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With contributions of nearly $40 million over the years, philanthropist Joan Kroc literally helped build San Diego Hospice from the ground up. But her name was nearly removed from the roster of hospice philanthropists earlier this month when attorneys attempted to dismantle the Kroc endowment to pay creditors in the hospice’s bankruptcy case.
Attorneys withdrew a petition to pay a $4.3 million bank loan, among other debts, using the Kroc endowment after they got pushback from the Attorney General’s Office, according to Sam Maisel, the lawyer representing creditors in the case.
A new plan to pay creditors with a portion of San Diego Hospice Foundation funds is expected to be filed in probate court in two weeks.
Kroc, heiress to fast-food chain McDonalds, donated millions for the hospice’s hilltop property in Hillcrest and the 24-person inpatient facility, and left millions more to the hospice — once the largest hospice in California and the most respected in the country — after her death.
Dick Starmann, Kroc’s advisor between 1998 and the time of her death in 2003, said it’s wonderful news her gift will continue to serve hospice patients.
“All she wanted to do was help people who were in a stage of their life that was pretty bad, and comfort them,” Starrman said about Kroc’s decision to donate such a large gift to San Diego Hospice.
“She wanted to do whatever she could to make their situation a little bit better ,” Starrman said.
San Diego Hospice declared bankruptcy in February 2013 and shut down a month later amid accusations of Medicare fraud. For more than a year, attorneys have been in court to divvy up assets to pay past employees, creditors, and the federal government. But with just $11.5 million left in assets (most of it from the sale of the Hillcrest property), and demands of more than $132 million, creditors have gone looking to the San Diego Hospice Foundation for what they’re owed.
The foundation is a separate entity from the hospice. Most of its money is donations with restrictions on how they can be used.
The foundation has $17.4 million in assets, the largest portion, about $5 million, is the Kroc endowment. Income earned from the fund was earmarked for inpatient hospice care, but could also be used for research and education, according to court documents.
Attorneys for the foundation argued because the inpatient facility no longer exists – it was sold to Scripps Health last year – the restrictions of the endowment could be released.
The original petition before probate court proposed dissolving that endowment to pay a $4.3 million line of credit with Wells Fargo Bank. For years the hospice used the bank loan to pay salaries and for general operations.
The petition also proposed using endowment money to pay a loan from Price Philanthropies Foundation. In 2008, the foundation loaned the hospice $1 million for general operations. It has forgiven $200,000 of the loan, but is now owed $800,000 plus interest.
An attorney once associated with the Kroc estate raised concerns with the Attorney General’s office about the appropriateness of using the entire endowment to pay loans, according to a source close to the case who was not authorized to publicly discuss it.
It was enough that attorneys agreed not to enter into a lengthy and expensive legal battle to determine whether restrictions could be removed from the Kroc endowment. Had the petition been approved, it would have meant the end of the line for Joan Kroc’s gift to hospice.
Instead, the new petition is expected to release $2 million from the endowment to pay the Wells Fargo loan, the amount Kroc allowed to be used as collateral while she was still alive.
It’s also expected a small portion of the other endowments will be used collectively to pay the remainder of the bank loan, the Price foundation, and about $1 million to general creditors.
The remainder of the foundation funds, including the Kroc endowment, will be transferred to other hospices in San Diego County.
“I know that would make her (Kroc) very happy. That was the intent of her gift,” Starmann said.