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As a Cook County judge prepares to handle the question of whether to hold the owner of a Melrose Park hospital in contempt for filing bankruptcy, the hospital owner has in turn asked a federal bankruptcy judge to find the village of Melrose Park broke federal law by asking the Cook County judge to find them in contempt.
On Aug. 12, Pipeline Health Systems filed a complaint in federal bankruptcy court in Delaware, asserting Melrose Park violated the “automatic stay” normally imposed on creditors when it filed a motion in Cook County court, asking a judge to impose sanctions on Pipeline because the holding company for Westlake Hospital filed for bankruptcy in a bid to win protection to close the financially troubled hospital.
The flurry of competing motions in courtrooms in Delaware and Chicago came days after the entity known as Pipeline-Westlake Hospital LLC filed for bankruptcy in Delaware on Aug. 6.
In those filings, Pipeline claimed the hospital has lost millions of dollars each month, and could not continue operating. The hospital says those monthly losses are on top of $31 million lost in 2018.
The company asked the court to appoint a trustee to decide whether to allow the hospital to close – a goal sought by Pipeline since shortly after it purchased the hospital, along with three other suburban hospitals, at the beginning of 2019.
However, Pipeline’s move to close Westlake has been frustrated for months by lawsuits filed by the village of Melrose Park. The Cook County State’s Attorney’s Office has also joined the court fight.
The village claims Pipeline promised to keep the hospital open and functioning at its prior service levels, but instead moved within two weeks of taking ownership to close the hospital. The village asserts Westlake is essential to health care in the community and the region, and particularly for low income residents and families in and around Melrose Park.
Melrose Park, through its attorneys with the firm of Edelson P.C., which it hired specifically to prosecute its case against Pipeline, secured a court order to force Pipeline to keep Westlake open as the village continues its legal fight.
In a brief filed Aug. 13 in Cook County court, Pipeline said it attempted to negotiate a deal to end the standoff, but to no avail. It also said it was unable to find a buyer willing to continue operating Westlake.
That is when Pipeline said it moved to file bankruptcy, according to the Aug. 13 brief.
Melrose Park responded to the bankruptcy filing first by asking the federal bankruptcy judge handling Pipeline’s bankruptcy case to reject Pipeline’s Chapter 7 petition. The village claimed the bankruptcy case was filed in “bad faith,” merely to sidestep the Cook County court order.
The village asserted Pipeline did not tell the bankruptcy court about the Cook County injunction. The village further claimed Pipeline can keep Westlake open, but has instead sought to use the bankruptcy process to close the hospital.
At the same time, Melrose Park filed a motion in Cook County court, asking a judge there to hold Pipeline in contempt for using bankruptcy protection to close the hospital.
A Cook County judge opted not to rule on that emergency request last week. A hearing is currently scheduled in the case on Aug. 19.
In response to Melrose Park’s contempt request, Pipeline has filed briefs asserting all court actions in Cook County against it over Westlake Hospital must be put on hold until the bankruptcy proceedings are complete.
“… Plaintiffs’ Show Cause Petition seeks relief that this Court cannot legally provide,” Pipeline argued in its Aug. 13 brief. “This Court cannot order (Pipeline) to fund a bankruptcy Debtor; to do so would be in violation of the United States Bankruptcy Code. Similarly, the Court cannot hold (Pipeline) in contempt for failing to fund a bankruptcy Debtor because SRC would be unable to purge the contempt order without violating the Bankruptcy Code.
“Plaintiffs’ Show Cause Petition is a blatant attempt to interfere with federal bankruptcy proceedings and must be denied.”
Pipeline at the same time filed its complaint in federal bankruptcy court, asking the court to order the village to pay damages, including punitive damages, for its Cook County court contempt filing, which they said represented an attempt to pit the Cook County courts against the federal bankruptcy courts for control of Pipeline’s property at Westlake.
“By and through the Emergency Petition, the Village sought to continue an action that was commenced before the commencement of the Bankruptcy Cases, and the Village sought to require that a non-debtor party, other than the Chapter 7 trustee, take an action that would take control over property of the Debtors’ estates,” Pipeline said.
Pipeline has asked the bankruptcy courts to issue an order declaring federal bankruptcy rules now control the situation and the Cook County court no longer has “any jurisdiction over the administration of … Westlake Hospital.”
On Aug. 14, Pipeline’s bankruptcy proceedings were transferred to bankruptcy court in Chicago, and a new trustee was appointed.
Pipeline has been represented in Cook County court by the firm of Riley, Safer, Holmes & Cancila, of Chicago, and in the bankruptcy by the firm of Morris James LLP, of Wilmington, Del.