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Lawsuit: Carolinas HealthCare System violated public record law

A Charlotte attorney contends in a lawsuit that one of the nation’s largest public hospital chains, Carolinas HealthCare System, has violated the state public records law by keeping secret the terms of a legal settlement.

Carolinas HealthCare, the multibillion-dollar system that runs Carolinas Medical Center and more than 30 other hospitals, won a confidential settlement in a court complaint that it filed against the former Wachovia Bank.

The new suit by attorney Gary Jackson maintains that Carolinas HealthCare has no legal right to keep the settlement confidential – an argument that the hospital system disputes.

In a hearing this week before Superior Court Judge Robert Sumner, the two sides wrangled over the hospital chain’s motion to dismiss the suit – and over interpretations of the state’s sometimes-ambiguous public records law.

Jackson, the plaintiff, said he filed the suit largely because he believes the public deserves more information than it’s getting from Carolinas HealthCare, Mecklenburg County’s largest employer. The system is “not known for transparency,” despite its status as a public hospital authority, Jackson told the judge.

He noted that the hospital system for years refused to make public the total compensation of its top executives.

Mark Merritt, a lawyer representing the hospital system, said Jackson’s contention about the hospital’s transparency was “demonstrably false.”

The hospital system told the General Assembly it had no problem with a 2009 law requiring public hospital systems to release the compensation of top executives, Merritt said.

The new law was a compromise, permitting public hospitals to keep private the salaries of all employees but the highest paid executives.

Accusations of secrecy

Carolinas HealthCare System is a public, tax-exempt hospital authority created by a 1943 state law.

Mecklenburg County officials have occasionally criticized the system for a lack of transparency, saying it often operates more like a private organization than a public one.

In 2011, former county manager Harry Jones declared the system in breach of contract because it failed to share data about a county-owned psychiatric hospital that was managed by Carolinas HealthCare.

County officials have also objected to the fact that Carolinas HealthCare holds its quarterly board meetings at 7 a.m. and doesn’t invite the public to speak. The board’s votes are almost always unanimous, with questions worked out in private discussions, closed-door committee meetings or executive sessions.

The Observer has at times struggled to get basic information from the hospital system. For example, the system did not disclose its total 2010 administrative expenses when reporters requested that data for a series on nonprofit hospitals.

The confidential settlement involving Wachovia followed a 2008 lawsuit in which Carolinas HealthCare accused the bank of breaking a promise to put the hospital system’s money in low-risk investments. The system now has more than $2 billion in investments.

One of the Wachovia investments plummeted from about $15 million to $1.8 million, the Carolinas HealthCare suit said.

In 2011, the hospital system’s board of directors went into closed session to approve the settlement, Jackson’s lawsuit says, and the hospital system subsequently refused to provide a copy of the settlement agreement.

‘A Swiss cheese’

The hospital system said the state public records law doesn’t require it to release such settlements.

Merritt, the hospital system’s attorney, said the public records act “isn’t a monolith.”

“I describe it as a Swiss cheese,” he said. “It’s got a lot of holes in it.”

In its motion to dismiss Jackson’s complaint, the hospital system noted that the law says the following about settlement documents: They are public records “in any suit, administrative proceeding or arbitration instituted against any agency of North Carolina government.”

The law doesn’t explicitly say that they are public records in suits filed by the government agency, Merritt noted.

Jackson contended the public records law is ambiguous, but said he doesn’t believe lawmakers intended to allow confidential settlements in lawsuits filed by public agencies.

“It’s a public body and there needs to be that transparency,” he said.

Merritt said that defendants tend to be willing to pay more in settlements with confidentiality clauses, so insisting on public disclosure could cost public bodies money.

“You know confidentiality is often needed to get matters resolved,” he told the judge.

The need to shine light

But Jackson, a lawyer who often represents individuals in disputes with companies, said confidential settlements tend to do more harm than good.

Now, members of the public have no way to know whether the Wachovia settlement was a fair one, Jackson said. He’s seeking a court order to force disclosure of the document.

He noted that two former Wachovia executives also served as officers of Carolinas HealthCare’s executive committee: former Wachovia CEO Ken Thompson and Mac Everett, a retired senior executive vice president with the bank.

“I don’t know if there are conflicts or improprieties,” Jackson said. “But I think shining light on the terms of settlements is motivation not to have improprieties.”

Staff writer Rick Rothacker contributed.

Alexander: 704-358-5060
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