In June, retired Judge Rebecca Westerfield awarded Marin General Hospital more than $21 million in arbitration to settle its dispute with Sutter Health.

The arbitrator has declared the hospital and the Marin Healthcare District to be the “prevailing parties,” entitling them to seek reimbursement for legal expenses from the losing party, Sutter Health.

“It probably means the hospital will receive a couple extra million dollars,” said Hatti Hamlin, a public relations consultant for the hospital.

Hamlin said that certain expenses have to be recovered, but part of the $21 million judgment may go toward hospital improvements. “There are lots of needs,” Hamlin said.

Marin General Hospital Chief Executive Officer, Lee Domanico, said in a statement, “We are gratified with this decision, and expect the hospital to receive significant compensation for the costs associated with forcing Sutter to live up to their contractual duties as they exited the hospital management contract.

“As Judge Westerfield said in her decision, Sutter willfully and purposely failed to meet their contractual duties as well as their duty of good faith and fair dealing.”

Domanico added, “This decision contradicts Sutter Health’s claim that they ‘won’ the arbitration. Marin General is the prevailing party. That means we won and Sutter lost.”

The legal battle began when Sutter Health prematurely exited a 20-year contract to manage Marin General Hospital and transferred management to the Marin Healthcare District on June 30, 2010, five years prior to the contract’s expiration.

Marin General Hospital sued the Sutter Health Corporation in August 2010 in Marin County Superior Court, alleging Sutter “systematically and inappropriately” took $120 million from the hospital’s accounts while the operation of the hospital was being transferred to the Marin Healthcare District.

The lawsuit claimed Sutter siphoned more than $30 million a year from hospital accounts and reserves and transferred the funds to its own accounts. Marin General alleged Sutter began taking the funds in 2006, after the healthcare giant agreed to stop managing the hospital.

A Marin County Superior Court judge sent the case to arbitration in December 2010.

The hearing began on Jan. 17 and ended on Feb. 8, when Westerfield awarded $21.6 million to Marin General Hospital and $721,000 to Sutter Health. Both parties announced they were satisfied with the judge’s ruling.

“Sutter is extremely pleased with the arbitrator’s decision to deny the vast majority of the damages the Marin Healthcare District sought and her finding that Sutter and its directors acted prudently and in accordance with fiduciary duties,” Sutter Health President and CEO Pat Fry said in a statement.

Domanico disagreed, saying, “The ruling validates our long-standing contention that in the years leading up to the transition, Sutter did not operate Marin General Hospital in a manner consistent with the best interests of our community.

“Instead they diverted funds for the benefit of Sutter and detriment of the people of Marin.”

Marin General Hospital had until Sept. 10 to file a brief to request legal expenses.

Contact Christopher Laddish at scope@marinscope.com.

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