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St. Joseph Health Services of Rhode Island, Inc. v. St. Josephs Health Services of Rhode Island Retirement Plan

Superior Court of Rhode Island, Providence

November 14, 2018

ST. JOSEPH HEALTH SERVICES OF RHODE ISLAND, INC.
v.
ST. JOSEPHS HEALTH SERVICES OF RHODE ISLAND RETIREMENT PLAN, as amended

          For Plaintiff: St. Joseph Health Services of Rhode Island, Inc. St. Josephs Health Services of Rhode Island Retirement Plan, as amended Richard J. Land, Esq. George E. Lieberman, Esq.

          For Defendant: Interested Parties: William M. Dolan, Esq. Arlene M. Violet, Esq. Howard Merten, Esq. Neil F. Kelly, Esq. Steven J. Boyajian, Esq. Christopher Callaci, Esq. Stephen F. DelSesto, Esq. Scott F. Bielecki, Esq. Max Wistow, Esq. Jeffrey W. Kasle, Esq. Christopher K. Sweeney, Esq. Maria R. Lenz, Esq. Joseph V. Cavanagh III, Esq. Christopher J. Fragomeni, Esq. Elizabeth A. Wiens, Esq. David A. Wollin, Esq.

          DECISION

          STERN, J.

         Stephen Del Sesto, Permanent Receiver (Receiver) for the St. Josephs Health Services of Rhode Island Retirement Plan (Plan), petitions this Court for an order adjudging Prospect CharterCARE, LLC (PCC) in contempt for filing petitions for declaratory relief (Petitions) with the Rhode Island Attorney General (AG) and the Rhode Island Department of Health (DOH).[1] The Receiver contends PCC filed the Petitions in violation of an injunctive order (Injunctive Order) enjoining actions against the Plan's assets, and requests as relief an order requiring PCC to withdraw its Petitions and contribute fifty thousand dollars to the Plan.[2]

         I

         Facts and Travel

         On August 18, 2017, this Court entered an order appointing the Receiver to temporarily "take control" of the Plan which, due to its severe undercapitalization, had been placed into receivership. Order Appointing Temporary Receiver ¶¶ 1-3. Soon after appointing the Receiver, this Court allowed the Receiver's petition to hire the law firm of Wistow, Sheehan & Lovely, PC as counsel (Special Counsel) to investigate the circumstances resulting in the Plan's underfunding. Order Approving Receiver's Emergency Pet. to Engage Special Legal Counsel. On October 27, 2017, this Court converted the Receiver's temporary appointment into a permanent one and entered the Injunctive Order enjoining actions against the Plan's assets as follows:

"That the commencement, prosecution, or continuance of the prosecution, of any action, suit, arbitration proceeding, hearing, or any foreclosure, reclamation or repossession proceeding, both judicial and non-judicial, or any other proceeding, in law, or in equity or under any statute, or otherwise, against the Respondent or any of its assets or property, in any Court, agency, tribunal, or elsewhere, or before any arbitrator, or otherwise by any creditor, corporation, partnership or any other entity or person, or the levy of any attachment, execution or other process upon or against any asset or property of the Respondent, or the taking or attempting to take into possession any asset or property in the possession of the Respondent or of which the Respondent has the right to possession, or the cancellation at any time during the Receivership proceeding herein of any insurance policy, lease or other contract with the Respondent, by any of such parties as aforesaid, other than the Receiver designated as aforesaid, without obtaining prior approval thereof from this Honorable Court, in which connection said Receiver shall be entitled to prior notice and an opportunity to be heard, are hereby restrained and enjoined until further Order of this Court." Order Appointing Permanent Receiver ¶ 15 (emphasis added).

         On August 31, 2018, the Receiver executed a proposed settlement agreement (PSA) with various hospital entities-CharterCARE Community Board (CCCB), St. Joseph Health Services of Rhode Island (SJHSRI), and Roger Williams Hospital (RWH) (collectively Settling Defendants)-against whom the Receiver had filed claims[3] on behalf of the Plan participants. See Receiver's Pet. for Settlement Instr. Ex. A. Pursuant to the PSA's terms, CCCB agrees to hold its "Hospital Interest"[4] in trust for the Receiver, and that the Receiver will have the "full beneficial interests therein." Id. ¶ 1(d). The Settling Defendants agree to "cooperate" and "take all reasonable measures" necessary to obtain what the PSA refers to as an "Order Granting Preliminary Settlement Approval" and an "Order Granting Final Settlement Approval." Id. ¶ 9. The PSA defines the Order Granting Final Settlement Approval as one which approves the PSA "1) as fair, reasonable, and adequate, 2) as a good faith settlement under R.I. Gen. Laws § 23-17.14-35, 3) awarding attorneys' fees to [Special Counsel], and 4) such other and further relief as the Court may direct." Id. ¶ 1(x). The PSA's "Effective Date" is defined as "the date upon which the Order Granting Final Settlement Approval is entered." Id. ¶ 1(m). The PSA also contains two conditions that, if triggered, would render the PSA "null and void": (1) failure to obtain the Providence County Superior Court's authority to proceed with the PSA; and (2) failure to obtain the Order Granting Final Settlement Approval.[5] Id. ¶¶ 2, 35.

         On September 4, 2018, the Receiver filed a petition for instructions requesting that this Court authorize the Receiver to proceed with the PSA. See Receiver's Pet. for Settlement Instr. 1. PCC objected to the Receiver's petition and attached to its objection a copy of the Petition it had filed with the AG on September 27, 2018. Mem. Supp. of Joint Obj. of Prospect Medical Holdings, Inc. Ex. B, Sept. 27, 2018. PCC stated at oral argument that it filed the Petition with the DOH on or about the same time. The Petitions both seek a determination that prior administrative rulings-implicating the Hospital Conversions Act (HCA) and the Health Care Facility Licensing Act (HLA) allowing the sale of various hospital assets to PCC[6]-preclude CCCB from assigning the Hospital Interest to the Receiver. See id. The Petitions seek four declarations:

"(a) If the HCA and HLA are properly interpreted and applied and/or the Final Conversion and CEC Decisions are properly applied to the Petitioner, the transfer proposed by the Receiver to advance the [PSA] violates the HCA and HLA, as it is at variance with the Final Conversion and CEC Decisions. Thus, the Receiver would have to apply to the administrative agencies with jurisdiction for relief;
"(b) If the HCA and HLA are properly interpreted and applied, the transfer proposed by the Receiver to advance the [PSA] is a 'conversion' as defined by §4(6) of the HCA, as it would result in the transfer of more than 20% of the voting control of the Acquiror. Thus, the Receiver could not effectuate such a conversion without application to, review, and approval by the Departments of Health and/or the Department of Attorney General;
"(c) If the Receiver applied to modify the Final Conversion and/or CEC Decisions, or applied for the review and approval of the proposed conversion embodied within the [PSA], the Receiver's application would be barred by the doctrine of administrative finality; and
"(d) The Receiver's cause of action in the Federal Court Litigation alleging Plan liability as against the Acquiror is barred by the doctrine of res judicata and the bar should be enforced in the first instance by the administrative agencies with jurisdiction over the Conversion and CEC Proceedings.[7]" See id. ¶ 47.

         On October 29, 2018, this Court issued a Decision approving the PSA subject to two conditions. This Court will consider two main issues: (1) whether the Receiver's contingent right in the Hospital Interest constitutes an "asset" of the Plan's estate; and (2) if so, whether the Petitions are actions "against" that asset.[8] If this Court answers both questions affirmatively, then PCC violated ...


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