The battle over a North Carolina textile heir’s fortune worth millions is now headed to mediation.

It’s the latest development in the legal battle between Atrium Health and descendants of one-time owners Cannon Mills Co., who are embroiled in a battle to claim the inheritance of money derived from the former Kannapolis-based company.

Retired N.C. Business Court Chief Judge Jim Gale has been assigned to oversee mediation in the case, new court filings show.

Cannon textile mill descendants want to stop Charlotte’s largest hospital system from receiving millions of dollars from the family trust, claiming Atrium is not the intended recipient and does not meet the trust’s charitable purposes. The exact total money at stake was not cited in public court records.

Atrium — overseen by the Charlotte-Mecklenburg Hospital Authority — argues it is entitled to trust distributions and this month filed a motion to remove the trustees blocking it from the inheritance.

N.C. Business Court filings do not specify the trust’s value.

There is no timetable yet for when mediation would begin, or what would happen if mediation fails.

What led to the Cannon trust fight

For part of the 20th century, Cannon Mills once stood as the world’s largest producer of towels and sheets.

Cannon Mills traces its roots to 1887, when local investors led by James Cannon opened a small yarn-spinning plant in Concord. His son, Charles Albert Cannon, took over operations after his father died in 1921. By that time, the company had relocated to what would become Kannapolis, and a few years, was known as Cannon Mills.

The company saw a number of owners and name changes before it collapsed into bankruptcy as Pillowtex in 2003. That triggered the largest one-day job loss in the history of North Carolina and the textile industry at that time, as 7,650 people lost their jobs, mainly in Cabarrus and Rowan counties.

In 1965, Cannon’s wife, Ruth Coltrane Cannon, created a trust for her grandson, Charles Albert Cannon III. Following his death, she said in her will, the trust would go to county-owned Cabarrus Memorial Hospital. Her grandson died last October.

Through a series of mergers over the past decades, Cabarrus Memorial became part of Atrium, which is now part of Advocate Health with revenue of more than $27 billion.

Since Cabarrus Memorial does not exist anymore, the trustees say Atrium Health is not the proper beneficiary. If the trust could not be paid “expressly” to the county-owned Cabarrus Memorial Hospital, it was to be distributed to “religious, charitable, scientific, literary, or educational purposes,” the trustees argued in court documents.

In February, Cannon textile mill descendants filed a lawsuit to stop Atrium from receiving trust distributions.

“Cannon did not direct her philanthropy to a multi-state, multi-billion-dollar corporate conglomerate like Atrium, and she certainly didn’t intend for such a corporate conglomerate to attack her family members for trying to be faithful to her wishes and charitable purposes,” attorney Kearns Davis said Monday in a statement to The Charlotte Observer.

Atrium objected to the trust’s interpretation of the will and threatened legal action if distributions did not begin Feb. 15.

Atrium’s counterclaim

This month, Atrium filed a counterclaim, saying Cannon trustees “failed and refused” to provide income distributions or accounting information about the trust. Atrium wants the trustees removed and new trustees appointed, as well as financial damages and fees.

“The trustees have committed serious breaches of trust,” Atrium said in an April 10 filing. “The trustees have also persistently failed and refused to administer the trust effectively.”

The three trustees listed in the filing are Craig and Kathleen Cannon, both of Forsyth County, and Thomas Fields of Michigan.

”We filed our counterclaim because we believe the law is clear. The Charlotte-Mecklenburg Hospital Authority (d/b/a Atrium Health) is the successor in interest to Cabarrus Memorial Hospital and is entitled to the distributions from the trust,” Atrium Health officials said Monday in a statement to the Observer. “CMHA continues to operate what is now known as Atrium Health Cabarrus as a public hospital for the benefit of the residents of Cabarrus County.”