There are times when, with the best of intentions, equally sincere, honest people unintentionally become involved in a conflict of major importance. Unable to resolve the conflict, they each find it necessary to settle their differences in court. Such is the case now pending in the Superior Court of Maricopa County in Arizona between two entities of the church—the Arizona Conference and Adventist Health System/West.

At the request of Adventist Today each litigant has stated the case from its point of view, and each has read what the other wrote. Their statements follow this introduction.

Adventist Today does not attempt to evaluate the respective merits of the case or to take sides, but simply to set forth the facts as the two church entities perceive them. Our purpose in presenting these two statements are: (1) to provide a real-life case study of a major conflict of interest, with a view to identifying, eventually, what might have been done along the way to resolve the conflicting points of view without escalating the conflict to its present state, and (2) to provide persons interested in the case from either point of view an opportunity to hear what the other has to say. The first step in conflict resolution is to listen to the other party, attentively and perceptively, in an endeavor to agree as to the facts and to understand why the other party looks at them the way they do.

The Arizona case has become unusually complicated, and it appears that a jury trial will be necessary in order to resolve it. Adventist Today will report further on this case, and when a final decision has been reached, we will suggest how the church can resolve similar unfortunate experiences in the future.

Arizona Conference Statement 

Ernest E. Von Pohle graduated from the College of Medical Evangelists (now Loma Linda University) in 1936 and set up practice in Tempe, Arizona, a suburb of Phoenix. His private practice developed into a clinic, which in 1944 became the Tempe Clinic-Hospital. In 1961 he donated the hospital to the Arizona Conference (AC), at which time its name was changed to Tempe Community Hospital (TCH). Fully accredited for surgical, general medical, maternity, and pediatric care by the Joint Commission on Hospital Accreditation, it operated under the Arizona Conference as a medical institution of the Seventh-day Adventist Church.

At a TCH corporation constituency meeting January 31, 1973, TCH became a member of what is now Adventist Health System/West (AHS/W). AHS/W maintains that it became the sole owner of TCH at that time. AC maintains that the meeting provided for pooled purchasing and management responsibilities only. The AC points to the fact that it never gave up the right to control the membership of the constituency.

TCH was sold to St. Luke’s Hospital in 1981. Proceeds of the sale, amounting to approximately ten million dollars, were dedicated to the establishment of a new medical and/or health facility in Arizona and placed in a trust fund under AHS/W management. AHS/W sent AC monthly statements reflecting the principal amount and accruing interest, which by June 30, 1988 had grown to $12,941,647.00. All of that time AC believed that the funds were being properly administered until such time as another hospital or similar outreach opportunity could be found in Arizona.

Without the knowledge of AC, AHS/W transferred some of the proceeds from the sale of TCH to Pacific Living Centers (PLC) after it began to suffer losses. Later, against the objection of the AC administration, all remaining funds were transferred out of the TCH account. PLC was a California corporation controlled by AHS/W which also operated several skilled nursing facilities in Arizona. These facilities were never owned by AC, nor did AC have any ownership interest in them. According to AC, AHS/W’s use of TCH funds to compensate itself for losses for which AHS/W was solely responsible constituted a breach of AHS/W’s fiduciary responsibility to AC.

On February 2, 1989, AC lodged a complaint against AHS/W. At its April 30 constituency session AC proposed resolving the issue by binding arbitration or, if that was refused, by litigation. Objecting to the complaint, AHS/W refused to submit the issue to arbitration. On September 7 AC withdrew the complaint and again proposed binding arbitration, which AHS/W still rejected. On October 24 AC proposed a mediation process. An attempt to mediate a settlement on March 21-22, 1990, proved unsuccessful, and on March 29 AC once more approved resorting to litigation. A final attempt to go to binding arbitration was voted by AC on September 22,1992—and again rejected by AHS/W.

Unable to resolve the issue amicably, and with an overwhelming sense of loss, and emotional suffering by the church as a whole in Arizona, AC entered suit in Maricopa County Superior Court, where on December 10-11, 1992, Judge Michael O. Wilkinson heard arguments presented by both AC and AHS/W regarding whether or not the membership of TCH changed on January 31, 1973.

AC presented four witnesses who were present at the contested 1973 meeting, all of whom denied that any change in corporate membership had taken place. Among these was Elder John Stevens, AC president in 1973. AHS/W presented only one witness, the brother-in-law of AHS/W president Frank Dupper. His testimony conflicted with a letter he had written on the subject in 1985. In that letter he said that a particular individual had made a presentation at the 1973 meeting clearly stating that the AC would be giving up control of the hospital. In his testimony to the court this witness admitted that the person he had credited with making such a clear presentation wasn’t even at the 1973 meeting. This contradiction tended to tip the evidence in favor of AC.

AC also presented numerous documents as evidence that no change had taken place at the 1973 meeting, including a formal notice in the Pacific Union Recorder, which made no mention of a change. (Corporate law requires that a change so fundamental as a complete transfer of membership be properly noised in the manner prescribed in the bylaws.) Minutes of the meeting do not indicate any change.

During the discovery process of the litigation procedure a letter dated July 15, 1981, from Frank Dupper, currently president of AHS/W, to Erwin J. Rembolt came to light. (Rembolt was assisting Dupper in planning transfer of the TCH funds at the time of the sale.) “We must come up with a way of keeping the money on AHS/West’s books for health care in Arizona,” Dupper wrote, and following a detailed proposal he added: “I am sure if we are too forward on this, the Arizona Conference will see right through it.”

St. Luke’s Hospital in nearby Phoenix, Arizona purchased the Tempe Community Hospital in 1981, and renamed it Tempe St. Luke’s Hospital.

Adventist Health System/West 

During the 1972 Autumn Council the General Conference voted that healthcare within the respective union conferences be reorganized into multi-hospital systems under the control of a central corporation for each union. In fulfillment of this reorganization plan an Adventist Health Services corporation was established in the Pacific Union Conference. Each hospital corporation then operating within the territory of the union was asked in 1973 to designate the board of the new healthcare corporation as its new common constituency. That question was posed before Tempe Community Hospital (TCH) on January 31, 1973 and its minutes read as follows:

Organization Report:

Elders Walton and Bietz, representing the Pacific Union Conference Adventist Health Service Corporation, presented a report on the new corporation. (An organization chart is attached.) After considerable discussion, it was voted (Hardin-Bruner) they adopt this reorganizational structure. This resolution was passed 22 to 2. Several of the delegates did not vote either way. Drs. Eddlemon and Price were the two dissenting votes, and they wished to go on record as being opposed. This action requires a new constituency to be formed by the central corporation. Until the new constituency is named, the present organization remains in effect. 

No reference is made anywhere in the minutes of the session to a management contract or purchasing agreement. Despite this, the Arizona Conference (AC) officers now claim that is all that was discussed—never reorganization. Yet under oath, conference officers admitted they never saw, nor ever negotiated any such contract and that the hospital was always managed by its board of directors on which they served.

After the January 1973 session the previous membership of TCH never again met. On July 31,1973, the directors of the Pacific Union Conference of Seventh-day Adventist Health Services, Inc. elected the new board of TCH. All actions by the new TCH membership for the next 17 years—including repeated elections of the TCH board and amendments of corporate articles and bylaws—were taken by the Health Services Corporation board in its official capacity as the TCH membership. What’s more, it did so with the full approval and active participation of the AC officers and other conference representatives. Thus, the January 31, 1973, session is significant not only for what transpired then but because of the chain of events initiated at the meeting and the ensuing conduct of key players.

It is revealing that while all hospitals then in the Pacific Union Conference had similar sessions, only TCH disputes the action taken.

In 1981 the hospital, owned by the TCH non-profit corporation, was sold for nearly $10 million dollars. TCH then hired professional consultants to advise it as to how these funds could best further the church’s medical outreach in Arizona. On their recommendation, TCH voted in 1982 to establish retirement centers and skilled nursing facilities in Arizona, and began acquiring land for this purpose. However, it was decided to pursue this outreach mission indirectly by sponsoring another corporation known as Pacific Living Centers (PLC). PLC was to own and operate these facilities supported through (1) the loan of TCH funds for working capital and (2) the donation of land already acquired by TCH as its board unanimously voted. To construct the facilities in Arizona, some $40 million dollars was committed and financed by borrowing from banks and through the sale of bonds.

Elders Frank Sherrill and Tom Bledsoe, president and secretary-treasurer of the AC, respectively, were active members of the TCH board and voted in favor of all decisions throughout this period. Bledsoe, also a member of PLC board, supported every action taken by it right up to 1990.

It eventually became apparent that despite the best efforts of all involved, these facilities were not going to attain the success the consultants forecasted. Two of the major factors were (1) a sudden change in Arizona laws and healthcare regulations and (2) a sharp decline in the Arizona economy. As financial pressures mounted, PLC began selling its healthcare facilities, and sale of these retirement and nursing centers resulted in a loss of approximately $20 million. That sum was borne first by TCH as sponsor of the Arizona facilities with AHS/West assuming the balance, approximately $7 million.

The $10 million dollars from the sale of TCH clearly belonged to the TCH corporation which earlier had bought the hospital from its founder, Dr. von Pohle. The TCH board, with the active involvement of AC officers, committed these monies to advance the medical outreach work in Arizona. The commitment to sponsor and help finance these projects was made with the expectation that the retirement and skilled nursing centers would be successful, enhance an Adventist healthcare presence in Arizona and make it possible for PLC to repay the TCH loans with interest.

These efforts on behalf of the church work in the AC were initiated solely on the basis of funds from the hospital’s sale and with the full realization that the assets of TCH were at risk if the projections were not realized. Absent such funds, none of these efforts would have been possible nor would they have been undertaken. In spite of the commitments by the TCH board, Bledsoe asked that TCH give the AC at least $5 million dollars. This request was declined by the TCH board. The very extensive financial commitments that had been made for both construction and start-up operations were all incurred relying on TCH’s support for the Arizona PLC efforts. Disagreement over the basis for—much less the propriety of—a $5 million dollar gift to the AC fueled discussion of the matter for five years.

Two different attempts were made to settle this disagreement through mediation (1) within the church and (2) under the auspices of the American Arbitration Association. On both occasions the AC rejected the recommendations of the mediators.

Based upon assertions by the AC officers, their constituents have expressed outrage at a mistaken belief that more than $10 million was allegedly stolen from the AC. In fact, TCH spent all of its monies on Arizona healthcare projects which were undertaken with the approval and active support of AC leadership. AHS/West lost millions of additional dollars on these Arizona healthcare projects.

Despite this background, the AC and certain of its members filed a lawsuit against AHS/West and against specific officials of the Pacific Union Conference and AHS/West (as well as their wives). Among other things, the AC suit charged the parties with “fraud, theft, racketeering, being of an evil mind,” and many other equally heinous allegations.

All individually named persons were dropped by the AC from the lawsuit. The fundamental accusations against AHS/W have remained unchanged. This, despite the extensive involvement of the AC officials themselves in, and their approval of all, of these activities. Given the serious nature of the accusations leveled and the failure of the AC to accept mediated recommendations, AHS/W has no choice but to defend itself.