Camelback Community Bank in Phoenix has filed suit against PMH Health Resources' charitable foundation and the system's top executives, alleging that the foundation illegally transferred charitable assets to the system, which used the money to pay debts and assist in its bankruptcy proceedings.
Those assets allegedly include the unpaid half of a $500,000 bank loan to build a new cancer center and at least $60,000 in community pledges toward the construction of the center.
Among the defendants named in the lawsuit are the Phoenix Memorial Hospital Foundation and its Executive Director Judith Bauersfeld, PMH President Reginald Ballantyne and PMH Treasurer Michael Holdsworth.
PMH officials angrily denied the allegations. "Camelback is doing banking on the planet Pluto," Ballantyne said.
The bank filed its lawsuit on March 6 in Maricopa County (Ariz.) Superior Court. The case was transferred late last month to the U.S. Bankruptcy Court in Phoenix, which will resolve the matter along with PMH's bankruptcy and pending sale to Vanguard Health Systems, said Victoria Avilez, the bank's attorney.
The bank's president, Barbara Ralston, served on the board of the Phoenix Memorial Hospital Foundation when the bank loaned the foundation $500,000 in June 2000 to help build the $4 million Del E. Webb Cancer Service Center, which opened last October. Its assets would be part of the Vanguard transaction.
In addition to requiring monthly payments on the loan's interest, the loan agreement required the foundation to pay back half the principal by Dec. 31, 2000, and the $250,000 balance by Dec. 31, 2001, according to the lawsuit. The bank said the foundation made the first payment but illegally transferred at least $500,000 in assets to PMH Health Resources, leaving the foundation with just $87,000 to cover the rest of the loan, the lawsuit states.
The lawsuit alleges that PMH executives made the transfer without approval from the foundation board or the system.
PMH Health Resources filed for bankruptcy on March 30. Not among the assets up for sale are those of the foundation (March 19, p. 36).
The transfer of most of the foundation's assets to PMH was a deliberate attempt to make the foundation's repayment of the loan more difficult, Avilez said. The transfer would allow Vanguard to buy the assets as part of the sale, according to the lawsuit.
Holdsworth said he's told Camelback officials that the $250,000 to pay off the balance of the loan had been retained separately from the bankruptcy filing.
Said Avilez: "If the money was in the coffers, we wouldn't have filed the lawsuit."
The suit seeks repayment of the loan, any community pledges made toward construction of the cancer center and unspecified damages against the foundation and the named PMH executives for breach of contract and fiduciary duty.