Appeals court upholds health care district’s bankruptcy dismissal

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On March 21, the Northern District of California Appellate Court upheld a bankruptcy judge’s order dismissing the San Benito Health Care District’s bankruptcy petition.  

The health care district, which meets to discuss the ruling on March 27 at  5 p.m., said it does not expect last week’s ruling to affect its negotiations with Michigan-based Insight Health to sell Hazel Hawkins Memorial Hospital’s assets and lease the hospital for five years. According to that plan, at the end of the lease, Insight could opt to purchase the hospital. 

Appellate Judge James Donato said the health care district did not provide evidence that it could not pay its current and future debts, including its pension fund and payroll taxes. He also said the district’s projections were no better than guesses.  

“The bankruptcy court did not err in requiring evidence supportably showing that San Benito’s proffered cash-based forecasts amounted to more than sending a messenger to Delphi for an oracle,” he said. 

In a statement on March 25, the health care district said it disagreed with the ruling and that the temporary protection provided by Chapter 9 of the Bankruptcy Code was key to Hazel Hawkins’ survival.

“The Chapter 9 process allowed us to achieve critical milestones, including maintaining full hospital operations, preserving jobs, strengthening our cash position, and extending the time needed to identify a long-term partner,” the health care district statement read.

The district said it could not answer follow-up questions about what the decision means to the health care district financially, or whether it plans to request that the U.S. Court of Appeals review the case. 

Marcus Young, speaking for the health care district, said the directors will discuss next steps in closed session on March 27.

“Hopefully we will have some answers for you after that meeting or in the days after,” he said. 

Health Care District President Bill Johnson said he would learn more about the impacts and possible next steps following the meeting. He said the bankruptcy process allowed the district more time to continue services and find a potential partner. 

He said the cost savings the hospital accrued through renegotiated contracts and suspension of pension payments “wasn’t enough to get capital for big improvements but enough to maintain services.” 

Attorneys for the California Nurses Association (CNA) did not respond to BenitoLink’s query about how the decision impacts their labor agreement with the district. 

Diane Beck of the CNA said she and other Hazel Hawkins nurses, who had successfully challenged the bankruptcy, feel vindicated by the appellate court decision and believe it confirms the union’s belief the district used the bankruptcy to “strip nurses of protections” from a labor agreement contained in a contract signed by both parties in 2022. The healthcare district has denied such claims.

Rachel Berger of the National Union of Health Care Workers, which joined CNA in challenging the bankruptcy, said the health care district stopped contributing to the pension fund in 2023 and reduced the accumulation of paid time off. 

“This decision furthers our resolve to pursue our claims that the unilateral cutbacks the district made to its collective bargaining agreement were illegal violations of public sector labor law and that the terms of these contracts must be restored,” she said.

Beck said the health care district should not spend additional taxpayer money to take the case to the U.S. Court of Appeals and instead use funds for patient care.

“There is much work to be done to shore up Hazel Hawkins’ future and to ensure that it remains a full-service hospital that meets the needs of the community,” Beck said.

Resident Robert Bernosky, a career chief financial officer and outspoken critic of the bankruptcy filing and the Insight deal, said the district’s contracts that were changed during the case will have to be reinstated to their original terms.

Johnson said he understood reverting to original contracts was a possibility, but didn’t have a definite answer. 

Donato said that in order to win bankruptcy protection, the district had to prove it couldn’t pay its debts currently or into the future. He said while the district cited cases in its argument that annual contributions to pension funds are a legal requirement derived from the U.S. and California constitutions, that’s not the case. 

He said a legal requirement arises from the language agreed upon by the parties in the labor agreement and that since the district’s legal obligation to the pension fund was not clarified in either the bankruptcy or appellate courts, the argument was not relevant to prove the district was unable to pay it.

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