Bidder hoping to buy Bay Area hospitals sues unions, alleging extortion

In a surprising move, an anti-union Southern California hospital chain hoping to buy the struggling Daughters of Charity Health Care System is suing employee unions under the federal RICO Act, saying the unions are trying to thwart that deal and others by using extortionist tactics aimed at forcing it to cave into union demands.

The lawsuit filed Monday in U.S. District Court in San Francisco by Prime Healthcare Services accuses Service Employees International Union and SEIU-United Healthcare Workers West; the union federation Change to Win; and three union leaders of conspiring to “target and attack Prime with the ultimate objective of either unionizing Prime, thereby altering its cost structure and business model, or eliminating Prime from the market altogether.”

Those strategies, Prime said in its 71-page lawsuit, have been used against “numerous hospital operators that posed a similar threat … each of which eventually capitulated to defendants’ unlawful and extortionate attacks.”

Relying on the Racketeering Influenced and Corrupt Organizations Act, Prime is seeking general damages to compensate it “for the harm caused by the defendants’ unlawful conduct”; the tripling of Prime’s damages and attorneys’ fees.

Steve Trossman, a spokesman for SEIU-UHW, said the allegations “simply do not hold up to scrutiny.”

“Many of them were contained in a previous lawsuit against SEIU that was dismissed multiple times by a federal judge,” he said. “SEIU will seek a fast dismissal of this complaint as well.”

The duel between Prime Healthcare and unions started soon after Prime was rumored to be one of the bidders for San Jose’s O’Connor Hospital and Saint Louise Regional Hospital in Gilroy, both owned by Daughters of Charity.

Hospital employee unions claim that the chain’s checkered history shows it will turn its back on low-income patients and slash workers’ pay and benefits.

Prime has denied the allegations.

Over the past months, regional union members have staged rallies and candlelight vigils to protest Prime’s pursuit of the Daughters of Charity chain.

They have also cited an investigation by the federal government against Prime over allegations of overbilling Medicare by improperly diagnosing patients.

In the lawsuit, the controversial hospital chain that buys financially struggling hospitals confirms it has submitted a bid for the Daughters of Charity hospital group that also includes Seton Hospital in Daly City and Seton Coastside in Moss Beach. Two other hospitals in Los Angeles also are part of the sale.

All of the hospitals are considered crucial in serving low-income patients. Santa Clara County has submitted a bid to buy the hospitals in San Jose and Gilroy, but Daughters has been looking to sell all its properties to one group.

A spokeswoman for Daughters of Charity declined to comment on the lawsuit Tuesday. She said the system received bids from seven interested parties and that a winner will be announced this fall.

Katherine Franke, a professor at Columbia University Law School, said that using the RICO statute — a law originally intended to address organized crime and racketeering — has become a well-known basis for a “strategic lawsuit against public participation,” commonly known as a SLAPP suit.

Such suits, she said, are used as a way to intimidate or scare opposing parties by burdening them with litigation.

“Having to respond to it means hiring a lawyer and distracting you from whatever it was you were doing,” Franke said. “Filing a SLAPP suit is a very common way in which those who oppose the entry of a union or presence of a union try to intimidate a union or deplete union resources in another direction.”

Attorneys for Prime did not respond to a reporter’s request for comment on the suit.

On Monday, three Bay Area elected officials — all registered Democrats who receive support from employee unions — sent letters to state Attorney General Kamala Harris, also a Democrat, protesting any possible sale of the Daughters of Charity chain to Prime. Because the Daughters of Charity is a nonprofit, any sale must be approved by Harris’ office.

The signers were state Sens. Jim Beall, D-San Jose; Jerry Hill, D-San Mateo; and Bill Monning, D-Carmel.

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