Sutter Sues District for San Leandro Hospital

Citizen Exclusive
The Citizen

Sutter Health, the operator of both San Leandro Hospital and Eden Medical Center, has filed suit in Alameda County Superior Court against the Eden Township Healthcare District seeking damages of $5 million. The Sacramento-based health care provider alleges in court documents, the District failed to transfer ownership of the the beleaguered San Leandro Hospital after Sutter exercised its purchase option July 27.

The lawsuit, filed Nov. 2, accuses the District of refusing to transfer and close escrow on the property located on East 14th Street. Sutter is seeking $5 million to cover attorney fees, interest lost and arbitration costs. The suit also maintains the right to include specific board members. Rumors have floated for months certain board members had been threatened with legal action. Chatter only increased when former member Dr. Walter Kran abruptly resigned Sept. 28 from the board citing stress. During the Aug. 18 board meeting when the District voted against approving Sutter’s bid to purchase San Leandro Hospital and close its emergency room services, Kran oddly abstained from the decision that stands front and center in the current lawsuit.

Shortly after, Sutter exercised its option to buy San Leandro Hospital, which is spelled out in the 2007 Memorandum of Understanding (MOU), it signed a lease July 31 with the Alameda County Medical Center to convert the hospital to an acute rehabilitation facility. Sutter offered $6.5 million to assist with its remodel. The quick transaction by Sutter created a stir among some board members who openly questioned how a lease was possible without the facility being legally transferred. The subsequent special meeting held in Castro Valley may have been the first indication a stern activist bloc of members was beginning to form. The District blocked Sutter’s purchase option by a 3-1 margin and moved to explore San Leandro Hospital’s financial records while seeking a second opinion attorney, which was a response to the yet-unreported news of a lease between Sutter and ACMC.

The defendants have realized considerable benefits under the MOU and lease…Eden Medical Center and Sutter proceeded in good faith to build the replacement hospital.

In court documents, Sutter claims the inclusion of a purchase option for San Leandro Hospital was concession from the District to rebuild Eden Medical Center. “The District’s grant of an option to Sutter for the purchase of SLH was a material inducement for Sutter’s agreement to construct the replacement hospital on the Eden Hospital campus,” the lawsuit says.

According to the lawsuit, Sutter asserts the it has held its own end of the agreement and the District has been well compensated. “The defendants have realized considerable benefits under the MOU and lease…Eden Medical Center and Sutter proceeded in good faith to build the replacement hospital, and construction began in July 2009.”

In the past week, there have been signals of trepidation from some close to Sutter about their willingness to complete the rebuild of Eden Medical Center despite obvious signs of construction on the Castro Valley site. In an interview with The Citizen, former District member Suzanne Barba expressed some doubt Sutter would finish the project and cut its losses. Another former member Dr. Francisco Rico indicated the same sentiment along with Eden Townhip CEO Dev Mahadevan. During interviews for candidates to replace Kran on the board Tuesday night, Mahadevan reacted to a question by Steven Ree Worley on what other problems the District faces by saying, “One is that we need to keep an eye on Eden Medical Center to make sure they don’t stop.”

It is not confirmed whether board members were aware of the pending lawsuit before Tuesday’s meeting, but it is likely. Board member Carole Rogers’ peculiar grilling of Rico may have been in response to the lawsuit when she asked if he recalled whether the 2004 agreement legally obligated Sutter to rebuild Eden. Rico answered, “This is correct,” to which Rogers replied, “That’s the point I wanted to make.”

The lawsuit filed by Sutter makes no mention of the 2004 agreement, but alludes to the 1998 agreement that lead to Sutter entering the District and the 2007 MOU which Rogers has long maintained has no legal standing. Critics say the MOU was signed after Sutter refused to rebuild Eden and forced the District to renegotiate the 2004 agreement with a deadline to seismically upgrade state hospitals by 2008 looming. The deadline was later pushed back to 2013. Rico, who is often critical of those attempting to save San Leandro Hospital amidst alleged unprofitablility, corroborated this view Tuesday night during his interview saying the District sent Sutter a letter in anticipation of a breach of contract.

News of legal action by Sutter against the District diminishes rampant speculation of who will replace Kran on the board and what may occur if the decision moves to the Alameda County Board of Supervisors. By filing suit, Sutter is reiterating a similar stance taken in August when it deemed the District had no authority to block the purchase option of San Leandro Hospital.

>>>Healthcare District Block Sutter’s Plan to Purchase SLH, Aug. 18
>>>Sutter Signs Lease with Alameda County Medical Center, Aug. 19
>>>Mediation Merry-Go-Round, Sept. 22
>>>VIDEO: Healthcare Director Crashes Mediation Meeting, Sept. 22
>>>Q&A with Former Healthcare Director Suzanne Barba, Nov. 6
>>>Rogers Grills Rico on Past Agreements with Sutter, Nov. 10
>>>The History of San Leandro Hospital According to Rico, Nov. 11