SAN FRANCISCO | Nov. 2, 2011 | Oral arguments for the appellate case between Sutter Health and the Eden Township Healthcare District over the possession of San Leandro Hospital began Tuesday morning.

Attorney’s for both sides presented their case to the three-judge panel at the California State Court of Appeals in San Francisco. The fate of San Leandro Hospital as a full-service general hospital could be decided within the next 60-90 days.

The District filed for appellate review last November after an Alameda County Superior Court judge ruled in Sutter’s favor. The ruling would have given the Sacramento-based non-profit title to San Leandro Hospital. It has an agreement with the Alameda County Medical Center to convert the property into a much-needed acute care rehabilitation facility replacing Fairmont Hospital, also in San Leandro.

In 2009, a new District board of directors denied Sutter the right to purchase the hospital contained in a controversial 2008 agreement viewed by supporters of the hospital, as skewed in Sutter’s favor. The dispute led to the current legal battle.

Lawyers for the District maintain Eden Medical Center CEO George Bischalaney possessed a conflict interests during negotiations for the 2008 deal. He concurrently held the position of CEO of the District. Another board member at the time, Dr. Francisco Rico, is named in the complaint. The District says Rico as an anesthesiologist affiliated with Eden, stood to gain from the agreements.

Tuesday’s proceedings focused squarely on the potential of Bischalaney and Rico violating Government Code Section 1098 and the common tightrope many municipal health care district face in legally separating conflicts between their private practice and elected duties. Each side attempted to sway the panel of judges on each compelling side of this point starting with Bischalaney position as dual executive officer.

“He would always be in conflict with anything,” said Associate Judge Kathleen L. Banke of Bischalaney. She later called his position an “inherently conflicting situation.”

Stephen Goff, the general counsel for Sutter, said overturning the lower courts ruling might set precedent, in effect, making it impossible for local boards to attract the people most knowledgeable in health care matters; namely doctors, nurses and medical administrators.

Associate Judge Robert L. Dondero and Banke posed a series of pointed questions on whether Bischalaney had violated the Code 1098 merely by the fact he received a constant paycheck from each.

Kevin Fong, the attorney for the District, disagreed and urged the court to consider it was impossible for Bischalaney disengage from the process of either side. At one point saying Bischalaney clearly had “divided loyalties” between his role at Eden Medical Center and the District at the time of the 2008 agreements. “You can’t take off one hat and go to the other side,” Fong said of Bischalaney, who recused himself from the negotiations in 2008 as a District employee, but not on the Sutter side.

A ruling could be handed down sometime in early 2012. Although, the definitive fate of San Leandro Hospital may not hinge on the court of appeal’s decision, it will likely end two grueling years of legal wrangling to keep the facility open. It could also have the effect of setting off a new round of contentiousness with Sutter, the District, Alameda County and fervent community supporters of the hospital.