After nearly a year and a half of litigation and stops in county and federal courtrooms in Chicago and Delaware, the village of Melrose Park has agreed to accept $1.5 million to cease its legal pursuit of the owner of a group of hospitals over that company’s decision to close an allegedly financially-plagued in the west suburban village.
Under a separate agreement, at least 20% of that take could be earmarked for Chicago class action law firm Edelson P.C., which represented Melrose Park throughout the legal action.
On Monday, July 27, the Melrose Park Village Board voted to accept the $1.5 million offer from Pipeline Health System. In exchange, the village agreed to drop its long-running lawsuit over the controversial closure of Westlake Hospital.
Ari Scharg of Edelson P.C., represented the village of Melrose Park in its litigation against Pipeline Health Systems.
| edelson.com
Spokespeople for Melrose Park and Edelson did not reply to requests for comment about the settlement.
The settlement, which was provided to The Cook County Record by the village, has not yet been approved by a Cook County judge hearing the case.
Melrose Park first took Pipeline Health to court in March 2019, shortly after Pipeline announced its intent to close Westlake Hospital.
In that lawsuit, the village claimed the hospital owners defrauded the village and violated Illinois law by moving to close the hospital within weeks of completing a deal to buy Westlake, along with two other hospitals in Chicago and the suburbs.
Melrose Park claimed Pipeline had not been truthful with state regulators and the village about its plans for Westlake as it sought permission from the Illinois Health Facilities and Services Review Board to complete the purchase of the hospitals.
Melrose Park asserted in its filings that Westlake was essential to the village, and particularly its lower income residents, who relied on Westlake as a safety net hospital.
Pipeline, however, has maintained it only discovered the extent of Westlake’s financial difficulties after purchasing the hospital. In court documents, Westlake has asserted Westlake was losing more than $2 million a month.
State regulators approved Pipeline’s request to close Westlake.
However, a Cook County judge then issued an order requiring Pipeline to continue operating Westlake, even at steep alleged financial losses.
Pipeline managed to get Melrose Park’s lawsuit dismissed, noting the village could not sue it under state law. However, that deficiency was remedied when Cook County State’s Attorney Kim Foxx added her name to the list of plaintiffs suing Pipeline over Westlake.
Foxx and the Edelson firm have also worked together on other cases on behalf of Cook County, including a still pending class action lawsuit against Facebook over allowing defunct data firm Cambridge Analytica to use Facebook apps to scrape data from users that later appeared to benefit the Donald Trump presidential campaign.
In the Westlake case, after the Cook County judge ordered Westlake to remain open, Pipeline redirected the case into federal bankruptcy court, first in Delaware, but later in Chicago, after the case was transferred for bankruptcy proceedings.
Pipeline initially secured a court order overriding the Cook County judge, closing the hospital and prohibiting Melrose Park from continuing its pursuit of Pipeline over the closure. However, Melrose Park and the Edelson firm did not slacken its attempt to secure a payday.
The village ultimately won permission from the bankruptcy judge to continue its attempt to punish Pipeline in Cook County court, so long as the village dropped its attempt to secure a court order forcing the hospital to reopen.
Melrose Park then renewed its complaint in Cook County Circuit Court, asserting fraud claims against Pipeline and all related corporate entities, except the corporate holding company created specifically for Westlake and its assets.
The new complaint set the stage for another round of briefings and, ultimately, the settlement approved by the village July 27.
For its part, Pipeline has asserted repeatedly that the village’s efforts represented little more than an attempt to sidestep the state regulatory process.
“At bottom,” Pipeline wrote in its reply to the new complaint, the theory on which Melrose Park has based its case – that if Pipeline had been allegedly more forthright in its intentions, the village could have secured an order from the state prohibiting the sale of Westlake, and the hospital would still be in operation – “is, to put it bluntly, fantasy” and “has no basis in reality.”
In the settlement agreement, Pipeline said it continued to deny “any claim which has been asserted against” it and its affiliated entities and did not admit “any fault, liability, or wrongdoing of any kind whatsoever.”
The settlement also included a non-disparagement provision, which prohibits both parties from discussing the case or releasing documents “intended to disparage any other Party in any manner whatsoever.”
According to the settlement deal, the parties will be bound to publicly state only: “Pipeline Health Systems LLC and the Village of Melrose Park have resolved their dispute to the satisfaction of all parties.”
Under the terms of the contract under which the village hired Edelson to represent Melrose Park in the legal action vs Pipeline, the village agreed to pay Edelson 20% of any settlement or judgment they may secure from Pipeline as a result of the Westlake lawsuits.
Edelson also stood to gain 15% of any “tax increment” generated by Westlake for three years, beginning in February 2020, should the hospital be ordered the remain open.
Westlake was not tax exempt, and its property was designated as a tax increment financing (TIF) district. This meant the village collected all of Westlake’s property taxes that exceeded a base level frozen at the time the district was created. Under state law, the village could then use that excess, or the “increment,” ostensibly to help the hospital make improvements to its property and maintain profitability.
The village declined last spring to answer questions about how much Edelson could have expected to be paid under such an arrangement.
However, data published by the Cook County Clerk’s office indicated the village collected $1.42 million in tax increment from the Westlake TIF in 2017. In all, the county report indicated the Westlake TIF district generated $8.62 million in TIF funds from 2010-2017, and the amount increased by 1.5-2% annually.
Edelson had agreed to work on contingency, and stood to be paid nothing if the village had lost in court and extracted no settlement.
Pipeline is represented by attorney Sondra A. Hemeryck and others from the firm of Riley Safer Holmes & Cancila, of Chicago.