BANNER HEALTH SYSTEM v. LAWRENCE E. LONG, in his official capacity as Attorney General of South Dakota 2003 SD 60
Annotate this CaseBANNER HEALTH SYSTEM
Plaintiff,
v.
LAWRENCE E. LONG, in his official
capacity as Attorney General of
South Dakota,
Defendant.
[2003 SD 60]
CERTIFICATION OF QUESTION OF LAW FROM THE
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF SOUTH DAKOTA, WESTERN DIVISION
Civ. 02-5017-KES
THE HONORABLE KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
LONNIE R. BRAUN of
Thomas, Nooney, Braun,
Solay & Bernard
Rapid City, South Dakota
and
PATRICK J. KELLEHER
PATRICK S. COFFEY
PETER C. KOCH of
Gardner, Carton & Douglas LLC
Chicago, Illinois
Attorneys for plaintiff.
LAWRENCE E. LONG
Attorney General
MARK W. BARNETT
Chief Deputy Attorney General
ROXANNE GIEDD
JEFFREY P. HALLEM
Assistant Attorney Generals
Pierre, South Dakota
Attorneys for defendant.
Argued March 24, 2003
Opinion Filed 5/21/2003
#22543
SABERS, Justice
[¶1.] On March 8, 2002, Banner Health System (Banner) filed a complaint in the United States District Court for declaratory and other relief against the South Dakota Attorney General. Banner sought a ruling that it is governed solely by the state’s nonprofit corporation law with respect to the sale of its facilities in South Dakota. The Attorney General filed a motion to dismiss. The district court denied the motion to dismiss and certified the following question to this Court:
Whether the laws of South Dakota recognize any legal theory that would subject any of the assets of a nonprofit corporation or proceeds from the sale of those assets to an implied or constructive charitable trust in the absence of an express trust agreement.
[¶2.] This Court entered an order on October 10, 2002 accepting certification of the question. Upon consideration, we answer the question in the affirmative and hold that South Dakota law does recognize legal theories that would subject Banner’s assets to an implied charitable trust assuming certain alleged and disputed facts are established.
FACTSDorsett Home:
[¶5.] The Dorsett Home is a nursing home in Spearfish that was created as a result of a 1974 express trust bequest through the will of Olive Dorsett. The will left $60,000 for the purpose of “building a home for aged and indigent persons in the city of Spearfish for the benefit of residents of Meade, Butte and Lawrence Counties.” The South Dakota Hospital and Homes Association (SDHHA) solicited other donations including one from HW Clarkson for $63,000. The Dorsett trustees and SDHHA then received court approval for the distribution of assets from the estate to SDHHA for construction and operation of the home. The home was finished in 1955 with additional community donations of approximately $185,000 and land purchased from the city for substantially less than market value.
[¶6.] SDHHA subsequently changed its name to North Central Health and Retirement Homes Inc. and amended its articles of incorporation to provide that upon dissolution, any remaining corporate assets “would be distributed to the communities in which said assets are located.”
[¶7.] In 1975, the company again changed its name to North Central Health Services Inc. (North Central). In 1985 the company amended its articles of incorporation to provide that on dissolution the remaining assets of the corporation would be distributed to communities in which the assets were located and to charitable, educational or scientific organizations.
[¶8.] In 1993, North Central merged into and became a subsidiary of Lutheran Hospitals and Homes Society (Lutheran), which is a North Dakota charitable nonprofit corporation. North Central then amended its articles of incorporation to eliminate the dissolution restriction that the remaining assets would be distributed to the community.
[¶9.] In 1993, North Central entered into an agreement with Western Health Network Inc. (Western) for gift and donation of the Dorsett home and all of its assets. At the time of the agreement, Western’s corporate purpose was to engage in “charitable, scientific and education activities for the benefit of mankind generally.”
[¶10.] In 1996 or 1997, Western merged with Lutheran and Lutheran became the surviving entity. At the time of the merger, Lutheran’s purpose was “the operation, management, administration and maintenance of general hospitals, nursing homes, and other facilities used in caring for the ill, infirm, handicapped and aged persons.” The name of the new entity became Lutheran Health Systems Inc. (Lutheran Health).
[¶11.] In August of 1999 Lutheran Health changed its name to Discovery Health System, a North Dakota nonprofit corporation.
[¶12.] In September of 1999, Discovery changed its name to Banner Health System, and in June 2001, Banner changed its corporate domicile to Arizona.
Lookout Memorial Hospital:
[¶13.] Lookout Memorial Hospital is located in Spearfish. It was established through contributions from the community worth $110,000 and real property gifted to the Lookout Memorial Hospital Corporation. The corporation’s purpose was to construct and maintain a hospital in Spearfish. On dissolution, the remaining assets were to be transferred to any public or nonprofit corporation capable of operating a hospital in Spearfish.
[¶14.] In approximately 1963, Lookout Corporation donated its assets to Lutheran for the purpose of constructing a hospital. Lutheran built and operated the hospital.
[¶15.] In 1988, Lutheran gifted and donated the hospital and its assets to Western. The remainder of Lookout’s corporate history is the same as that noted above for the Dorsett home.
Sturgis Hospital:
[¶16.] Sturgis Hospital was constructed by the Community Memorial Hospital Association (CMHA) a nonprofit corporation incorporated in 1948. CMHA’s corporate purpose was to establish and maintain hospitals and nursing homes within or without the city of Sturgis and to participate in any activity designed to promote the general health of the community.
[¶17.] In December of 1984, CMHA donated its assets to North Central. North Central’s articles at the time still retained the dissolution restriction that the assets were to be distributed to the communities in which they were located. In 1987, North Central renovated and used part of the assets donated by CMHA in constructing and operating a new hospital and nursing home. North Central eventually merged with Lutheran. In 1993, North Central donated the facility and assets to Western after North Central’s merger with Lutheran. The remaining corporate history is the same as that noted above for the Dorsett Home.
Belle Fourche Hospital:
[¶18.] The Belle Fourche Hospital was constructed on land purchased with $25,000 donated by a community resident and community donations raised in a contribution drive in 1975. The donations were given to the Belle Fourche Health Care Center, Inc., a nonprofit South Dakota corporation. The purpose of the corporation was to provide hospital facilities. The corporation had a restriction on dissolution that assets were to be distributed to the community on dissolution. In 1975, the articles of incorporation were amended to allow distribution of assets on dissolution to another charitable nonprofit corporation. Belle Fourche eventually merged with North Central. At the time of the merger, the distribution of assets upon dissolution was restricted by the articles of incorporation such that the assets would go to the community in which the assets were located.
[¶19.] In June 1993, the hospital’s assets were donated to Western after the North Central merger with Lutheran. The remaining history is the same as stated above regarding the Dorsett Home.
Eureka Nursing Home:
[¶20.] The Eureka Nursing Home was constructed in 1988 by North Central. At the time it was built, North Central’s articles of incorporation still retained the dissolution restriction on distribution of assets. Part of the cost of building the home was paid by a $300,000 community development block grant given by the city to North Central. Over $80,000 was donated by the community for construction. North Central donated the home and its assets to Western in June 1993. The remaining history is the same as that recited for the Dorsett Home.
Rosebud Nursing Home:
[¶21.] The Rosebud Nursing Home was constructed and operated by Rosebud Home, Inc., which was incorporated for the purpose of constructing the home. On dissolution, its assets were to be turned over to the Gregory County Board of Commissioners in trust to provide hospitalization and care for the elderly. The assets of the home were eventually donated to Lutheran which operated it until it merged with Western in 1996 or 1997. The remaining corporate history is as recited above. The Attorney General additionally alleges that title to the real property associated with the home is held by Western Hospital Corporation of South Dakota which is a wholly owned subsidiary of Banner and either will be or has already been dissolved.
Gregory Hospital:
[¶22.] In order to build the Gregory hospital, the community donated $400,000 through a fund drive in 1975. The hospital was constructed in 1976 by Lutheran. Lutheran operated the hospital until it merged with Western. The Attorney General further asserts that title to this land is also held by Western Hospital Corporation of South Dakota.
[¶23.] The Attorney General also alleges that in addition to gifts from the communities for construction, communities also provided other gifts and donations to the facilities. For example, Gregory held a fundraiser to purchase an ambulance and a dialysis unit which were given to the hospital. These gifts were part of the assets sold by Banner.
[¶24.] Banner is an Arizona charitable nonprofit corporation which operates a large nonprofit health care system. Banner has sold all of these facilities and their assets and intends to use the proceeds from the sale in support of its facilities located outside of South Dakota. While the sale was in progress, the Attorney General informed Banner that he believed the facilities were restricted by constructive charitable trusts and therefore the proceeds could not be removed from the communities in which the facilities were located. Banner filed its lawsuit in Federal District Court requesting a determination whether the facilities were restricted by constructive charitable trusts. Finding no controlling state law on the issue, the District Court certified the question to this Court.
[¶25.]
WHETHER THE LAWS OF SOUTH DAKOTA RECOGNIZE ANY LEGAL THEORY THAT WOULD SUBJECT ANY OF THE ASSETS OF A NONPROFIT CORPORATION OR PROCEEDS FROM THE SALE OF THOSE ASSETS TO AN IMPLIED OR CONSTRUCTIVE CHARITABLE TRUST IN THE ABSENCE OF AN EXPRESS TRUST AGREEMENT.
[¶41.] GILBERTSON, Chief Justice, and KONENKAMP, ZINTER and MEIERHENRY, Justices, concur.
[1] . Our use of the term “implied” trust herein includes resulting and constructive
trusts.
[2] . At oral argument, Chief Deputy Attorney General Barnett represented that he was anxious to bring forth volunteers who were instrumental in the fundraising for these projects and the specific representations made by them to induce these donors to contribute.
[3] . For example, several of the cases involved either express charitable trusts, see e.g., Northwestern University v. Wesley Memorial Hospital, 125 NE 13 (Ill 1919), or merely restate propositions already found in South Dakota’s nonprofit corporation statutes. See e.g., Town of Cody v. Buffalo Bill Memorial Association, 64 Wyo 468, 196 P2d 369 (1948) (stating the proposition found in SDCL 47-26-30(3) that a nonprofit corporation is required to transfer its assets upon dissolution to another nonprofit corporation engaged in activities which are “substantially similar” to those of the dissolving corporation).
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