A Los Angeles bankruptcy court judge has approved a $1.5 million settlement in a landmark case that sought to hold hospital directors and officers personally liable for a hospitals failure.
The settlement between former leadership of the now-closed Granada Hills (Calif.) Community Hospital and bankruptcy trustee David Gottlieb was for far less than the $11 million Gottlieb originally sought.
The case stems from the financial collapse of the not-for-profit 139-bed hospital in the San Fernando Valley in 2002.
After filing for bankruptcy, the hospital board of directors hired Healthcare Resource Specialists, a Tampa, Fla.-based turnaround firm, to lead its reorganization. But the hospital continued to fail and was liquidated in 2003.
The following year, Gottlieb sued the directors and officers for breach of fiduciary responsibility for allegedly squandering the hospitals remaining assets and not adequately overseeing hospital operations in the turnaround phase.
But in January, a U.S. District Court judge in Los Angeles ruled that the hospitals six former directors had immunity under the states business judgment rule that protects not-for-profit groups from personal liability if they perform their duties in good faith.
In approving the settlement, Judge Geraldine Mund of the U.S. Bankruptcy Court of Californias Central District wrote that the deal is fair and equitable. She cited the difficulties of collecting from the former directors and officers and the complexities, expense and inconvenience of litigating the case.
Gottlieb will go back to court later this month to seek $11 million from the Coudert Bros., the bankruptcy law firm that oversaw Granada Hills financials prior to the hospitals demise. -- by Rebecca Vesely
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