Please help!

Showalter, J. S. (2020). The law of healthcare administration (Ninth). Health Administration Press.

Press Release: Read Stern v. Lucy Webb on pp. 125 of text. (Listed below)

Assume you are the hospital administrator responsible for press releases and press statements. As a result of this case, create a one-page public statement including a short summary of the facts, describe the role of the Board and explain what you are now doing to prevent this activity from happening again. Keep in mind, you want to assure the public that you are knowledgeable on the facts, the law and the measures you are taking in preventing this from re-occurring in the future.

Remember:

Brevity and clarity are key components. Keep it to one page only.

The Court Decides Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries 381 F. Supp. 1003 (D. D.C. 1974) Gesell, J. [This is a class action suit in which patients of Sibley Memorial Hospital, known officially by the name shown, challenged various aspects of the hospital's management and governance. The defendants were certain members of the hospital's board of trustees and the hospital itself. For a summary of the differences between trustees of a trust and directors of a corporation, see the discussion in this chapter.] The two principal contentions in the complaint are that the defendant trustees conspired to enrich themselves and certain financial institutions with which they were affiliated by favoring those institutions in financial dealings with the Hospital, and that they breached their fiduciary duties of care and loyalty in the management of Sibley's funds. . . .[The court explains that the hospital was begun by the Methodist Church-affili-ated Lucy Webb Hayes School in 1895 and eventually became the school's main activity.] In 1960 . . . the Sibley Board of Trustees revised the corporate by-laws. . . . Under the new by-laws, the Board was to consist of from 25 to 35 trustees, who were to meet at least twice each year. Between such meet-ings, an Executive Committee was to represent the Board [and in effect had full power to run the hospital]. . . .And reasonable deviations and expanded interpretations must be made from time to time in order to keep pace with changes in recognized concepts of the proper sphereof general hospital operations. . . . Such deviations are recognized by our Connecticut courts even though the elements for applying cy pres principles are not present. A decree may enter advising plaintiff of its rights, powers and authority herein by answering the four questions propounded in the affirmative. In fact, management of the Hospital from the early 1950s until 1968 was handled almost exclusively by two trustee officers: Dr. Orem, the Hospital Administrator, and Mr. Ernst, the Treasurer. Unlike most of their fellow trustees, to whom membership on the Sibley Board was a charitable service incidental to their principal vocations, Orem and Ernst were continuously involved on almost a daily basis in the affairs of Sibley. They dominated the Board and its Executive Committee, which routinely accepted their recommendations and ratified their actions. Even more significantly, neither the Finance Committee nor the Investment Committee ever met or conducted business from the date of their creation until 1971, three years after the death of Dr. Orem. As a result, budgetary and investment decisions during this period, like most other management decisions affect-ing the Hospital's finances, were handled by Orem and Ernst, receiving only cursory supervision from the Executive Committee and the full Board. [It was only after the deaths of Dr. Orem and Mr. Ernst (in 1968 and 1972, respectively) that other trustees began to assert themselves and exercise supervision over the financial affairs of the hospital. At that point, it became known that over the years "unnecessarily large amounts of [Sibley's] money" had been deposited in accounts bearing little or no interest at banks in which trustees had a financial interest. At the same time, the hospital bought certificates of deposit that paid lower-than-market rates and took out loans with interest rates higher than the interest rates being paid on funds deposited. Because there was no evidence that the trustees, other than Dr. Orem and Mr. Ernst, had ever actually agreed to engage in or profit from these activities, the court found insufficient evidence to prove a conspiracy among them. The court then proceeds to discuss the allegations of breach of fiduciary duty.]

III. Breach of Duty. Plaintiffs' second contention is that, even if the facts do not establish a conspiracy, they do reveal serious breaches of duty on the part of the defendant trustees and the knowing acceptance of benefits from those breaches by the defendant banks and savings and loan associations.

A. The Trustees.

Basically, the trustees are charged with mismanagement, nonmanagement and self dealing. The applicable law is unsettled. . . . [H]owever, the modern trend is to apply corporate rather than trust principles in determining the liability of the directors of charitable corporations, because their functions are virtually indistinguishable from those of their "pure" corporate counterparts. 1. Mismanagement. . . . Since the board members of most large charitable corporations fall within the corporate rather than the trust model, being charged with the operation of ongoing businesses, it has been said that they should only be held to the less stringent corporate standard of care. More specifically, directors of charitable corporations are required to exercise ordinary and reasonable care in the performance of their duties, exhibiting honesty and good faith. 2. Nonmanagement. . . . A corporate director . . . may delegate his investment responsibility to fellow directors, corporate officers, or even outsiders, but he must continue to exercise general supervision over the activities of his delegates. Once again, the rule for charitable corporations is . . . the traditional corporate rule: directors should at least be permitted to delegate investment decisions to a committee of board members, so long as all directors assume the responsibility for supervising such committees by periodically scrutinizing their work. Total abdication of the supervisory role, however, is improper even under traditional corporate principles. A director who fails to acquire the information necessary to supervise investment policy or consistently fails even to attend the meetings at which such policies are considered has violated his fiduciary duty to the corporation. While a director is, of course, permitted to rely upon the expertise of those to whom he has delegated investment responsibility, such reliance is a tool for interpreting the delegate's reports, not an excuse for dispensing with or ignoring such reports. . . . 3. Self-dealing. Under District of Columbia Law, neither trustees nor corporate directors are absolutely barred from placing funds under their control into a bank having an interlocking directorship with their own institution. In both cases, however, such transactions will be subjected to the closest scrutiny to determine whether or not the duty of loyalty has been violated. . . . . . . Trustees may be found guilty of a breach of trust even for mere negligence in the maintenance of accounts in banks with which they are associated while corporate directors are generally only required to show "entire fairness" to the corporation and "full disclosure" of the potential conflict of interest to the Board. Most courts apply the less stringent corporate rule to charitable corporations in this area as well. It is, however, occasion ally added that a director should not only disclose his interlocking responsibilities but also refrain from voting on or otherwise influencing a corporate decision to transact business with a company in which he has a significant interest or control. [The court goes on to point out that the hospital board had recently adopted the AHA's policy guidelines that essentially imposed the standards described earlier: (1) a duality or conflict of interest should be disclosed to other members of the board, (2) board members should not vote on such matters, and (3) the disclosure and abstention from voting should be recorded in the minutes.]. . . [T]he Court holds that a director . . .of a charitable hospital . . . is in default of his fiduciary duty to manage the fiscal and investment affairs of the hospital if it has been shown by a preponderance of the evidence that (1) . . . he has failed to use due diligence in supervising the actions of those officers, employees or outside experts to whom the responsibility for making day-to-day financial or investment decisions has been delegated; or (2) he knowingly permitted the hospital to enter into a business transaction with himself or with any [business entity] in which he then had a substantial interest or held a position as trustee, director, general manager or principal officer [without disclosing that fact]; or(3) except [with disclosure], he actively participated in or voted in favor of a decision. . . to transact business with himself or with any [business entity] in which he then had a substantial interest or held a position as trustee, director, general manager or principal officer; or (4) he otherwise failed to perform his duties honestly, in good faith, and with a reasonable amount of diligence and care. Apply ing these standards to the facts in the record, the Court finds that each of the defendant trustees has breached his fiduciary duty to supervise the management of Sibley's investments. . . . [In conclusion, the court noted that the plaintiffs pushed for strict sanctions against the various defendants: the removal of certain board members, the cessation of all business transactions with their related firms, an accounting of all hospital funds, and awards of money damages against the individual defendants. However, the court declined to adopt these rather severe measures. The court points out the factors that it considered significant: (1) the defendant trustees are a small minority of the board, whereas all board members were in some way guilty of nonmanagement; (2) the defective practices have been corrected, and those who were most responsible for them have either died or been dismissed; (3) the defendants did not profit personally from the transactions; (4) the defendants will soon leave the board because of age, illness, or the completion of a normal term; and (5) this case is essentially the first in the District of Columbia to discuss these issues comprehensively, and thus no clear legal standards previously existed. For these reasons, the court declines to remove the defendants from the board, to assess money damages, or to take other more severe actions. Instead, it requires new policies and procedures to make certain that all present and future trustees are aware of the requirements of the law and that they fully disclose all hospital transactions with any financial institutions in which they have an interest or position.