Opinion
No. CV 02 00885375S
June 3, 2003
MEMORANDUM OF DECISION
This action arises from the sale of Sharon Hospital, a small hospital serving the rural northwestern corner of Connecticut, to Essent Healthcare of Connecticut. The sale is the first since the 1997 enactment of "An Act Requiring Advance Review and Approval of the Sale of Nonprofit Health Care Facilities to For Profit Entities." General Statutes §§ 19a-486 et seq. Accordingly, this action is the first to apply the statute.
The plaintiff Attorney General brought this action returnable on September 10, 2002, naming as defendants, Sharon Hospital, Inc., Sharon Corporation, West Sharon Corporation and Sharon Healthcare Inc. (Sharon Hospital), the entities selling assets as part of the sale. Berkshire Taconic Community Foundation, Inc. (BTCF), is also named as a defendant as a nonprofit corporation organized as a community foundation for holding and administering charitable funds. Also named are several trustees: Fleet National Bank as trustee of the William G. and Mary C. Raynsford Fund and the I. Kent Fulton Trust; and Mark J. Capecelatro and the Trust Company of the Berkshires, co-trustees of Bedelia Croly Falls. Also named as defendants are The Connecticut Children's Medical Center, Inc.; and as alternative takers under the Bedelia Croly Falls Trust, The Little Guild of St. Francis for the Welfare of Animals, Inc., Litchfield County Association for Retarded Citizens, Salisbury Family Services, Inc. and the Salisbury Public Health Nursing Association.
Sharon Hospital refers to the nonprofit entity and the family of corporations selling their assets in this transaction. See General Statutes § 19a-486 (1).
The defendants Sharon Hospital, BTCF, Fleet Bank, Connecticut Children's Medical Center and co-trustees, Mark Capecelatro and Trust Company of the Berkshires appeared through counsel. All remaining defendants were defaulted. The court held a hearing on December 18, 2002 to determine the sufficiency of notice and due diligence with regard to the documentation of charitable gifts proposed for transfer as part of the transaction. On January 7, 2003, the court made such a finding. See Blumenthal v. Sharon Hospital, Superior Court, judicial district of Litchfield, Docket No. CV 02 0088537 (January 7, 2003, DiPentima, J.).
The case proceeded to trial on January 14, 2003. At trial, the Attorney General called a number of witnesses and submitted twenty-five exhibits. The exhibits were later supplemented with two additional exhibits. The plaintiff's witnesses were John D. Newman, an attorney representing Sharon Hospital in its sale; Richard DiVita, an accountant retained by Sharon Hospital after the closing in May 2002; Jennifer Dowley, president of the Berkshire Taconic Community Foundation since 1999; James Bates, director of the EMS Institute; Louisa LaFontan, the coordinator of Hospice of Northwest Connecticut, now affiliated with United Methodist Homes; and Victoria Mazzei, vice president of Fleet Bank in charge of administering a number of perpetual charitable trusts. No other witnesses were called by any party.
The defendant BTCF submitted eight exhibits and the defendant Trust Company of the Berkshires submitted one exhibit. On March 27, 2003 and April 7, 2003, the plaintiff, Fleet National Bank and the Connecticut Children's Medical Center and defendant Berkshire Taconic Community Foundation Inc. submitted post-trial memoranda. The plaintiff also submitted proposed findings of facts and conclusions of law.
In reaching its decision and after its own review of the evidence, the court has relied in large part on the plaintiff's proposed findings of fact and conclusions of law.
In 1997, the Connecticut legislature enacted a legislative act entitled "An Act Requiring Advance Review and Approval of the Sale of Nonprofit Health Care Facilities to For Profit Entities." As stated by the sponsoring legislators, the purpose of the act is to preserve and protect charitable assets and adequate health services when a nonprofit hospital is acquired by a for profit health care institution.
Before the Public Health Committee, Representative Dillon set forth in more detail the principles and goals of the statutory scheme:
1) Public disclosure and full information about such transactions consistent with the principles of the market place. 2) Preservation of the control of charitable assets by the public. 3) Continuation of the use of such assets for the promotion of health consistent with CPRA's doctrine. 4) Prohibition of private inurement from transactions involving charitable assets, and that would involve whether staff physicians or any individuals who are CEOs which has dramatically happened in other states. 5) Access to care for the self-payer, the uninsured, and the insured regardless of the ownership status of the health entity to avoid shifting the cost of care of vulnerable populations from for profit to charitable entities.
Connecticut Joint Standing Committee Hearings, Public Health, Pt. 5, 1997 Sess. pp. 1608-09.
This court's role is defined by the statutory language and the common law. General Statutes § 19a-486c reads in pertinent part:
(a) The Attorney General shall disapprove a proposed agreement requiring notice under section 19a-486a as not in the public interest if [he] the Attorney General determines that one or more of the following conditions exist: (1) the transaction is prohibited by Connecticut statutory or common law governing nonprofit entities, trusts or charities; (2) the nonprofit hospital failed to exercise due diligence in (A) deciding to transfer, (B) selecting the purchaser, (C) obtaining a fairness evaluation from an independent person expert in such agreements, or (D) negotiating the terms and conditions of the transfer; (3) the nonprofit hospital failed to disclose any conflict of interest, including, but not limited to, conflicts of interest pertaining to board members, officers, key employees and experts of the hospital, the purchaser or any other party to the transaction; (4) the nonprofit hospital will not receive fair market value for its assets, which, for purposes of this subsection, means the most likely price that the assets would bring in a sale in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably and in their own best interest, and with a reasonable time being allowed for exposure in the open market; (5) the fair market value of the assets has been manipulated by any person in a manner that causes the value of the assets to decrease; (6) the financing of the transaction by the nonprofit hospital will place the nonprofit hospital's assets at an unreasonable risk; (7) any management contract contemplated under the transaction is not for reasonable fair value; (8) a sum equal to the fair market value of the nonprofit hospital's assets (A) is not being transferred to one or more persons to be selected by the Superior Court for the judicial district where the nonprofit hospital is located who are not affiliated through corporate structure, governance or membership with either the nonprofit hospital or the purchaser, and (B) is not being used for one of the following purposes: (i) For appropriate charitable health care purposes consistent with the nonprofit hospital's original purpose, (ii) for the support and promotion of health care generally in the affected community, or (iii) with respect to any assets held by the nonprofit hospital that are subject to a use restriction imposed by a donor, for a purpose consistent with the intent of said donor; or (9) the nonprofit hospital or the purchaser has failed to provide the Attorney General with information and data sufficient to evaluate the proposed agreement adequately, provided the Attorney General has notified the nonprofit hospital or the purchaser of the inadequately, provided the Attorney General has notified the nonprofit hospital or the purchaser of the inadequacy of the information or data and has provided a reasonable opportunity to remedy such inadequacy.
(Emphasis added.)
The Supreme Court has recently established new standards for statutory interpretation in State v. Courchesne, 262 Conn. 537 (2003). This court applies those standards in its interpretation of the foregoing provision. Thus, this court must conduct a "reasoned search" for the legislative intent behind § 19a-486c (a) (8).
[W]e seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply. In seeking to determine that meaning, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter. (Internal quotation marks omitted.) Bender v. Bender, supra, 258 Conn. 741. Thus, this process requires us to consider all relevant sources of the meaning of the language at issue, without having to cross any thresholds of ambiguity.
State v. Courchesne, supra, 262 Conn. 577.
In performing this task, we begin with a searching examination of the language of the statute, because that is the most important factor to be considered. In doing so, we attempt to determine its range of plausible meanings and, if possible, narrow that range to those that appear most plausible. We do not, however, end with the language. We recognize, further, that the purpose or purposes of the legislation, and the context of the language, broadly understood are directly relevant to the meaning of the language of the statute.
Id.
Because of the cumbersome language of this particular provision, it is particularly important to follow the Courchesne analysis in order to understand the court's role in the application of the statute to the Sharon Hospital transaction.
The language of General Statutes § 19a-486c principally addresses the actions to be taken by the Attorney General. It is only a single phrase in the lengthy subdivision of that provision that explicitly refers to the Superior Court. Parsed in an attempt at clarity, it says the Attorney General shall disapprove the sale if a sum equal to the fair market value of the nonprofit hospital's assets is not being transferred "to one or more persons to be selected by the Superior Court who are not affiliated through corporate structure, governance or membership with either the nonprofit hospital or the purchaser." § 19a-486c (a) (8) (A). Were this court to stop at the "plain meaning" of the statute, all this action would consist of is a list of persons with a finding that the transferee is not connected to the structure, governance or membership of either the Sharon Hospital entities or Essent Health Care of Connecticut. As instructed by Courchesne, however, the court examines this statute in context, both as to existing legislation and the common law.
The statute continues with § 19a-486c (a) (8) (B), which restricts the use of those assets to be transferred to: (i) appropriate charitable health care purposes consistent with the nonprofit hospital's original purpose, and (ii) for the support and promotion of health care generally in the affected community. Section (iii) of (a) (8) (B) then restates the common law duty of the Attorney General and the courts to ensure that charitable gifts be used for a purpose consistent with the intent of the donor. This section requires that any assets held by the nonprofit hospital subject to restrictions imposed by the donor be used for a purpose consistent with the intent of said donor.
The common law duty of the Attorney General and the courts to protect the intent of a charitable gift is well established. "Because charitable trusts are dedicated to the public interest action by both the attorney general and the courts is required before any modification of their provisions can be made." Lockwood v. Killian, 179 Conn. 62, 76 (1979).
In determining the construction of a charitable trust upon the failure of its stated purpose, the court applies the common law doctrine of cy pres, or approximation to as near as possible reflect the donor's intent. When it becomes illegal or otherwise impossible to carry out the terms of a charitable trust, rather than allow it to fail, the court will apply the doctrine of cy pres or approximation in order to carry out the charitable intentions of the donor as near as possible. "The rule of cy pres is a rule for the construction of instruments in equity, by which the intention of the party is carried out as near as may be, when it would be impossible or illegal to give it literal effect . . . The doctrine of cy pres may be applied without the consent of the donor." (Citations omitted; emphasis in original; internal quotation marks omitted.) Carl J. Herzog Foundation, Inc. v. University of Bridgeport, 243 Conn. 1, 10 n. 8 (1997). "The doctrine applies in situations where a testator has evidenced a dominant intent to devote his property to some charitable use but the circumstances are such that it becomes impossible to follow the particular method he directs, and the courts then sanction its use in some other way which will, as nearly as may be, approximate his general intent." Duncan v. Higgins, 129 Conn. 136, 140 (1942). The court has broad powers of interpretation under the doctrine and has final decision making authority. "It is clear that once the authority of the court is invoked, the ultimate responsibility for the application of the doctrine of cy pres or approximation to a charitable trust lies with the court and not with the trustees or the attorney general . . . Consequently, the plan finally adopted by the court need not necessarily be one proposed or consented to by any of the parties . . . The court, in applying the doctrine, is required to consider not only the language used in creating the trust but, if necessary, extrinsic facts as well. (Citations omitted; internal quotation marks omitted.) Belcher v. Conway, 179 Conn. 198, 205 (1979).
The requirements of § 19a-486c (a) (8) therefore addresses the common law duty of the court and the Attorney General to oversee the reallocation of charitable funds when the initial purpose fails, along with a statutory duty to confirm the appropriateness of the organization to which they are to be transferred. The statutory scheme of § 19a-486 et seq. recognizes the overlap between the statute and the common law in General Statutes § 19a-486h which states:
Nothing in sections 19a-486 to 19a-486h, inclusive, shall be construed to limit: (1) The common law or statutory authority of the Attorney General; (2) the statutory authority of the Commissioner of the Office of Health Care Access or the Commissioner of Public Health including but not limited to, licensing and certificate of need authority; or (3) the application of the doctrine of cy pres or approximation.
Accordingly, the court's role under the statute is to ensure that Sharon Hospital's assets be transferred to an organization or persons not affiliated through corporate structure, governance or membership with the nonprofit hospital or purchaser, for charitable health care purposes consistent with the nonprofit hospital's original purpose, and for the support and promotion of health care generally in the affected community. In keeping with its common law duties, the court is also to ensure that the charitable assets of the hospital be applied to a purpose consistent with the intent of the donor.
While this court's role is not to review the final decisions of the Attorney General or the Commissioner of Health Care Access, a brief review of their actions to effect the transaction place this case in its proper context.
Sharon Hospital and Essent Healthcare of Connecticut (Essent CT) entered into an asset purchase agreement on October 14, 2000. Under the terms of the agreement Essent was purchasing the hospital and most of its real estate and assets.
Those assets include the Hospital's physical plant; surplus real estate; personal property, including equipment, furniture, fixtures, and vehicles; accounts receivable; interests in certain leased property; interests in certain contracts including managed care contracts, agreements with Medicare, Medicaid, Tricare and other third party government payer contracts; deposits and prepaid expenses; and inventory; along with the Hospital's good will, and intellectual property, including the right to sue the name "Sharon Hospital."
The purchase price was $16.39 million plus one thousand shares of Essent's Class B non-voting stock, with certain adjustments. Within five years, Essent CT must incur at least $8 million in capital expenditures for improving the facility. If Essent CT does not expend the $8 million as agreed to, that monies would pass to the foundation receiving the sale proceeds. The purchase price would be modified by an adjusted working capital figure defined on the agreement after the closing certain liabilities were to be assumed by Essent CT and other liabilities excluded. There were assets excluded from the sale that included charitable trusts and gifts held by Sharon Hospital. Accompanying the purchase agreement was a stockholders' agreement for the shares of Essent stock which provided a right for the foundation to repurchase the Hospital if a later proposed sale did not appear adequate to meet the healthcare needs of the community.
After conducting public hearings and a review of the application of the proposed sale, and in accordance with General Statutes §§ 19a-486d and 19a-486e, the Commissioner of the Office of Health Case Access issued his final decision approving the sale with modifications on October 17, 2001, and a revised final decision with modifications on December 14, 2001. After conducting a review of the application along with public hearings, and in accordance with General Statutes §§ 19a-486b and 19a-486e, the Attorney General issued his final decision approving the sale with modifications on December 14, 2001, and thereafter on January 9, 2002, he issued an order of clarification. The closing of the sale of Sharon Hospital to Essent CT occurred on April 12, 2002.
The court commends the Attorney General's thorough and thoughtful Final Decision to those who seek a complete picture of this necessarily protracted transaction. It is available as an exhibit in this case (Pl's Ex 1) and on the Attorney General's website.
Turning now to its own limited role in the culmination of the sale of Sharon Hospital, the court will address each count of the complaint. The first count seeks a judgment upon a finding of compliance with General Statutes § 19a-486c (a) (8) and an order transferring the net assets of Sharon Hospital to the Sharon Area Community Health Foundation (SACHF), a supporting organization of defendant BTCF and a public charity whose purposes are to address the healthcare needs of the community. The other prayers of relief as to count one seek orders regarding the funds from special purpose solicitations, specifically, the Emergency Medical Technicians Fund and Hospice Fund, and a transfer of the charitable funds held by Sharon Hospital.
In count one, the Attorney General recommends to the court that Sharon Area Community Health Foundation or SACHF, as the supporting organization of the defendant BTCF, be approved by this court as the conversion foundation to receive substantially all the charitable assets of Sharon Hospital, and all other assets arising from the sale. As stated above, General Statutes § 19a-486c (a) (8) (A) requires this court to select the transferee who must not be affiliated through corporate structure, governance or membership with either the nonprofit hospital or the purchaser. Based upon the evidence presented at trial and the supporting documentary evidence, and in particular the testimony of Jennifer Dowley, President of the BTCF, and BTCF's submitted exhibits, the court makes the following findings pertinent to this claim.
"Conversion foundation" refers to SACHF, the organization created to receive the funds resulting from the sale of Sharon Hospital.
Defendant BTCF is a Connecticut nonstock, nonprofit corporation formed in 1987, recognized as a 501(c) (3) organization under the Internal Revenue Code. BTCF's office is located at 271 Main Street, Suite 3, Great Barrington, Massachusetts 01230-1606. BTCF is organized as a "community foundation" for the purpose of holding and administering charitable funds and supporting community initiatives to improve the quality of life for residents of northwest Litchfield County, CT, Northeast Dutchess and Columbia Counties in New York and Berkshire County in Massachusetts. BTCF is governed by a volunteer board of directors from throughout its geographic area. At the close of its fiscal year ending December 31, 2001, BTCF held close to $30,000,000 in assets, consisting of approximately 450 funds, which are individually tracked and administered in accordance with the donor's directives. BTCF awards grants of about $6,000,000 annually. The funds were placed with BTCF by families, individuals, businesses and other private foundations. In addition, BTCF serves the non-profit community in its area by providing "investment stewardship" for the endowments of small non-profits, which can achieve higher earnings by allowing their endowments to be invested along with BTCF's larger pool of funds. BTCF also acts as a "fiscal agent" to manage money for small, short-term community initiatives. BTFC has provided audited financial statements for fiscal 2000 and 2001. Both audits were clean with no exceptions, comments or concerns on the part of the auditor.
Among the types of charitable gifts BTCF manages are "field of interest" funds. These funds are established by the community, businesses, individuals or BTCF itself to pursue a particular charitable purpose. BTCF also currently manages numerous funds that are restricted to use in particular geographical areas, for example, the Northwest Corner Fund. BTCF has also previously conducted or funded activities in the field of healthcare. BTCF initiated the Sickness Prevention Achieved Through Regional Collaboration program ("SPARC"). The program was devised to coordinate the delivery of preventative health services throughout the Berkshire Taconic Region. The SPARC program provides services, such as, numerous kinds of immunization clinics, mammography, cancer screening and blood pressure and cholesterol checks. SPARC was funded by BTCF and initially formed as a subsidiary. Over time SPARC became more independent and now operates as a separate corporation with its own board. BTCF has also supported nonprofit organizations within its service area that provide health services, mental health services, nursing, support, and counseling services. Support has been in the form of grants of $500 to $10,000. In addition, BTCF manages the Emergency Relief Fund, which assists needy individuals with the cost of emergency care, medication, dental care, and therapy.
When the plan for the sale of Sharon Hospital became public, BTCF volunteered to assist the Hospital board in formulating a plan for a Conversion Foundation. After working with BTCF to design a proposal, the Hospital recommended that a new foundation called the Sharon Area Community Health Foundation organized as a "supporting organization" of the BTCF, and entered into a non-binding Memorandum of Understanding to that effect with BTCF. As a tax exempt organization under Section 501(c) (3) of the Internal Revenue Code, SACHF's income will not be taxable and contributions to it will be deductible for the donor. As a "supporting organization" of BTCF, SACHF will be a "public charity" under Section 509(a) (3) of the Internal Revenue Code and will not be required to pay the federal excise tax on investment income that must be paid by private foundations under Section 4940 of the Internal Revenue Code. More of the organization's income will be available for its charitable purposes than if it were a private foundation, and it will be easier for SACHF to obtain grants from private foundations than if SACHF were formed as a private foundation. As part of his Final Decision — to avoid the use of the variance powers possessed by the parent community foundation under I.R.S. Regulation Sec. 170A-9(e)11(v) (B) to modify the uses of any of SACHF's charitable trusts and gifts — the Attorney General required that SACHF be formed as a non-stock non-membership corporation with its own self-perpetuating board of directors who will manage and exercise the powers of the corporation. The Attorney General required that SACHF be established as a supporting organization "operated in connection with" the community foundation (Class III supporting organization) rather than one "controlled by" BTCF. The proposed Certificate of Incorporation and by-laws of SACHF permit it to apply funds for community healthcare purposes. SACHF also has the authority to exercise the Right of First Refusal under the provisions of the Stockholders' Agreement, to repurchase the Hospital and reconvert it to a nonprofit form, if Essent CT decides to sell the Hospital to a third party within ten years of the close of the transaction.
SACHF's charitable purposes, as set forth in its proposed Certificate of Incorporation include the following:
A. To maintain and improve the physical and mental health of all the residents of the area historically served by Sharon Hospital, including the communities of: Canaan, Cornwall, Cornwall Bridge, Warren, East Canaan, Falls Village, Goshen, Kent, Lakeville, Lime Rock, Norfolk, Salisbury, Sharon, South Kent, West Cornwall, in Connecticut, as well as the New York communities of Amenia, Ancram, Ancramdale, Copake, Copake Falls, Dover Plains, Millbrook, Millerton, Pine Plains, Stanfordville, Taconic, Wassaic and Wingdale.
B. To improve the health of all residents in the above communities and particularly emphasize the more vulnerable populations of the poor, elderly, the disabled and children.
C. To support a full range of projects to enhance the health of its area residents, including, but not limited to, assessments of health needs and the provision of resources to meet them, preventive health programs, education programs and special assistance to uninsured or underinsured constituents.
D. To seek and accept additional funds to enhance community health.
E. To remain cognizant of and responsive to changing health needs of the area.
F. To make grants to nonprofit organizations in furtherance of its corporate purposes.
G. To make grants to federally qualified health centers and other nonprofit organizations providing charity care, including charitable primary care to indigent patients in Sharon Hospital's primary and secondary service areas.
H. To work cooperatively with Sharon Hospital to ensure and augment a network of affordable and accessible health and medical care in the region; provided however, that the Sharon Area Community Health Foundation will not support programs operated by or for the benefit of Sharon Hospital while it is operated as a for profit entity.
I. To expand and enhance community health care services rather than supplant existing services whether publicly or privately supported.
J. To invest, subject to the appropriate legal, tax and regulatory approval, in the acquisition of all or part of the acute care hospital facilities and operations of Sharon Hospital, if the Directors of the Sharon Area Community Health Foundation determine that such investment is necessary and appropriate to further the goals of the overall health needs of the constituent community.
The towns listed as the proposed service area of SACHF are geographically congruent with the affected community of the non-profit Sharon Hospital.
The proposed by-laws of SACHF provide that during the first five years of its operation, it will spend no more than 5% of its unrestricted assets in order to preserve the money needed to enable SACHF to fund any repurchase of the Hospital. These spending restrictions in its first ten years are aimed at making it financially possible for SACHF to exercise its right of first refusal set out in the Stockholders' Agreement and in Section 2(a) (ii) of its corporate charter. In years six through ten, the SACHF board may override this spending restriction by a vote of three quarters of its members. BTCF, the supported organization of the proposed SACHF, is not and has not at any time been affiliated by corporate structure, governance or membership with either the nonprofit Sharon Hospital with Essent CT or the now for profit hospital. As proposed and structured, SACHF will not be affiliated through corporate structure, governance or membership with either the nonprofit Sharon Hospital, Inc., with Essent Healthcare Inc., or with Essent CT.
In Modification N of his Final Decision, the Attorney General required the BTCF to submit to him a list of names of individuals to serve as the proposed first board members of SACHF. The Attorney General directed BTCF to screen and disapprove any board member if the person was affiliated through corporate structure, governance or membership with either the nonprofit Hospital or the for-profit purchaser, or was proposed to sit on the for-profit hospital's Community Advisory Board. BTCF undertook this task through a combination of open applications and proactive recruitment, with press coverage, public forums and requests for nominations sent to the 1500 people on the BTCF mailing list. Eighty-four applications were received and screened for qualifications and conflicts. A Nominating Committee, consisting of a panel of four individuals, interviewed sixteen people, and recommend ten potential board members. These ten proposed board members, along with three BTCF board members selected by BTCF, for a total of thirteen proposed board members, were submitted by BTCF to the Attorney General for approval and presentation to the Court. The following were selected as the SACHF board of directors through that process: Dr. John P. Charde, Ms. Ella Clark, Ms. Wendy Curtis, Ms. Joan Dunlop, Dr. John W. Gallup, Ms. Barbara Maltby, Ms. Eileen M. Mulligan, Dr. Martin Nweeia, Atty. Catherine G. Roraback, Rev. Richard Taber, Ms. Miriam Tannen, Dr. Anna Timell, and Mr. John Tuke. Barbara L. Tobias, who was initially nominated to become a SACHF board member, could not serve. Eileen M. Mulligan replaced her on the list of nominees. The Attorney General reviewed the proposed panel of board members and presented them to this court for selection.
During the pendency of the present case, Paul Kardon M.D., a retired physician who practiced in Duchess County, N.Y. was a member of the BTCF board for many years, was appointed to the volunteer Community Advisory Board of the for-profit Sharon Hospital by Essent CT. Dr. Kardon resigned from the BTCF board to avoid any conflicts. Additionally, the Stockholders' Agreement provided in Section 7 that the holder of the 1000 non-voting shares of class B Stock, would have the right to elect one member of the Board of Directors of the for-profit hospital. In order to avoid any connection of the SACHF board to the for-profit hospital, BTCF waived this right and the Stockholders' Agreement was amended in February 2003.
These findings of fact and the applicable statutory provisions and common law lead the court to the following conclusions of law. Without repeating what has been set forth in detail earlier in this decision, the court notes again its role under General Statutes § 19a-486c (a) (8) is to ensure the appropriate transfer of the assets flowing from the sale of Sharon Hospital.
Since so much of the Attorney General's investigation is devoted to the fairness of the sale price, this court is not required to undertake a second inquiry into that issue. The phrase "a sum equal to the fair market value of the non-profit's assets" is a phrase that simply refers back to the "sale price" or "consideration" passing between the parties, which has already been thoroughly examined by the Attorney General, and determined to be fair under the statutory standards. These assets will pass to SACHF or an alternate charity as selected and approved by this court under § 19a-486c (8) (A).
The Sale of Nonprofit Hospitals Act does not prescribe any particular structure for the sales contracts involved in hospital conversion cases. Consequently, each transaction has its own unique terms, as negotiated by the hospital and its purchaser. In the present case, all of the above sources of funds were determined by the Attorney General to be part of the consideration arising from the sale and are part of the "fair market value" that will be received by Sharon Hospital and potentially available for transfer to the appropriate person or conversion foundation. In the proposal before this court, the BTCF has created SACHF as the person to receive the assets resulting from the sale of Sharon Hospital.
The term person is defined within the act as "any individual, firm, partnership, corporation, limited liability company, association or entity." See General Statutes § 19a-486 (3).
Pursuant to Reg. 509(3) (a) of the Internal Revenue Code, SACHF will be established as a tax-exempt "supporting organization" to BTCF, that will be operated "in conjunction with" its parent. As a supporting organization SACHF will be a tax-exempt public charity under Section 501(c) (3) of the Internal Revenue Code. Unlike a private foundation, it will operate without paying excise tax on its investments, and have no restrictions on the amount of money it can award, nor a requirement that it distribute 5% of its assets on an annual basis. As a 501(c) (3) organization, it will also be able to receive grants from other foundations to support is programs. The proposed corporate form of SACHF clearly reflects that all of the assets passing to this new conversion foundation will be applied for charitable purposes.
SACHF's draft certificate of incorporation states that it will be established to provide healthcare in the same catchment area as Sharon Hospital, serving the same towns as the nonprofit hospital has for years. Therefore, its services will be focused on the "community affected" by the sale, as required by Conn. Gen. Stat. § 19a-486c (a) (8) (A) (ii). As noted in the findings of fact, the certificate of incorporation sets forth a wide range of health-related purposes for this community.
In addition, the court concludes that the provision in its charter allowing SACHF to acquire Sharon Hospital under a right of first refusal in the stockholder's agreement is consistent with the original purpose of Sharon Hospital as required by General Statutes § 19a-486c (a) (8) (B) (i). The spending restrictions on SACHF for its first five years further this purpose.
The statute requires that SACHF, as the person receiving of the assets from the sale, have no conflicts of interest that might affect its duty of loyalty to the public in administering the charitable assets. See General Statutes § 19a-486c (a) (8) (A) ("not affiliated through corporate structure, governance or membership" with either Essent CT the buyer or seller.) The court concludes that because SACHF is independent from the buyer Essent CT and the seller Sharon Hospital, it is not affiliated through corporate structure to either under the meaning of the statute.
Further, there is no affiliation through membership. In the original documents presented to the court, pursuant to the Stockholder's Agreement, Section 5b, the Seller, or its Permitted Transferee (e.g. SACHF), as holder of the 1000 shares of class B non-voting stock, was given the right, to nominate one member to the board of Essent CT. During the proceedings before this court, BTCF waived the right to nominate a director in order to sever any ties with the for-profit hospital. The Stockholder's Agreement was revised to reflect this change. SACHF will not be organized as a nonprofit "membership" corporation under the Connecticut Non-stock Corporations Act, Conn. Gen. Stat. § 33-1026. Instead, it will be run by a self-perpetuating board of no fewer than eleven, but no more than seventeen directors with staggered terms. Therefore, it will have no members whose conflicts might require screening.
As to corporate governance, the court is also convinced the statutory mandate has been met. Corporate governance refers to officers, directors and board members. Fairfax Properties, Inc. v. Lyons, 72 Conn. App. 426, 430 n. 3 (2002).
To insure the independence of SACHF as the conversion foundation, the court has examined not only its proposed corporate structure, but also has taken the further step of ensuring the independence of its board of directors from Sharon Hospital, the seller, and Essent CT, its purchaser. The court concludes that the following panel of candidates selected by BTCF and reviewed by the Attorney General are well qualified and have no connection through corporate structure, governance or membership connections with either the purchaser Esssent CT or Sharon Hospital: Dr. John P. Charde, Ms. Ella Clark, Ms. Wendy Curtis, Ms. Joan Dunlop, Dr. John W. Gallup, Ms. Barbara Maltby, Ms. Eileen M. Mulligan, Dr. Martin Nweeia, Atty. Catherine G. Roraback, Rev. Richard Taber, Ms. Miriam Tannen, Dr. Anna Timell, and Mr. John Tuke ("Proposed Board"). As noted earlier a BTCF board member who was chosen by the purchaser Essent CT to sit on the Community Advisory Committee resigned his position as a BTCF board member.
Barbara L. Tobias, who was initially nominated to become a SACHF board member, could not serve. Eileen M. Mulligan replaced her on the list of nominees.
Accordingly, the court concludes that SACHF, as a conversion foundation, is an appropriate charitable entity to receive the assets from the transaction and is appointed to do so.
The court now turns to that portion of count one addressing the charitable gifts to be transferred. As part of the administrative case below, Sharon Hospital disclosed and provided an analysis of each of the charitable trusts and gifts that it held and administered. Sharon Hospital provided copies of approximately two hundred complete wills, trust or inter-vivos gift instruments in five tabbed volumes, to identify the charitable trusts and gifts involved in the transfer and to set out their operative language, including any donor restrictions. These volumes, encaptioned "Sharon Hospital Charitable Gifts 2-02-2001," were collectively admitted into the record in this case as Exhibit 1 in conjunction with the hearing on the Attorney General's Motion For A Finding of Due Diligence and Adequate Notice (dated November 26, 2002). The motion was heard on December 18, 2002, and granted on January 7, 2003. See Blumenthal v. Sharon Hospital, supra, Superior Court, Docket No. CV 02 0088537.
The Attorney General's final decision set forth the purposes behind this analysis as: (1) to review the full gift instrument for each of the Hospital's gifts to determine whether its language would permit a gift to pass to the foundation, or whether a reverter clause or gift-over provision would be triggered by the proposed conversion that would require the donation to revert to the donor's heirs-at-law or pass to another charity selected by the donor or the trustee; (2) to determine the initial value of the donation in the case of fully expendable funds [or of principal in the case of endowment funds] so as to permit proper allocation of any accumulated appreciation and income among the gifts in pooled funds if Sharon Hospital held them in pooled investments rather than individual accounts; and (3) to determine whether the donor restricted the use of a fully expendable gift, or the income earned on an endowment fund, to a particular charitable purpose set out in the gift instrument, such as free beds, charity care, maintenance, a building fund, or research. (P. Ex. 1, Attorney General's Final Decision, pp. 71-73.)
The Attorney General then went through a very thorough process whereby he determined the correct amount of the value of the Hospital's unrestricted and restricted charitable gifts, making changes in the amounts assigned by the Hospital where he deemed it necessary. These changes include changing the categorization of the gifts from unrestricted gifts to restricted gifts based on his analysis of the gift language. (See P. Ex. 1, Final Decision, pp. 77-79.)
The role of the Attorney General in overseeing and protecting the allocation of a charitable trust when the initial purpose fails is well established by statute and common law. General Statutes § 3-125 states that "he shall represent the public interest in the protection of any gifts, legacies or devises intended for public or charitable purposes." Similar authority is incorporated into General Statutes § 19a-486 et seq., which covers the sale of nonprofit hospitals. The Attorney General's role in overseeing the sale of nonprofit hospitals in the state as set out in the statute echoes the intent of his general role of representing the public's interest regarding charitable funds.
As stated above, the authority of the Attorney General and the courts, acting in the public interest to protect charitable gifts, is well-established by case law in Connecticut and in other jurisdictions. "Because charitable trusts are dedicated to the public interest, action by both the attorney general and the courts is required before any modification of their provisions can be made." Lockwood v. Killian, supra, 179 Conn. 76. "The theory underlying the power of the Attorney General to enforce gifts for a stated purpose is that a donor who attaches conditions to his gift has a right to have his intention enforced." (Internal quotation marks omitted.) Carl J. Herzog Foundation, Inc. v. University of Bridgeport, supra, 243 Conn. 7. "Public officials, such as the attorney general, [have] common law standing to enforce charitable trusts because, by virtue of their positions, they are closely associated with the public nature of charities . . . [T]he public benefits arising from the charitable trust justify the selection of some public official for its enforcement. Since the [a]ttorney [g]eneral is the governmental officer whose duties include the protection of the rights of the people of the state in general, it is natural that he has been chosen as the protector, supervisor, and enforcer of charitable trusts, both in England and in the several states . . . Connecticut is among the majority of jurisdictions which have codified this common law rule and has entrusted the attorney general with the responsibility and duty to represent the public interest in the protection of any gifts, legacies or devises intended for public or charitable purposes . . ." (Citation omitted; internal quotation marks omitted.) Id., 7 n. 3.
As part of the review process and as reflected in the Final Decision, the Attorney General and Sharon Hospital adopted a summary and profile of the types and amounts of gifts using the following classifications:
A. Gifts Held by the Hospital:
(i) Restricted endowments ("Restricted Endowments") (e.g. a charitable fund, the original gift instrument of which specifies that the sum donated is to be held and preserved as "principal," as a "fund," as an "endowment," or directs that the sum be held and invested, or added to an existing endowment fund, and further specifies that the annual income earned on said principal be applied to a specific purpose such as free beds, indigent care, a building fund or a particular program of the hospital, including charitable funds which Sharon Hospital raised in a manner that falls within the definition of "solicit" or "solicitation" as set out in the Solicitation of Charitable Funds Act, Conn. Gen. Stat. § 21a-190a (3));
(ii) Unrestricted endowments ("Unrestricted Endowments") (e.g. a charitable fund, the original instrument of which specifies that the sum donated is to be held and preserved as "principal," as a "fund," as an "endowment," or directs that the sum be held and invested, or added to an existing endowment fund, and further specifies that the annual income earned on said principal be applied to the hospital's "general purposes," "general expenses," general fund," or used "at the discretion of the board;").
(iii) Fully expendable gifts, not structured as endowments to be administered and used by the hospital for restricted purposes specified by the donor, including charitable funds which Sharon Hospital raised in a manner that falls within the definition of "solicit" or "solicitation" as set out in the Solicitation of Charitable Funds Act, Conn. Gen. Stat. § 21a-190a (3) ("Non-Endowment Charitable Gifts Restricted as to Use").
(iv) Fully expendable gifts, not structured as endowments, to be administered and used by the hospital for its general purposes, including charitable funds which Sharon Hospital Auxiliary raised in a manner that falls within the definition of "solicit" or "solicitation" as set out in the Solicitation of Charitable Funds Act, Conn. Gen. Stat. § 21a-190a (3) ("Non-Endowment Charitable Gifts Unrestricted as to Use").
B. Trusts held by outside banks, a portion of the annual income of which was designated for donation to Sharon Hospital to be used for one or more of its charter purposes ("Funds Held in Trust by Others").
C. Future Interests ("Unmatured Gifts") in trusts such as charitable remainder trusts (including charitable remainder unitrusts or annuity trusts) held by outside banks or trustees, in which the Hospital has no current income or principal interest.
(P. Ex. 1, Final Decision, pp. 28-29.)
Sharon Hospital also prepared a document encaptioned "Gift Analysis," which classified each of the trusts and gifts using the above definitions. The final version of the Gift Analysis, reflecting changes required by the Attorney General in his Final Decision, and any gifts received after the hearing, was admitted into the record of this case as Exhibit 2 in conjunction with the hearing on the Attorney General's Motion For A Finding of Due Diligence and Adequate Notice. Other post-hearing changes to gifts held by the hospital were presented at the January 14, 2003 trial and are also included in the gift analysis.
During the proceedings before the Attorney General, Sharon Hospital prepared a statement of the value of the charitable gifts listed in the Gift Analysis as of May 31, 2001, encaptioned "Sharon Hospital Funds Value Report at 5/31/01" (the "Funds Value Report"). It also provided an updated Funds Value Report, which restated the value of each individual trust or gift as of 6/30/02; made modifications to the classifications required by the Attorney General in Modification J (P. Ex. 1, p. 122-25); and included gifts received after May 31, 2001. The updated Funds Value Report was admitted into the record of this case as Exhibit 3 in conjunction with a hearing on the Attorney General's Motion For A Finding of Due Diligence and Adequate Notice. Among the gifts held by the Hospital that are categorized as Restricted Endowments are the following: Northrup (Tab 16), Sherman (Tab 20), Williams (Tab 23), EMT Fund, Harrison (Tab 11) and the Hospice Fund.
Among the gifts held by the Hospital that are categorized as Unrestricted Endowments are the following: Burr (Tab 4), Colgate (Tab 5), Ellison (Tab 6), Emory (Tab 7), Ensign (Tab 8), Firuski (Tab 9), Harison (Tab 10), Hart (Tab 12), H. Hatch (Tab 13), M. Hatch (Tab 14), Noble (Tab 15), Rees (Tab 17), Rhew (Tab 18), Ryan (Tab 19), Von Glahn (Tab 21), Hatch CT (Tab 14-A), Milmine (Tab 14-B) and Slater (Tab 20-A).
Among the gifts held by the Hospital that are categorized as Non-Endowment Charitable Gifts Unrestricted as to Use are the following: Adelmann (Tab 24), J. Aiken (Tab 25), M. Aiken (Tab 26), Albisser (Tab 27), Allen (Tab 28), Arlin (Tab 30), Bame (Tab 31), Barter (Tab 32), Bassinger (Tab 33), Bauer (Tab 34), Berry (Tab 36), Bingham, (Tab 37), Bissell (Tab 38), A. Blagden (Tab 39), A. Blumenthal (Tab 41), J. Blumenthal (Tab 42), Briggs (Tab 43), Buckley (Tab 44), M. Cannon (Tab 45), W. Cannon (Tab 46), Capital Markets (Tab 47), Childs (Tab 48), Cleaveland (Tab 49), Coffin (Tab 50), Cohen (Tab 51), Cowles (Tab 53), Crane (Tab 54), Culbertson (Tab 55), Daboll (Tab 56), Decker (Tab 57), DeDombrowski (Tab 58), Doherty (Tab 60), Donaldson (Tab 61), Eaton (Tab 62), Eggleston (Tab 64), Ellsworth (Tab 65), Emerson (Tab 67), Firuski (Tab 69), Ford (Tab 70), Fowler (Tab 71), Frankel (Tab 72), Frankenstein (Tab 73), Gaylord (Tab 75), Girvan (Tab 76), G. Godard (Tab 77), P. Godard (Tab 78), Goerlich (Tab 79), Gorham (Tab 80), Grinnell (Tab 81), Haan (Tab 82), Haight (Tab 83), Hall (Tab 84), Halsey (Tab 85), Hamber (Tab 86), Hamlin (Tab 87), Harriott (Tab 88), M. Harris (Tab 90), Haskell (Tab 91), Hatch (Tab 92), Hauser (Tab 93), Hawley (Tab 94), M. Holley (Tab 96), S. Holley (Tab 97), Hopson (Tab 98), M. Howard (Tab 99), S. Howard (Tab 100), Hunt (Tab 101), Jendrick (Tab 102), Jessup (Tab 103), Johnson (Tab 104), S. Kaye (Tab 106), Kirby (Tab 107), Kozlarek (Tab 108), Lee (Tab 109), Lehnert (Tab 110), Lime Rock (Tab 111), Linder (Tab 112), Loughran (Tab 114), Low (Tab 114), Lucas (Tab 115), Luce (Tab 116), Luster (Tab 117), Lyon (Tab 118), Maclay (Tab 119), McChesney (Tab 121), McDonnell (Tab 122), McKean (Tab 123), McLane (Tab 124), McLean (Tab 125), McLellan (Tab 126), H. Mileham (Tab 127), Mileham Estate (Tab 128), Mitchel (Tab 130), A. Moore (Tab 131), G. Moore (Tab 132), M. Moore (Tab 133), M.M. Moore (Tab 134), Moore (Tab 134-A), J. Noble (Tab 136), R. Noble (Tab 137), Pajuf (Tab 139), Palmer (Tab 140), Parshall (Tab 141), Pierre (Tab 142), Pitcher (Tab 143), Porzelt (Tab 144), Pulver (Tab 145), Purdy (Tab 146), M. Rathbone (Tab 147), R. Rathbone (Tab 148), Reed (Tab 149), Roger (Tab 151), Russell (Tab 152), Schall (Tab 154), E. Schwab (Tab 157), Scoville (Tab 159), Seeman (Tab 160), Simmons (Tab 162), Sjoberg (Tab 163), Somarinndyck (Tab 164), Sprague (Tab 165), Stone (Tab 166), Straub (Tab 167), H. Struse (Tab 168), M. Struse (Tab 169), Tornquist (Tab 171), Toulmin (Tab 172), Toulmin (Tab 173), Tyler (Tab 175), Van Kirk (Tab 176), Von Ketteler (Tab 177), Wagner (Tab 178), Walworth (Tab 179), F. Ward (Tab 180), M. Ward (Tab 181), L. Warner (Tab 183), Webster (Tab 184), Whitridge (Tab 185), Winslow (Tab 186), Wolf (Tab 187), Zotter (Tab 188), Emerson (Tab 67-A), Hatch (Tab 92-A), Schlesinger (Tab 155-A), Van Cortlandt (Tab 175-A), St. John, Chapman, Lloyd, Brown, Wilmerding, Hirsch, Whitney and the Hospital Auxiliary Fund.
The following Non-Endowment Charitable Gifts Unrestricted as to Use were listed as fully expended on the 6/30/02 Funds Value Report: Allen (Tab 28), G. Godard (Tab 77), Pierre (Tab 142), Winslow (Tab 186), St. John, Chapman, Lloyd, Brown, Wilmerding, Hirsch and Whitney.
Among the gifts held by the Hospital that are categorized as Non-Endowment Charitable Gifts Restricted as to Use are the following: Gillette (Tab 2), Belcher (Tab 35), Z. Blagden (Tab 40), DeMussey (Tab 59), Eberle (Tab 63), Elting (Tab 66), Falls (Tab 68), Fransioli (Tab 74), Miner (Tab 129), Newell (Tab 135), Ompir (138), Ryan (153), Triacca (Tab 174) and The Sue Stanton Memorial Fund. All of the Non-Endowment Charitable Gifts Restricted as to Use held by the Hospital are listed as fully expended on the 6/30/02 Funds Value Report except Falls (Tab 68) and The Sue Stanton Memorial Fund. (P. Ex. 1 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.)
Based upon the evidence presented to the court and the applicable law, this court, on January 7, 2003, concluded that there has been due diligence by Sharon Hospital of the documentation of the gifts as presented to the Attorney General. Witnesses testified to collecting all documents relating to gifts made to Sharon Hospital, organizing all records of those gifts, reviewing the gift instruments and performing a legal analysis of each gift. In reviewing the gift instruments, attorneys categorized each gift and looked for reverter or giftover clauses. This analysis was affirmed by the Attorney General's office. No reverter clauses were found, and the only gifts containing giftover provisions are specifically named in the Amended Complaint. Accordingly, the court made a finding of due diligence and adequate notice Sharon Hospital in its research and documentation of the gifts. Blumenthal v. Sharon Hospital, supra, Superior Court, Docket No. CV 020088537. Accordingly, the court now concludes that these gifts are appropriate for transfer to SACHF. All of the restricted endowments, unrestricted endowments, fully expendible non-endowment gifts donated for restricted purposes set out by the donor in the applicable gift instrument, and all fully expendable gifts not structured as endowments which were given to Sharon Hospital for its general purposes will pass to SACHF to be administered and applied in the manner set out in the corporate charter and bylaws of SACHF, which, this court finds, carries out the donor's intent. SACHF shall preserve the principal of each endowment fund and administer it as an "institutional fund" within the meaning of General Statutes § 45a-527 (2) of the Connecticut Uniform Management of Institutional Funds Act, General Statutes § 45a-526, et seq. SACHF shall apply the "net appreciation" of such funds for the purposes set out in its certificate of incorporation and bylaws, and consistent with any further directives of this court with respect to any individual trust or gift. The balance of the charitable funds held by Sharon Hospital as of December 31, 2002, totaled $12,112,828.00. (P. Ex. 25.)
After the hearings held by the Attorney General and the Commissioner of Health Care Access, there were changes and additions to the list of gifts. The court heard testimony at the January 14, 2003, trial on certain post-hearing changes in charitable gifts and based on that testimony and the exhibits presented, finds the following:
On December 10, 2001, prior to the sale of the Hospital, the Hospital received from Mrs. Samuel Wilson Moore a gift of $5,000 designated for the Hospital's Building Fund. By letter dated July 17, 2002, Mrs. Moore's attorney-in-fact released this use restriction. (P. Ex. 19.) Therefore, this gift is reflected in the 6/30/02 Funds Value Report as a Non-Endowment Charitable Gift Unrestricted as to Use. (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.)
During the review of its Application, Sharon Hospital Inc. received a letter releasing a charitable use restriction on the gift of Mary J.P. Moore. The letter states that Mrs. Moore had given $5000 to the restricted building fund at Sharon Hospital, and asks that the gift be transferred to SACHF as an unrestricted gift. The Connecticut Uniform Management of Institutional Funds Act ("CUMIFA"), Conn. Gen. Stat. § 45a-526 et seq., permits a donor to "release a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund." Conn. Gen. Stat. § 45a-533. The donor may do so through a written authorization. Id. These provisions of CUMIFA apply to "institutional funds" e.g. "funds held by an institution for its exclusive use or benefit." Conn. Gen. Stat. § 45a-527 (2). A hospital is an institution under CUMIFA Section 45-527 (1). Therefore Mrs. Moore acting through her agent, could effectively remove the use restriction by providing a written directive to that effect under CUMIFA. The gift of Mary J.P. Moore may be transferred to SACHF as a fully expendable unrestricted charitable gift, in accordance with the donor's written directive.
On February 14, 2002, prior to the sale of the Hospital, the Hospital received from Fleet National Bank as Trustee of the Richards Haskell Emerson Trust dated 7/15/69 a gift of $223,380.25. This gift is reflected in the 6/30/02 Funds Value Report as a Non-Endowment Charitable Gift Unrestricted as to Use. (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.)
On February 22, 2002, prior to the sale of the Hospital, the Hospital received from Paul F. Feilzer of New York, New York as Trustee of the Mary Howard Charitable Trust, a gift of $20,000 representing a distribution of income from this trust. This gift is reflected in the 6/30/02 Funds Value Report as a Non-Endowment Charitable Gift Unrestricted as to Use. (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.)
The Estate of Mary W. Howard (Tab 99, P. Ex. 1 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice) is an open estate pending in the State of New York. Mrs. Howard's Last Will and Testament dated July 26, 1988, and First Codicil dated August 14, 1996 provide, in Article Fifth C, that all the rest and residue of her estate be applied to form a trust called the Samuel and Mary Howard Fund. (P. Ex. 1 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice, Tab 99.) Under the provisions of the First Codicil to the Will of Mary W. Howard, the Trustee is directed to distribute no less than 51% of the annual income among 5 named charities, including "The Sharon Hospital of Sharon Connecticut," and the balance of said annual income to other charities of the Trustee's choice. The will further permits the Trustee, in his discretion, to make distributions of principal and income in such proportions and amounts as he wishes amongst both the named charities, and ones he may select. The sole income distribution received prior to the sale of the Hospital from the Howard Trust is included in the 6/30/02 Funds Value Report as a Non-Endowment Charitable Gift Unrestricted as to Use. (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.) The value of the Howard Trust is unknown. The court finds that the income distribution from the Howard Trust is properly classified as a non-endowment charitable gift unrestricted as to use and passes to SACHF.
On July 17, 2002 after the sale of the Hospital, its counsel documented a fund called the Sue Stanton Memorial Fund for Children, which is a fully expendable non-endowment fund restricted to the use of children. (P. Ex. 20, Letter of Counsel and Attachment.) The balance in the fund as of January 2002 was $3,715.00. (P. Ex. 20, Gift Summary and Statement of Account.) This gift is reflected on the 6/30/02 Funds Value Report as a Non-Endowment Charitable Gift Restricted as to Use. (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.)
During the pendency of the Application, the Hospital's future interest in the trust under the Will of Richards Haskell Emerson the ("Emerson Trust") ripened into enjoyment. Richards H. Emerson died on October 3, 1979 a resident of Lakeville, leaving a Last Will and Testament dated May 19, 1960, and two Codicils dated December 4, 1969 and October 24, 1975, which were admitted to probate on February 19, 1980. (P. Ex. 16; P. Ex. 17, p. 1.) Article Seventh of the Will of Richards H. Emerson creates a charitable remainder trust for the benefit of Howard Slayman, for life, the remainder to pass as follows:
Upon the death of Howard Slayman, the trust fund shall be paid and transferred free of trust, in equal shares, to and among the following: Sharon Hospital of Sharon, Connecticut; Nantucket Cottage Hospital of Nantucket, Massachusetts; American Society for the Prevention of Cruelty to Animals of New York; Springfield Home for Aged Men, Springfield Home for Aged Women, Springfield Hospital and Wesson Women's Hospital Division of the Medical Center of Western Massachusetts, all of said Springfield.
Article III of the Second Codicil further provides:
The following sections shall be added to my will to apply to both Articles SEVENTH and EIGHTH:
A. In the event that an organization to which the trust fund is to be transferred is not an organization described in Section 170(c) and the regulations, rulings and decision thereunder of the Internal Revenue Code of 1954, as amended, at a time when any amount is to be irrevocably transferred to such organization, such amount shall be transferred, free of trust, in equal shares to and among the other organizations listed in Section A(2) of Articles SEVENTH and EIGHTH which do qualify as charitable organizations under Section 170(c).
(P. Ex. 16, Will of Howard Slayman, Art. 7, p. 2301-02; Second Codicil, Art 3, p. 2313-15.)
The life beneficiary of the Article Seventh trust, Howard Slayman, died on October 15, 2001. (P. Ex 17, p. 2.) On March 15, 2002 counsel for Sharon Hospital filed an Application for Construction of Trust and Order of Distribution with the Probate Court for the District of Salisbury, requesting that the remainder pass to the nonprofit Sharon Hospital, Inc., and from it, to SACHF, or such Conversion Foundation as the Superior Court approved, after the nonprofit hospital converted to a for-profit form. (P. Ex. 17, p. 2.) On July 9, the Honorable Richard T. Fitzgerald, Probate Judge of the District of Salisbury signed a Decree finding that the other remainder beneficiaries of the Emerson Trust, and their respective successors, have no claim to the Sharon Hospital's share of the Emerson Trust. (P. Ex. 17, p. 2-3.) The Decree further orders Fleet National Bank, as Trustee, to hold Sharon Hospital's share of the Emerson Trust until a final decision is reached by this court under C.G.S. § 19a-486c (a) (8) concerning the disposition of the sale proceeds and the Hospital's charitable assets. (P. Ex. 17, p. 3.)
The Emerson Trust is included in PART II of the 6/30/02 Funds Value Report among the Funds Held in Trust by Others, Matured but Undistributed Gifts, and Gifts Subject to Out of State Court Jurisdiction (P. Ex. 3 to Attorney General's Motion For A Finding of Due Diligence and Adequate Notice.) The court finds that the gift is appropriately categorized as an unrestricted endowment and will past to SACHF to be used for its general charitable purposes. As of December 31, 2002, the balance in the fund was $798,708.00. (P. Ex. 25.)
Based upon the evidence offered at trial, the court finds that these post-hearing changes in charitable gifts have been properly categorized and require no further approximation or construction. Accordingly, they will pass to SACHF according to their classification as stated above.
Among the charitable gifts held and managed by Sharon Hospital were the following which were raised by solicitation: the Auxiliary funds, the EMT Fund and the Hospice Fund. The definition of "solicitation" in Section 21a-190a (3) of the Solicitation of Charitable Funds Act, General Statutes § 21a-175 et seq., is broad:
"Solicit" and "solicitation" means any request directly or indirectly for money, credit, property, financial assistance or other thing of any kind or value on the plea or representation that such money, credit, property, financial assistance or other thing of any kind or value is to be used for a charitable purpose or benefit a charitable organization. "Solicit" and "solicitation" shall include . . .: (A) Any oral or written request; (B) any announcement to the press, over the radio or television or by telephone . . . concerning an appeal or campaign by or for any charitable organization or purpose; (C) the distribution, circulation, posting or publishing of any handbill, written advertisement or other publication; (D) the sale of, offer or attempt to sell, any . . . merchandise, . . . or other tangible item in connection with an appeal made for any charitable organization or purpose, or where the name of any charitable organization is used or referred to in any such appeal as an inducement or reason for making any such sale, or when or where in connection with any such sale, any statement is made the whole or any part of the proceeds from any such sale is to be used for any charitable purpose, or benefit any charitable organization.
Once funds have been raised for a particular charitable purpose, they comprise a charitable trust or gift given upon a charitable use that must be applied to the purposes for which they were given. The Restatement (2nd) of Trusts § 348 defines a charitable trust as a "fiduciary relationship with respect to property arising as a result of a manifestation of an intention to create it and subjecting the person by whom the property is held to equitable duties to deal with the property for a charitable purpose." See also Fennel v. McGuire, 5 Conn. Sup. 367 (1937). General Statutes §§ 45a-514, and 47-2, the statutes regarding charitable trusts and uses respectively, require that all gifts given for charitable purposes be used exclusively for the purposes for which they were raised. Therefore, in distributing funds raised by solicitation, the intent of the donor giving money in response to the solicitation must be honored.
Section § 47-2 reads,
All estates granted for the maintenance of the ministry of the gospel, or of schools of learning, or for the relief of the poor, or for the preservation, care and maintenance of any cemetery, cemetery lot or monuments thereon, or for any other public and charitable use, shall forever remain to the uses to which they were granted, according to the true intent and meaning of the grantor, and to no other use whatever.
Attorney John D. Newman, an attorney representing Sharon Hospital in its sale testified on the organization and purpose of the Sharon Hospital Auxiliary. The Auxiliary is an unincorporated association of volunteers, formed as a division of Sharon Hospital. Article VIII of The Amended and Restated Bylaws of The Sharon Hospital, Inc. states:
Section 1. Organization, purposes and accountability:
a. There shall be a Sharon Hospital Auxiliary consisting of one or more classes of members and one or more chapters in communities served by the Hospital.
b. The Auxiliary shall exist for the purposes of supporting the programs and goals of the Hospital through voluntary service and other appropriate activities. While the following shall in nowise be deemed to be exclusive, the Auxiliary may establish, organize and operate a hospitality shop, or other outlets such as a bargain shop for merchandising clothing and furniture. The Auxiliary may also conduct benefits, bazaars, fairs, dances and raffles to raise funds for the Hospital. Net profits from the above, or any other activities not specifically mentioned, after payment for all expenses, shall inure to the benefit of the Hospital.
c. The Auxiliary shall provide for its own organization through the adoption of appropriate Bylaws, which must be approved by the Board of Trustees.
(P. Ex. 18, Section VIII, p. 10157.)
The purpose of the Sharon Hospital Auxiliary was to raise funds and provide volunteers to support Sharon Hospital. (P. Ex. 18, Art. VIII(b), p. 10157.) Funds raised by the Auxiliary were solicited under the 501(c) (3) tax exemption of Sharon Hospital Inc. The donations inured to the benefit of the Hospital and tax deductions were offered to donors pursuant to the tax exempt status of the Hospital.
Article VIII of the Amended and Restated Bylaws of the Sharon Hospital provides that the Auxiliary was a volunteer group formed by the Hospital board for the purpose of supporting the Hospital. The Auxiliary was given the authority to raise funds for the Hospital by establishing a thrift shop to sell clothing and furniture, and by conducting benefits and special events to support the Hospital. All of the activities set out in Section VIII of the Hospital bylaws and delegated to the Auxiliary fit the definition of a charitable "solicitation" in Section 21a-190a.
The Amended and Restated Bylaws provide that the "[n]et profits from the above, or any other activities not specifically mentioned, after payment for all expenses, shall inure to the benefit of the Hospital." Consequently, all funds raised by the Auxiliary belong to the Hospital. As of December 31, 2002, these funds totaled $148,000.00. (P. Ex. 25.) Because the funds raised by the Auxiliary were not restricted to a particular program or function of the Hospital when solicited, they are unrestricted in the hands of the Hospital and pass to SACHF as unrestricted charitable gifts.
Among the accounts held and managed by Sharon Hospital were funds raised through donations from the public in or about 1992 to 1993 as a special restricted Sharon Hospital Annual Fund drive to establish the "Emergency Medical Technicians Fund" ("EMT Fund"). Mr. James H. Bates, currently the director of the EMS/EMT Institute, was director of the Hospital's Annual Fund at the time the EMT Fund was raised and provided testimony at trial. The purpose of the solicitation was to create a $200,000 endowment fund to pay for an annual "EMT Institute" to train emergency medical technicians and provide equipment to the volunteer EMT squads for the 17 towns in Connecticut and New York with squads that are within the Hospital's service area. (P. Ex. 13, p. 572-78.) The campaign to raise the restricted endowment was advertised to the public through newspaper articles in local papers that described the purpose of the EMT Fund. (P. Ex. 13, p. 578-79.)
The solicitation raised $144,000.00 to establish the principal of the EMT Fund, which was invested by Sharon Hospital as a part of its endowment. (P. Ex.13, p. 581-86.) The money raised was segregated from the other charitable funds of Sharon Hospital and applied solely to the EMT programs. (P. Ex. 13, p. 598.) Five percent of the total value of the fund, or about $20,000, has been applied each year to pay for programs. (P. Ex.13, p. 581-601.)
In keeping with the representations in the solicitation, from 1993 to the present the EMT Fund was used to fund an annual EMT Institute that provided programs such as the Farm-medic Course, Trauma Symposium, Pre-Hospital Trauma Course, Plane Crash and CPR courses. The Fund also paid for essential equipment for individual squads not funded by the towns. (P. Ex. 13, p. 587-97.)
The individuals involved in the administration of the EMT programs have prepared and submitted a proposed certificate of incorporation for a Connecticut non-stock corporation called the "EMS Institute, Inc." (P. Ex. 26.). The EMS Institute Inc. will seek 501(c) (3) status as a public charity under the Internal Revenue Code.
Mr. Bates proposed that the newly formed EMT Institute, Inc. be approved by the court to use the EMT Fund for the purpose of providing the training and equipment previously provided by the program at the Hospital. Under the proposal before this court the EMT Fund would be moved to the BTCF as a restricted agency fund, to be invested and applied exclusively for the purposes of the EMS Institute.
The Emergency Medical Technicians Fund (EMT Fund) was raised by the Hospital as a special purpose annual fund solicitation. The solicitation was done through direct mailings, and newspaper articles and fits the definition of charitable funds raised by solicitation under the Solicitation of Charitable Funds Act, § 21a-190a (3). Consequently the funds are restricted to the use of the EMS/EMT program in accordance with the provisions of Conn. Gen. Stat. §§ 45a-514 and 47-2. The EMS Institute, Inc. is an appropriate entity to use the funds raised by the Hospital to fund its EMT programs. The balance of the funds as of December 31, 2002, is $360,344.00. (P. Ex. 25.) The fund will be moved to the BTCF as a restricted fund, to be invested by BTCF and used by the EMS Institute for the purposes for which it was raised.
The Sharon Hospice, also known as the Hospice of Northwest Connecticut, is an unincorporated association of volunteers, that was a program at Sharon Hospital. As its coordinator, Louisa LaFontan provided testimony at trial. The Hospice Program provides non-professional care to individuals whose doctor has identified the patient as near the end of life. Such services include support for the family, meals, transportation and respite care. The Hospice was originally an independent program that became affiliated with Sharon Hospital Inc. in 1991. Anticipating the sale of the Hospital, it recently affiliated with United Methodist Homes, Inc., the nonprofit entity that purchased the Nursing Home from Sharon Healthcare Inc.
Hospice is primarily funded by an annual fund drive. (P. Ex. 14). If the annual donations do not fully cover hospice costs, United Methodist Homes Inc. will fund the shortfall, as Sharon Hospital had done previously.
Among the accounts held and managed by Sharon Hospital are funds previously raised through donations from the public to support Hospice. (P. Ex. 14.) As of June 30, 2002 the net assets in the Hospice account were $35,151. (P. Ex. 14.)
The Hospice of Northwest Connecticut is requesting that all funds raised to support the Hospice Program be transferred to its affiliate, United Methodist Homes, Inc. as a restricted fund to be applied exclusively to the operation of the Hospice program. The Hospice program was funded primarily through an annual public fund drive soliciting donations to support the Hospice. The annual fund drive to support the Hospice fits the definition of a charitable "solicitation" in § 21a-190a (3). Consequently, the funds are restricted to its use in accordance with the provisions of Conn. Gen. Stat. §§ 45a-514 and 47-2. Accordingly, the court finds it appropriate that the money raised by public solicitation to support the Hospice be transferred to the United Methodist Homes, Inc. to be held as a fully expendable restricted fund and applied exclusively to the Hospice program.
Pursuant to the sale and the Attorney General's analysis of close to two hundred gift instruments held by the hospital, certain gifts were determined to require either construction or approximation by the court and were specifically named by the Attorney General in counts two through six of his complaint. Of these gift instruments, four were determined to require an application of the common law doctrine of approximation (cy pres) because they contain gift-over or reverter clauses. These were named separately in the complaint and include: The I. Kent Fulton Trust (count 3), and three Free Bed Funds which are among the restricted endowments held by Sharon Hospital and include the following: the Frank Northrup, Lola J. Sherman and Margaret H. Williams funds (count six). As a result of the sale of the nonprofit Sharon Hospital, the I. Kent Fulton Trust and the Free Bed Funds require an application of the equitable doctrine of approximation in order that the funds continue to serve their charitable intent as closely as possible. The Attorney General seeks an application of the doctrine of approximation in these counts, directing that the funds be transferred to SACHF in order that they continue to serve their desired charitable purposes.
As stated above, SACHF will be the provider of healthcare services to the public using the majority of Sharon Hospital's assets. It has been designed to serve the same community that the donors wished to benefit through their gifts to Sharon Hospital. SACHF's purpose will match Sharon Hospital's functions through the provision of healthcare and the right to repurchase the hospital facility and therefore is the logical charitable successor to the Hospital. The court finds that the transfer of these gift funds to SACHF fulfills the donor's intent as nearly as possible in the absence of specific instructions contained in the gift language.
A charitable trust is seen as being devoted to charitable purposes forever. General Statutes § 45a-514 provides: "Any charitable trust or use created in writing or by deed by any resident of the state, or any public and charitable trust or use for aiding and assisting any person or persons to be selected by the trustees of such trust or use to acquire education, shall forever remain to the uses and purposes to which it has been granted according to the true intent and meaning of the grantor and to no other use." When the initial purpose of the charitable gift fails or it becomes impossible to carry out the settlor's stated wish, the court will apply the doctrine of approximation (cy-pres) so that the initial intention of the donor is carried out as near as may be. "The rule of cy-pres is a rule for the construction of instruments in equity, by which the intention of the party is carried out as near as may be, when it would be impossible or illegal to give it literal effect." (Emphasis in original; internal quotation marks omitted.) Carl J. Herzog Foundation, Inc. v. University of Bridgeport, supra, 243 Conn. 10 n. 8. "The doctrine applies in situations where a testator has evidenced a dominant intent to devote his property to some charitable use but the circumstances are such that it becomes impossible to follow the particular method he directs, and the courts then sanction its use in some other way which will, as nearly as may be, approximate his general intent." Duncan v. Higgins, supra, 129 Conn. 140. "In exercising its powers under the doctrine of approximation (cy pres), a court must seek a method or result which as nearly as possible effectuates the intent of the testator . . . In doing so, the court must observe the mandate of General Statutes [ 45a-514], which regulates charitable trusts, that the trust shall forever remain to the uses and purposes to which it has been granted according to the true intent and meaning of the grantor and to no other use." (Citation omitted; internal quotation marks omitted.) Lockwood v. Killian, supra, 179 Conn. 67. There are therefore essentially three elements that must be met before the court can apply the doctrine of approximation. First, the purpose of the trust must be charitable in nature. Second, the specific charitable purpose must have become impossible, impracticable, or illegal. See Shannon v. Eno, 120 Conn. 77, 87 (1935). Lastly, the settlor must have expressed "a general intent to devote the property to a charitable use, to which the intent that it go to the particular organization named is secondary." Duncan v. Higgins, supra, 129 Conn. 140. See also Hartford Hospital v. Blumenthal, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. CV 95 0555462 (April 15, 1996, Hale, J.). "[I]t is now certain that the Superior Court, as a court of equity, possesses the power to carry out the general intent of the donor of a testamentary charitable trust, when clearly manifested, though the particular form or manner pointed out by the testator cannot, because of changed conditions, be followed." (Internal quotation marks omitted.) Second Ecclesiastical Society v. Attorney General, 133 Conn. 89, 93-94 (1946).
Trusts created for the benefit of a nonprofit hospital as is the case here, are charitable in nature. "A charity, in the legal sense, may be more fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government." (Internal quotation marks omitted.) Mitchell v. Reeves, 123 Conn. 549, 554 (1938). "Such gifts are highly favored and courts, while remaining within legal limitations, go to great lengths in sustaining legacies to charitable uses." Ministers Benefit Board v. Meriden Trust Co., 139 Conn. 435, 448 (1953).
In count three of his complaint, the Attorney General seeks an approximation of the I. Kent Fulton Trust which contains the following language: "to my trustee hereinafter named, I give and bequeath the sum of Twenty-five Thousand Dollars ($25,000), to be held by it in trust and the net income thereof to be paid over annually to The Sharon Hospital Association, located at Sharon, Connecticut, to be used by said association for its general uses and purposes." As a result of the sale of the nonprofit Sharon Hospital, Inc., to Essent CT, the nonprofit Sharon Hospital has ceased to exist, constituting a change of circumstances such that it has become impossible, impracticable or illegal for the trustee to continue to distribute the annual income to Sharon Hospital. The Attorney General and defendant Fleet therefore seeks an application of the doctrine of approximation to apply the net income to SACHF in order to carry out the donor's intent as nearly as may be possible.
In accordance with the doctrine of approximation, the court finds that the I. Kent Fulton Trust was intended to benefit Sharon Hospital and the community it serves. Accordingly, the net income shall be applied to SACHF to be transferred to its general charitable purposes and to serve the residents of the affected community.
Count six seeks an approximation of Free Bed Funds which are among the restricted endowments held by Sharon Hospital and include the following funds: Frank Northrup, Lola J. Sherman and Margaret H. Williams. The Frank Northrup Free Bed was established with the remainder of a trust established for the benefit of Lucy Nase under Article Twentieth of the Last Will and Testament of Frank Northrup. Pursuant to Article Twentieth, "if at the death of said Lucy Nase there shall be remaining any of the principal of said trust fund, the same shall be paid over by said trustees to the Sharon Hospital Association of Sharon, Connecticut, the same to be devoted by said Association toward an endowment fund for the establishment of a free bed in the hospital of said Association at Sharon, Connecticut."
The Lola J. Sherman Free Bed was established under Article Second, Section 1 of the Last Will and Testament of Lola J. Sherman. Said article provides "To the Sharon Hospital of Sharon, Connecticut, in commemoration of my deceased Father and Mother, SHADRACH SHERMAN and AMARYLLIS SHERMAN, I give and bequeath the sum of FIFTY THOUSAND DOLLARS, the same to be held in trust by said Hospital and invested, and the income therefrom used by said Hospital for any general hospital purposes, and this bequest is made on condition that the principal of this bequest shall not be used but shall permanently remain as a trust fund and I direct that my executors provide and install suitable tablets properly inscribed to the memory of my Father and Mother, where the management thereof may direct."
The Margaret H. Williams Free Bed was established under Article Seven (d) of the Last Will and Testament of Margaret H. Williams dated December 9, 1960 as amended by her Second Codicil dated December 7, 1969. By a judgment dated January 14, 1986 in Salisbury Bank and Trust Co. v. Sharon Hospital, Inc., CV-84-003 9855S (Allen, J.), the trust of Margaret H. Williams at Salisbury Bank was dissolved and the bed fund was reformed as a perpetual fund held by the Hospital for the purpose of granting financial assistance to deserving patients. Because SACHF is not a hospital and will not be able to provide free care to patients in a hospital setting, further modification of these funds is required. The Attorney General seeks a transfer of all principal and accumulated income of the aforementioned bed funds to SACHF and an application of the equitable doctrine of approximation to apply the income earned on said bed funds in a manner that, as nearly as may be, carries out the donor's intent. SACHF would distribute the income to needy or deserving individuals in the affected area of Sharon Hospital, selected by the board of SACHF or its designee, who are unable to pay healthcare bills for inpatient, or outpatient medical services at any hospital, office or clinic or directly to any non-profit hospital, office or clinic in the Sharon Hospital affected area, that provides services to pay the bills of needy or deserving individuals.
As it found in count three, the court finds that the gifts in count six were charitable in nature and that the donors had a general intent to devote the funds to charitable use in the Sharon Hospital area. The court also finds that as a result of the sale of Sharon Hospital to Essent CT, the nonprofit hospital has ceased to exist, thereby making it impossible to carry out the stated intentions of the original donors. The court further finds that SACHF is the natural object to receive the income from the aforementioned funds. This organization will provide the greater Sharon area with the types of health services that the nonprofit Sharon Hospital made available when the gifts were made. In particular, it will serve the residents of the area who are unable to pay any or all expenses associated with their health care needs, and in each case, the donor's intent was clearly to benefit the citizens of the area who would have occasion to utilize the hospital's services. Accordingly, the court finds that the general intent of the original settlors may be most closely approximated by paying the income from the trusts to the SACHF and approves the transfer as most closely following the original donor's intentions.
Three trusts that previously benefitted Sharon Hospital have been specifically named in the complaint by the Attorney General as requiring construction by this court to determine how they may be used after the sale. These trusts are: The William G. and Mary C. Raynsford Trust (count two), The Clark Weed Trust (count four) and The Bedelia Croly Falls Trust (count five).
The law on construction is well established. "The construction of a will presents a question of law to be determined in light of the facts which are found by the trial court or are undisputed or indisputable." Hershalter v. Colonial Trust Co., 136 Conn. 588, 596 (1950). "The cardinal rule to be followed in constructing a will is to find and effectuate the intent of the testator. In seeking that intent, the court looks first to the will itself and examines the words and language used in the light of the circumstances under which the will was written . . . To ascertain the intent of a particular provision, the will must be read as a whole to discover whether it discloses an underlying intent which should be considered in finding the meaning to be accorded to the particular language under construction." (Citations omitted.) Dei Cas v. Mayfield, 199 Conn. 569, 572 (1986). The court must "look first to the precise wording employed by the testatrix in her will . . . for the meaning of the words as used by the testatrix is the equivalent of her legal intention — the intention that the law recognizes as dispositive." (Citations omitted.) Canaan National Bank v. Peters. 217 Conn. 330, 335-36 (1991).
As alleged in count two, the William G. and Mary C. Raynsford Fund was established under Article 4 of the Last Will and Testament of William G. Raynsford dated March 26, 1964. (P. Ex. 21). Pursuant to Article 4 of the Last Will and Testament of William G. Raynsford, all the rest and residue of his estate was placed in trust "to be known as The William G. and Mary C. Raynsford Fund, to invest and reinvest the same and to collect and receive the income thereof — and to deal with the net income as follows:
(a) To add annually to the principal of the Fund 10% of such income until such principal reached the sum of $250,000, or until one hundred years from the date of my death whichever is sooner;
(b) To pay the balance of the net income annually to THE SOUTH EGREMONT CONGREGATIONAL CHURCH OF South Egremont, Massachusetts and THE METHODIST CHURCH OF LAKEVILLE, INCORPORATED, of Lakeville, Connecticut, in equal shares, except that any net income in excess of Three Thousand Dollars in any one year shall be paid instead to THE SHARON HOSPITAL, INC., of Sharon, Connecticut. Should either church cease to exist, its share of the income shall be payable to said The Sharon Hospital, Inc. Should The Sharon Hospital, Inc. cease to exist, I authorize and direct my Trustee to select two or more organizations doing business within the Town of Salisbury, Connecticut, and which qualify as charitable organizations under the Federal Estate tax law, between or among whom the distributable income of this trust shall be paid, not necessarily in equal shares, but in such proportions as my Trustee may determine.
(P. Ex. 21, p. 1702).
Defendant Fleet National Bank ("Fleet") is the current trustee of the William G. and Mary C. Raynsford Fund. (Answer, Defendant Fleet National Bank). The value of the principal of the Raynsford Trust as of the date of trial was $659,283.39. The total amount of accumulated income available for distribution by this court's direction as of the date of trial was $24,655.69. Of that $16,437.13 is held by the bank and an additional $8,218.56 is held by CPA Richard Devita, liquidator for Sharon Hospital, Inc.
Fleet requested that the court consider its proposal for the use of the annual income. Under Fleet's plan, 80% of the income would pass to SACHF and 20% to the Madeline Wild Fund at BTCF. The Madeline Wild Fund provides emergency assistance to a number of social service organizations within Salisbury; its beneficiaries are strictly residents of Salisbury and Lakeville, which is a village of Salisbury.
With the cessation of nonprofit healthcare services associated with the sale, the nonprofit Sharon Hospital has for all practical purposes ceased to exist. The donor intended that a gift-over to two or more organizations doing business in the Town of Salisbury take place in such an event.
The court finds that SACHF will be a charity "doing business in the Town of Salisbury" and approves Fleet Bank's proposal that, 80% of the income pass to SACHF for its general uses and 20% to the Madeline Wild Fund at BTCF. The Madeline Wild Fund provides emergency assistance to a number of social service organizations within Salisbury; its beneficiaries are strictly residents of Salisbury and Lakeville, which is a village of Salisbury.
As alleged in count four, Sharon Hospital was also the income beneficiary of the Clark Weed Trust, which it held and administered as part of its endowment. The Clark Weed Trust has a gift-over provision that would, if effective, transfer the fund to defendant Connecticut Children's Medical Center, Inc.
The Clark Weed Trust was established under Article Third of the Last Will and Testament of Clark Weed dated April 19, 1932. Article Third of the Will of Clark Weed directed that one half of his residuary estate pass to Sharon Hospital, Inc. with instructions "to hold the same as a trust fund in memory of my sister, Mrs. John Clark and to use the income therefrom for the general uses and purposes of the hospital."
The other half of Clark Weed's residuary estate passed to the Newington Home for Crippled Children. The Will of Clark Weed further directed that "[i]n the event that at any time, for any reason said Hospital should cease to exist, then I direct that said Fund be given to the Newington Home for Crippled Children." (P. Ex. 23, p. 1686.)
The Hospital received the original principal of this gift in the amount of $114,651.68 in 1964. (Answer of Sharon Hospital, Count Four Paragraph 16.) Defendant Connecticut Children's Medical Center, Inc. is a Connecticut non-stock, nonprofit hospital specializing in the medical treatment of children. The Connecticut Children's Medical Center, Inc. is the corporate successor to the Newington Home for Crippled Children, Inc. (Answer of Connecticut Children's Medical Center, Inc.)
The disposition of the Weed Trust has been affected by the sale and closure of the non-profit hospital. Although the hospital technically still exists on the books of the Secretary of State as a corporation, it has ceased providing patient services and abandoned its original charter purposes. All that is left is a shell hospital corporation. With the cessation of its healthcare functions, Sharon Hospital has, in the most fundamental sense, "ceased to exist" as a charity because it has ceased to provide healthcare to the public. Under the terms of the gift, the principal and accumulated income of the Clark Weed Trust passes to Connecticut Children's Medical Center, Inc. to carry out the donor's express intention, in accordance with the Statute of Charitable Trusts and the Statute of Charitable Uses, General Statutes §§ 45a-514 and 47-2.
As set forth in count five, the Bedelia Croly Falls Trust was established under Article Third, Sections (3) and (6) of the Last Will and Testament of Bedelia Croly Falls dated October 23, 1987 ("Falls Trust"). (P. Ex. 24, p. 2327-28.)
Article Third of the Will of Bedelia Croly Falls leaves all the rest, residue and remainder of her estate in trust with the following instructions:
A. To invest the same and keep it invested and to collect the rents, income and profits therefrom, and to pay over the net income derived therefrom, in monthly or other convenient installments, as follows:
1. Ten percent (10%) of said net income to THE LITTLE GUILD OF ST. FRANCIS FOR THE WELFARE OF ANIMALS, INC., of West Cornwall, Connecticut, and its successors.
2. Thirty percent (30%) of said net income to THE LITCHFIELD COUNTY ASSOCIATION FOR RETARDED CHILDREN, Torrington, Connecticut, 06790, and its successors, to be used for education and vocational training, providing meals and other nutritional needs of the handicapped and for the purchase and maintenance of equipment used by the handicapped. Such money shall specifically NOT be used for any administrative purposes.
3. Forty percent (40%) of said net income to THE SHARON HOSPITAL of Sharon, Connecticut 06069, and its successors, which sums shall be expended for the payment of hospital bills of indigent patients. The determination as to which accounts the money shall be applied toward is left solely to the discretion of my Trustees, who are to specifically understand the "indigent" means not only those who have no funds whatsoever, but those in a middle-class group whose medical bills threaten their families with financial ruin. The decision of my Trustees in this regard shall be conclusive.
4. Ten percent (10%) of said net income to SALISBURY FAMILY SERVICES, INC., of Lakeville, Connecticut, and its successors.
5. Ten percent (10%) of said net income to SALISBURY PUBLIC HEALTH NURSING ASSOCIATION, of Lakeville, Connecticut, and its successors.
6. In the event that any of the charitable organizations named in Paragraphs numbered 1 through 5 above shall cease to exist, leaving no duly appointed and recognized successor, then I direct that the share of such defunct beneficiary shall be equally divided among the other remaining beneficiaries on a pro rata basis.
Defendant, The Trust Company of the Berkshires, is successor co-trustee to The Canaan National Bank, which was named a co-trustee of the Falls Trust under Article Fifth of the Last Will and Testament of Bedelia Croly Falls. Defendant Mark J. Capecelatro is a co-trustee of the Falls Trust pursuant to Article Fifth of the Last Will and Testament of Bedelia Croly Falls. (Answer of The Trust Company of the Berkshires.)
The Trust Company of the Berkshires stated by Affidavit that as of January 9, 2003, the value of the assets in the Trust was $92,390.79 and the undistributed income totaled $3,097.03. The anticipated annual income from the Hospital's share of the Falls Trust is $3,437.57. (Def. Trust Company of the Berkshires, Ex. 1, Affidavit of Eugene D. Cornell, Paragraphs 6-8.)
Neither of the two co-trustees has taken any legal position with respect to the distribution of the Hospital's share of the income but left it to the court to decide. Defendant, The Little Guild of St. Francis for the Welfare of Animals, Inc. (Little Guild) is a Connecticut non-stock corporation with offices located at 285 Goshen-Sharon Turnpike, West Cornwall, Connecticut 06796, which has tax exempt status under section 501(c) (3) of the Internal Revenue Code. Little Guild is a potential alternative taker of Sharon Hospital's share under Article 6 of the Last Will and Testament of Bedelia Croly Falls. (P. Ex. 24, p. 2327-28.)
Defendant, The Litchfield County Association for Retarded Children (LARC) is a Connecticut non-stock corporation with tax exempt status under section 501(c) (3) of the Internal Revenue Code. LARC is a potential alternative taker of Sharon Hospital's share under Article 6 of the Last Will and Testament of Bedelia Croly Falls. (P. Ex. 24, p. 2327-28.)
Defendant, Salisbury Family Services, Inc. (SFS), is a Connecticut non-stock corporation with tax exempt status under section 501(c) (3) of the Internal Revenue Code. SFS is a potential alternative taker of Sharon Hospital's share under Article 6 of the Last Will and Testament of Bedelia Croly Falls. (P. Ex. 24, p. 2327-28.)
Defendant, Salisbury Visiting Nurse Association, Inc. (SVNA), formerly known as the Salisbury Public Health Nursing Association, is a Connecticut non-stock corporation with tax exempt status under Section 501(c) (3) of the Internal Revenue Code. SVNA is a potential alternative taker of Sharon Hospital's share under Article 6 of the Last Will and Testament of Bedelia Croly Falls. (P. Ex. 24, p. 2327-28.)
None of the potential alternative takers has appeared, has taken part in this case, or has taken a position on the proper distribution of Sharon Hospital's share. These defendants, The Little Guild of St. Francis for the Welfare of Animals, Inc., The Litchfield County Association for Retarded Children, Salisbury Visiting Nurse Association, Inc. and Salisbury Visiting Nurse Association, Inc. have been defaulted. With the cessation of nonprofit healthcare services, the nonprofit hospital has ceased to exist as a functioning public charity.
The court finds that SACHF has been created as an appropriate entity and is Sharon Hospital's charitable successor, within the meaning of the language employed by the Falls will. Since the court approved SACHF as Sharon Hospital's charitable successor for the affected community it also succeeds to the Hospital's income interest under the Falls Trust, rather than any of the other named charities.
In addition to the claims of relief set forth in the complaint, the court considers the request of BTCF for reimbursement of certain fees and costs incurred during this transaction. On January 14, 2003, defendant BTCF filed a motion for reimbursement of attorneys fees and certain direct costs. On April 25, 2003, further documentation was filed. The motion is not opposed. BTCF seeks payment from the unrestricted funds of Sharon Hospital for the fees and costs it incurred in forming SACHF, the conversion foundation, in participating in the administrative proceedings relating to the sale of Sharon Hospital, in resolving transaction issues associated with the conversion foundation and in participating in this court action.
In support of its motion, BTCF attached detailed invoices and payment histories submitted by its counsel, Richard C. Allen, pro hac vice, for his attorneys fees and costs. A detailed statement of costs for the recruitment process was attached. A curriculum vitae for Attorney Allen was also submitted. Jennifer Dowley, president of BTCF, testified at trial that BTCF has no other source of funds to cover these fees and costs. From a review of these documents, Ms. Dowley's testimony and the court's own knowledge, the court finds that the fees requested, while substantial, are reasonable.
Because of the uniqueness of this action, there is a paucity of authority on awarding attorneys fees and costs in this context. It is, however, clear under Connecticut law that attorneys fees and expenses are appropriately awarded in analogous contexts. See Palmer v. Hartford National Bank Trust Co., 160 Conn. 415, 420-25 (1971) (award of attorneys fees from trust fund to one whose actions benefitted the fund). Further, the court may rely on its general knowledge of the value of attorneys services as well as the itemization provided to determine reasonable fees. Shapero v. Mercede, 262 Conn. 1, 8 (2002).
Based upon the services rendered by Attorney Allen, a particularly skilled and knowledgeable attorney in this specialized area, as well as its general knowledge and specific knowledge of this case, the court finds the request for attorneys fees and expenses for reimbursement are reasonable and should be awarded to BTCF from the unrestricted funds being transferred from Sharon Hospital to SACHF as follows:
1. $199,000 for reimbursement of attorneys fees; and
2. $29,957 for reimbursement of costs for the recruitment and selection of the SACHF board of directors.
The court must expressly recognize the superior efforts of all counsel in presenting this complex and important case of first impression to the court. Without the professional cooperation and advocacy displayed here the court is acutely aware of the additional burden it would have faced. It is most grateful. The court also notes that many individuals, including those who testified before it, deserve recognition for their continuing efforts in addressing the health care needs of the citizens of this community.
In addition, the court notes the outstanding assistance provided to it throughout this case by Alan Tracy, legal research clerk.
In accordance with the foregoing conclusions of law, the court enters judgment on each count of the complaint as follows:
Count One
The Sharon Area Community Health Foundation (SACHF), as a conversion foundation, is an appropriate charitable entity to receive the assets from the sale of Sharon Hospital and is appointed to do so. These assets include: excess cash from hospital operations prior to the closing of the transaction, escrow balances, charitable gifts (including restricted endowments, unrestricted endowments, non-endowment charitable gifts unrestricted as to use and non-endowment charitable gifts restricted as to use), auxiliary funds, funds due from open estates and funds derived from profit-sharing, and any balance of the $8 million committed by Essent CT to improvements at the for-profit hospital facility.
The special purpose solicitation Emergency Medical Technicians Fund (EMT Fund), is transferred to the Berkshire Taconic Community Foundation (BTCF) as a restricted fund, to be invested by BTCF and used by the EMS Institute for the purposes for which it was raised.
The special purpose solicitation Hospice Fund is transferred to the United Methodist Homes, Inc. to be held as a fully expendable restricted fund and applied exclusively to the Hospice program.
Count Two
The William G. and Mary C. Raynsford Fund's gift-over provision is triggered with the cessation of nonprofit healthcare services at Sharon Hospital, therefore, 80% of the income from the Raynsford Fund will pass to SACHF for its general purposes, and 20% to the Madeline Wild Fund at BTCF.
Count Three
Sharon Hospital's net income interest in the I. Kent Fulton Trust is transferred to SACHF to be applied to its general charitable purposes and to serve the residents of the Sharon Hospital area.
Count Four
The Clark Weed Trust passes to the Connecticut Children's Medical Center to carry out the donor's express intention as stated in his will.
Count Five
Sharon Hospital's income interest under the Bedelia Croly Falls Trust is transferred to the hospital's charitable successor, SACHF.
Count Six
The Free Bed Funds, established from the gifts of Frank Northrup, Lola J. Sherman and Margaret H. Williams, are transferred to SACHF to make distributions to needy or deserving individuals in the area of Sharon Hospital to be selected by the board of SACHF or its designee, who are unable to pay healthcare bills for inpatient, or outpatient medical services at any hospital, office or clinic, or directly to any nonprofit hospital, office or clinic in the Sharon Hospital area that provides services to pay the bills of needy or deserving individuals.
Further, the court orders the following sums to be paid to BTCF from the unrestricted funds being transferred from Sharon Hospital:
1. $199,000 for reimbursement of attorneys fees; and
2. $29,957 for reimbursement of costs for the recruitment and selection of the SACHF board of directors.
Judgment may enter in accordance with this decision. No costs shall be taxed to any party.
DiPentima, J.