2 companies sue each other over Trios hospital project in Kennewick

Sara Schilling, Tri-City HeraldFebruary 8, 2014 

Trios Health Southridge campus exterior

November 24, 2013 - Exterior work on the Trios Southridge Hospital campus in Kennewick is nearing completion as finishing work inside continues. The hospital is due to open in the spring.

PAUL T. ERICKSON — Tri-City Herald Buy Photo

Two companies involved in developing the new Trios hospital in the Southridge area of Kennewick are suing each other over the project.

The two lawsuits -- one in Benton County and the other in Cook County, Ill. -- also involve the medical office and care center planned nearby.

The Kennewick Public Hospital District and Trios Health are not named as parties in either lawsuit, nor are any of their leaders.

"We have no reason to believe that the pending litigation will affect our projects," Trios said in a statement.

In the Benton County lawsuit, C.D. Smith Construction of Wisconsin -- which is building the two Trios facilities -- alleges Healthcare Development Partners (HDP) failed to meet its obligations and made misrepresentations, causing C.D. Smith and two related companies to take "at-risk financial positions" and suffer financial damage. The HDP president and two related companies are also named.

In turn, HDP, based in Chicago, is suing C.D. Smith, its healthcare facilities division, some company leaders and a related company.

That lawsuit alleges that C.D. Smith stole the hospital and medical office building projects. HDP claims it is owed money for its work and has suffered damages in excess of $30 million.

Attorneys for both HDP and C.D. Smith declined to talk to the Herald.

$4 million "kickback" alleged

C.D. Smith established a limited liability company called Kennewick WA 2012 to own the new hospital and lease it to the hospital district. HDP-associated companies have minority interest.

The new hospital is expected to open in June. It will have 74 private patient rooms, including 14 in intensive care, plus another 27 emergency and trauma services rooms, six operating rooms and other features, ranging from a multi-faith chapel to a restaurant and coffee shop.

The medical office building and care center is set to open in 2015. It will be owned by another limited liability company established by C.D. Smith and leased to the hospital district. HDP has no stake in that facility's ownership group.

According to its lawsuit, HDP began working with the hospital district in 2010 on a project that included developing a new hospital. The project grew to include the medical office building.

HDP brought in C.D. Smith, the lawsuit said.

In 2012, another construction company approached Trios with its own hospital financing plan, the HDP lawsuit said. If Trios decided to go that way, HDP would stay as the developer but C.D. Smith would be bumped, it said.

In response, C.D. Smith committed to financing the hospital construction so it wouldn't lose out on the project, the lawsuit said. It alleges C.D. Smith never intended to provide permanent financing, and "the idea was that HDP would have the ability to secure necessary financing and retain 100 percent of the equity interest."

But C.D. Smith systematically excluded HDP, relegating it to the sidelines, the lawsuit said.

C.D. Smith also allegedly stole the medical office building project -- into which HDP had put significant time and work -- by promising a $4 million "kickback" to the hospital district as a result of interest savings from the hospital financing that should instead benefit Kennewick WA 2012, the lawsuit said.

C.D. Smith also allegedly is using that kickback promise to secure its involvement in a senior housing project at the Southridge site, the lawsuit said.

It accuses Trios CEO Glen Marshall of helping engineer the senior housing "sweetheart deal" with C.D. Smith and not always being candid with the hospital board about project dealings.

Inability to deliver?

In C.D. Smith's telling of the story, HDP repeatedly promised to arrange financing for both the hospital and medical office building but didn't come through.

Both C.D. Smith and HDP would have been out of the hospital project had the other construction company that approached Trios won the job, the C.D. Smith lawsuit said.

C.D. Smith stepped in at the request of HDP to take responsibility for the hospital funding to save that deal, with the understanding C.D. Smith would work directly with the hospital district, the lawsuit said.

C.D. Smith negotiated a deal with the hospital district for the medical office building after the district, "faced with HDP's demonstrated inability to deliver on its financing promises for both the hospital and office building projects," terminated a development pact it had with HDP and C.D. Smith, the lawsuit said.

C.D. Smith alleges a pattern of misrepresentation by HDP. For instance, when HDP asked C.D. Smith in 2012 to find hospital financing, HDP indicated the new hospital had the required certificate of need from the state when that wasn't the case at that time, the lawsuit said.

HDP and its president are "now trying to extract money from these (Southridge) projects to which they are not entitled" after having failed to take advantage of many opportunities to secure financing for and perform the development responsibilities, the lawsuit said.

The potential interest savings is "inaccurately and inappropriately referred to by HDP in the Illinois lawsuit as a 'kickback' to the district. It is, rather, a savings that should legitimately inure to the benefit of the district," the lawsuit said.

In a statement, Trios told the Herald its attorney suspects HDP's use of words such as "kickback" and "sweetheart deal" is a "strained attempt by HDP to make its claims sound more ominous."

Jerry Paule, who became Trios' chief financial officer in 2010, knew HDP and its president and introduced the company to Trios officials, both lawsuits say.

He is leaving Trios at the end of the month to take a job out-of-state. The Trios statement said his departure is not related to the lawsuits.

-- Sara Schilling: 582-1529; sschilling@tricityherald.com; Twitter: @saraTCHerald

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