Marin General Sues Sutter Health for $120 Million

Marin General Hospital Corp. has filed a suit against Sutter Health Corp. to recover more than $120 million that Marin claims Sutter improperly took from hospital's accounts for four years.

The suit alleges that since 2006, Sutter removed more than $30 million a year from Marin General's reserves, moving the money into Sutter accounts for its own benefit. In the five years before that, Sutter had made "cash sweeps" of less than $3 million a year.

"Sutter utterly ignored its fiduciary responsibility to Marin General and instead chose to line its own pockets with the hospital's reserves," says James J. Brosnahan, senior partner at Morrison & Foerster, the lead litigation attorney for the Marin General board. "It's improper, immoral and reprehensible conduct by a company that was trusted to manage this vital community resource."

Kathie Graham, communications and public affairs director for Sutter Health's West Bay Region, says she couldn't specifically comment on the suit because Sutter hasn't reviewed the allegations. "However, we can say that it is indeed regrettable that the Marin Healthcare District has elected to pursue legal action as there is no basis whatsoever for any such action," she added.

"Sutter Health complied in all respects with the legal agreements governing the transfer of Marin General Hospital and expended considerable resources above and beyond what we were required to do so as to ensure a smooth transition of the hospital.  We have responded to the District's concerns throughout the transition and have explained our financial policies to the satisfaction of the regulatory agencies that govern non-profit healthcare entities.  While we had hoped to put the contentious relationship of the past behind us, Sutter Health will now vigorously defend itself and will likewise vigorously pursue all claims against the Marin Healthcare District."

The alleged behavior detailed in the lawsuit, filed Thursday in Superior Court in Marin County, began when Sutter Health Corp. sought to end its 20-year management contract with Marin General five years early. After agreeing to a 2010 termination, Sutter began the massive cash transfers and sought to undermine Marin General as a future competitor, the suit alleges.

 "Sutter asked Marin General for a 'divorce' and then decided they'd just clean out the bank account before the divorce became final," Brosnahan says. "The Board has worked for months to get Sutter to return the $120 million that doesn't belong to them, and time and again they have refused. Now they will have to explain to a judge and jury this massive wealth transfer and conflict of interest."

Sutter's improper and intentional actions depleted the reserves required to invest in the long-term future and continued modernization of the community's major hospital and its only trauma center, Marin General alleges.

"This action is not about money, but what that money represents: The ability for us to provide for the future health and welfare of Marin General Hospital and the people of Marin County," says Tim Sowerby, MD, of the Marin General Hospital Board. "The board has a fiduciary responsibility to recover the money Sutter took to fund fully our reserves—the down payment on the Hospital's future. That will enable Marin General to continue offering the community the highest level of healthcare and the most modern facility today and into the future."

Marin General alleges that Sutter removed the more than $120 million by creating a conflicted hospital governing board that included Sutter employees, who were paid by Sutter and depended for their livelihood and career advancement on Sutter management, and others who would follow Sutter's direction.

The Sutter board allegedly had detailed knowledge of the huge sums of cash taken by Sutter—including exact amounts—and the effect the removal of this money had on Marin General's finances. Because of the clear conflict of interest, however, the board never discussed or questioned the appropriateness of Sutter seizing this money, despite the damage being done to Marin General, Marin General alleges in its suit.

While Sutter was allegedly removing millions from Marin General, it also was investing millions in active healthcare operations in Marin County, in direct competition with Marin General and in violation of its agreements. Sutter sought to lease most of the available medical office space in close proximity to Marin General, refused to recruit physicians for Marin General, purchased a plot of land for new Sutter healthcare facilities, and even forced Marin General to pay for Sutter's pension obligations, Marin General alleges.