Drug Service Group Wins Right to Buy Hospital

A federal bankruptcy judge on Tuesday awarded the right to buy Lake View Medical Center to Phoenix House, which plans to operate a drug-rehabilitation center there bearing First Lady Nancy Reagan’s name.

In so doing, Judge Kathleen T. Lax overruled pleas from Doctors Service Group that it needs more time to come up with financing for the property. The doctors’ group had wanted to use the facility as a private hospital and infectious-disease institute.

Phoenix House offered $7.7 million for the property, but the offer is contingent on its getting a conditional-use permit from the city to operate the Nancy Reagan Center.

And while Phoenix House still must come up with the financing for the center, David Gould, an attorney representing the court-appointed trustee for the property, recommended that its offer be accepted. Gould said that it appears Phoenix House, a nonprofit drug services agency, can come up with the money.

Phoenix House President Mitchell S. Rosenthal said the financing for the center will include private donations and probably tax-free revenue bonds.

A 150-bed adolescent treatment unit, a 60-bed unit for young adults and space for training and research are included in plans for the drug-rehabilitation center, Phoenix House officials said.

The judge’s ruling drew immediate criticism from neighbors of the medical center, who fear Phoenix House will turn it into a magnet for crime and drugs. The residents vowed to campaign against the project when its conditional-use permit comes before the Los Angeles Planning Commission.

Round One

“This is just round one of a 15-round fight,” said Lewis Snow, president of the Lake View Terrace Home Owners Assn., one of two residents’ groups opposing the project. “We will fight them at every turn.”

The Lake View Terrace Improvement Assn. will hold a protest march at the medical center Sunday, said President Phyllis Hines. She said her group has launched a letter-writing campaign and has collected more than 1,000 signatures on a petition to keep Phoenix House out.

Snow and Hines said they will demand a full environmental assessment of the project, which could delay the permit process by months or even years.

Despite community opposition, Rosenthal indicated he remained confident that Phoenix House will succeed in getting the necessary permit.

“We’ve never not been able to open a facility because there’s a small community group opposed to it,” he said. “Usually reason prevails and the majority see the benefit.”

However, Phoenix House built a back door into the agreement hammered out during a nearly three-hour delay in Tuesday’s hearing. Its attorney, Robert L. Ordin, said the organization will pay a $200,000 deposit plus $810 a day in rent for 200 days, with an option to buy or reject the property at the end of that time.

Acceptance of such an agreement by Gould and the attorney representing the property’s largest creditors was an about-face from their earlier statements. Both had said they wanted money up front, free of contingencies or conditions.

“We ideally wanted cash, but decided it wasn’t feasible,” said Richard Seidenwurm, the creditors’ attorney.

Doctors Service Group in February offered to pay $7.5 million in cash for the property. But Gould said the group’s vain attempts to come up with the money included using a bank that does not have a license to operate in California.

Gould said he broke the doctors’ group’s contract to buy the property in mid-May, when it became clear that it did not have sufficient resources to back its offer.

During his testimony Tuesday, Daniel Fogarty, an officer of the doctors’ group, blamed the company’s financial straits on a dishonest intermediary who negotiated for the medical center on the doctors’ group’s behalf.

Since company officers discovered what they called fraud several months ago, they have been “vigorously pursuing” financial backing, Fogarty said. And “we believe that we are very close to having that commitment in hand,” he said.

A third group, which bid for the property two weeks ago but was never identified, did not come through with an offer.