ASC management firm Woodrum/ASD will not be able to collect the more than $93,000 that an arbitrator awarded the company last year in its contract dispute with a bankrupt surgery center.
U.S. District Court Judge Rudy Lozano has ordered that Methodist Hospitals, owner of the failed Merillville (Ind.) Surgery Center, is not responsible for paying the arbitration award because Methodist is a separate legal entity and not part of the arbitration agreement between Woodrum and the surgery center. The Merrillville facility closed an went bankrupt in 2008.
"Methodist is not a party to the agreement which contains the arbitration clause," wrote Judge Lozano in his opinion. "A corporate relationship alone, such as that of parent-subsidiary, is not enough to bind a non-signatory to an arbitration agreement." He wrote that although Methodist's president, Ian McFadden, FACHE, used Methodist's letterhead to write a 2008 letter terminating the management agreement with Woodrum, Methodist and the Merrillville Surgery Center were separate businesses because the surgery center maintained its own bookkeeping, bank accounts and tax ID numbers.
Woodrum/ASD principal David Woodrum, MHE, FACHE, says that his company plans to continue its case against Methodist to recover the money. "This is only one step in the process," he says, adding that he was not able to comment further on the judge's order.
The roots of the dispute go back to 2007, when the surgery center's board of managers hired Woodrum, based in Chicago, Dallas and Los Angeles, to manage the center in an attempt to save a money-losing partnership between 18 surgeons and Methodist Hospitals. In August 2008, Methodist bought out all the surgeons and became the only owner, according to court documents.
In November that year, Methodist gave Woodrum notice that it was ending its management contract because of the company's "persistent and material failure to effectively manage the Surgicenter," according to a letter from Mr. McFadden to Mr. Woodrum available in court records.
Since the management agreement for $12,000 a month was supposed to expire in May 2009, Woodrum disputed the termination and filed for arbitration. In return, Methodist filed a lawsuit to block arbitration, saying that the arbitration agreement was between Woodrum and the surgery center, not Methodist. In the meantime, the arbitrator sided with Woodrum and awarded the company $93,086.42.
Now that the federal court has sided with Methodist, the hospital will not be required to pay Woodrum. The attorney representing the hospital did not return a request for comment.
Kent Steinriede
