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Motions resolved in legal dispute between Summa, Western Reserve

By PHIL KEREN Editor Published: February 26, 2017 12:00 AM
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The legal dispute between Summa Health System and Western Reserve Hospital Partners and Western Reserve Hospital, over the operation and ownership of the hospital at 1900 23rd St. in Cuyahoga Falls, is over for the moment. On Jan. 31, Summit County Common Pleas Court Judge Lynne Callahan issued several rulings, clearing the slate of all outstanding motions in the case. The majority of the rulings favored Summa.

Back in February 2015, Summa filed a legal complaint in Summit County Common Pleas Court seeking to maintain its 40 percent ownership of Western Reserve Hospital. Western Reserve Hospital Partners, the management company for the hospital, had voted in November 2014 to terminate a partnership which had been established in 2009, alleging Summa had violated their operating agreement.

"Legal counsel is reviewing the rulings and considering the appropriate next steps," said Mark Bosko, Vice President of Marketing and Public Relations for Western Reserve Hospital.

Meanwhile, Michael Bernstein, system director of corporate communications for Summa Health System, said "We are very pleased with the rulings."

Judge Callahan on Jan. 31 denied Western Reserve Hospital Partners' motion for judgment notwithstanding the verdict and a motion for a new trial; denied the Hospital's motion challenging the jury's July 2016 decision to not award the Hospital $2.5 million in damages, even though the jury found Summa breached the lease amendment between the parties; sided with Summa in the Partners' dispute of the $906,464 in compensatory damages that was awarded to Summa; and lifted two stays that were issued in the case that delayed some rulings from taking effect while post-trial motions were addressed.

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Judge Callahan on Jan. 3 ruled against the Partners' claim that Summa violated a Nov. 18 stay order when it hired two physicians. The Partners claimed Summa hiring the doctors violated the court's order that stated: "[t]he parties shall take no action in contravention to the non-compete provision during the pendency of the post-trial motions." Callahan ruled Summa hired the doctors before the stay order was issued and did not violate the order.

Judge Callahan also ruled Jan. 3 against Summa's claim that the Partners violated the court's ruling regarding selection of a third appraiser to determine the "fair market value" of the property.

On that same day, Judge Callahan granted dissolved a Nov. 18 stay that prohibited the parties from "taking any action in contravention of the operating agreement's non-compete provision"

"Our relationship with our patients and the communities we serve has, and continues to be extremely positive, and we will not allow these continuing distractions to alter our patient-centered mission in any way," said Bosko. "It is our hope that the announced leadership changes at Summa Health signal a renewed interest toward resolving this dispute, allowing Western Reserve Hospital to move forward with its distinct brand of delivering care to the community."

Western Reserve Hospital Partners made the motions for judgment notwithstanding and a new trial in connection with a jury in summer 2016 awarding $906,464 in compensatory damages to Summa after ruling the Partners breached the Management Services Agreement.

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The Hospital and Partners entered a Management Services Agreement on June 22, 2009. In the deal, the Partners agreed to fill management positions for the Hospital, including Chief Medical Officer and Vice President of Quality. The Partners were paid a management fee that was determined by figuring out the "fair market value" of the full-time salaries for each post filled, according to court records.

The Partners argued Summa "failed to provide written notice of its dispute regarding the management fee " but Judge Callahan ruled, "notice is only required when one party believes the fair market value of services has changed. There was no such evidence presented at trial."

The Partners had also disputed the $906,464 in compensatory damages that was awarded to Summa, but Judge Callahan sided with Summa.

The Hospital leased the site at 1900 23rd St. from Summa in 2009 for three years, according to the Jan. 31 court ruling. Through an amendment, the groups extended the lease until June 20, 2015. The Hospital had the option to purchase the property at fair market value. The parties' lease set up a fair market value of $19.9 million based on an evaluation by Richard Racek, according to court records. The hospital exercised its purchase option in June 2015, a move which required the parties to close on the deal by Oct. 2, 2015. The hospital rejected Racek's valuation, and hired its own appraiser, John Emig, who valued the property at $5.6 million. Due to the disparity in valuations, the lease required Racek and Emig to choose a third appraiser. With involvement from both parties' attorneys, a third appraiser was selected, but rejected by the Hospital after it was revealed the appraiser had assessed the property in a different matter, according to court records.

The Hospital Board voted to ask Summa to agree to Racek and Emig selecting another appraiser, and added that if Summa did not agree, Judge Callahan should be asked to resolve the dispute. Meanwhile, Summa wanted to use the third appraiser that was initially selected. When the lease expired June 30, 2015, the hospital started paying holdover rent, according to court records.

Although the jury found Summa breached the lease amendment and ordered Summa to allow Racek and Emig to choose a different third appraiser, it did not award the $2.5 million in damages sought by the Hospital. The Hospital argued that Summa's breach of the lease amendment was the sole reason that the Hospital had to pay $2.5 million in holdover rent to Summa. Judge Callahan disagreed, saying that "substantial competent evidence was presented to the jury that could have allowed it to conclude that the Hospital played a role in its own damages."

Judge Callahan also noted Summa withdrew its motion for a new trial on Dec. 12, 2016.

Email: pkeren@recordpub.com

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