In re Ellwood City Cmty. Health Found.
| Decision Date | 21 July 2020 |
| Docket Number | No. 1001 C.D. 2019,1001 C.D. 2019 |
| Citation | 236 A.3d 141 |
| Parties | IN RE: The ELLWOOD CITY COMMUNITY HEALTH FOUNDATION, a Pennsylvania Nonprofit Corporation Appeal of: The Ellwood City Community Health Foundation |
| Court | Pennsylvania Commonwealth Court |
Michael Clayton Falk, Philadelphia, for appellant.
BEFORE: HONORABLE P. KEVIN BROBSON, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge
OPINION BY JUDGE BROBSON
The Ellwood City Community Health Foundation (Foundation) appeals from an order of the Court of Common Pleas of Lawrence County, Orphans’ Court Division (Orphans’ Court), dated June 24, 2019. The Orphans’ Court denied the Foundation's Petition for Approval of the Separation of the Foundation and ECH Legacy, Inc. (ECH Legacy) and the Foundation's Amended and Restated Articles of Incorporation and Bylaws (Petition). For the reasons set forth below, we reverse the Orphans’ Court order.
ECH Legacy, which was formerly known as Ellwood City Hospital, is a Pennsylvania nonprofit corporation that operated a general acute care community hospital (Hospital) in Ellwood City, Pennsylvania. (Reproduced Record (R.R.) at 6a.) The Foundation, which was formerly known as Ellwood City Hospital Foundation, is a Pennsylvania nonprofit corporation that, pursuant to its current articles of incorporation, operates exclusively for the benefit and support of ECH Legacy. (Id. at 9a-10a, 335a-43a.) In November 2012, ECH Legacy, with the approval of the Orphans’ Court, transferred its endowment funds (Endowment Funds), estimated at that time to be approximately $25,000,000, to the Foundation. (Id. at 10a-11a.) Since that time, the Foundation has served as a public charity supporting organization for ECH Legacy. (Id. at 11a, 124a.) In that role, the Foundation has been responsible for holding and managing the Endowment Funds and has used the Endowment Funds exclusively to support ECH Legacy's operation of the Hospital. (Id. at 7a, 11a.)
On September 22, 2017, the Orphans’ Court approved an asset purchase agreement (Asset Purchase Agreement) between ECH Legacy and Americore Health, LLC and Ellwood Medical Center, LLC (collectively, Americore) for the sale and transfer of substantially all of ECH Legacy's assets to Americore, a for-profit company. (Id. at 11a.) Pursuant to the terms and conditions of the Asset Purchase Agreement, Americore and ECH Legacy agreed that Americore would assume sponsorship of and liability for the Retirement Plan for Employees of Ellwood City Hospital (Pension Plan). (Id. at 242a-43a.) Thereafter, on October 31, 2017, ECH Legacy transferred its assets to Americore, and Americore took control of the Hospital's operations. (Id. at 11a, 88a.) On that same date, ECH Legacy and the Foundation entered into a separation agreement (Separation Agreement), pursuant to which: (1) the Foundation agreed to provide ECH Legacy with final funding in the amount of $11,000,000 for the payment of ECH Legacy's known debts, liabilities, and expenses and $2,000,000 for the creation of a reserve to satisfy any of ECH Legacy's unknown liabilities; (2) ECH Legacy agreed to release and discharge the Foundation from its responsibility to support ECH Legacy and its liability for any of ECH Legacy's obligations or liabilities; and (3) upon the Orphans’ Court's approval of the separation of ECH Legacy and the Foundation, the Foundation's affiliation with ECH Legacy would terminate and the Foundation would amend its articles of incorporation and bylaws to reflect the separation of ECH Legacy and the Foundation, to expand the Foundation's charitable purposes beyond the exclusive support of ECH Legacy, and to change the Foundation's tax-exempt status from a public charity to a private foundation. (Id. at 11a-12a, 88a-92a, 330a-31a.)
On March 12, 2019, the Foundation filed its Petition with the Orphans’ Court, seeking, inter alia , approval of the separation of ECH Legacy and the Foundation and approval of the Foundation's proposed amended and restated articles of incorporation and proposed amended and restated bylaws. In its Petition, the Foundation indicated that, under its new objectives, which included "to improve, foster, promote, and enhance the quality of life and health for the general public of Ellwood City, Pennsylvania, the Counties of Lawrence and Beaver, Pennsylvania, and the surrounding geographical areas," the Foundation intended to support, inter alia , the Meals on Wheels program operating in Ellwood City. (Id. at 13a-14a.) The Foundation also indicated that the Endowment Funds, which include both restricted and unrestricted assets, had a total market value of $8,989,392. (Id. at 15a-17a, 75a, 99a-100a.) The Pennsylvania Office of the Attorney General (OAG), on behalf of the Commonwealth of Pennsylvania (Commonwealth), filed a response to the Foundation's Petition, representing that the Commonwealth had no objection to the proposed separation of ECH Legacy and the Foundation but requesting that the Orphans’ Court enter an order requiring the Foundation to provide a complete accounting of the Endowment Funds from November 26, 2012, to the present. (Id. at 76a-81a.)
(Id. at 95a-96a.) Matthews testified further that, following the transfer of ECH Legacy's assets and the Hospital's operations to Americore, the Foundation has become a private foundation because it no longer qualifies as a public charity supporting organization. (Id. at 123a-24a.) Matthews also explained that, under its new proposed purpose, the Foundation intends to fund programs that support public health, including "pregnancy programs, prevention, drug and alcohol programs, [and] environmental programs that would promote better health[y] living," as well as programs for senior transportation, family and child abuse, and medical education for individuals who contemplate going into the medical field and remaining within the Ellwood City community. (Id. at 98a-99a.)
Matthews testified further that, following the closing on the Asset Purchase Agreement and the transfer of ECH Legacy's assets to Americore, the Foundation transferred $13,000,000 to ECH Legacy in accordance with the Separation Agreement—$11,000,000 to satisfy ECH Legacy's outstanding debts and liabilities and $2,000,000 for any unknown liabilities. (Id. at 90a-91a.) He indicated that the total funds remaining and available to ECH Legacy from such transfer at the time of the June 12, 2019 hearing was $2,420,584, and that ECH Legacy has certain investments totaling approximately $1.9 million, which ECH Legacy will receive in 2022. (Id. at 104a-05a.) Matthews also explained, however, that ECH Legacy has total estimated liabilities of $1,269,239. (Id. at 105a, 109a.) He indicated that ECH Legacy is a defendant in 5 medical malpractice cases that have not yet been settled or otherwise resolved. (Id. at 106a.) In connection with those cases, ECH Legacy could be responsible for an additional $9,720 in legal expenses (ECH Legacy has a $10,000 deductible for legal expenses per case), but that any further liability should be covered by a $20,000,000 tail coverage insurance policy that ECH Legacy purchased at the time that it sold its assets to Americore. (Id. at 106a-07a.) In addition to the medical malpractice cases, ECH Legacy also has potential liability for: (1) 3 workers’ compensation claims in the amount of $483,830 (ECH Legacy was self-insured up to $500,000 per claim); (2) unemployment compensation claims to individuals who were displaced in connection with the sale of its assets to Americore in the approximate amount of $13,000 (ECH Legacy was self-insured); and (3) a payback to the Centers for Medicare and Medicaid Services in the amount of $762,960. (Id. at 107a-09a.)
Matthews also testified that, on January 16, 2018, ECH Legacy made its final annual contribution to the Pension Plan in the amount of $510,000 for plan year May 1, 2016, to April 30, 2017, as set forth on the 2016 Form 5500 Annual Return/Report of Employee Benefit Plan (Form 5500). (Id. at 116a-17a, 487a-92a.) He further explained that, even though ECH Legacy had already transferred its assets to Americore and Americore had assumed responsibility for the Pension Plan and had become the Pension Plan's sponsor prior to that date, ECH Legacy made the annual contribution on January 16, 2018, because ECH Legacy was the Pension Plan's sponsor for plan year May 1, 2016, to April 30, 2017. (Id. at 118a.) He also explained that Americore, as the Pension Plan's sponsor for plan year May 1, 2017, to April 30, 2018, filed the 2017 Form 5500 electronically in February 2019, but that Americore did not make the required annual contribution to the Pension Plan in the amount of $500,320. (Id. at 115a-16a, 118a-21a, 134a-35a, 480a-85a.) Matthews indicated that he did not know why Americore had not made the annual contribution for plan year May 1, 2017, to April 30, 2018, or if Americore would make that annual...
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