City's Rights Will Be Determined By the Court
Lakewood’s Law Director, Kevin Butler, published a letter to the Citizens of Lakewood including his interpretation of legal documents to provide citizens with “relevant information needed to assess the future of Lakewood Hospital.”
Mr. Butler’s letter cites no law and contains almost no facts other than the fact that two legal documents exist: a Lease and a Definitive Agreement (DA). Mr. Butler’s interpretations of those documents omit the context by leaving out many facts.
Part of the context omitted is that several Lakewood residents filed a lawsuit on behalf of the City to enforce the Lease and DA and named Mayor Summers, the City of Lakewood, the Cleveland Clinic (CCF), Lakewood Hospital Association (LHA), and others as Defendants. Mr. Butler is the attorney representing Summers and the City in that lawsuit. Breach of contract is only one of 13 legal claims of recovery.
Substantial evidence of CCF’s serious wrongdoing and damage to Lakewood Hospital has been exposed, but Mr. Butler has filed a joint brief with CCF and LHA seeking to prevent enforcement of the same agreements that are the subject of his letter.
Here is a response to the conclusions set forth in Mr. Butler’s letter.
Mr. Butler’s First Conclusion: “The Cleveland Clinic does not have a lease with the city and is not obligated to run Lakewood Hospital through the end of the city’s lease with LHA.”
Response: The second part of this conclusion is dependent on the validity of the first part.
- The Court in the lawsuit will determine if CCF has obligations under the Lease. The Plaintiffs claim, among other things, “CCF exercised control over LHA and Lakewood Hospital so completely that LHA had no separate mind, will, or existence of its own… CCF is inextricably linked to LHA. Integration is complete. CCF is LHA. Thus, CCF is the lessee.”
- If the Court decides that CCF is obligated on the Lease, CCF will be obligated to run the hospital through 2026. If not and CCF chooses to leave Lakewood, it will lose market share and control. This would free the City to find a new healthcare partner to operate the hospital.
Mr. Butler’s Second Conclusion: “LHA, the city’s tenant and the entity responsible for running the hospital, could cease operating the hospital notwithstanding the lease, leaving the city with no partners to run the hospital.”
Response: There are three separate parts to this conclusion.
- LHA is the tenant, but the DA provides for CCF to run the hospital under the supervision of the LHA Board. Both the Lease and DA require shared power between the City and CCF. Mr. Butler ignores the facts that Mayor Summers is the most influential Trustee on LHA’s Board and that responsibilities for operation and management of the hospital ultimately rest with both the City and CCF. Again, the Plaintiffs in the lawsuit claim that CCF dominates LHA and that Summers has allowed this. So there is a factual dispute as to who is actually responsible for running the hospital.
- LHA could cease running the hospital, but only if the Lakewood appointees, including Summers vote to do so. If that occurs without Council approval, the Trustees and/or their insurers would be liable. Again, if the Court decides that CCF is obligated on the Lease, CCF would be liable for the hospital closure also.
- The third part of this conclusion is not logically or factually related to the first two parts. Mr. Butler’s central theme is that the City will be left “without a partner” including the following two statements:
- “The likelihood of the city finding a new operating partner in time to preserve hospital assets appears to be small.”
- “The city has only received an offer from the Cleveland Clinic to operate a family health center.”
It is impossible to find a new partner to operate the hospital or even obtain another offer for a family health center if the City does not try. The facts are clear that the City never made ANY effort to find a new partner and it is currently making no such efforts. The efforts by LHA (led by Summers) that ended early in 2014 more than a year ago, were highly compromised, and were not handled in a professional manner, e. g. no broker-dealer was hired and LHA never got a release from CCF. Without this release, no other party besides CCF could make an offer to operate a hospital without the risk of liability to CCF.
Mr. Butler’s Third and Fourth Conclusions: “The Cleveland Clinic is not required to cover LHA’s operating losses. Neither LHA nor the Cleveland Clinic is obligated to invest significant capital money into the hospital facility—making major improvements at the hospital the city’s responsibility.”
Response: CCF and LHA are both legally obligated to carry out the charitable mission to operate a hospital. The hospital is virtually debt-free and interest rates have never been lower. The Huron Report indicated that nearly all hospitals engage in significant borrowing to finance capital improvements. Mr. Butler claims that CCF approval is required to incur debt, but that requirement is expressly superseded:
Section 1.1.4 of the DA provides: “All of the rights set forth in this section … shall be exercised by CCF in a fiscally prudent manner, consistent with Lakewood [Hospital’s] charitable purpose and Lakewood [Hospital’s] obligations under the lease … in order to preserve the operations of Lakewood [Hospital] as a going concern.”
The DA provides that CCF must maintain a 1:1 ratio of cash to debt.
It is clear from these provisions that if LHA runs up trade debt, has to borrow money to fund operational losses or make the capital improvements required, CCF must allow LHA to incur that debt and must advance enough cash to maintain the 1:1 cash to debt ratio.
Mr. Butler’s letter creates a fiction that the City is powerless to control LHA’s actions to continue to operate the hospital when it is clear the legal documents ensure that the City leadership was to play a direct and pivotal role in the management of LHA, including its relationship with CCF. Indeed, in 2014-2105, Summers led LHA in the negotiation of the Letter of Intent in an effort to close the hospital. Mr. Butler’s letter omits substantial facts concerning CCF’s conduct that has caused damage to the City’s asset—Lakewood Hospital. Mr. Butler’s various abstract interpretations are not definitive.
So Mr. Butler and the lawyers representing the citizen taxpayers have two very different interpretations of the legal documents, the facts and the future of Lakewood Hospital.
No Court decision is expected until well after the November election.