St. Joseph’s Can’t Enforce Bankrupt Bashas’ Charitable Pledge

St. Joseph’s Foundation of Phoenix lost its bankruptcy appeal on the hospital’s claim to an unpaid $155,000 charitable donation. On October 25, 2012, Arizona’s U.S. District Court Judge Martone affirmed the bankruptcy court’s decision holding that Bashas’ pre-bankruptcy charitable pledge to the not-for-profit was an unenforceable promise to pay.

Bashas’ Chapter 11 Bankruptcy

Bashas’, Inc., (and subsidiaries Bashas’ Leasco, Inc., and Sportsman’s, LLC) filed for bankruptcy protection back in July of 2009. Certain aspects of that Chapter 11 Reorganization are still ongoing. The most recent court battle has revolved around the St. Joseph’s Foundation’s creditor claim to money it was promised as a charitable contribution from the now defunct grocer Bashas’, Inc.

Not-for-Profit Doesn’t Have an Enforceable Claim

In its appeal, St. Joseph’s hospital was merely seeking to enforce its claim to a portion of the debtor’s assets, just as any other creditor would do. The amount Bashas’ pledged to St. Joseph’s was $25,000 per year. Before Bashas’ could make good on its charitable promise, however, the company filed for Chapter 11 bankruptcy protection. Based on what was owed in September 2009, the hospital filed a claim for $155,000 – the amount unpaid under Bashas’ charitable pledge.

The Phoenix hospital found itself in the awkward position of having filed a creditor’s claim for a debt, but the debt was not based on consideration (something of value) given in exchange for Bashas’ promise. Although it proved to be unpersuasive, St. Joseph’s argued the injustice of not receiving the pledged money and that Bashas’ did receive something of value – free goodwill in the community.

No Settlement for St. Joseph’s

In an interesting twist, St. Joseph’s and Bashas’ reached a settlement agreement in which the hospital was to receive $50,000. Even though there were no objections from the other creditors, the bankruptcy court rejected the proposed settlement. That decision was also affirmed on appeal.

Why? The bankruptcy process is designed to protect both debtors and creditors. Therefore, it would be unfair and inequitable to give St. Joseph’s a portion of the bankruptcy estate when it did not have an enforceable creditor’s claim.

To quote Judge Martone, “Bashas’ suffers the injustice here for having to waste limited resources defending itself against an exercise in avarice.”

Ouch!

Phoenix Bankruptcy Resource:

Arizona Hospital Can’t Force Debtor to Honor Donation, Judge Rules