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Hospital owner, creditor tangle

Published Oct. 2, 2005

Bankruptcy court is hardly ever fun. But a hearing Thursday was almost entertaining _ especially when a verbal spat erupted between the attorneys for Hernando County and the creditors for Regional Healthcare Inc.

The reason? A resolution that was passed this week by county commissioners in which the commission blasted a reorganization plan filed by Regional Healthcare's largest creditor, CNA Insurance Cos. of Chicago.

"The county will vigorously oppose CNA's plan. The adoption of the plan would be treated as a violation of our lease," said Jeff Beck, the county's bankruptcy lawyer. The county is involved because it leases Brooksville Regional Hospital to Regional Healthcare.

In response, CNA's attorney attacked the commissioners' resolution, accusing them of being in a "Vulcan mind-meld" with Regional Healthcare's board.

"The county's motion is interesting," said CNA attorney William Smith, who argued that CNA should have been able to make a presentation to commissioners before they decided to endorse Regional Healthcare's plan.

"But no, they "vehemently oppose' our plan," boomed Smith, with a Yosemite Sam-like jeer.

The commissioners' action has brought a new twist to the proceedings. Namely, could Hernando County taxpayers be liable for the $57-million worth of bonds that Regional Healthcare defaulted on in 1993, when the company declared bankruptcy?

Yes, because of the contractual obligation the county has to CNA from the original bonds that were issued, said Smith.

"It doesn't sound like they're fulfilling their contractual obligation," because of that resolution, said Smith. "If indeed that is the case, we can collect the money owed from the county. Can we sue? Yes. I hope it won't come to that."

The county hasn't broken its contract, said Beck, who thinks the county isn't obligated to support a plan that commissioners think could harm Regional Healthcare and its facilities, Brooksville Regional and Spring Hill Regional hospitals and PineBrook Regional Medical Center.

"CNA's bravado is that the county is obligated under the bonds to support the bond holders," Beck said. "Their position is that we have to blindly follow their plan."

The argument continued after the hearing, when Smith and Beck briefly engaged in a heated shouting match. During the hearing, however, Judge Thomas Baynes allowed both sides to bicker only briefly.

"He (Beck) can take his best shot. You (Smith) can take as many shots as you want," Baynes told the lawyers. But if they wanted to continue, "you can go outside on state property and have it out."

One thing the judge didn't agree with was the notion that the county had some right to say whether CNA's plan (which calls for the insurance company to take over control of Regional Healthcare) is confirmable.

"No. That's for me to decide," Baynes said. "(The county) can't say that (CNA's) plan can't be confirmed. That's my job. In fact, I can see that neither one of the plans is confirmed."

The main reason for the hearing was so both sides could point out the failings in each other's reorganization plans. Throughout the hearing, Baynes reminded the sides what he thinks the plans need to include.

"My only request of any (plan) is that the information in the thing is correct. If there is any litigation, then (it) needs to be spelled out," Baynes said. "It is not a campaign document. It's not where people vent their feelings about one another."

Although Regional Healthcare's attorney questioned whether some of the creditors should be sent ballots, Baynes dismissed the argument. Better to have everyone vote now so that more ballots don't have to be sent later, Baynes said.

"Sure, send them all a ballot," said Baynes before adding mischievously: "It doesn't mean that their vote is going to count."

Round 2 begins Nov. 17 when Regional Healthcare and CNA return to court with their final plans. Once they have been approved by the court, the plans will be sent _ along with ballots _ to all of Regional Healthcare's creditors. Everyone will return to court in January to hear how the vote went, and Baynes then will make a decision.