Nov. 26 (Westlaw Journals) – A not-for-profit hospital in Phoenix has been turned back yet again by a federal judge in its ongoing bid to compel a former Chapter 11 debtor to make good on a pre-petition charitable pledge.
In re Bashas’ Inc. et al., No. 12-01819, 2012 WL 5289501 (D. Ariz. Oct. 25, 2012).
The decision by U.S. District Judge Frederick J. Martone of District of Arizona affirms a Bankruptcy Court finding that the charitable pledge from supermarket chain Bashas’ Inc. to St. Joseph’s Foundation did not constitute an enforceable promise.
The hospital had argued it would be unjust to allow Bashas’ to avoid its promise because the grocery store operator received a benefit in the form of increased advertising exposure and community goodwill.
But Judge Martone agreed with the Bankruptcy Court that the hospital’s claim is “frivolous.”
Bashas’, along with affiliated companies Bashas’ Leaseco Inc. and Sportsman’s LLC, filed Chapter 11 petitions in July 2009.
Four years earlier, they had pledged a charitable donation to St. Joseph’s of $25,000 per year for 10 years, according to court records. The money was to be used to construct additional facilities.
Based on that pledge, the hospital filed a claim in Bankruptcy Court for $155,000. The claim represented the amount allegedly owed as of September 2009, court records say.
The debtors objected to the claim, and the Bankruptcy Court denied allowance after finding the promised donation was an unenforceable charitable pledge.
Judge Martone affirmed that ruling in March, and the hospital turned to the 9th U.S. Circuit Court of Appeals.
With the appeal pending, the parties agreed to resolve their dispute for $50,000.
Although no creditors objected, the Bankruptcy Court declined to approve the settlement. The court said the proposed deal was neither fair nor equitable to the debtors’ estate and their creditors.
The hospital returned to District Court, arguing that Section 90(2) of the Restatement (Second) of Contracts states that charitable pledges are enforceable, regardless of the existence of consideration, in order to avoid injustice.
Judge Martone again affirmed the Bankruptcy Court, saying the settlement is unwarranted because “the probability of St. Joseph’s success in the litigation is near zero.”
He also rejected the hospital’s appeal to the Restatement, saying “there is simply no evidence of injustice to St. Joseph’s.”
Rather, the judge found that “Bashas’ suffers the injustice here for having to waste limited resources defending itself against an exercise in avarice.”
Appellant: Gregory J. Gnepper, Gammage & Burnham, PhoenixAppellees: Isaac D. Rothschild, Mesch Clark & Rothschild, Tucson, Ariz