Opinion ID: 170058
Heading Depth: 1
Heading Rank: 3

Heading: The Consolidation Between St. Joseph and St. Francis

Text: The basic facts of the underlying transaction are not in dispute. Prior to the consolidation at issue, St. Joseph was a non-profit corporation operating a 600-bed acute care hospital in Wichita, Kansas. St. Joseph's sole member was CSJ Health System of Wichita, Inc. (CSJ), and CSJ appointed the members of the nineteen-person board that governed St. Joseph. CSJ's sole member and religious sponsor was the Sisters of St. Joseph of Wichita (Sisters of St. Joseph), a religious order affiliated with the Catholic Church. St. Francis was also a non-profit, operating an 850-bed hospital in Wichita. Its structure was similar to St. Joseph's: it had a single parent and sponsorthe St. Francis Ministry Corporationwhose sponsor was the Sisters of the Sorrowful Mother, another religious order affiliated with the Catholic Church. The only other major hospital in Wichita was the HCA Wesley Medical Center. Prior to the consolidation, St. Joseph's long-term viability was in question. The primary insurer in the area, Blue Cross & Blue Shield of Kansas, Inc. (Blue Cross), intended to contract with only two of the three hospitals, and the rise of managed care was creating some financial pressure for St. Joseph. Accordingly, St. Joseph decided to attempt a consolidation, and it chose St. Francis as its logical partner because of their shared affiliation with the Catholic Church, the potential for synergies, and the worry that a merger with the HCA Wesley Medical Center could create antitrust problems. At some point prior to the consolidation, St. Joseph became aware that a Medicare loss might result, but the potential of showing a Medicare loss was not a consideration in the decision to consolidate. The benefit of such a loss, moreover, would go to the new, consolidated entity. St. Joseph was not looking to get the full value for its assets, but rather to make a good decision for the advancement of its ministry. The principals of St. Joseph did not approach any other entity about a consolidation, and they rejected the idea of putting St. Joseph up for sale. They determined that such a sale would not have fulfilled their desire to perpetuate Catholic health care ministry in the community. On September 28, 1995, St. Joseph and St. Francis executed a Master Plan of Consolidation, and the consolidation became effective on October 1, 1995. Prior to the consolidation, St. Joseph and St. Francis were not subject to common ownership or common control. After consolidation, the two organizations ceased to exist, and the new entity, Via Christi, assumed both corporations' assets and liabilities. See Kan. Stat. Ann. § 17-6709 (2006). In addition, the Master Plan of Consolidation provided that the board of directors of Via Christi Medical Center, Inc. will include representatives of St. Joseph and St. Francis to insure the continuation of the existing commonalty of interest. Master Plan of Consolidation, ROA, Vol. I, at 302. Ultimately, seven members of St. Joseph's old board became members of Via Christi's new board, as did six members of St. Francis' old board. A nominating committee, organized jointly by the sponsors of St. Joseph and St. Francis, nominated the remaining ten members of the twenty-three-person board. Three officers of St. Joseph continued in their same capacities as officers of Via Christi. One day after the consolidation, St. Joseph's sole memberCSJconsolidated with St. Francis' sole memberSt. Francis Ministry Corporationto form Via Christi Health System, Inc. The two religious groupsthe Sisters of St. Joseph and the Sisters of the Sorrowful Motherremained as joint sponsors of Via Christi Health System, Inc.