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Melrose Park asks judge to toss Westlake Hospital bankruptcy filing, says was done in 'bad faith'

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By Jonathan Bilyk | Aug 9, 2019

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Ari Scharg of Edelson, PC | Youtube screenshot

Saying the owners of Westlake Hospital have proceeded in “bad faith,” the village of Melrose Park has asked a federal bankruptcy court to refuse to allow Westlake Hospital to proceed with its bankruptcy and the fate of the financially-troubled hospital should be decided in Cook County court.

On Aug. 8, attorney Ari Sharg, of the firm of Edelson P.C., of Chicago, filed a motion in Delaware bankruptcy court on behalf of Melrose Park, asking the court to dismiss Westlake Hospital’s bankruptcy filings and send the matter back to Chicago.

“The Debtors never informed the Trustee, the Court or the U.S. Trustee (previously or now) that they were subject to an operational injunction entered from the State Court preventing the very relief sought in this Court – the immediate wind-down of the Hospital – and they were required to continue to operate the Hospital pursuant to the injunction’s terms,” Scharg said in the motion on behalf of Melrose Park.

A day earlier, a holding company for Westlake Hospital, a Melrose Park health care facility which is owned by Pipeline Health Systems, filed a Chapter 7 bankruptcy petition in Delaware federal bankruptcy court.

In the petition and related filings, Pipeline claimed the hospital was losing millions of dollars each month, and could not continue operating. The company asked the bankruptcy court to appoint a trustee to decide whether to begin the process of closing the hospital – a goal sought by Pipeline for months.

However, Pipeline’s intent to close Westlake has been frustrated for months by a protracted court fight amid lawsuits brought by the village of Melrose Park and its attorneys from the Edelson firm. Cook County State’s Attorney Kim Foxx also joined the legal effort against Pipeline in recent weeks.

The village and state’s attorney’s office argue the hospital is needed to maintain health care services in and around Melrose Park, and particularly for low-income and minority residents.

They also claim Pipeline promised, when it purchased Westlake along with other suburban hospitals, to keep the hospital open and functioning at its prior service levels. However, in the village’s motion to dismiss, it stressed repeatedly Pipeline moved to close Westlake within two weeks of taking ownership.

To aid in the legal fight, the village hired Scharg and the Edelson firm, agreeing to pay them from revenue generated either from any settlement or judgment paid by Westlake, as well as from any property taxes paid by the hospital into a tax increment financing district that covers the hospital’s land.

The hospital is not tax-exempt.

Melrose Park and Foxx have also filed suit to challenge a decision by the Illinois Health Facilities and Services Review Board, which had voted to allow the hospital to close. The village and Foxx assert the decision was illegal, in part because two of the members had voted illegally because, while they had been appointed by Gov. JB Pritzker, they had not been approved by the Illinois State Senate. Further, they argued Illinois law forbids the Review Board from taking such action while litigation is pending over the hospital’s operational status.

A Cook County judge granted the injunction request, and the hospital has been forced to remain open since May.

However, in the motion to dismiss filed in bankruptcy court, Scharg asserts Pipeline’s bankruptcy filing should also be voided, because the hospital company did not tell the court about the Cook County court order forcing the company to continue to keep the hospital open, despite its alleged mounting financial losses.

“The Debtors (Pipeline) filed the Bankruptcy Cases in bad faith placing the Village, the Bankruptcy Court, the Chapter 7 Trustee, and the bankruptcy system as a whole in an untenable and egregious situation,” Scharg wrote.

Further, Scharg and Melrose Park argue the bankruptcy filing “lack any true bankruptcy purpose” and Pipeline can continue to operate Westlake.

“There is no true bankruptcy purpose to the Bankruptcy Cases because the corporate debtors filed for Chapter 7 and will not receive a discharge, there are executory contracts the Debtors have sought to reject, there is no secured debt to restructure, there are not countless creditors ‘pounding on the door’ to collect unpaid debts,” Scharg and Melrose Park wrote. “The only reason the Debtors filed the Bankruptcy Cases was to use the time and distance afford from filing for Chapter 7 relief in Delaware to evade the (Cook County court) Order and wind-down the Hospital.”

Also on Aug. 8, the U.S. Trustee overseeing the bankruptcy petition asked the Delaware federal bankruptcy court to transfer the case to Chicago federal bankruptcy court.

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Organizations in this Story

Edelson, PCVillage of Melrose ParkU.S. Bankruptcy Court for the Northern District of IllinoisU.S. Bankruptcy Court for the District of DelawareWestlake Hospital/PharmacistPipeline Health Systems

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