Time equals money in midst of Katz lawsuit Time equals money in midst of Katz lawsuit (July 15, 2005)

Bonds for hospital rebuild won't be issued while Saratoga lawyer threatens appeal

By Katie Vaughn

Plans by El Camino Hospital to break ground on its new $339 million seismically safe campus have been postponed three months due to ongoing litigation -- a delay estimated to cost the hospital $4.3 million, a representative of the hospital said last week.

At a meeting of the hospital's board of directors, Ken King, vice president of facilities services, said that instead of starting work in November, construction has now been scheduled to begin in late February. The $4.3 million hit, King said, is due mainly to the rate at which the cost of construction work and materials will rise during that time period.

"The cost of construction, like the cost of living, continues to go up at a pretty high rate," King said.

The delay is due to a lawsuit brought against the hospital district by Saratoga lawyer Aaron Katz, in which he claims that the $148 million bond measure used to fund the project -- Measure D, which passed with 69 percent of the vote in November 2003 -- is unconstitutional because it was limited to hospital district residents. According to Katz, nonresidents such as himself should still be able to vote on a measure if they own property in the district.

Santa Clara County Superior Court Judge Kevin McKenney dismissed the case in June because Katz had failed to alert the public to his suit as the law requires. Katz has until Aug. 15 to file an appeal, and has indicated he plans to do so.

In an e-mail sent to the Voice on Monday, Katz disputed his role in the delays, saying the hospital knew of his concerns about the measure and could have issued the bonds any time after it was passed. He said nothing legally prevented the hospital from doing so.

"The bond election took place in November 2003," Katz said. "Why didn't the hospital issue its bonds then instead of waiting until three months ago?"

Jon Friedenberg, vice president of resource development at the hospital, answered that proceeds from the bonds must be spent within a specified amount of time, just as they are required to be used on certain projects only. Issuing the bonds in late 2003 would have been too soon -- the hospital was not yet ready to use the funds.

And it would not be prudent to issue the bonds before all litigation is settled, Friedenberg said. That's because having the bonds rated while litigation is pending could result in them being deemed worthless -- a chance the hospital is unwilling to take.

"It's not a legal prohibition but a practical prohibition," Friedenberg said. "While Katz may be technically correct, from a practical standpoint, he's incorrect."

If Katz appeals the Superior Court's ruling, the hospital will apply for an expedited process, which requires that the case be heard in 90 days, as opposed to the standard 240. If the case is then decided in the hospital's favor, construction will begin as planned in February. If an expedited appeal is not granted, construction may be delayed several more months.

Hospital officials are confident the appeal will end in their favor, and are not revising construction plans for the alternative scenario.

"We do not contemplate losing," Friedenberg said. "It's an absurd proposition."

Katz said the delays will not cost the hospital anything, but rather it will be property owners like himself who will pay. He added that the reason Measure D passed in the first place was that voters chose landowners, instead of residents, to be taxed.

"People will not vote to tax themselves. They will gladly vote to tax someone else. ... It's the old 'don't tax me, tax the guy behind the tree' mentality," Katz said.

"Anyone who would consciously concoct such a voting scheme because the ends justify the means, in my mind, loses credibility and standing to complain that my lawsuit has cost the hospital $4.3 million."

In the months ahead, the hospital will use the delay to review the architect's plans, an 8-inch stack of papers and blueprints, to make the actual construction work as seamless as possible. Officials may also re-sequence parts of the construction work to allow for earlier completion. The board will consider the final construction plan at its February meeting.

"We will continue to review the architect's plans and specifications to make them as clear and concise and accurate as they can be," King said.

Some other aspects of the project are already underway. Pre-construction projects, such as relocating the hospital's main entrance, parking and underground utilities, will end in August. A large section near the hospital's original main entrance is scheduled for demolition, after which workers will extend utilities and then rebuild the structure.

Additionally, other new campus buildings -- a dialysis facility, a medical office building and a parking structure -- are not affected by the litigation, as their construction is funded by $191 million of the hospital's own reserves, not Measure D funds.

Construction has already begun on the dialysis facility and the parking project, which is expected to be completed by the end of the year. The hospital is awaiting a permit on the medical office building.

E-mail Katie Vaughn at kvaughn@mv-voice.com

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