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					  ART(3)1 / VF pp 6-9




     ARIZONA LAWSUIT
     FINALLY SETTLED
     Throughout the history of the Sev-     capacity. That is a good-sized hospi-        Health Systems/West,” or, simply,
enth-day Adventist Church, this is the      tal! It had 30 physicians on the active      AHS/West.
first instance in which one denomina-       medical staff, while the combined cour-           Each Adventist hospital corpora-
tional entity has sued another. In the      tesy and consulting staffs included 140      tion within those western states was
fall of 1992, the Arizona Conference        physicians. There were 180 employees         then asked to transfer itself to the new
filed suit against Adventist Health         and 50 volunteers. Because Tempe was         giant conglomerate. Because confer-
Systems/West.                               next to Phoenix, it was able to help         ence and union personnel had a ma-
     We have written about this suit in     serve one of the largest metropolises        jority of the seats on the board of each
earlier years. In this present study, we    in the southwest.                            denominational institution, it was rela-
will again review details of this litiga-        But, then in 1973, although not         tively easy to obtain a majority vote of
tion, which has been so complex,            clearly recognized at the time, every-       approval. For this reason, it has been
lengthy, and expensive. Fortunately,        thing changed.                               claimed that “the hospitals voted to do
we now be are able to tell you the                                                       it.” Yet the fact was that, in each in-
outcome—for the suit has finally been            During the 1972 Autumn Council          stance, the union conference president
settled.                                    (now called the Annual Council), the         controlled the board and its decisions,
                                            General Conference voted that medi-          since he and his subordinate workers
     With no plans to start something       cal care within the respective union con-    had majority control of each board.
that would end up as precedent-setting      ferences be reorganized into multi-hos-           On January 31, 1973, the Tempe
Adventist history, a young man moved        pital systems under the control of a cen-    Community Hospital held its board
his family to Arizona in 1936.              tral corporation for each union. It is now   meeting and, according to the minutes,
     Earnest E. von Pohle had just          widely recognized by our leaders that        Elders Walton and Bietz, representing
graduated from the College of Medical       that action was a mistake. Although          the Pacific Union and AHS/West, pre-
Evangelists (now Loma Linda Univer-         made at the insistence of certain men        sented a report describing the pro-
sity), and, arriving in Tempe, Arizona,     in the interest of “saving money,” it has    posed changeover. Vigorous discus-
began a medical practice. Gradually,        brought massive overspending, bond           sion followed! There were those
his private practice developed into a       floating, and immense debt to our de-        (Eddlemon and Price) who did not want
clinic, which in 1944 became the Tempe      nomination. The whole thing has been         the hospital given to some faceless,
Clinic-Hospital. On March 2 of that year,   a great tragedy, which could eventu-         out-of-state, monolithic organization.
it opened as a ten-bed hospital. Later      ally cause us to lose many of our church     But they were a tiny minority on the
it became the Tempe Community Hos-          properties when the debtors foreclose        board. Everyone else remained in lock-
pital and was incorporated with nine on     on us. Instead of smaller institutions,      step, and the vote was 22 to 2, in favor
the board.                                  closely managed by men located right         of the transfer.
     In 1961, he donated the hospital to    there, immense fleets of hospitals and            Yet was there a full “transfer” of
the Arizona Conference. At which time       allied care facilities were placed under     hospital ownership in any of the actions
its name was changed to the Tempe           the control of a single committee! In this   taken in that meeting? Second, did the
Community Hospital, and it operated         manner, each little mistake could com-       hospital board totally change at that
under the conference as a medical in-       pound into terrible blunders affecting       time? Later in this study, we will learn
stitution of the Seventh-day Adventist      many institutions—especially when, in        that, to this day, both questions are still
denomination. (This legal transfer, inci-   the 1980s, those small committees de-        controverted.
dentally, occurred simply by expand-        cided to use the properties as leverage           According to AHS/West, the mo-
ing the board and placing enough de-        to float bonds and borrow all kinds of       tions passed at that meeting stated that
nominational officers on it to give the     money to build, invest, and expand (see      a new constituency was to be named,
church a majority vote. The same pat-       our Medical/Publishing Tractbook for         at which time the transfer to AHS/West
tern, earlier applied to the Voice of       a historical overview of those wild          would be completed. In contrast, ac-
Prophecy, transforming it into a denomi-    years).                                      cording to attorneys representing the
nationally owned radio broadcast.)               In agreement with that 1972 coun-       Arizona Conference, there is no indi-
     All went well for this new addition    cil decision, such an organization was       cation of that in the minutes of that
to the Arizona Conference and; as the       established in the territory of the Pa-      meeting. AHS/West steadfastly main-
years passed, a fair amount of growth       cific Union Conference, and was given        tained that it became the sole owner
at the hospital was made. Subsequent        the name, “Pacific Union Conference          of the Tempe Hospital, as a result of
additions of land and buildings had         Adventist Health Services, Inc.” Later       that January 31, 1973, board action.
eventually brought it up to a 110-bed       the name was changed to “Adventist           The Arizona Conference said it never
2
relinquished the right to control the        Hospital was located in nearby Phoe-         borrowed by AHS/West from banks and
membership of the constituency, and          nix. After acquiring it, they renamed it     the sale of bonds.
that the meeting only provided for           “Tempe St. Luke’s Hospital.” It is there          Elders Frank Sherrill and Tom
pooled purchasing and management             today in Tempe, Arizona, if you want to      Bledsoe, president and secretary-trea-
responsibilities. AHS/West disagreed.        stop by and see it. Go to 1500 South         surer of the Arizona Conference, ac-
      However, it does appear that, for      Mill Avenue.                                 tively cooperated in the entire proce-
practical purposes, the working control           So that is what happened to that        dure, since they were on the board of
of the hospital was given into the hands     money which eventually led to the law-       Tempe Community Hospital [which still
of a group of men in an office building      suit.                                        existed, even though the hospital was
in Roseville, near Sacramento, Califor-           As with many other items of history,    gone]. In addition, Bledsoe was on the
nia.                                         the Arizona Conference and AHS/West          Pacific Living Centers board. The two
     Newly formed AHS/West quickly           differ on what happened next. From           of them supported every action taken
had so many hospitals handed over to         official statements made by both sides,      up to 1990.
it, that it could hardly keep track of       we glean the following:
where they all were, much less “man-                                                            AHS/West: It eventually became
age them.”                                        Arizona Conference: Proceeds of         apparent that, despite the counsel of
     On July 31, 1973, the AHS/West          the sale were dedicated to the estab-        the consultants, the facilities were not
board got around to giving its attention     lishment of a new medical and/or health      going to succeed. Causes include a
to Tempe Hospital, and it is said to have    facility in Arizona and placed in a trust    sudden change in Arizona’s laws and
elected a new board to manage that           fund under AHS/West management.              healthcare regulations, as well as a
hospital. This board was also called the     AHS/West sent monthly statements to          sharp decline in Arizona’s economy. As
“Tempe Community Hospital Board.”            the conference, notifying them how           a result, Pacific Living Centers began
We will find that it has had an unusu-       much was in the trust fund. By June          selling off those Arizona healthcare fa-
ally long existence, having already out-     30, 1988, it had grown to $12,941,647.       cilities, and their sale resulted in a loss
lived the hospital by thirteen years!        Throughout that entire time, the con-        of about $20 million. That sum was
                                             ference believed that those funds would      borne first by the Tempe Hospital Fund,
     By the late 1970s, AHS/West was         only be spent on another hospital or         as sponsor of the Arizona facilities, with
busily engaged in making big hospital        similar outreach in Arizona.                 AHS/West assuming the balance of the
acquisitions and sales, and borrowing             AHS/West: Immediately after the         loss, which amounted to approximately
money and spending it. Big time ex-          sale, AHS/West hired consultants to          $7 million. The plan had been for Pa-
penditures and an ever-tightening finan-     help it decide how to spend the money,       cific Living Centers to succeed with its
cial picture became the order of the day     and they sold it in order to invest it in    Arizona facilities, and eventually repay
at AHS/West—and all the other AHS en-        retirement centers and skilled nursing       the loan (of the $10,000, with interest,
tities throughout North America. We          home facilities in Arizona. AHS/West         in the Tempe Hospital Fund from the
have written extensively on all this. You    began acquiring land for that purpose.       1981 sale of the hospital) to AHS/West.
owe it to yourself to read it! (See our                                                         Arizona Conference: AHS/West’s
Medical/Publishing Tractbook.)                    Arizona Conference: Without tell-       use of the Tempe Hospital Fund, to
     As the 1980s began, our “Health         ing the Arizona Conference what was          compensate itself for losses for which
Systems” began moving into corporate         taking place, AHS/West then trans-           AHS/West was solely responsible, con-
jets and similar high-priced expendi-        ferred some of those dedicated funds         stituted a breach of AHS/West fiduciary
tures, to help their beleaguered execu-      to Pacific Living Centers, after it had      responsibility to the conference.
tives run from hospital to hospital. A       begun to experience financial losses.
frenzy of growth occurred in the early       This should not have been done. Later,            Comment: By this time, the mem-
1980s throughout our Health Systems,         against the objections of the confer-        bership of the Arizona Conference had
which ultimately led to the massive in-      ence administrators, all the remaining       become a nest of angry hornets. They
debtedness which still hangs relent-         money in the Tempe Hospital Fund was         demanded that something be done,
lessly over them—and our entire church       transferred out of it.                       and they were deeply upset that their
in the United States.                             AHS/West: AHS/West decided to           key conference officers (president and
     It 1981, AHS/West turned its atten-     reinvest the money in facilities in Ari-     treasurer) had quietly been a party to
tion again to little Tempe. What good        zona. They decided to do this through        the handover of money to Pacific Liv-
was that hospital to illustrious AHS/        Pacific Living Centers. This was a wise      ing Centers. They wanted their Tempe
West? Helping people out in the desert       decision. Pacific Living Centers would       Hospital Fund money back, plus inter-
somewhere; surely, the money could           own and operate these Arizona facili-        est, so they could reinvest it in another
be better spent someplace else.              ties, which would result from: (1) the       hospital in Arizona—with this one not
     So AHS/West sold our hospital—          loan of AHS/West funds for working           being handed over to that hospital car-
Tempe Hospital—to the Catholics.             capital, (2) donation of land already        tel in California. Conference officials
     In 1981, it was given to St. Luke’s     purchased by AHS/West, and (3) con-          tried to quiet them down, with pleas of
Hospital for about $10 million. St. Luke’s   struction of the facilities by $40 million   loyalty to the church, but it was only oil
  Arizona Lawsuit                                                                                                               3
cast on the fire. They demanded ac-          it a demand for payment.]                    such a major change had actually oc-
tion, and, because they would not                 Twice arbitration attempts were         curred. In addition, the very minutes of
cease demanding it, they eventually got      made; the first through mediation within     the meeting did not indicate any
it. They put in a new conference presi-      the church, and the second through the       change. [!]
dent who promised to do as they              American Arbitration Association. On              Finally, a letter was presented to the
asked.                                       both occasions the conference rejected       court, which had been found during the
                                             the recommendations of the mediators.        discovery phase. Dated July 15, 1981,
      Arizona Conference: On February             Based upon assertions by Arizona        it was from Frank Dupper (at that time
2, 1989, Arizona Conference lodged a         Conference officers, their constituents      AHS/West president) to Erwin J.
complaint against AHS/West. At its April     have expressed outrage at a mistaken         Rembolt. It was at the time the hospital
30 constituency meeting, the member-         belief that more than $10 million was        was sold to St. Luke’s Hospital, and
ship voted to ask AHS/West to submit         allegedly stolen from the conference.        Rembolt had been assisting Dupper in
the matter to binding arbitration. In this   But, in fact, AHS/West spent that            planning to transfer the hospital funds
way, the matter would be settled by a        money on Arizona facilities, with the full   to AHS/West. The letter said this: “We
neutral expert in the field. But if AHS/     approval of Arizona Conference offic-        must come up with a way of keeping
West should refuse to do that, then a        ers. AHS/West lost millions more in          the money on AHS/West’s books for
lawsuit should be filed to retrieve the      those Arizona losses.                        health care in Arizona.” Then, follow-
money.                                                                                    ing a detailed proposal, he added: “I
      On September 7, not desirous of             Arizona Conference: On December         am sure if we are too forward on this,
filing a suit against a sister church in-    10-11, 1992, Judge Michael O.                the Arizona Conference will see right
stitution, the conference withdrew the       Wilkinson heard arguments by confer-         through it.”
complaint and once again proposed            ence and AHS/West attorneys. A basic              AHS/West: In spite of a lack of a
binding arbitration. But, once again,        issue was whether the membership of          strong case, the Arizona Conference
AHS/West rejected it.                        the Tempe Community Hospital board           filed a lawsuit against AHS/West, which
      Then, on October 27, the confer-       had really changed on January 31,            included certain officials of the Pacific
ence proposed a mediation process.           1973? And, along with that: Had that         Union Conference and AHS/West.
On March 21-22, 1990, a mediation            meeting really transferred total hospi-      Among other things, the suit charged
conference was held, but no settlement       tal control out of the hands of the Ari-     those parties with fraud, theft, rack-
was achieved.                                zona Conference?                             eteering, being of an evil mind,” and
      On March 29, a special meeting              The conference presented four wit-      many other terrible allegations.
was held in the Arizona Conference and       nesses who were present at that con-              Later, the conference dropped the
it was voted to resort to litigation. The    tested 1973 meeting. All of them de-         names of the individuals from the law-
lawsuit was filed in Maricopa County         nied that any change in corporate mem-       suit, yet their fundamental accusations
Superior Court in June 1990. The dis-        bership had taken place. Among them          remained unchanged. But, throughout
covery phase began. The brethren still       was John Stevens, the Arizona Confer-        all that had transpired in these contro-
wavered, and once again time passed          ence president in 1973. In contrast,         verted years, officials of the Arizona
without the suit being taken to court.       AHS/West presented only one witness,         Conference had been involved in mak-
      On September 22, 1992, a final at-     the brother-in-law of Frank Dupper,          ing and/or approving these actions.
tempt was made to go to binding arbi-        president of AHS/West. But his testi-             AHS/West must defend itself
tration—and again it was rejected by         mony conflicted with a letter he had         against these charges.
AHS/West. So the suit was taken to           written on the subject in 1985. In that
court.                                       letter, he said that a certain individual           Back to our own comments: As
      AHS/West: AHS/West had tried to        had made a presentation at the 1973          far as the church members in Arizona
fulfill its obligation to the Tempe fund     meeting—in which he stated that the          could ever determine, Tempe Hospital
and the Arizona Conference by invest-        conference would be giving up control        had been doing fine when it was sold
ing in those Arizona properties. This re-    of the hospital. In his testimony to the     to the Catholics. Today, it is still doing
quired placing the Tempe fund money          court, this witness admitted that the per-   fine! Why then, was it sold? This was
at risk, if the projections were not real-   son he had credited with having made         one of the burning questions in the
ized. In fact, if the fund had not been      such a clear presentation—had not at-        minds of Arizona church members.
there, the Arizona investments probably      tended that 1973 meeting.                         The $10 million had been put into
would not have been made.                         In addition, attorneys representing     a new corporation, called Pacific Liv-
      Bledsoe had asked that the Tempe       the conference presented numerous            ing Centers. When the investments in
Community Hospital board [which still        documents as evidence that no change         Arizona soured, the conference was left
existed as a subsidiary of AHS/West]         had taken place at the 1973 meeting.         with nothing. In retrospect, handing the
give $5 million to the Arizona Confer-       Included here was the formal notice in       hospital over to AHS/West seemed like
ence. But this request was refused.          the Pacific Union Recorder, which gave       putting their money into a lottery: Throw
[AHS/West considered it a request for        no mention of such a change. Yet cor-        it in, and maybe it will not all be lost;
a gift; Arizona Conference considered        porate law required such notification, if    some might even come back. They
4
wondered why they had ever given the           Herman Bauman, Arizona Conference               ence. But he did state that all parties
hospital away. Yet almost no church            president, and three other plaintiffs. It was   would have to bear their own legal ex-
members knew anything about the                also signed by representatives of the           penses.
transaction when it had occurred.              three defendant institutions, including              That decision, along with the settle-
Oddly enough, attorneys for both sides         Ralph Dupper, president of AHS/West.            ment agreement, effectively closed the
were, at the bitter end, still fighting over         The case of Arizona Conference of         case. Whatever might be the lingering
whether the hospital had ever been             Seventh-day Adventists vs. Adventist            questions, the matter was declared
given to AHS/West.                             Health Systems/West, Pacific Living Cen-        settled.
    The disputes as to who decided             ter, Inc., and Tempe Community Hospi-                Bauman, the conference president,
what, what happened to the money,              tal, Inc., was settled in court on January      subsequently issued this statement:
and why was it not returned—led to the         10, 1994. On that day, attorneys for all             “The lawsuit has consumed valuable
lawsuit which was filed in June 1990.          parties gathered to the Maricopa County         resources including time, attention,
                                               Courthouse, to hear the decision by pre-        money and energy from all sides . . Re-
    Then, in the spring of 1994, a deci-       siding Judge Michael O. Wilkinson,              grettably, the litigation has created a
sion was handed down by the court.             which concluded with these words:               certain amount of hurt feeling and dis-
    But, five days before it was given,              “The Court accordingly hereby en-         trust among many people associated
the parties involved drafted a “settle-        ters judgment in favor of defendants and        with the litigation and events surround-
ment agreement,” by terms of which,            against plaintiffs, with all parties to bear    ing it. It is the sincere desire of the Ari-
no matter what the outcome might be,           their own attorney’s fees and costs.”           zona Conference and AHS/West to put
neither party would appeal the decision              The judge, ruling in favor of AHS/        the entire litigation behind them and
to a higher court. It was signed by            West and its associates, awarded no             move forward from this day together.”
                                               compensation to the Arizona Confer-


     So many of these problems could           repeated statements that workers in the
have been avoided if our leaders had           mission field should not feel they must
adhered to the Bible and Spirit of Proph-      counsel with leaders at a distance in re-
                                                                                               ren, before making advance moves, just
ecy counsels.                                  gard to everything that occurs,—as if
                                                                                               first come to him for permission to do
     One of these counsels is about “con-      those other men had some type of su-
                                                                                               that which they feel must be done. Such
solidation.” This occurs when various in-      perior wisdom. In actuality, they would
                                                                                               a man is in a dangerous position. He
stitutions, located at a distance from one     know far less about the local situation
                                                                                               has lost sight of the work of a true leader
another, are all placed under single man-      than would the workers there. (See Tes-
                                                                                               among God’s people.”—Testimonies to
agement. Ellen White wrote extensively         timonies to Ministers, 212-213, etc.)
                                                                                               Ministers, 491-492.
on this topic, in relation to our publish-          This great burden that men get to
                                                                                                     Another point which should be kept
ing houses. But the same principle would       control others is not of God. Each
                                                                                               in mind was the effort of John Harvey
apply to our medical institutions.             should go to the Lord for himself. Yes,
                                                                                               Kellog, M.D. to control our medical work
     “I beg of you and all the officials of    there needs to be cooperation and or-
                                                                                               at the turn of the century. He tried to do
the Pacific Press to know that every move      derly working. But a few men are not to
                                                                                               exactly that which the 1972 Annual Coun-
you make is in the light of the counsel of     control a large work.
                                                                                               cil voted for AHS to do! Yet the Spirit of
God. The moves being made of consoli-               Here are several additional quota-
                                                                                               Prophecy vigorously opposed it!
dation mean placing all your powers            tions:
                                                                                               Kellogg wanted all the Adventist sanitari-
under the jurisdiction of the powers in             “Organizations, institutions, unless
                                                                                               ums to be subordinate to his office in
office at Battle Creek [at the Review and      kept by the power of God, will work un-
                                                                                               the Battle Creek Sanitarium.
Herald Publishing Association]. I say,         der Satan’s dictation to bring men un-
                                                                                                     He urged this and tried in every way
God forbid that you should adopt the           der the control of men; and fraud and
                                                                                               to accomplish it. Yet the letters of Ellen
plans and be controlled by the principles      guile will bear the semblance of zeal for
                                                                                               White blocked him at every step. She
that have ruled them like the laws of the      truth and for the advancement of the
                                                                                               knew that such a reorganization would
Medes and Persians.—August 2, 1895             kingdom of God. Whatever in our prac-
                                                                                               be detrimental to the daily work of each
(E.G.W., Cooranbong, to C.H. Jones,            tice is not as open as day, belongs to
                                                                                               distant institution, would tempt that cen-
Pacific Press]                                 the methods of the prince of evil. His
                                                                                               tral leaders into the control of Satan,
     For many, many more quotations on         methods are practiced even among Sev-
                                                                                               and, if and when the central organiza-
this, please see two earlier of our earlier    enth-day Adventists, who claim to have
                                                                                               tion went into apostasy—it would take
publications: (1) Free and Not Consoli-        advanced light.”—Testimonies to Minis-
                                                                                               all the others with it—since it would le-
dated [RS-9], and (2) Confederation and        ters, 366.
                                                                                               gally own them!
Consolidation—Part 1-3 [RS—17-19]. A                “Sometimes a man who has been
surprising number of statements are            placed in responsibility as a leader gains                                 Continued on the next tract

there included.                                the idea that he is in a position of su-              More WAYMARKS - from —

                                               preme authority, and that all his breth-        PILGRIMS
     Another principle is based on the
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