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Judge to decide remedy for HMC's unauthorized use of St. Francis funds


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POSTED: Friday, February 26, 2010

Hawaii Medical Center was not authorized to use millions of collateral dollars meant for its former owner, but U.S. Bankruptcy Court Judge Robert Faris has yet to determine what should be done about it.

In a tentative decision filed Wednesday, Faris said about $4.5 million of a $9 million HMC bank account belonged to creditor and former owner St. Francis Healthcare System of Hawaii. The judge took the matter under advisement yesterday after hearing testimony from both sides.

HMC is currently in a bankruptcy case with St. Francis and other creditors. The center, which comprises two hospitals in Ewa Beach and Liliha, used the money from the account to continue operations.

“;The unauthorized use of cash collateral is a significant offense and must not be condoned,”; Faris wrote in his tentative ruling.

The best remedy for the situation, Faris said, would be to require HMC to replace the money, which might not be possible for the cash-strapped centers.

“;I am not inclined to impose a remedy that the debtors could not fulfill, that would put the debtors out of business or that would given an undue bargaining advantage to any party in interest,”; Faris said.

Faris proposed providing a lien on all HMC property to St. Francis. St. Francis attorney Bruce Bennett said it would be a second lien, since St. Francis already had a lien on the cash spent.

“;The lien that's being offered to us is a second lien on something that has questionable value,”; Bennett said.

Bennett said St. Francis does not want a remedy that would have consequences on the hospitals' service and its patients. “;We'll figure out a way to make that happen.”;

A confirmation hearing on HMC's reorganization was scheduled for April 6 but has now been delayed to a date not yet determined.

“;There's a process here to go through, but we are looking forward to its conclusion,”; said Salim Hasham, HMC's chief operating and restructuring officer.