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Winona troubles spread: Ex-owner of closed hospital seeks bankruptcy protection, dampening creditors' hopes

November 7, 2005

Winona Memorial Hospital's former owner filed for bankruptcy last month, a move that's likely to hinder efforts to recover millions of dollars for the defunct Indianapolis hospital's creditors.

Texas-based Leland Medical Centers Inc. filed Oct. 14, three days after its CEO, Charles Simons, filed for personal bankruptcy, according to bankruptcy court records.

The privately held company, which was created in 1992, once owned a small chain of Texas hospitals with physicians. But Simons acknowledged in a deposition last spring that the company had no remaining assets.

Simons could not be reached for comment last week.

Leland bought Winona-its lone hospital outside Texas-in 2002. Two years later, it sold the Indianapolis hospital to an investment group comprised mostly of Winona doctors. Under Leland, the hospital struggled with supply shortages, financial losses and a growing pile of creditor lawsuits.

The investment group closed Winona, 3232 N. Meridian St., in September 2004 after creditors filed an involuntary bankruptcy petition against it.

Leland's bankruptcy filing automatically puts on hold most litigation against the company, including a complaint filed by U.S. Bankruptcy Trustee Paul Gresk last spring over $3.6 million Winona transferred to Leland from 2002 to 2004.

Through the lawsuit, Gresk wants to find out what the Indianapolis hospital received from Leland in return for the transfers. He also is exploring whether the transfers left Winona insolvent.

Gresk, who did not return calls seeking comment, said in his complaint that he also wants more information about $865,002 transferred to former Winona CEO Patrick E. Feyen, who commuted from Texas to run Winona and filed for personal bankruptcy last year.

A lawyer representing both Leland and Feyen in that case has said the CEO received the money as part of his contract to run the hospital. The lawyer also said Leland used some of its cash to try to fix Winona.

Winona's $3.6 million claim is the largest unsecured claim against Leland, but the hospital isn't first in line for repayment.

Wages, taxes and other priority claims are resolved first, said James Carlberg, a partner and bankruptcy attorney with the Indianapolis firm of Bose McKinney & Evans LLP, who isn't representing a party in any of the bankruptcies.

Gresk may find that trying to recover anything on the $3.6 million claim isn't worth his time, said Charles Greer, a former bankruptcy attorney at Ice Miller who now owns a consulting firm.

"Three million dollars was apparently transferred, but if it's all gone because of operating losses and that sort of thing, you can't get blood out of a turnip," Greer said.

Simons said during a March deposition in a Texas lawsuit that Leland had no assets left. That case was filed by a Texas leasing company, which accused Leland of trying to sell some of the medical equipment it leased. It claims Leland and Simons owe more than $460,000.

Leland's lone income source last spring was a single hospital management contract, said Lloyd Ward, a Dallas attorney representing the plaintiff in the Texas case.

The case is one of nearly a dozen lawsuits against Leland listed in the bankruptcy filing. Most claims focus on a range of unpaid services.

The Leland bankruptcy doesn't surprise Dr. Ramon Dunkin, who was part of the group that bought Winona from Leland. Leland invested little in the hospital, he said, and even finding vendors willing to sell it supplies was a struggle.

"I guess there's nothing really positive about what they did," Dunkin said. "It appeared they wanted to get money out of it, as much as they could, basically running it into the ground."

Leland opened or acquired five hospitals between 1998 and 2003. However, in its bankruptcy filing the company lists only $12,446 in assets, compared with more than $9 million in liabilities.

Simons is in equally dire straits. He lists $466,455 in assets and more than $8 million in liabilities. Gresk is pursuing the $3.6 million claim in that case, as well.

Gresk's efforts on other fronts to recoup money for creditors have met with some success. Last spring, an auction of hospital equipment generated $1.1 million. He recently filed a complaint in bankruptcy court seeking $33,612 from Mapleton Medical Center Inc. for rented space and telephone service Winona provided before it closed.

However, lawyers involved in the case have been unable to spark serious interest in a sale of the 346,000-square-foot hospital. Two of its largest creditors-New Jerseybased Healthcare Business Credit Corp., which is owed $5.3 million, and Walther Cancer Institute, owed more than $2 million-have received permission to start foreclosure proceedings on the property.

The creditors want to recoup some of what they're owed by selling the hospital at auction, said Ice Miller attorney Henry Efroymson, who represents Walther. No date has been set.
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