Judge tosses suit against Harris in sale of hospitals

A federal judge has dismissed a California hospital chain’s claim that Sen. Kamala Harris, when she was the state attorney general, catered to union demands and imposed unreasonable conditions on a proposed $843 million purchase of a group of nonprofit health facilities.

Prime Healthcare Services failed to show that it was the victim of discrimination or that Harris knowingly violated any laws, U.S. District Judge Gonzalo Curiel of San Diego said Wednesday. He said the hospital company was trying to make a constitutional issue out of “discretionary state decisionmaking.”

Prime Healthcare reached agreement with the financially struggling Daughters of Charity Health System in October 2014 to buy five California hospitals, including Seton Medical Center in Daly City and O’Connor Hospital in San Jose, and a nursing home in Moss Beach.

But Harris, who held veto power over the sale, said she would approve it only if Prime Healthcare agreed to keep the facilities open for 10 years. The company refused, saying it did not want to be saddled with a decade of deficits.

Facing possible closure of its hospitals, Daughters of Charity reached an agreement in December 2015 with a New York hedge fund, BlueMountain Capital Management, for a $260 million investment that would keep them open for three years. BlueMountain would then have an option to buy the hospital group, now called Verity Health System, and agreed that, as the new owner, it would keep them operating for 10 years. Harris approved the transaction.

In its suit, Prime Healthcare accused Harris of conspiring with the Service Employees International Union and its United Healthcare Workers West affiliate to block the sale.

Since 2009, the company had fended off the union’s efforts to win the right to represent workers at its hospitals. Prime Healthcare noted that the union had contributed to Harris’ campaigns for attorney general, and alleged that union leaders had promised large contributions to her Senate campaign if she prevented Prime Healthcare from acquiring the Daughters of Charity hospitals.

But Curiel said those allegations, even if accurate, would not add up to a violation of the company’s rights.

State law gave the attorney general “broad discretion to impose such conditions, where the transaction — the largest of its kind — affected multiple communities, and ... the conditions were otherwise supported by plausible reasons,” such as “access to continuing health services,” the judge said.

Gregory Hafif, a lawyer for Prime Healthcare, declined to comment. The company could appeal the ruling.