Berkshire Hathaway investors' endowment to be restored under New York judge's order

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Posted: Saturday, August 31, 2013 12:00 am

A $140 million endowment that originated as Berkshire Hathaway Inc. stock donated by two Omaha natives is to be restored under an order by a New York State Supreme Court judge.

Justice Carolyn E. Demarest, in a series of recent decisions, took back her 2011 ruling that, among other effects, ended up with Long Island College Hospital in Brooklyn nearly closed, even after most of the endowment was spent.

Demarest ordered establishment of a trust backed by the hospital's real estate, valued at an estimated $1 billion, to benefit the endowment set up in the 1990s by Donald and Mildred Othmer to benefit the hospital.

The endowment was supposed to help the hospital by using its investment income, but not its principal — $140 million at its peak. The judge's order apparently could restore the endowment's principal amount.

The Othmers were early investors in Berkshire, the Omaha-based conglomerate headed by Warren Buffett. When they died, their estates funded the endowment and a number of other philanthropic donations, including some in Nebraska.

When a Wall Street Journal story in July tracked the spending of the endowment funds, Buffett said that if the Othmers were alive today, “I would think they would feel betrayed.”

The Othmers, both University of Nebraska graduates, lived in New York City. He was one of the country's top chemical engineers. She had a master's degree in industrial engineering and had taught English at Omaha Benson High School.

In her ruling, Demarest said press accounts of the matter, along with lawsuits and protests over the impending closure of the hospital, prompted her to re-examine her 2011 decision.

That order had transferred control of the hospital to the State University of New York Downstate Medical Center. Some of the endowment's money had been set aside to pay malpractice expenses and other costs. Eventually, nearly all the endowment money was spent.

The judge said her order had been supported by the hospital and the Brooklyn community as part of a plan that would keep the financially troubled hospital open — an objective consistent with the endowment's goals.

But in her new order, Demarest said the promise of saving the hospital “may have blinded many to a more sinister purpose to seize its assets and dismantle the hospital” to help the university resolve its own financial difficulties.

The university had said a lack of state funding hurt its finances in recent years, and the hospital was losing money as well.

Demarest said the university breached its obligation to keep the hospital open, so she rescinded her earlier order that had transferred the hospital to SUNY Downstate.

She wrote in the order that she had visited the hospital recently and seen its staff turn away ambulances carrying people who needed medical help, which she called “a travesty.”

William Josephson, a retired attorney who once headed the charities bureau of the New York Attorney General's Office, wrote in a letter to the judge that the Othmer endowment shouldn't have been “invaded.” Rather, he wrote, the hospital's real estate could have covered any financial shortfall.

Hospital backers said they still face the challenge of keeping the hospital open.

Barbara Gartner, an English teacher who lives in Brooklyn, said Friday that saving the hospital has become a local cause, attracting even New York mayoral candidate Bill de Blasio to a recent rally.

When plans to close the hospital surfaced in February, Gartner researched the fate of the Othmer endowment and sent her findings to several people — including Buffett, because she knew there was a connection between them.

“Nobody knew what happened to the Othmer funds,” she said.

Local Brooklyn newspapers had done stories on the hospital's problems, Gartner said, and the Journal story focused on the endowment, quoting Buffett.

Dr. Toomas Sorra heads a coalition of doctors, nurses, hospital workers and community groups that has been working to keep the hospital open. He said most of the Othmer money had been spent when the hospital was owned by Continuum Health Partners, before SUNY Downstate Medical Center took control. He has practiced gastroenterology there for 31 years.

Long Island College Hospital has closed some of its departments, including surgery and maternity services, causing doctors to move patients elsewhere.

More legal proceedings lie ahead to resolve the control of the hospital and its future, Sorra said, but Demarest's order was “a very welcome surprise.”

If the ownership and control issues can be resolved and functions of the hospital restored, the Othmer fund can again be a strong source of support at the hospital, Sorra said.

“It's a work in progress.”

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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