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Suit Over Calif. Hospital Bid Survives Review

SAN DIEGO (CN) — California Attorney General and U.S. Senate candidate Kamala Harris cannot dodge claims by hospital giant Prime Healthcare Services that she schemed with a workers' union to deny a hospital acquisition, a federal judge ruled.

Prime Healthcare Services owns and operates 28 hospitals throughout the U.S., while nonprofit Prime Healthcare Foundation owns seven nonprofit hospitals donated by Prime Healthcare Services.

Prime claims Harris improperly denied its $843 million proposed acquisition of the Daughters of Charity Health System.

On Monday, U.S. District Judge Gonzalo Curiel granted in part and denied in part Harris' motion to dismiss Prime's first amended complaint. He granted Prime leave to amend some of its claims.

In her capacity as attorney general, Harris supervises California charitable organizations and enforces nonprofit rules regarding property sale and acquisition. Nonprofits that operate health facilities must provide notice and obtain written consent from the attorney general before selling some of its assets to a for-profit corporation.

According to Curiel's 45-page Oct. 31 order, Harris must consider at least nine factors specified by the statute in deciding to approve a sale, including whether the transaction would have a significant impact on the accessibility of health care services.

If the transaction is approved, the attorney general's policy is to require a hospital continue providing the same level of healthcare services for at least five years after the sale, including emergency-room services.

The attorney general considers information from the seller about the transaction and is required to hold at least one public meeting to hear comments from those interested or affected by the sale. If the sale could significantly impact existing healthcare services, an independent healthcare impact statement is issued, according to Curiel's summary.

Prime claims Harris conspired with hospital workers' union Service Employees International Union-United Healthcare Workers West to block Prime from acquiring nonprofit hospitals in California until it agreed to allow workers to unionize.

Prime and the union have apparently been in a dispute over unionizing since 2009, according to court papers.

"Harris refused to reasonably approve the sale because Prime rejected SEIU-UHW's extortionate demands to unionize workers at all Prime hospitals and did so in quid pro quo exchange for the union's continuing financial support of her political career, including her current candidacy for the U.S. Senate," Prime's complaint states.

Prime claims the union donated to Harris' 2010 and 2014 campaigns for attorney general and promised to donate up to $25 million to her Senate campaign if she outright denied Prime's acquisition or imposed conditions that would be a de facto denial of the sale.

Harris denied Prime's proposed acquisition of another hospital, Victor Valley Community Hospital, in 2011, prior to denying the Daughters of Charity Health System sale in 2014.

Prime claims the 2011 denial was the first time Harris denied the sale of a California nonprofit hospital. It says the union has publicly claimed credit for Harris' shutdown of the deal.

The union went on a media campaign, creating a website and airing TV ads, urging Harris to deny the sale, Prime claims.

After Prime was picked by Daughters of Charity Health System following a 13-month bidding process to acquire its five nonprofit hospitals and a skilled nursing facility for $843 million, the healthcare company claims Harris attached a stipulation that four of the five hospitals and the skilled nursing facility maintain the same services for 10 years. The company also claims Harris made that request before the report had even been written.

"Prime alleges that the attorney general's 10-year conditions were unprecedented and rendered the proposed transaction operationally and financially unviable, requiring Prime to operate the financially failing hospitals at a loss for 10 years," court records show.

The conditions were a de facto denial, Prime says, and it withdrew its bid to purchase the Daughters of Charity Health System Hospitals.

The healthcare corporation speculates Harris will approve Blue Mountain Capital Management's bid to purchase Daughters of Charity Health System Hospitals and will likely impose five-year, instead of 10-year, conditions.

The case was moved last year from Central California federal court to the state's Southern District.

Curiel denied to dismiss the case for lack of subject-matter jurisdiction, but granted Harris' motion to dismiss Prime's Fourteenth Amendment and National Labor Relations Act claims.

The judge also denied the company's declaratory judgment and permanent injunction requests.

He found Prime's quid pro quo claims that Harris and the union schemed to deny the hospital transaction fails the plausibility requirement because the allegations do not "allow the court to draw a reasonable inference of misconduct on Harris' part."

Instead, Prime's allegations focus on the union and its leaders, but the union's communications with Harris and donations to her campaign do "not plausibly suggest an illegal agreement between Harris and SEIU-UHW," Curiel wrote.

The judge also pointed out that if Harris and the union had schemed together, there "would have been no need at all" for the extensive media campaign and TV ads calling on Harris to halt the sale of the hospitals to Prime.

As for Prime's claim about Harris accepting $25 million from the union in exchange for blocking the hospital transaction, Curiel says it is "not based on factual information that makes the inference of culpability plausible."

Curiel found Prime did not have a property interest protected by the Fourteenth Amendment since Harris exercised her right under the Nonprofit Hospital Transfer Statute to deny, consent to or conditionally approve a transaction as attorney general. The judge also noted the statute did not require Harris provide a reason for the conditions she imposed on her final decision.

Prime Healthcare is represented by Mark Hardiman with Hooper, Lundy and Bookman in Los Angeles.

A spokeswoman for Prime Healthcare said, "The Attorney General Kamala Harris' wrongful decision regarding the sale of the Daughters of Charity Health System has been challenged by Prime Healthcare in order to ensure all California citizens are treated fairly and equally under the state and federal constitutions. We are pleased that the court gave us the opportunity to amend our cause of action based on the attorney general's violation of Prime's constitutional right to equal protection. We are carefully evaluating our legal remedies and the next steps in this important case."

A press secretary for the attorney general's office did not respond Friday to an email request for comment.

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