Saint Francis Hospital Muskogee responded this week to a lawsuit seeking annual payments of an in lieu of tax the Muskogee Medical Center Authority alleges is owed pursuant to a lease agreement. 

Lawyers representing Saint Francis denied the authority’s key allegations — that the in-kind payment for 2018 is owed, and nonpayment constitutes a breach of its lease. They state Saint Francis intends to make the 2018 in-kind payment of more than $655,000 “as a sign of good faith, with the belief and expectation” the parties “would have attempted to negotiate a mutually agreeable resolution to this dispute.”

Saint Francis’ lawyers allege MMCA’s claims are barred due to its alleged breach of the terms of a 2017 memorandum of understanding requiring the parties negotiate “in good faith.” They raised another defense pursuant to a legal doctrine that prevents a plaintiff who has acted unethically — one with dirty hands — from asking the courts for help.  

Saint Francis, which as a nonprofit corporation generally would be exempt from taxes, also alleges in a counterclaim that MMCA breached the terms of the 2017 memorandum of understanding. A provision of that agreement, its lawyers allege, requires that “the authority, at a minimum, negotiate with Saint Francis Muskogee in good faith to ‘phase out’ the in-kind payments” detailed in the lease agreement negotiated initially in 2008 with Capella Health Care and assumed in 2018 by Saint Francis when it acquired one local hospital and began operating the city-owned facility.

MMCA Executive Director Jim Blair said trustees were disappointed to learn Saint Francis had chosen to litigate this issue rather than make the annual in-kind payments. Those payments, he said, primarily fund public schools, libraries and other entities that would benefit from taxes assessed on the city-owned facilities if they were not exempt. 

“We are reviewing the court filings that Saint Francis has made,” Blair said. “It is disappointing they have chosen the path of spending their dollars on litigation rather than on meeting the contractual obligations they have to our local schools and other entities who rely on the payments they refuse to make.” 

While Saint Francis has made only one in-kind payment since its deal with Capella, officials with the Tulsa-based network of hospitals and clinics say they have made a significant investment in Muskogee. That investment, which is outlined in court documents, includes two years of across-the-board pay raises for all employees totaling 5.5% plus an additional increase for nurses at an annual cost of $1.2 million. 

Other investments touted by Saint Francis include a $500,000 pledge to the nursing program at Connors State College and $20 million in capital improvements for hospital renovations and modernization projects. Saint Francis also cites contributions that include two emergency clinics set up after recent flooding and donations to local nonprofits in addition to future investments.   

Lawyers representing Saint Francis distinguish the contractual provisions that required Capella to make the in-kind payment. They argue the application of that provision differs when applied to a nonprofit because the basis for the exemption claimed by Saint Francis “is not tied to the Landlord’s or the City’s status as public or government entities.”

The lawsuit filed by MMCA also names Capella Healthcare and Lifepoint Health Inc., its successor in interest. Those parties have yet to respond to the petition. 

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