1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Answer and Counterclaim - 1 Defendants. v.

UNIVERSITY OF WASHINGTON; and UW MEDICINE, Plaintiff,

THE HONORABLE MICHAEL C. HAYDEN

IN THE SUPERIOR COURT OF THE STATE OF WASHINGTON IN AND FOR THE COUNTY OF KING PUBLIC HOSPITAL DISTRICT NO. 1 OF KING COUNTY, No. 12-2-34486-8 SEA ANSWER AND COUNTERCLAIM

Defendants, University of Washington and UW Medicine, for their answer to plaintiff’s Complaint for Declaratory Judgment and Injunctive Relief, admit, deny, and allege as follows: A. Nature of Action 1. Defendants admit that Plaintiff filed this action seeking declaratory judgment

and injunctive relief. Defendants deny the remaining allegations contained in paragraph 1 of the Complaint. B. The Parties 2. Defendants admit the allegations contained in paragraph 2 of the Complaint.

HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

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3.

Defendants admit the allegations contained in paragraph 3 of the Complaint.

Jurisdiction and Venue 4. Defendants admit venue is appropriate in King County, and admit the District

is based in King County. Defendants deny declaratory relief or injunctive relief is appropriate in this case. 5. Defendants deny the allegations contained in paragraph 5 of the Complaint.

The Strategic Alliance Agreement 6. Defendants admit the first sentence of paragraph 6 of the Complaint.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Medical Center. At least 10 of the 13 trustees must reside within the District Service Area. Defendants admit sections 3.2 and 3.3 define membership on the Board of Trustees to include the District’s five elected commissioners, five individuals from the community served by the District appointed by UW Medicine’s CEO after a nomination process, two individuals who are present or past members of other UW Medicine boards, and UW Medicine’s CEO or his designee. Defendants admit the University and the District agreed to provisions for removal of Board members, and agreed Board members who are also District commissioners may be Answer and Counterclaim - 2
HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

Defendants admit the Agreement is effective until December 31, 2026, and that it may be extended by mutual agreement for two additional fifteen-year periods. Defendants admit the Agreement specifies the permissible circumstances for early termination by the District or the University or both. Defendants deny the remaining allegations contained in paragraph 6 of the Complaint. 7. Defendants admit that by signing the Agreement, the District agreed to

delegate certain authority to the Board of Trustees (the “Board”) for the District Healthcare System, including the responsibility for oversight of the day-to-day operations of Valley

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removed only for cause. Defendants admit the University and the District agreed to a set of bylaws as part of the Agreement, and that those bylaws included standards of conduct required of all trustees. Defendants deny the remaining allegations in paragraph 7 of the

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the District and the University decided to delegate oversight of employment and medical staff to the Board, subject to specific limitations agreed to by both parties. Defendants deny that sections 3.1, 4.3, 4.4 and 4.12 state the Board “controls” District employment and medical Answer and Counterclaim - 3
HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

Complaint. 8. Defendants admit the day-to-day operations of Valley Medical Center are

delegated to the Valley CEO, and the Valley CEO becomes a member of the UW Medicine leadership team. Defendants deny section 3.8 of the Agreement states the Valley CEO is “selected by, and accountable to, UW Medicine and not the District’s elected commissioners,” as stated in the Complaint. The Valley CEO is selected by and accountable to the Board of Trustees, which includes the District commissioners and other residents of the District’s Service Area. 9. Defendants deny the first sentence of paragraph 9 of the Complaint. The

Bylaws were agreed to by both the University and the District as part of the Agreement and were attached as an exhibit to the Agreement. Defendants admit some bylaws are considered an integral part of the Agreement, and such bylaws can be changed only with the approval of both the University and the District. Defendants deny the remaining allegation in the second sentence of paragraph 9. Defendants admit some bylaws may be amended only by a 2/3 board vote. Defendants deny sections 4.9 and 4.10 state UW Medicine controls District fundraising and marketing. Defendants admit the Board approves an annual budget, but deny the implication that the District commissioners have no role in budgeting. Defendants admit

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staff. Defendants admit the District decided to delegate certain powers related to liabilities, real estate transactions and revenues to the Board as specified in the Agreement. Defendants deny the remaining allegations contained in paragraph 9 of the Complaint.

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Answer and Counterclaim - 4
HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

10.

Defendants deny the first sentence of paragraph 10 of the Complaint.

Although the District delegated to the Board the responsibility to oversee the District Healthcare System, it reserved many important powers for itself. Defendants admit the District agreed not to take certain actions that would undermine the effectiveness of the Agreement, but deny the allegation in the second sentence of paragraph 10. By entering the Agreement, the District commissioners exercised their powers. Defendants admit the District, as with any party to a contract, is required to act in good faith to implement the Agreement, and that the District agreed to exercise its sole discretion to issue bonds under limited circumstances specified in the Agreement to further the objectives agreed to by the District in the Agreement. Defendants deny the remaining allegations contained in paragraph 10 of the Complaint. 11. Defendants deny the allegations contained in paragraph 11 of the Complaint.

The cited provisions of the Agreement and bylaws do not support the statements made in the Complaint. Neither party may amend the Agreement without the other’s consent. E. Claims 12. 13. Defendants deny the allegations contained in paragraph 12 of the Complaint. Defendants deny the allegations contained in paragraph 13 of the Complaint.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Answer and Counterclaim - 5 RCW 4.92.010. 4. 3. 1. 4. 1. 2. 3.

AFFIRMATIVE DEFENSES AND FOR FURTHER ANSWER AND AFFIRMATIVE DEFENSES, defendants allege as follows: Plaintiff has failed to state a claim upon which relief can be granted. Plaintiff’s harm, if any, was caused by plaintiff’s own actions. Plaintiff’s claims are barred in whole or in part by the doctrines of waiver,

estoppel, and laches. Plaintiff is barred by equitable estoppel from claiming its own previous actions

were ultra vires. COUNTERCLAIM I. PARTIES

The University of Washington is a state agency with its main campus in

Seattle, Washington. The University operates UW Medicine, a comprehensive health care system in Puget Sound. 2. Public Hospital District No. 1 of King County (the “District”) is a municipal

corporation organized under RCW 70.44 to provide hospital services. The District’s principal hospital facility is Valley Medical Center located in Renton, Washington. The District is governed by elected commissioners. II. JURISDICTION AND VENUE

This Court has jurisdiction over the parties and subject matter pursuant to

Venue is proper in this Court pursuant to RCW 4.92.010(1).

HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

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III.

COUNTERCLAIM FOR BREACH OF CONTRACT

The District approached the University about forming a strategic alliance. The

District and the University entered a non-binding letter of intent in January 2011 to explore integrating the District’s facilities into UW Medicine’s regional network. The District’s commissioners voted unanimously in favor of entering the letter of intent. 6. The District and the University engaged in months of due diligence and

negotiations related to a potential strategic alliance. Both parties were represented by legal counsel in the negotiating and drafting of a contract to establish the duties of each party to the alliance. 7. At a public meeting on May 23, 2011, a majority of the District’s

commissioners voted in favor of the Strategic Alliance Agreement (the “Agreement”). On June 30, 2011, the University and the District entered into the Agreement.

In the Agreement, the University and the District “set forth the terms upon which they will integrate the District Healthcare System with UW Medicine as permitted by the Interlocal Cooperation Act for the purpose of furthering the achievement of their respective missions.” Agreement § I. In the Agreement, the District promised “the District has all requisite corporate

power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement.” Agreement § 8.1(a). 10. The District also promised “Neither the execution and the delivery of this

Agreement, nor the consummation of the transactions contemplated by this Agreement, shall (i) violate and statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental body….” Agreement § 8.1(b). Answer and Counterclaim - 6
HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

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11.

Following the execution of the Agreement, the University has dedicated

considerable resources to the operation of the District Healthcare System and the integration of the District Healthcare System into UW Medicine pursuant to the Agreement.

4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2. 3. Defendants be awarded damages in an amount to be proven at trial; Defendants be awarded their attorneys’ fees, expert witness fees, and costs as 15. The University has materially altered its position by integrating the District into UW Medicine and carrying out other activities specified in the Agreement, including placing a District commissioner on UW Medicine’s own board. The University has expended considerable time and resources in these efforts. The University has been injured by the District’s breaches of the Agreement in and the promises made in writing by the District were true. However, if the District was not authorized to enter the Agreement, then the District has breached its express representations and warranties in the Agreement, and the University is entitled to relief. 14. The University relied on these representations and warranties by the District. 12. The District now claims it lacked the authority to enter the Agreement, and has

filed suit against the University seeking a declaration that the District’s own actions were ultra vires. 13. The University believes the District had the authority to enter the Agreement,

an amount to be proven at trial. PRAYER FOR RELIEF Having fully answered the Complaint, the University prays that: 1. Plaintiff’s claims against Defendants be dismissed with prejudice;

permitted by law; and Answer and Counterclaim - 7
HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

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4.

For such other and further relief as the Court may deem just and proper.

DATED this 15th day of November, 2012. HILLIS CLARK MARTIN & PETERSON P.S. s/Louis D. Peterson Louis D. Peterson, WSBA #5776 Mary E. Crego, WSBA #31593 Michael J. Ewart, WSBA #38655 Hillis Clark Martin & Peterson P.S. 1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789 Email: ldp@hcmp.com; mec@hcmp.com; mje@hcmp.com Special Assistant Attorney General Attorneys for Defendants CERTIFICATE OF SERVICE
On the date indicated below, I hereby certify that I caused to be served upon all counsel of record, via legal messenger service, a true and correct copy of the foregoing document. I declare under penalty of perjury under the laws of the State of W ashington that the foregoing is true and correct. D ATED this 15th day of November, 2012, at Seattle, Washington. __s/Brenda K. Partridge________________________ Brenda K. Partridge

By

ND: 4822-7704-4241v2

Answer and Counterclaim - 8

HILLIS CLARK MARTIN & PETERSON P.S.
1221 Second Avenue, Suite 500 Seattle, Washington 98101-2925 Telephone: (206) 623-1745 Facsimile: (206) 623-7789

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