Opinion
No. CV 02 0514675S
October 13, 2004
Memorandum of Decision on Motions to Dismiss Of All Defendants
I. INTRODUCTION
The complaint in the captioned matter (complaint) seeks to vacate a decision issued on October 17, 2001 (original decision) by the office of health care access (ohca) and a decision issued after reconsideration by ohca on December 14, 2001 (decision after reconsideration) (the original decision and the decision after reconsideration are hereinafter, sometimes, referred to collectively as the decision). The complaint also seeks declaratory and injunctive relief relating to the decision. The requests for declaratory and injunctive relief have been withdrawn.
The complaint alleges that the defendants Sharon Hospital, Inc., Sharon Corporation and West Sharon Corporation (hereinafter, sometimes, referred to collectively as hospital defendants) owned and operated a nonprofit hospital in Sharon, Connecticut, known as Sharon Hospital (hospital). The complaint further alleges that the decision granted an application (application) filed with ohca by the hospital defendants and the defendant Essent Healthcare, Inc. (Essent) for approval of the sale of a material portion of assets of the hospital to Essent pursuant to General Statutes § 19a-486, et seq. (the conversion act) (all further section references are to the General Statutes). The conversion act provides that nonprofit hospitals cannot be sold to a person or entity organized for profit without the approval of ohca and the attorney general. The conversion act also establishes the criteria for approval and disapproval of such a proposed sale by ohca and the attorney general.
The actions of the attorney general in regard to the application are not a subject of this appeal.
Each of the defendants has moved to dismiss this appeal, and, for purposes of the motions to dismiss, the allegations of the complaint are taken to be true.
Some of the grounds asserted for dismissal have been mooted by the withdrawal of the request for declaratory and injunctive relief. Paraphrased, the remaining grounds are:
The plaintiff described in the complaint as a nonprofit organization representing citizens in the service area of the hospital, is neither a nonprofit hospital nor a proposed purchaser of a nonprofit hospital, which are the only two types of entities that can, pursuant to the terms of the appeal section of the conversion act (§ 19a-486f), appeal a decision made by ohca under the conversion act;
The plaintiff cannot ground this appeal on principles of classical aggrievement; and,
This appeal was not brought within the time permitted by the section of the uniform administrative procedure act (uapa) which governs appeals, § 4-183(c).
Each of the motions to dismiss raises, essentially, the same issues, albeit in somewhat different language. This decision decides each of those motions without distinguishing the language used in each to raise the issues described above.
At argument on the motions to dismiss, the court, sua sponte, inquired whether this case is moot on the ground that it would not be feasible to unwind actions which have been taken since, and in reliance upon, the issuance of the decision, so that no practical relief can be granted by the court. The parties thereafter submitted to the court, in lieu of evidence on the mootness issue, a stipulation of facts dated May 21, 2004 (stipulation), and they were heard at argument on the question of mootness. Thereafter, the parties were heard again on the mootness issue, after which they filed a supplemental stipulation of facts dated August 19, 2004 (supplemental stipulation).
The mootness issue and the remaining issues raised in the motions to dismiss all raise the question whether the court has subject matter jurisdiction over this case, and so each of those issues must be, and is, addressed in this decision.
II. DISCUSSION General Statutes § 19a-486f
Section 19a-486f states: "Sale of nonprofit hospitals: Appeal. If the Commissioner of Health Care Access or the Attorney General disapproves a proposed agreement requiring notice under section 19a-486a, or approves it with modifications, the nonprofit hospital or the purchaser may appeal such decision pursuant to chapter 54."
Our law is settled that "[a] statutory right to appeal may be taken advantage of only by strict compliance with the statutory provisions by which it is created." Office of Consumer Counsel v. Department of Public Utility Control, 234 Conn. 624, 641 (1995) ( OCC v. DPUC).
Because the plaintiff is neither a nonprofit hospital, nor a purchaser of assets from a nonprofit hospital, which are the only types of parties granted appeal rights by § 19a-486f, the plaintiff cannot prosecute this appeal pursuant to § 19a-486f.
Preemption of Classical Aggrievement as Basis of Appeal
The plaintiff argues that, even if this appeal cannot be grounded on § 19a-486f, it nonetheless enjoys standing independent of that provision under the uapa and under principles of classical aggrievement. The defendants have responded that § 19a-486f preempts any other basis for standing to appeal by designating the particular types of entities that can appeal a decision under the conversion act. As authority for that proposition, the defendants cite OCC v. DPUC, supra, 234 Conn. 624. That case dealt with the question whether § 16-35, which enumerated the parties which could appeal decisions of the DPUC, created a standing qualification which trumped other bases for standing. Section 16-35, which has since been amended, provided at that time: "Any company, town, city, borough, corporation or person aggrieved by any order, authorization or decision of the department of public utility control, except an order, authorization or decision of the department approving the taking of land, in any matter to which he or it was or ought to have been made a party, may appeal therefrom in accordance with the provisions of section 4-183." OCC v. DPUC, supra, 234 Conn. 636 n. 15.
That statute now permits appeals by those who were, or ought to have been made, intervenors before the agency.
OCC v. DPUC concluded that, even if one enjoyed standing to appeal a DPUC decision under the uapa, or on some other basis, one also had to be qualified to appeal under § 16-35, so that § 16-35 precluded other bases of standing asserted by those not meeting its qualifications. Id., 648.
The plaintiff has argued that the issue of whether it can appeal the decision should be controlled by Rose v. Freedom of Information Commission, 221 Conn. 217 (1992), rather than by OCC v. DPUC. In Rose, the court construed what was then codified as § 1-21i(d), which provides, in relevant part: "Any party aggrieved by the decision of said [freedom of information] commission may appeal therefrom, in accordance with the provisions of section 4-183." The Rose court determined that the word "party" in § 1-21i(d) did not limit the right to appeal to those who had been designated as parties by the commission, but rather that it allowed appeals by those who, while not parties before the commission, were nonetheless able to establish classical aggrievement. Rose v. Freedom of Information Commission, supra, 221 Conn. 230. The plaintiff claims that Rose permits it to establish classical aggrievement as a basis for its standing in this appeal, independent of § 19a-486f.
Section 1-21i(d) is now codified as § 1-206(d).
Rose applied statutory construction rules to construe broadly the word "party," which was ambiguous in the context of § 1-21i(d). However, there is no ambiguity in the language of § 19a-486f, which is very precise in limiting both the types of entities which can appeal decisions under the conversion act and the types of conversion act decisions which can be appealed. Section 19a-486f does not grant appellate rights to all nonprofit hospitals and purchasers, but only to the nonprofit hospital whose assets are the subject of a proposed sale and to the proposed purchaser of those assets, and then, only if a sale is disapproved or approved with modifications. On its face, the language of § 19a-486f clearly expresses the legislature's intent that a party enjoying classical aggrievement or standing under § 4-183, other than the nonprofit hospital or purchaser involved in a proposed sale which is disapproved or approved with modifications, may not appeal decisions under the conversion act.
The court's review of the legislative history of § 19a-486f reveals nothing to suggest differently.
Rose, as a case in which the rules of statutory construction were applied to an ambiguous statute, does not stand for the proposition that the legislature lacks the authority to preclude classical aggrievement as a basis for standing in an administrative appeal, as the plaintiff implicitly argues. Rather, Rose stands for the proposition that, in crafting what was then § 1-21i(d), the legislature chose not to exercise its discretionary authority to preclude classical aggrievement as a basis for standing. Therefore, it is held that § 19a-486f establishes a sine qua non for those seeking to appeal decisions under the conversion act and that a party failing to meet its qualifications cannot look elsewhere for the standing necessary to support such an appeal.
This construction of § 19a-486f is reinforced by OCC v. DPUC. Although that case did not construe the appeals provision of the conversion act, the similarities between § 16-35, which it did construe, and § 19-486f are strong enough that the OCC v. DPUC analysis is applicable to the construction of § 19a-486f.
Timeliness
The complaint alleges that the original decision was issued on October 17, 2001, and that the decision after reconsideration was issued by ohca on December 14, 2001. The clerk's file in this matter reflects that the complaint was filed on April 15, 2002.
Section 4-183(c) requires that an appeal of an agency decision be filed within the forty-five days following the mailing or delivery of that decision. April 15, 2002 was not within the forty-five days following either October 17, 2001 or December 14, 2001. Nonetheless, the plaintiff argues that the original decision, and the decision after reconsideration, both call for subsequent actions and filings by the applicants, so that the commencement of the forty-five day period was tolled until those actions had been taken and those materials had been filed. (The stipulation states that some of those actions and filings occurred on dates between March 28, 2002 and August 9, 2002.)
The court finds no support in our law for such a tolling. It is common practice for state agencies to grant approvals that are conditioned upon subsequent events. To allow each potential appellant to decide when, in its judgment, such conditions have been met, and thereby determine when the running of the forty-five day appeal period commences, would be to welcome chaos into our practice concerning appeals of administrative matters. The uapa was intended by the legislature to avoid such ad hoc determinations by parties, and that argument is rejected.
Mootness A. Caselaw
If a case is moot, a court lacks subject matter jurisdiction over it. Sweeney v. Sweeney, 271 Conn. 123, 201 (2004). A case is moot if the court is unable to grant any practical relief. DeFonce Construction Corp. v. Connecticut Resources Recovery Authority, 177 Conn. 472, 474 (1979); Connecticut Coalition Against Millstone v. Rocque, 267 Conn. 116, 126-27 (2003); Hartney v. Hartney, 83 Conn.App. 553, 566 (2004).
In DeFonce Construction Corp. v. Connecticut Resources Recovery Authority, supra, 177 Conn. 474, an unsuccessful bidder challenged the award of a construction contract by a quasi-public agency, and the court dismissed the case as moot because "the disputed contract has been fully performed by the successful bidder . . ." In Connecticut Coalition Against Millstone v. Rocque, supra, 267 Conn. 116, the plaintiff sought to enjoin the then unperformed transfer of permits from the seller to the buyer of a nuclear power plant. Prior to the transfer, a hearing was held by the Superior Court, which denied injunctive relief. Permits were then transferred and the sale was closed. On appeal, the court held that the case was moot "[i]n light of the fact that the facility has been sold and that the permit and emergency authorization have long since been transferred . . ." Id., 126. The Millstone court also observed that the completed transfer of the permits "changed the legal landscape [so that] a controversy no longer exists between the parties . . ." Id., 126-27. In Hartney v. Hartney, supra, 83 Conn.App. 553, the party against whom a restraining order had been issued pursuant to § 46b-15 sought to appeal its issuance. The restraining order had been vacated before the appeal was heard, and the court said: "The test for determining mootness of an appeal is whether there is any practical relief this court can grant the appellant . . . If no practical relief can be afforded to the parties, the appeal must be dismissed." (Internal quotation marks omitted.) Id., 566.
If on the facts of this case, as they have been alleged in the complaint and as they have been stipulated to by the parties, the court cannot grant any practical relief to the plaintiff, then this case is moot and must be dismissed for lack of subject matter jurisdiction.
B. Stipulation and Supplemental Stipulation
In paraphrased form, the following are the facts set forth in the stipulation and the supplemental stipulation which are relevant to this decision:
1. On or about October 14, 2000, the hospital defendants entered into an agreement (agreement) with Essent for the sale (sale) of assets of the hospital. The agreement established the purchase price at $16,390,000, subject to various adjustments;
2. Prior to April 12, 2002, Sharon Hospital, Incorporated (Sharon Hospital), held a license issued by the Connecticut department of public health (department) to operate the hospital;
3. On or about February 1, 2001, pursuant to the conversion act, the hospital defendants and Essent filed written notice (notice) of the proposed sale with the attorney general (attorney general) and with the commissioner of health care access (hereinafter, sometimes, referred to collectively as the agencies);
4. In the notice it was proposed that the net proceeds from the sale, plus assets of the hospital defendants which were not to be sold to Essent (e.g., the endowments and charitable gifts held by the hospital defendants), be transferred to a successor charitable foundation (foundation) for purposes consistent with the conversion act, consistent with the mission of the hospital defendants and consistent with the promotion of healthcare in the hospital's service area;
5. The agencies then instituted administrative proceedings under the conversion act to determine whether the sale was reasonable, based upon statutory criteria;
6. On October 17, 2001, ohca issued the original decision approving, with modifications, the sale;
7. On November 26, 2001, the hospital defendants and Essent filed with ohca a joint petition for reconsideration, modification or clarification of the original decision;
8. On December 14, 2001, ohca issued the decision after reconsideration, which approved the sale with modifications;
9. The modifications set forth in the decision after reconsideration included the following (in paraphrased form):
a. A requirement that the purchase price to be paid by Essent be in cash and not result in the issuance of any new debt by Essent. The cash portion of the purchase price was to be used, first, to retire approximately $11.4 million owed by the hospital defendants to Fleet Bank and other entities (Fleet debt). A transaction audit (audit) verifying compliance with this modification was to be submitted to ohca;
b. A requirement that Essent invest $8 million in the hospital for renovations, clinical equipment acquisitions and programs during its first five years of ownership. Essent was required to submit to ohca a business plan (business plan) detailing its long and short-term goals;
c. A requirement that Essent establish an escrow account to defray the costs associated with any extraordinary monitoring and compliance not otherwise addressed by ohca and to secure Essent's capital improvement obligations. That escrow account was to be funded at the time of the transfer of assets;
d. A requirement that Essent establish a tertiary support agreement (tertiary support agreement) with a hospital, health system or facility which provides the full range of health care services that are legally permissible and clinically available in Connecticut;
e. A requirement that, if Essent were to sell the hospital within five years after the issuance of the decision after reconsideration, the modifications contained in the decision after reconsideration be binding on a subsequent purchaser and that the foundation be given a right of first refusal to purchase the hospital during a term of ten years; and,
f. A requirement that Essent obtain ohca approval prior to selling, transferring or liquidating any of the assets of the hospital for a period of five years;
10. The attorney general approved the sale, with modifications, in a final decision dated November 26, 2001;
11. On December 11, 2001, Essent filed a petition for reconsideration, modification or clarification of the attorney general's final decision;
12. On January 9, 2002, the attorney general issued an order responding to that petition;
13. The attorney general's final decision, as amended by the January 9, 2002 order, contains modifications including, but not limited to, the following (in paraphrased form):
a. That Essent not cross-collateralize the hospital's assets;
b. That Essent not employ debt financing for the purchase price of the hospital;
c. That Essent share with the foundation a percentage of total revenues for ten years after the transfer of assets;
d. That the escrow agreement between the hospital defendants and Essent be modified to ensure, among other things, the timely transfer of excess funds to the foundation; and,
e. That Essent assume a portion of the hospital defendants' liability for costs associated with litigation concerning the Amenia Landfill in Amenia, New York;
14. The closing of the sale of the hospital to Essent took place on April 12, 2002;
15. After adjustments were made in accordance with the agreement, the net purchase price (net purchase price) for the hospital was $17,103,292;
16. The Fleet debt was retired at the time of the transfer of assets;
17. The escrow account was established at the time of the transfer of assets;
18. A tertiary support agreement with the University of Connecticut Health Center Finance Corporation, dated March 28, 2002, was submitted to ohca by Essent on or about May 3, 2002;
19. From the net purchase price, the hospital defendants expended on the date of closing $14,726,130.59 to discharge various of their obligations, including the Fleet debt and $1,342,143 to Marsh USA, Inc. for post-closing liability and malpractice insurance coverage. With the remaining proceeds of the net purchase price, plus an additional cash payment made by the hospital defendants from cash on hand of $990,753.11, the hospital defendants funded escrow accounts in the amount of $3,451,648. These escrow accounts consisted of a $1,000,000 environmental escrow and a $2,451,648 indemnification escrow;
20. On April 12, 2002, the department issued to Essent a non-transferable license to operate the hospital. This license was issued to reflect the change of ownership of the hospital;
21. At or around the time of closing, Essent also received regulatory approval to operate the hospital from the Centers for Medicare and Medicaid Services, the Nuclear Regulatory Commission, the American College of Radiology, the Joint Commission on Accreditation of Healthcare Organizations, the New York State Department of Public Health, the Connecticut department of social services, the Connecticut department of consumer protection, the Connecticut department of public safety, the Federal Drug Enforcement Agency, the Federal Aviation Administration, and the Federal Communication Commission (hereinafter, sometimes, referred to collectively as the regulatory authorities);
22. None of the hospital defendants, nor the foundation, is now licensed to operate the hospital, and none of them could resume operation of the hospital without applying, and demonstrating, to the department and the regulatory authorities its qualification to operate a short-term acute-care general hospital;
23. At the present time, the hospital defendants and the foundation employ no healthcare professionals, including physicians, nurses, administrative or operational personnel;
24. The hospital defendants and the foundation have no service agreements with any area physicians;
25. The hospital defendants and the foundation do not possess a certificate of necessity issued by ohca for the operation of the hospital. Ohca would be required to approve, in accordance with § 19a-639, any transfer of ownership of the hospital to any of them;
26. The hospital defendants and the foundation have no public or private agreements with any third-party payers;
27. John R. Chandler, chairman of the board of trustees of the hospital, declared in an affidavit that "[i]n short, Sharon [Hospital, Inc. is in no position to resume the operation or administration of a hospital for the purpose of providing medical care . . .";
28. Each of the hospital defendants has been dissolved, and all of their assets which remained after satisfying debts and escrow obligations have been transferred to the foundation;
29. The moneys spent by the hospital defendants in satisfying their pre-sale debts and the escrow obligations imposed by the terms of the sale exceeded the net proceeds from the sale;
30. On or about September 10, 2002, in accordance with the conversion act and his "vistorial power" to oversee and enforce charitable trusts, the attorney general commenced a cy pres action (cy pres action) relating to the assets of the hospital defendants;
31. The plaintiff was not a party to, nor did it seek to intervene in, the cy pres action;
32. In its June 3, 2003 memorandum of decision in the cy pres action, the court (Dipentima, J.) made findings and orders including, but not limited to, the following:
a. The certificate of incorporation and by-laws of the foundation permit it to expend funds for community healthcare purposes within the hospital's primary and secondary service areas;
b. The hospital defendants and Essent had entered into an agreement that provides, should Essent desire to sell the hospital to a third party within ten years after the sale, the foundation has a right of first refusal to purchase the hospital and convert it to a nonprofit institution;
c. The foundation is an appropriate charitable entity to receive the assets from the sale and, in accordance with § 19a-486c, it was appointed by the court to do so;
d. All of the assets of the hospital defendants remaining after the sale, including the net transaction proceeds, if any, surplus cash held by the hospital, unapplied balances in the escrow account, 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, funds derived from profit-sharing, and any unused balance of the $8 million committed by Essent to improvements at the for-profit hospital facility, can be transferred to the foundation to be applied, with respect to restricted charitable funds, in accordance with the donor's purposes; and with respect to the unrestricted funds, and the income earned on unrestricted endowments, in accordance with the foundation's purposes.
C. Discussion
This appeal is moot if sustaining it would not have the effect of rescinding the sale. The sale can only be rescinded if Essent can be restored to its pre-transaction position; that is, rescission would require a payment to Essent of the purchase price of $17,103,292. A rescission would also require the availability of an entity to receive the assets of, and acquire the abandoned authorizations necessary to operate, the hospital.
Each of the hospital defendants has been dissolved. The assets formerly belonging to the dissolved hospital defendants have been transferred to the foundation or are now being held by third parties in escrow or reserve. The court concludes that the funds necessary to restore Essent to its pre-transaction posture are not available to any of the hospital defendants.
In addition to having been dissolved, none of the hospital defendants has the personnel or contractual arrangements, nor does any of them have the ability to acquire the governmental authorizations, which are necessary to operate a modern hospital in Connecticut. In short, none of the former owners of the hospital assets is now capable of receiving a reconveyance of those assets and operating a hospital.
In apparent recognition of the inability of the hospital defendants to accomplish a rescission, the plaintiff impliedly argues that, if this appeal were sustained, the foundation would thereby be required to restore to Essent the purchase price of $17,103,292, accept a conveyance of the hospital assets from Essent and undertake the operation of the hospital. That argument raises the issue whether, in this case, the court has the authority to compel the foundation to do so.
Because the foundation is not a party to this case, it cannot be bound by any order entered in it. Therefore, the sustaining of this appeal would not require the foundation to pay for and operate the hospital.
Hypothesizing that the governing body of the foundation desired that the foundation get into the hospital business, the foundation could not compel Essent to sell to it. Although the foundation enjoys a right of first refusal to acquire the hospital, the sustaining of this appeal would not be an event which would trigger that right. Accordingly, the hospital could only be acquired and operated by the foundation if both the foundation and the hospital (as well as the regulatory authorities) were to desire that to happen. The court will not speculate as to the likelihood of those events.
Like the hospital defendants, the foundation also lacks the personnel and contractual arrangements necessary to operate a modern hospital in Connecticut.
There being no way to fund a rescission and no entity which can be required to accept and operate the hospital, sustaining this appeal would not have the effect of rescinding the sale. Accordingly, the case is moot, and the court is without jurisdiction to hear and decide it.
III. CONCLUSION
Each of the motions to dismiss is granted on the grounds described on pp. 2-3 above.
G. Levine, J.