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UCSF-Stanford merger challenged directly in appellate court

Wednesday, Nov 12 1997
Supporters and critics of the merger of the University of California, San Francisco and Stanford University medical centers have finally agreed on something -- that a higher authority should decide if the deal is legal.

Frederick Mayer, a San Rafael pharmacist and president of Pharmacists' Planning Service, a nonprofit public health organization, has filed a legal action directly with the State Court of Appeal, challenging the University of California regents' transfer of nearly $400 million in UCSF assets to a newly formed, private, nonprofit entity.

Mayer, who filed the action as a private citizen and taxpayer, is asking the court to decide whether the regents violated their fiduciary duties when they handed over control of the medical center to the private entity. The action, a petition for a writ of mandamus in legal parlance, also asks the appellate court to decide whether the regents are allowed to delegate their duty to administer state property, in this case two UCSF hospitals, along with their various clinics and faculty practices, to the private sector.

"I wrote to [UCSF] Chancellor Haile Debas five months ago asking about this stuff," Mayer says. "He never responded to me. I'm on the alumni board of the university. I'm president of a nonprofit public health organization. ... If they will not respond to me in five months, they won't respond to anyone.

"The attitude that the regents can do whatever they want to without having to respond to the taxpayers or anyone else is appalling. And they're not going to do it without a fight. UC taught me how to be militant."

The regents approved the merger of the UCSF and Stanford medical centers in September, following nearly two years of planning, legislative hearings, lower court challenges, and employee protests. Under the arrangement, the new private entity, known as UCSF Stanford Health Care (USHC), took control of the hospitals, clinics, and faculty practices of UCSF and Stanford universities on Nov. 1.

USHC's board of directors includes representatives of the Board of Regents, Stanford trustees, administrators from both medical schools, and outside businesspeople. The regents do not appoint a majority of members on the new board, which has led to the allegations that the deal violated the public trust by, essentially, giving away public property to a private interest.

In fact, the petition to the court states:
"This transaction violates every fundamental trustee duty in the book."
This move differs from the near-constant legal squabbling that preceded, but did not impede, the merger. If the appellate court agrees to hear the case, the stakes will be high and any decision likely precedent-setting. Both sides have, therefore, brought in the legal big dogs.

Mayer is represented by Mill Valley attorney Lynn Carman, a familiar player of David-and-Goliath contests in both state and federal courtrooms. Carman sued the state Legislature over its budget stalemates in the early 1990s, joined Joe Alioto in securing a $374 million settlement in a recent antitrust case against several drug companies, and won a multimillion-dollar class action suit against Bank of America over escrow accounts.

Leading the legal charge for the UC Board of Regents is Jerome Falk Jr., managing partner at San Francisco's elite Howard, Rice, Nemerovski, Canady, Falk & Rabkin law firm, and former head of the San Francisco Bar Association. Falk and company represented former California Insurance Commissioner John Garamendi when he took control of Executive Life Insurance Co., defending its reorganization plan in appellate court, and also handled Baker & McKenzie's appeal of the sexual harassment megajudgment awarded to one of its secretaries.

Carman is petitioning the court for a writ of mandamus, a little-used legal remedy that allows the petitioner to go directly to the Court of Appeals, asking for a review of the law. Perhaps more rare is the defendants' -- that is, the regents' -- agreement that the appellate justices should hear the case. (The justices have yet to decide whether or not they'll take on the matter.)

"The issues are significant issues, and the regents would like to have them resolved," says Falk. "We think we're on solid legal ground with relation to the legality of the transaction."

In fact, the legality of the merger has been in question from its conception. A variety of legal experts questioned the regents' authority to hand over the UCSF Medical Center operations before a state Senate Judiciary Hearing last year. The merger, these experts argue, amounts to an illegal gift of public funds, because the private entity, USHC, will not be required to pay the UC system any amount of money even remotely approaching the value of the UCSF Medical Center. This argument leaves aside the question of whether the regents have the authority to make such a deal, if adequate compensation were paid.

UC's own legal eagles have maintained that the state constitution gives them the power to do as they see fit with the university system's assets. UC attorneys also contend that because the now-private medical center will support the university's Schools of Medicine with annual contributions to be determined by the USHC board, the merger is not a gift.

Another legal action -- this one a lawsuit filed by a coalition of employee unions in Alameda County -- was also proceeding last week. The employee groups have asked for an injunction to stop USHC from doing business until the case has been heard. Superior Court Judge Sandra Marguiles is expected to rule on the issue sometime this week.

About The Author

Lisa Davis


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