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Kozel v. Andrews

Court of Appeals of Ohio, Fifth District

September 5, 2013

MARK D. KOZEL, AS CHAPTER 7 TRUSTEE FOR TWIN CITY HOSPITAL, Plaintiff-Appellant
v.
GREGG ANDREWS, ET AL., Defendants-Appellees

Appeal from the Tuscarawas County Court of Common Pleas, Case No. 2012 CT 05 0474.

For Defendants-Appellees DAVID L. DINGWELL EDMOND J. MACK LEE E. PLAKAS JOSHUA E. O'FARRELL Tzangas, Plakas, Mannos, LTD.

For Plaintiff-Appellant JONATHON M. YARGER VICTOR D. RADEL ANDREW J. YARGER Yarger, Radel & Pentz, LLC.

Hon. W. Scott Gwin, P.J. Hon. William B. Hoffman, J. Hon. Patricia A. Delaney, J.

OPINION

Hoffman, J.

(¶1} Plaintiff-appellant Mark D. Kozel, as Chapter 7 Trustee for Twin City Hospital, appeals the October 12, 2012 Judgment Entry entered by the Tuscarawas County Court of Common Pleas, which granted summary judgment in favor of defendants-appellees Gregg Andrews, et al.

STATEMENT OF THE CASE AND FACTS

(¶2} Twin City Hospital (hereinafter "Twin City") is a small rural acute care hospital located in Dennison, Tuscarawas County, Ohio. Twin City has served the community for over one hundred years.

(¶3} On October 13, 2010, Twin City filed Chapter 11 Bankruptcy. The creditors of Twin City duly elected Appellant as Trustee, replacing the originally appointed Trustee. The proceeding under Chapter 11 was subsequently converted to a Chapter 7 proceeding.

(¶4} On January 23, 2012, Appellant filed a complaint in the U.S. Bankruptcy Court for the Northern District of Ohio, Eastern Division, against Appellees Carol Hoffman, Marge Jentes, Darrell Pancher, John Rypien, Bill Surber, Jim Weaver, Dr. Gregg Andrews, Fred Bollon, Greg DiDonato, Tim McKnight, Rod Rafael, and Doug Ross as defendants. Appellees are the former Board Members of Twin City. Appellant asserted Appellees acted improperly by issuing approximately $17.3 million in tax exempt revenue bonds to fund new construction and renovations to Twin City and to refinance the hospital's outstanding long term obligations while its finances were in poor condition. On March 12, 2012, Appellees filed their motion for abstention, asking the bankruptcy court to exercise its permissive authority to abstain from hearing the adversary proceeding pursuant to 28 U.S.C. § 1334(c)(1), and allow the matter to be heard by the Tuscarawas County Court of Common Pleas. The bankruptcy court granted Appellees' motion and ordered the case be filed in the Tuscarawas County Court of Common Pleas.

(¶5} Appellant filed the instant action on May 22, 2012. A visiting judge was assigned to the case. Appellees filed a Civ. R. 12(B)(6) motion to dismiss. Appellant filed a brief in opposition thereto. Via Order of the Court filed August 15, 2012, the trial court found the parties' motions presented matters outside the complaint and ordered the motion to dismiss be treated as a motion for summary judgment, and permitted the parties to file supplemental briefs and supporting evidence.

(¶6} The evidence presented in support of and in opposition to summary judgment revealed the following. Effective January 1, 2001, Twin City received full accreditation from the Center for Medicare and Medicaid Services for a critical access hospital designation. Such designation allowed Twin City to receive reasonable, cost-based reimbursement for both inpatient and outpatient services provided to Medicare beneficiaries, thereby affecting Twin City's revenue.

(¶7} The Joint Commission on the Accreditation of Healthcare Organizations ("JCAHO"), a peer review organization, conducted independent reviews of hospitals to assess the appropriateness of the admission of Medicare program beneficiaries. In July, 2004, JCAHO conducted an inspection of Twin City after which the organization mandated Twin City upgrade its emergency room or lose its accreditation. JCAHO required Twin City to have construction of the new emergency room underway by the next inspection, which was to be conducted in late 2006. JCAHO's mandate was the result of a number of concerns including the fact stronger standards required better patient flow, increased privacy, and less overcrowding; the outdated infrastructure could not support new technologies; space constraints limited the emergency room's capabilities; and emergency room visits had reached capacity.

(¶8} The limitations of and the need to replace the emergency room were discussed at Board Meetings. Twin City physicians advised Appellees improvements to the emergency room would increase visits, admissions, and the use of outpatient services. Twin City physicians saw the emergency room as "the greatest obstacle to the success of Twin City Hospital". As a result, Appellees retained Alberici Constructors, Inc. of St. Louis, Missouri, in April, 2005, to create drawings for the emergency room capital improvement project. Appellees also retained Carnegie Consulting, Inc. of Akron, Ohio, to facilitate the creation of a comprehensive financial feasibility study and implementation plan to determine the viability of the project. In July, 2005, the cost of the emergency room capital improvement project was estimated at $10 million. Carnegie investigated possible lenders. Appellees evaluated a variety of fundraising and grant opportunities. Carnegie advised Appellees the "[a]verage trend is a 20% increase in volumes after opening new construction."

(¶9} In 2005, Twin City had a net operating income of $24, 870. However, in 2006, the operating income fell to negative $407, 216. The operating income loss continued in 2007, at negative $795, 000; in 2008, at negative $895, 000; and in 2009, at negative $2, 146, 000.

(¶10} Appellees began the fundraising efforts and by January, 2006, $2.8 million in donations had been pledged to Twin City. In addition, the City Councils of Uhrichsville and Dennison approved a resolution to place a property tax levy which would generate $1.5 million over a ten year period. The levy passed by a two to one margin.

(¶11} At a Special Board Meeting held November 14, 2005, Appellees received a "Rural Hospital Replacement Study" which outlined the impact of new construction on the operations and bottom lines of critical access hospitals. ...


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