Health Care and Community Health Network and Banking & Finance and Investing and Lawsuits and Westview Hospital and Hospitals and Health Care & Life Sciences and Health Care & Insurance and Law

Not following directions could bite local hospital

October 31, 2011

Failing to follow directions could cost an Indianapolis-based health care provider tens of thousands of dollars.

Westview Hospital might be on the hook for $160,000 because it failed to communicate properly to Lehman Brothers when it decided to stop paying on an interest-rate swap arrangement after Lehman collapsed in September 2008.

Now Westview—the newest addition to the Indianapolis-based Community Health Network hospital system—is suing its financial adviser and law firm for negligence and breach of fiduciary duty, essentially because they failed to read the directions on Westview’s agreement with Lehman.

The terms of the swap agreement, which hedged against interest-rate swings on $14.4 million in adjustable rate bonds, said the agreement could be terminated only by mail or in person, not by fax.

But in November 2008—two months after Lehman Brothers went out of business—Westview faxed a notice of termination, saying it was no longer paying for the interest-rate swap agreement and was ending it.

Westview says it did so on the instructions of its financial adviser—Columbus, Ohio-based Lancaster Pollard & Co.—and the law firm used by the adviser, Cincinnati-based Peck Schaffer & Williams LLP.

In September 2009, representatives of the defunct Lehman Brothers approached Westview, saying they had no record of Westview terminating its interest-rate swap agreement. When Westview produced copies of its faxes, the Lehman representatives said the fax messages were insufficient under terms of the agreement and would not hold up under New York law.

Lehman is trying to collect on the remaining amounts owed on the arrangement—$159,983—plus interest. Lehman has initiated an alternative dispute resolution proceeding against Westview to collect the money, according to Westview’s lawsuits.

Westview wants Lancaster Pollard and Peck Shaffer to pay its bill to Lehman, plus attorney fees.

Lancaster Pollard specializes in financing for hospitals and long-term care facilities. Peck Shaffer specializes in municipal bond financing.

Calls to attorneys representing both firms were not returned. The firms have not yet responded to the lawsuit, which was intitially filed in Marion County but was transferred to the U.S. District Court in Indianapolis.

Calls to Westview’s attorney and to its spokeswoman were not returned.

Westview, a 67-bed hospital at West 38th Street and North Guion Road, merged in June with Community Health Network. The deal also included Westview’s HealthPlex sports club and 180-member physician network.

Westview had annual revenue of $106 million in 2009, the most recent figure available. The hospital said it needed to be part of a larger organization to handle financial pressures and deal with the complexities of the 2010 health care reform law.

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