Joel Freedman on Wednesday upended the Hahnemann University Hospital bankruptcy, firing Hahnemann’s chief restructuring officer and two outside managers who have been overseeing the shell of a business for the last two years.
A lawyer involved in the bankruptcy case called Freedman’s move retaliation for a lawsuit filed against Freedman late Tuesday seeking the return of an unknown amount of money to the bankruptcy estate. The suit against Freedman, filed in U.S. Bankruptcy Court for the District of Delaware, was sealed, so the amount is not public.
“What has transpired over the last number of hours is simply deleterious to this estate, was completely retaliatory,” Andrew Sherman, a lawyer with Sills Cummis & Gross P.C., told Judge Mary F. Walrath at an abbreviated hearing Wednesday. Sherman represents Hahnemann’s unsecured creditors.
Sherman worried that Freedman could, theoretically at least, “compel the debtors to dismiss the lawsuit that was just filed” against him, potentially reducing the amount of money that will be available for vendors and others Sherman represents. Claims in the case are expected to be near $300 million, but it’s too soon to say how much money will be available to pay.
By firing the managers overseeing the remains of the hospitals he bought in 2018, Freedman introduced uncertainty into who is in charge as the case moves forward.
Also Wednesday, Freedman filed a motion under seal asking the court to appoint a bankruptcy trustee to oversee the case as it winds down. The trustee would replace Saul Ewing Arnstein & Lehr LLP, the firm Freedman chose two years ago to handle the bankruptcy. That would cut off fees to Saul Ewing, which sued Freedman and in April alone billed $450,000 in fees and expenses for work on the case.
The key matter on the agenda for Wednesday’s hearing was whether Harrison Street Real Estate, Freedman’s partner and major lender in the $170 million purchase of Hahnemann and St. Christopher’s Hospital for Children, should be allowed to participate in talks among the bankrupt business shells, unsecured creditors, and Freedman over whether any proceeds from the eventual sale of certain properties will be available to pay bankruptcy claims.
The judge agreed to delay dealing with that difficult issue, giving bankruptcy lawyers time to sort through Freedman’s unusual move.
“To be quite candid, your honor,” Mark Minuti, of Saul Ewing, said to the judge, “this is a first for me in my career. I’m not really sure what the rules are in light of what’s happened this morning.”
A lawyer for Freedman pointed out that the California businessman remains the owner and chairman of the board of the bankrupt entities. The real estate, separately owned by Freedman and Harrison Street, was split from the operating companies.
“We’re not trying to damage the estate. We’re one of the largest creditors of the estate,” Suzzanne Uhland, of Latham & Watkins LLP, told the judge. “We are doing this in the interest of creditors, all creditors.”
Her argument was that this move should revolve the gridlock in the case.
Uhland also told the judge that Freedman wouldn’t do anything else that would set off alarm bells while lawyers sort out what to do next with the help of the mediator in the case, retired Delaware bankruptcy judge Kevin J. Carey.
Hahnemann closed in stages over the summer of 2019. It was a fixture on North Broad Street for more than 90 years.