Judge rules that county must pay Erlanger $8.7 million, appeal filed
Judge Harold Murphy’s ruling in Erlanger hospital’s favor regarding its $10 million lawsuit against Walker County was neither welcomed nor unexpected.
The U.S. Circuit Court judge on Tuesday, Aug. 23, ruled that Walker County pay $8.7 million, plus interest, to Chattanooga-based Erlanger Health System.
“Walker County is not surprised at the ruling made by Judge Murphy on the Erlanger motion for summary judgment,” Stuart James, the county’s special legal counsel, said when the judgment was announced. “With respect to Judge Murphy, Walker County takes issue with that ruling as it is entitled to do in our system of justice.
“Walker County is, therefore, going to appeal the ruling and expects to file the appropriate notice of appeal tomorrow (Wednesday).”
The suit stems from an agreement made nearly five years ago when Hutcheson hospital was broke and on the verge of closing. To prevent that, the Hospital Authority of Walker, Dade & Catoosa Counties entered into a management arrangement with Erlanger.
As part of that deal, signed in the spring of 2011, Erlanger assumed day-to-day opera- tions of the Northwest Georgia hospital and provided a $20 million letter of credit for working capital for Hutcheson Medical Center.
That line of credit was secured by Erlanger gaining a lien against property owned by the Authority in Walker and Catoosa counties, and by an intergovernmental agreement that those counties would equally back the $20 million loan.
But losses continued, the partnership between the two hospitals soured and the Authority board of directors in August 2013 terminated the management agreement, claiming Erlanger had failed to deliver promised services or expanded Hutcheson’s operations.
Erlanger sued Hutcheson in February 2014 and in the autumn of 2014 attempted to foreclose on the hospital in an effort to recover its $20 million loan. Foreclosure was put on hold when, three months later, the Authority filed for Chapter 11 protection in federal bankruptcy court.
After operating for about a year under guidance of a court-appointed trustee, Hutcheson closed and its assets were sold in December 2015.
This summer, on the day that Erlanger closed the books on fiscal year 2015, Catoosa County government, as part of an out-of-court settlement of its share of the loan guarantee, turned over $6.2 million to the Tennessee hospital.
Walker County continued its defense against Erlanger’s lawsuit, claiming the county has sovereign immunity because under state law, governments or governmental enti- ties like the Authority, cannot be sued.
Judge Murphy rejected that argument, noting in his ruling, “…. The Georgia Courts have found that intergovernmental agreements in financing arrangements similar to the one presented in this case are valid.”
In sum, the federal judge said a contract is a contract and should be honored.
“Erlanger has shown an unwillingness to settle (with Walker County), and has made misrepresentations in response to open records request made to it showing a pattern of conduct resulting in large expenses relating to the litigation of the Hutcheson issues,” James said. “I do not expect Erlanger to be willing to discuss settlement. Therefore, I think it is imperative to have these important legal issues answered. The issues impact every county and city government in the state of Georgia. The issues we raise will be of such a nature that either the 11th Circuit Court of Appeals or the Georgia Supreme Court should address them providing clarity in the law.”
Judge Murphy’s judgment concludes with his granting Erlanger’s motion for summary judgment in the amount of $8,705,000 in principal, ex-
clusive of interest, attorneys’ fees and costs. That judgment also noted that any award of interest, fees and costs must be decided by a jury trial.
After the judge's ruling in regards to Erlanger's motion for summary judgement, Erlanger Chief Administrative Officer Gregg Gentry said, “We believe County Commissioner Bebe Heiskell continues to have great respect for Judge Murphy and the law and will honor the judgment of a federal court.”
James’s appeal, filed Aug. 24, requests the 11th Circuit Court of Appeals to certify the questions raised by Erlanger and responded to by Walker County.
“The court has given its reasons for granting the summary judgment,” James said. “In our system of justice parties often disagree with what judge’s say in rulings like this one. When a disagreement arises over an issue of law, as in this case, a party is entitled to appeal the court’s decision. Walker County has to exercise that right of appeal so as to protect the interests of its taxpayers.”