‘Charitable law rarely trumps bankruptcy law,’ Ohio’s attorney general says.
PETER H. MILLIKEN
VINDICATOR STAFF WRITER
As critical dates loom in Forum Health’s bankruptcy, state officials and a local foundation trustee are engaged in legal maneuvers to protect charitable money pledged to the health-care organization.
Though much has been made of Forum’s bankruptcy proceedings and its $286 million debt to secured creditors, many questions remain about the disposition of the Western Reserve Health Foundation’s funds, which exceed $18 million.
The foundation’s bankruptcy court filings also show about the same amount owed to secured creditors.
The Western Reserve Health Foundation, established in 1984, is a Forum subsidiary and the philanthropic organization that supports Northside Medical Center.
The foundation’s Web site says contributions are used to buy medical equipment and fund educational and support programs at Northside.
The foundation’s purpose is to “manage, invest and appropriate” donated funds for the advancement of Northside’s health services, according to the Web site.
The Ohio attorney general’s office is responsible for ensuring the proper use of charitable donations.
“We continue to closely monitor the case to ensure that any use of funds is consistent with the stated purpose of the foundations or charitable trusts,” said Ted Hart, deputy director of media relations for the AG’s office.
“They have a statutory obligation to ensure that these trust funds are being administered in accordance with their purpose,” Melissa Macejko, a Youngstown bankruptcy lawyer, said of the lawyers in the AG’s charitable law section.
Forum’s hospitals and foundations are all charitable assets that fall under the oversight of the AG’s charitable law section, Hart said.
When asked where charitable interests rate in bankruptcy court compared to those of secured creditors, Hart said, “It’s fair to say that charitable law rarely trumps bankruptcy law. It depends on the stated purpose of the charitable assets and what, if any, specific restrictions exist.”
Patricia Brozik, president of the Community Foundation of Mahoning Valley, whose component funds have donated money to the Western Reserve Health Foundation, would speak only in general terms about adherence to donor intent.
If Northside were to close, “it certainly would be a disappointment, and I think it would have an effect on how confident we are that our charitable contributions are used the way they’re intended to be used,” Brozik said.
In bankruptcy court, secured creditors get first priority for payment, but money can be allotted to pay administrative expenses, including lawyers’ fees, subject to caps, if the secured creditors agree to it, said Andrew Suhar, a Youngstown bankruptcy lawyer.
After the secured creditors come priority creditors, including taxing authorities, followed by unsecured creditors, he said.
Secured creditors are those to whom the debtor has pledged assets, he said. An unsecured creditor does not have a pledge of the debtor’s assets.
In the Forum bankruptcy case, the charitable law section of the AG’s office filed a motion for appointment of a patient ombudsman, but U.S. Bankruptcy Judge Kay Woods delayed that appointment unless or until one of the hospitals closes, in which case, one could be appointed immediately, Hart said.
“An ombudsman is in the best position to ascertain the effect of such a closure on debtors’ patients and act to further their best interests,” the filing concluded.
Forum officials did not respond to a request to comment, except to refer The Vindicator to its Web site and that of U.S. Bankruptcy Court.
Meanwhile, Farmer’s Trust Co., which recently acquired the Butler Wick Trust Co., has two cases concerning Forum pending in Mahoning County Probate Court, in which the trust company seeks to redirect foundation money designated for Forum to other recipients.
Farmers filed a complaint on June 26 asking Probate Judge Mark A. Belinky to redistribute the Western Reserve Health Foundation’s share of distributions from the Anne Kilcawley Christman Foundation to seven other designated beneficiaries of the Christman Foundation.
Judge Belinky has halted proceedings in this case pending the outcome of Forum’s bankruptcy case.
“Western Reserve Health Foundation has ceased to function and operate as an independent charitable foundation pursuant to the terms of the living trust,” according to Farmers’ filing on behalf of the Christman Foundation.
The foundation “guaranteed certain loans and bonds on behalf of Forum Health,” the Christman filing says, citing Forum’s own bankruptcy court filings as the source.
Forum “has assumed complete control and direction” of the foundation, and that foundation “no longer operates as a charitable organization as was contemplated at the time the living trust and foundation were established by Anne Kilcawley Christman,” the Christman probate court filing says.
The Christman probate court filing cites Forum’s bankruptcy court filing, in which Forum reports $77,313,877 in total assets and $289,346,478 in total liabilities, including $286,051,823 due and owed to secured creditors.
The bankrupt Western Reserve Health Foundation has $18,135,503 in total assets and $286,059,608 in total liabilities, including $286,043,000 due and owed to secured creditors, according to Forum’s bankruptcy court filings.
Over the past several years, Farmer’s and Butler Wick said they made several requests to the WRHF for explanations concerning how it used, accumulated or spent the money it received from the Christman Foundation.
Farmer’s and Butler Wick said, however, they haven’t received a clear explanation.
Philanthropist Anne Kilcawley Christman of Canfield died in April 2002 at 92, leaving no children. The private independent, educational and charitable foundation established upon her death has $28,363,302 in assets.
Ronald Strollo, Youngstown State University athletic director, said he was on the Western Reserve Health Foundation board of trustees for several years until Forum sent him a letter two years ago, saying his services were no longer needed.
David Coy, general manager of WKBN-TV, also a former foundation board member, said he got a similar letter at the same time.
Neither Strollo nor Coy remember any vote by that board to guarantee loans and bonds on behalf of Forum Health while they were on the board, and Strollo said he believes that decision was made before he became a board member.
If the charitable money ends up in the hands of the creditors, Strollo said he would be “very disappointed.” He added, “Those dollars were gifted by local people for the local hospital to benefit this community.”
Strollo and Coy received their termination letters as the outside community citizen board members were being replaced by an internal group of Forum officers.
James H. Sisek, president and chief executive of the Butler Wick Trust Co., who was chairman of the Western Reserve Health Foundation’s board while Coy and Strollo served on it, did not respond to a request to comment.
In July 2008, before Forum filed for bankruptcy, Butler Wick filed in Mahoning County Probate Court a petition to redirect money from the Kikel Charitable Foundation, which was designated for Forum’s Tod Children’s Hospital, to another Mahoning Valley health-care institution primarily serving children.
Judge Belinky stayed that case, bankruptcy Judge Woods has lifted the stay in this matter, which is still pending before Judge Belinky.
Half of the money, left by sisters Josephine Mary Kikel, Jenny R. Kikel and Angela V. Kikel, was to be distributed annually to Tod, and the other half to St. Elizabeth Health Center’s children’s unit after the Dec. 28, 1998, death of Angela V. Kikel, the last surviving sister. The Kikel Trust has assets of $12,994,647.
Butler Wick said it was unable to administer the Kikel Trust as intended after Tod closed July 1, 2007.
In its response, Forum Health denied that it closed Tod, saying Tod was merely a trade name of Forum, “which continues to provide substantial ongoing services to babies and children in the same building” Tod occupied and elsewhere on the Northside campus. Therefore, Forum said it should continue to receive the Kikel money.
Akron Children’s Hospital, which bought Beeghly Medical Park in Boardman from Forum, said it should get the Kikel money designated for Tod because it is Tod’s successor.
Akron Children’s Hospital said in a probate court filing that it bought all of Tod’s neonatal equipment and has the rights to the Tod Children’s Hospital name.
In U.S. Bankruptcy Court, where Forum filed for Chapter 11 reorganization bankruptcy March 16, the deadline was Friday for bids from potential buyers of one or more of Forum’s hospitals.
Forum’s hospitals are Northside Medical Center in Youngstown, Trumbull Memorial Hospital in Warren and Hillside Rehabilitation Hospital in Howland. The goal of the sale would be to determine if one or more of the hospitals can be sold for enough money to pay all of Forum’s debts in full and in cash.
Another looming deadline is Nov. 30, by which time Forum must reach agreement with its creditors on whether it will follow a merger, acquisition or reorganization path.