- The Washington Times - Tuesday, November 1, 2005

A bankruptcy judge in the District is questioning millions of dollars in forgiven corporate loans to pay for “highly personal interests” by the parent company of Greater Southeast Community Hospital before its financial collapse.

Judge S. Martin Teel Jr., in a 65-page ruling issued Monday, cited loans from Doctors Community Healthcare Corp. (DCHC) to finance personal expenses, including a house, a car, a divorce settlement and a donation to the University of the District of Columbia.

“The court cannot fathom why DCHC would simply give away millions of dollars to its officers without receiving anything in return,” Judge Teel wrote.

“While the defendants may be able to produce evidence of extenuating circumstances justifying DCHC’s apparent charity, nothing in the complaint gives this court any reason to conclude that a reasonable businessperson would approve. …”

The ruling comes nearly a year after a liquidating trust representing DCHC creditors first filed a lawsuit in U.S. Bankruptcy Court against executives at the Arizona-based health care company.

Attorneys for the executives declined to comment on the ruling yesterday.

But in previous legal filings, the attorneys for health care executives said DCHC purchased troubled hospitals and advised them on streamlining operations to “ensure the provision of health care to traditionally underserved communities.”

“Taken together, the allegations are little more than a hindsight attempt to impose liability for good faith business decisions made many years ago,” attorneys for the executives stated in a June 1 pleading.

DCHC, which also owns Hadley Memorial Hospital, emerged from bankruptcy last year. The company’s finances have been a recurring area of concern for city officials. Greater Southeast is the only hospital on the east side of the Anacostia River and it treats a large percentage of low-income residents.

Judge Teel’s ruling dismissed on various legal grounds numerous claims by the trust against DCHC executives, including several against former Chief Executive Officer Paul R. Tuft. However, Judge Teel ruled that the trust still could file an amended complaint by the end of this month.

Judge Teel also upheld the trust’s right to pursue millions of dollars from Mr. Tuft in connection with millions spent on corporate jet travel through an arrangement with a separate entity that Mr. Tuft co-founded.

The entity, Tuft-Redman Enterprises LLC, which Mr. Tuft founded with former business associate Melvin Redman, was loaned millions of dollars from DCHC, according to bankruptcy filings. The health care company did not collect on the loans to Tuft-Redman, records show.

While Judge Teel ruled executives’ use of the corporate jet may not legally support a claim for corporate waste, but does “state a claim for breach of fiduciary duties of care and loyalty to DCHC …”

In previous legal filings, attorneys for Mr. Tuft justified the DCHC jet lease, saying company officials frequently needed to travel to facilities in California, Illinois and the District. Attorneys also cited heightened post-September 11, 2001, security concerns in flying commercial airlines.

Sam Alberts, trustee for the liquidating trust, declined to comment yesterday.

In the same case, Mr. Alberts also is seeking millions of dollars from outside law firms that worked for DCHC, saying they failed to inform company officials about the consequences of their “deepening insolvency” and that they prepared faulty legal opinion letters.

John D. Daley, an attorney for Mr. Tuft and other DCHC executives, yesterday said he was reviewing the judge’s ruling, but declined to comment. Mr. Tuft referred questions in the case to Mr. Daley.

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