SANTA ROSA -- Sutter Health and the county of Sonoma have rejected a proposed settlement of a lawsuit filed by the North Sonoma County Healthcare District opposing Sutter's $284 million hospital project north of Santa Rosa.

The proposed settlement was made known when the suing parties, which includes the Palm Drive Healthcare District, announced they would appeal a Superior Court ruling that said they did not have legal standing to bring the lawsuit challenging the county's certification of the project environmental impact report. 

The new hospital will replace the seismically unfit Sutter Medical Center of Santa Rosa on Chanate Road.

The proposed settlement called for the establishment of a countywide health plan since the health care district, which oversees Healdsburg District Hospital, argued that Sutter's new hospital would have an adverse impact on the delivery of health care throughout Sonoma County. The settlement plan also included a possible funding pool for uncompensated care, possible modifications to the Health Care Access agreement and an increase in availability of health care specialists, among other elements.

It also called for Sutter and the county, which approved the 82-bed hospital last August, to pay for the district's attorney fees.

The Healdsburg district estimates that it has spent approximately $150,000 on the suit to date. Sutter has spent approximately $215,000 in the last two fiscal years defending itself and Sonoma County.

Construction of the hospital has not been impacted by the lawsuit or the appeal and is on pace to open in 2014.

Sutter Spokeswoman Lisa Amador said it is Sutter's policy to keep settlement discussions confidential.

William Arnone, counsel for the heath care district in Healdsburg, said that while the proposed settlement was turned down, Sonoma County Superior Court Judge Rene Chouteau granted the district's motion to recover filing costs associated with the lawsuit -- a sign that the district prevailed on some points. The cost of filing the suit is estimated at $5,500.

"It confirms the district did prevail on some important issues," said Mr. Arnone, a partner at Santa Rosa law firm Merrill Arnone & Jones.

Those issues include the judge's ruling that faulted the county and Sutter for counting the eventual closure of the Chanate facility as an offsetting measure for green house gas emissions, as well as the clarification of who would own the land that a medical office building is being built on, the county or Sutter.

The judge, however, sided with Sutter on numerous points, chief among them the contention that the suing parties did not have legal standing to bring a suit based on the California Environmental Quality Act. The judge also ruled that opponents did not exhaust their “administrative remedies” in challenging the county’s approval, essentially meaning they failed to raise the issues before a specific timeline.

The appeal by the two health care districts centers on those two decisions, Mr. Arnone said.

"Because [the judge] made it a timing issue, he didn't reach the merits of the concerns," Mr. Arnone said.

Sutter maintains that the lawsuit and the appeal are improper uses of taxpayer dollars.

"We definitely think this litigation is counterproductive. We think the best way to handle this would be without taxpayer dollars," Ms. Amador said, noting that the health care districts are tax supported entities suing other nonprofit entities, namely Sutter and the Luther Burbank Foundation. The foundation owns the land that the new hospital is being built on, next to the Wells Fargo Center for the Arts.

The appeal will he heard in the First Appellate District Court in San Francisco. The due date for briefs is Oct. 31, but that could be extended by up to 60 days.

The California Nurses Association and San Rafael-based environmental group Transportation Solutions joined the two health care districts in the suit.