Alexandria officials are closely monitoring the recent Virginia Supreme Court decision that awarded the Commonwealth $51 million and the Jefferson Memorial Hospital, Inc. building that is located at King and Beauregard Streets.
“While the city is not a party to this case, we have been monitoring the proceedings and will continue to be interested in the plan for distribution of the assets,” said City Attorney Ignacio Pessoa. “It is certainly premature to contemplate just how these assets will be distributed, of course, because the defendants are likely to appeal.”
Jefferson Memorial Hospital, Inc. began operating as a nonprofit charitable corporation, providing healthcare to residents of the area in the mid 1960s. In 1973, the nonprofit charter was revoked and in 1995, the Commonwealth, through the Attorney General’s office, filed suit. The lawsuit alleged that 10 individuals had diverted assets of the charitable corporation into various partnerships and a for profit corporation. It also alleged that these individuals had personally benefited from this diversion of funds and were not fulfilling the charitable purpose for which the nonprofit organization was granted a charter.
THE VIRGINIA SUPREME COURT entered judgment for the Commonwealth, as trustee on behalf of the public, in the amount of $26,372,438, with interest at the rate of 9 percent from July 13, 2000. The Supreme Court also imposed a constructive trust in the amount of $24,703,145 on the proceeds of a settlement the defendants had been receiving. In addition, the Supreme Court affirmed the award of various interests in real property and improvements in Alexandria, including the former hospital building. Under the Supreme Court’s ruling, the assets awarded will be distributed for charitable purposes as they should have been.
After the first Virginia Supreme Court ruling, the defendants filed a request for a hearing before the U. S. Supreme Court. This was denied and the case reverted to Alexandria Circuit Court for the accounting phase.
The suit originally was filed in the Circuit Court of the City of Alexandria in April 1995. A trial on issues of liability was held in January 1997, and resulted in a decision in favor of the Commonwealth. The Virginia Supreme Court previously affirmed that decision on appeal. A six-day trial on accounting issues was held in February, 2000. On February 21, 2001, the Alexandria Circuit Court entered a decree in favor of the Commonwealth on the accounting issues. The Alexandria Circuit Court awarded the Commonwealth, as trustee, $20 million and the real property interests in Alexandria. The Virginia Supreme Court decision increases the trial court’s initial award of $20 million to $51 million, plus the value of the real estate.
THE 41-PAGE decision dealt with the Constitutional issues as well. “The defendants assert that the chancellor ‘failed to apply the law in effect at the time [he] rendered [his] decision’, and that his ‘failure to apply Maryland law violated the full faith and credit, due process, and commerce clauses of the United States Constitution.’
In support of these arguments, the defendants noted that Maryland law provides a ‘safe harbor’ for corporate directors who act in good faith in discharging their corporate duties. The defendants also argued that the chancellor should have conducted a hearing concerning whether they took their actions as corporate officers in good faith.
"I really can’t see any federal issues in this case,” said Pessoa. There must be a federal issue for the U. S. Supreme Court to agree to hear the case.
The ruling pleased Attorney General Jerry Kilgore. "Charitable assets are to be held for the benefit of the public and not for private gain," said Attorney General Kilgore. "Today’s decision will ensure that assets diverted from the former hospital will be distributed in accordance with the charitable purposes to which they should have been devoted."
Alexandria Mayor Kerry J. Donley agreed. “Certainly the city will benefit from this decision,” Donley said. “Whether we benefit directly or indirectly through distribution to local nonprofits, the court made it clear that the assets will be used for providing healthcare to residents of this area, the purpose for which Jefferson Memorial Hospital was founded.”
Pessoa said that he did not believe there would be a plan or any actual distribution of assets for six months to a year. “That’s just a guess because you never know what’s going to happen with appeals,” he said.