A civil lawsuit in Delco threatens to upend Crozer’s sale

A plan to sell Crozer Health’s ailing four-hospital system in Delaware County got messier this week when a board member of a local nonprofit organization sued to stop the nonprofit’s funds from going to Prospect Medical Holdings, Crozer’s for-profit bankrupt owner.

But just five hours after a Delaware County judge approved the request, the board member and the local nonprofit jointly filed to dissolve the case following a chaotic emergency bankruptcy status conference Thursday.

During a virtual hearing, representatives from the Pennsylvania Office of Attorney General and Prospect Medical Holdings said the lawsuit jeopardized efforts to close in on a new buyer for the crumbling health system.

“The partner that we had and the plan that we had, they’ve walked away,” said Melissa Van Eck, Pennsylvania chief deputy attorney general. “Now, we have very little time to attempt to put the pieces back together.”

The drama unfolded shortly after Swarthmore resident Donald Delson filed a lawsuit Wednesday against the Foundation for Delaware County in the Delaware County Court of Common Pleas.

Delson, an outgoing foundation board member who has donated an undisclosed amount of money to the nonprofit over the years, stated in his lawsuit that these payments to Prospect Medical Holdings violate his “donative intent,” or rather the expectation that his personal donations to the organization were to be used for other charitable purposes.

The lawsuit sought to prevent the foundation from paying Prospect any more money. Judge George A. Pagano in the Court of Common Pleas ruled in favor of Delson and issued an injunction Thursday morning blocking future payments.

Representatives for Pennsylvania’s attorney general’s office and Prospect accused those involved with the foundation of scheming in order to avoid their “obligation” in financially supporting the hospitals or from contributing money to a final sale.

The Foundation for Delaware County was created in 2016 with money that came from Crozer’s sale to Prospect Medical Holdings. It primarily awards grants, scholarships and other charitable funding to community public health projects, food banks, emergency relief efforts and other nonprofit groups.

The foundation joined the Pennsylvania Office of Attorney General, Delaware County, and a court-appointed patient care ombudsman in efforts to find a long-term solution for Crozer as Prospect Medical Holdings restructures under Chapter 11 bankruptcy.

Earlier this month, the foundation committed $7 million to support the hospitals’ operational costs for two weeks.

During an emergency status conference Thursday afternoon, U.S. bankruptcy Judge Stacey G. C. Jernigan of the Northern District of Texas said she was “very concerned” over the recent developments and hoped the case would get back on track, with help from the foundation.

“For goodness sakes, if the foundation isn’t the answer to a long-term solution here, who is?” Jernigan said during the virtual status conference.

Attorney Rocco Imperatrice III, general counsel for the nonprofit in the civil lawsuit, said both the organization and Delson intended to ask a Delaware County judge to dissolve the injunction order blocking future Foundation funding to Prospect.

A motion to dissolve was filed in the Delaware County Court of Common Pleas around 2:19 p.m. on Thursday.

Imperatrice told Jernigan that the foundation still wants to see a long-term solution for Crozer Health and a sale, but said organization members have not been allowed to speak directly with prospective buyers or parties, including Penn Medicine, who are interested in operating the health system to find out how the foundation may be able to offer support.

Prospect Medical Holdings announced in January that it intended to sell the health system to a “not-for-profit consortium of healthcare operators,” but did not name any specific parties.

Penn Medicine told the Philadelphia Business Journal that it has been directly involved with plans to form a consortium for Crozer Health and is “committed to working toward potential solutions.”

When Prospect Medical Holdings attorney William E. Curtain asked if the foundation could commit to giving $13 million toward any final sale or transfer of Crozer to a new operator, both Imperatrice and Scott D. Cousins, who is legal counsel for the foundation in the federal bankruptcy case, said the decision lies with the nonprofit’s board.

Editor’s note: The Foundation for Delaware County provides support for WHYY. WHYY News produces independent, fact-based news content for audiences in Greater Philadelphia, Delaware and South Jersey.