Reference no: EM13302177

Smallville General has come upon hard times. The rising cost of labor and supplies has created significant negative margins. Humanity Hospital Corporation, a for-profit hospital chain, is eager to enter markets where a single hospital has a monopoly on local hospital care. It made an offer to purchase SGH to Smallville's board. The board believed that many of its pet projects, which lose money but provide community benefit, will be ended if Humanity buys the hospital. In turn, the board offered Humanity (1) a 49% interest in the hospital (2) 11 of the 24 board seats and (3) half of any annual margin in return for (1) a large cash infusion and (2) the use of Humanity's group purchasing for supplies and employee benefits. Humanity agreed. The ability of pre-sale SGH board members to control the board assured the continuation of the pet projects. In one year, the hospital turned around and achieved a positive margin. In turn, the federal government moved to terminate Millville’s determination as a tax exempt entity and the twn of Smallville moved to tax Millville’s real property. The Smallville board asked its counsel to fight these actions. What issues must counsel tackle and what position should counsel take?