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Man in the middle

Meet the attorney at the center of Carlyle lawsuit, hospital sale

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Perched behind his desk in a third-floor office overlooking downtown Missoula, Scott Stearns seems an average guy. His dark hair, white shirt and gray slacks don’t stand out, nor does his easygoing demeanor. On first blush, one would be hard pressed to guess that the 41-year-old attorney is a central figure in two possible deals that could have a profound impact on Missoula’s future.

Stearns represents the city in its lawsuit against the Carlyle Group that seeks to forcibly acquire Mountain Water Co. from the multinational investment firm. The lawsuit is slated for trial in March. He also serves as chairman of the Community Medical Center Board of Directors, a position that has placed him at the forefront of the nonprofit hospital’s $74.79 million proposed sale to Billings Clinic and its for-profit partner, RegionalCare of Tennessee. The transaction is currently under review and pending approval by Montana Attorney General Tim Fox.

Missoula Independent news
  • Cathrine L. Walters
  • Scott Stearns serves as chairman of the Community Medical Center Board of Directors, as well as an attorney in the city of Missoula’s lawsuit against the Carlyle Group for control of Mountain Water.

Despite his casual demeanor, Stearns knows his work now will impact the city for years to come.

“It’s like a duck swimming,” he says, “so you see the duck gliding across the water and everything might look fine and idyllic, but they are furiously paddling underneath. I think I am at all times furiously paddling underneath.”

The Missoula native lives by his calendar and routinely works Sundays. In the months leading up to the March trial against Carlyle Group, Stearns and his Boone Karlberg law firm colleague, attorney Natasha Jones, have fended off a flurry of legal filings from the multinational investment firm—filings Missoula Mayor John Engen believes may be designed to wear down the city’s resolve.

Rather than buckling, Stearns seems to be thriving under the pressure. He says he’s honored to be working to wrest Mountain Water from the Carlyle Group. “This is the most important case that I will ever work on,” he says.

It helps that pitching city ownership of Mountain Water hasn’t been as tough a sell to most of the community. A poll conducted by the city this year found that 70 percent of Missoula residents support municipal water system ownership. The city is also playing the role of underdog against Carlyle Group, which manages more than $200 billion in assets.

Arguments presented by Stearns on behalf of the Community Board of Directors have been considerably different. Residents raised concerns at a recent public forum, unsure of how an outside for-profit would change a hospital originally founded with such strong grassroots community support. RegionalCare, by contrast, is funded by global equity firm Warburg Pincus, which employs former U.S. Treasury Secretary Timothy Geithner. According to the Warburg Pincus website, it has invested $50 billion in 35 countries since 1966.

It didn’t escape Stearns that during that public forum last month, more than one commenter used Carlyle’s ownership of Mountain Water as a cautionary tale. Speakers predicted that if the attorney general approves the sale of Community to RegionalCare, the company will inevitably want to recoup its investment. When RegionalCare seeks a payback, deal opponents worry health care will suffer.

“The haste of this transfer is reminiscent of another Missoula resource transfer just three years ago, that of Mountain Water to the Carlyle Group,” Vicky Gordon said during the forum. “Valuable community resources must not be traded.”

Others wondered if RegionalCare, like the Carlyle Group, would attempt to flip the hospital. The Carlyle Group announced in September that it intends to sell Missoula’s water system and two other California-based utilities for $327 million to the Canadian firm Algonquin Power and Utilities. That sales price is more than three times the $102 million Carlyle paid for the three companies in 2011.

RegionalCare CEO Marty Rash responded by saying his company has no intention of going that route and that “it is our intention to be here for the long run.”

While Stearns hears the comparisons between the two deals, he’s quick to note the key differences. For one, Missoula has two hospitals but only one water system. The latter makes ratepayers captive.

Similarly, he says a primary reason the Community board voted to support the hospital sale was to preserve choice and drive down costs. Without the partnership with RegionalCare, declining federal government reimbursements and waning hospital admissions were making it increasingly difficult for Community to stay afloat. Simply put, without a partner, Community’s chances of survival were slim, Stearns says.

“We don’t have a pot of money that we can go to,” Stearns says. “We can’t just hold a bake sale here in Missoula and have that be enough for people to be happy with the health care services that we have.”

Jan Parks, vice chair of the Community board, calls Stearns a “true leader,” one who pressed the board to vigorously debate the hospital’s future. That leadership helped, she says, as the discussion intensified.

“I think we all started out with the idea originally of, ‘We don’t need to do this,’” Parks says. “As we moved forward, and we kept looking at the numbers, and we kept looking at the impacts, we knew we had to do something ... It wasn’t very long before we all realized that making it on your own was just not an option with the way things were changing.”

The attorney general is expected to release his decision on whether the sale can go forward in the coming weeks. By law, proceeds generated by the transaction must be used to benefit a charitable organization. Stearns says he anticipates a decision on how the board intends to allocate those funds soon.

If the sale is allowed to go forward, the Community board will be dissolved and Stearns should have a little more time to devote to his wife and three children—at least until the Carlyle trial starts in earnest.

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