A federal bankruptcy judge Tuesday ordered El Paso Children’s Hospital to pay University Medical Center of El Paso $2.3 million in rent from the day it filed for bankruptcy protection through September.
U.S. Bankruptcy Judge H. Christopher Mott said Children’s Hospital should “timely perform” all obligations of the lease agreements that came up after the bankruptcy filing May 19. Children’s Hospital must pay $869,000 in rent every month to UMC, at least until the lawsuit in which Children’s Hospital is accusing UMC of acting fraudulently is resolved.
The UMC litigation is set for trial in late October.
In the lawsuit, Children’s Hospital is disputing more than $100 million in rent and services to UMC.
Mott gave Children’s Hospital credit for $1 million the hospital paid UMC in July for rent and $150,000 in adequate protection that Children’s Hospital paid UMC in August.
In a statement, Children’s Hospital officials said the hospital will honor the judge’s order in paying the base rent to UMC.
Mott said that although he allowed Children’s Hospital to present evidence to try to prove that the lease agreement was not “a true lease,” he concluded that Children’s Hospital was not successful.
Mott said El Paso Children’s Hospital admitted at a hearing last week that the lease agreement was valid and it’s the only document that gives the hospital the right to occupy UMC’s facility. Mott said even though Mark Herbers, CEO of El Paso Children’s Hospital, testified that the hospital was being overcharged by UMC, Herbers agreed that the amount stated on the contract was the amount both parties had agreed to.
“At the end to the hearing on the motion, it became apparent to the court that EPCH was not really making a challenge that the facility lease was not a true lease. Instead, EPCH was challenging the amount,” Mott said.
In addition, Children’s Hospital was not able to defend its argument that UMC is unfairly profiting from the cost of rent because taxpayers are paying for the construction of the building where Children’s Hospital is housed.
“Evidence demonstrated that EPCH knew that taxpayers’ revenue and not based rent was paying the bonds,” he said.
Mott said the facility lease agreements demonstrated that Children’s Hospital was committed to pay a fixed dollar amount of base rent.
Based on witnesses’ testimony, Mott also said that a document signed by Children’s Hospital officials and Michael NuÃ±ez, UMC’s chief financial officer, in September 2014, did not prove Children’s Hospital’s argument that the hospital did not have to pay rent to UMC in 2015.
Mott urged UMC and Children’s Hospital officials to renegotiate the lease terms in good faith and amend the agreement.
At the end of the hearing, Mott made clear that although Tuesday’s ruling was not reached on the merits of the UMC litigation, he would consider the testimony of witnesses and evidence recently presented in the trial.
“It’s not over until it’s over,” Rosemary Castillo, chairwoman of El Paso Children’s Hospital’s Board of Directors, said after Tuesday’s hearing.
Castillo, who rarely addresses questions by the news media since the bankruptcy filing in May, said that she is concerned and that the board eventually will address the public.
“I’m very concerned about the situation. What you need to focus on is the fact that UMC is clearly an insider, they directed everything that would make it possible for them to profit from the children of El Paso,” she said.
“Yes. We signed the agreements, but UMC orchestrated everything,” she added.
During his ruling Tuesday, Mott called Children’s Hospital’s argument that UMC is an alleged insider of El Paso Children’s Hospital “somewhat of a red herring.”
He said even if UMC is determined to be an insider, this does not relieve Children’s Hospital of its obligation to pay rent to UMC.
Herbers released a written statement after the hearing in which he said that El Paso Children’s Hospital’s priority is to continue to serve the children of El Paso region.
“As we stated when we began the bankruptcy process, EPCH sought the protection of the bankruptcy court to be able to deliver on the promise that taxpayers voted on in 2007 and to be able to restructure our debt and emerge as a stronger organization,” he said.
County Judge Veronica Escobar said there is still an opportunity for Children’s Hospital to work with UMC to save the hospital.
“We want to save the hospital. But we can’t keep being adversaries this way because the only winners are the people who are lining their pockets. We have to sit down and save the hospital before it’s too late,” she said.
Escobar said the millions of dollars spent on attorneys and consultant fees could have gone toward restructuring and paying off some of Children’s Hospital’s debt.