduciary requirements outlined in the Transfer and Settlement agreement with the Marin Healthcare District, but also returned a high-quality, well-run hospital that, at the time of transfer, generated revenue well in excess of its monthly expenses,” Fry added.
While the arbitrator awarded the District a fraction of its total claim of nearly $300 million, more than half of the amount awarded (approximately $11.3 million) includes payment for overfunding the Marin General Hospital employee pension which actually benefitted MGH employees. Other findings by the arbitrator relate to the contractual application of the transfer agreement and provide MGH with modest amounts for physician recruitment, reimbursement for a cost of capital charge previously paid and monies associated with the Information Systems conversion.
“Sutter is extremely pleased with the arbitrator’s decision to deny the vast majority of the damages the District sought and her finding that Sutter and its Directors acted prudently and in accordance with fiduciary duties,” added Fry.
Ruling document (PDF)
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