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GREENBRAE -- Marin General Hospital is being required to go into arbitration instead of court with its claim against Sutter Health that it improperly transferred more than $120 million out of the hospital, a Marin Superior Court judge ruled.

A hearing was set for June 30 at which time a status of the arbitration is due.

However, Marin General is planning to appeal the decision to go into arbitration, said Pete Hillan, spokesman for Marin General.

“We’re looking to challenge the arbitration ruling because it is our belief this should be adjudicated before a judge and a jury,” he said. “In either case we stand pretty convincingly that Sutter needs to return the $120 million it took from taxpayers.”

Sutter Health welcomes the judge’s ruling.

“We had hoped the agreement that was in place and the fact that we returned a higher quality and more robust hospital last summer would have brought an end to the divisiveness,” said Bill Gleeson, spokesman for Sutter. “We do appreciate the court brought the matter to arbitration as we have always believed the agreement the parties signed in 2006 required an arbitration of differences.”

The lawsuit filed last summer in Marin County Superior Court by the Marin General Hospital Corp. alleges that from 2006 and onward Sutter disproportionately transferred funds out of Marin General while it sought to build competing facilities in Marin County. Marin General was also removed from an “obligated group,” meaning that it could not benefit from Sutter cash transfers yet still could be targeted for funds.

“We believe that there is a strong case,” said Mr. Hillan.

Sutter was able make the “cash sweeps,” as the suit calls them, by establishing a hospital board “with a clear conflict of interest,” the suit says.  The Sutter-appointed board consisted of Sutter-appointed employees who failed to fulfill their legal responsibility of protecting the financial interests of the hospital by knowingly allowing Sutter to make such transfers as the hospital became independent, the suit says.

When the suit was filed in August, Mr. Hillan said that equity transfers could occur on the condition that Sutter pay depreciation. The health care district said Sutter has not done so, nor did it invest in physician recruitment or technology upgrades, which coupled with the cash transfers put the hospital in a precarious financial state, according the suit.

Sutter contends that it has not violated any terms of the initial severance agreement.

The severance agreement reached between the two sides in 2006 requires certain disputes be resolved through arbitration -- “thus avoiding more costly and protracted litigation in court,” Sutter said in responding to the lawsuit.

The Marin Healthcare District, which oversees operations at the 255-bed trauma center, parted ways with Sutter in June of last year.

The health care district is seeking to recoup the $120 million, arguing that Sutter rapidly escalated its transfers and disproportionally targeted the hospital after the “divorce” occurred between the two. Sutter operated the hospital from 1995 through last year, after a court-approved severance ended Sutter’s lease five years early.

In the register of actions from the Marin Superior Court regarding the case, Judge Verna Adams said what is alleged in the complaint has its “roots in the relationship between the parties which was created by the contract and are subject to arbitration.”