Colorado Ass'n of Public Employees v. Board of Regents of University of Colorado

• Decision Date: 24 December 1990
• Docket Number: No. 89SA476,89SA476
• Citation: 804 P.2d 138
• Parties: 65 Ed. Law Rep. 547 COLORADO ASSOCIATION OF PUBLIC EMPLOYEES; C.W. Peterson; Shelley Ostrem; Jerry D. Aragon; Dennis Deutsch; Joyce Schuler; Shirley D. Blackmon; Ruth C. Robben; Marianne I. Galensky; and Jennifer M. Frank, Plaintiffs-Appellants, v. The BOARD OF REGENTS OF the UNIVERSITY OF COLORADO, and each of its members in their official capacities, Kathleen Arnold; Richard Bernick; Robert Caldwell; Peter Dietze; Lynn Ellins; Harvey Phelps; Norwood Robb; Roy Shore; and David Winn, Defendants-Appellees.
• Court: Colorado Supreme Court

Page 138

804 P.2d 138

65 Ed. Law Rep. 547

COLORADO ASSOCIATION OF PUBLIC EMPLOYEES; C.W. Peterson;

Shelley Ostrem; Jerry D. Aragon; Dennis Deutsch; Joyce

Schuler; Shirley D. Blackmon; Ruth C. Robben; Marianne I.

Galensky; and Jennifer M. Frank, Plaintiffs-Appellants, v. The BOARD OF REGENTS OF the UNIVERSITY OF COLORADO, and each

of its members in their official capacities, Kathleen

Arnold; Richard Bernick; Robert Caldwell; Peter Dietze;

Lynn Ellins; Harvey Phelps; Norwood Robb; Roy Shore; and

David Winn, Defendants-Appellees.

No. 89SA476.

Supreme Court of Colorado,

En Banc.

Dec. 24, 1990.

Rehearing Denied Jan. 28, 1991.

Larry F. Hobbs, Hornbein MacDonald Fattor Hobbs P.C., and Vonda G. Hall, Colorado Ass'n of Public Employees, Denver, for plaintiffs-appellants.

Teryl R. Gorrell, Charles F. Luce, Jr., Moye, Giles, O'Keefe, Vermeire & Gorrell, Denver, Sp. Asst. Attys. Gen., and Ben A. Rich, Allen W. Staver, University of Colorado Health Sciences Center, Denver, for defendants-appellees.

Justice MULLARKEY delivered the opinion of the Court.

This is an appeal ¹ from the Denver District Court's judgment upholding the constitutionality of House Bill No. 1143, Ch. 193, secs. 1 to 14, 1989 Colo.Sess.Laws 995-1006, which provided for the reorganization of the University of Colorado University Hospital as a private, nonprofit corporation. This act is mostly codified in sections 23-21-401 to -410, 9 C.R.S. (1990 Supp.). The plaintiffs challenged the constitutionality of the statute on two grounds: first, that it violates Article XII, Section 13, of the Colorado Constitution, the State Civil Service Amendment, and second, that it violates Article XI, Section 3, of the Colorado Constitution, the constitutional prohibition against public indebtedness. The trial court rejected both arguments. We reverse.

I.

The plaintiffs, the Colorado Association of Public Employees and employees of University Hospital, filed a complaint challenging the constitutionality of the statute under the Colorado Constitution on alternative grounds. They claimed that if the statute created a private corporation, then the statute violated Article V, Section 34, which prohibits public appropriations to private corporations, and Article XI, Section 2, which prohibits transfer of state assets to private corporations. In the alternative, they claimed that if the statute created a public corporation, then the statute violated Article XII, Section 13, the State Civil Service Amendment, and Article XI, Section 3, which prohibits state indebtedness. ² The By stipulation, the parties submitted briefs solely on the facial constitutionality of the statute. The trial court ruled that the plaintiffs failed to prove that the statute was unconstitutional. Specifically, the trial court held: (1) that the reorganized hospital was a private, nonprofit corporation which did not violate Article XV, Section 2, prohibiting special legislation, (2) that the statute does not violate Article XII, Section 13, the Civil Service Amendment, because the employees of the reorganized hospital will not be employees of the state, (3) that, by similar reasoning, the statute does not violate Article XI, Section 3, because the debts of the reorganized hospital will not be debts of the state, (4) that the statute does not violate Article XI, Section 1, prohibiting extending debt to private corporations because the statute comes within the public purpose exception, and (5) that, by stipulating to resolve the facial constitutionality of the statute for an accelerated trial, the plaintiffs abandoned their claims under the Fourteenth Amendment to the United States Constitution and 42 U.S.C. 1983, as well as under Article V, Section 34, and Article XI, Section 2, of the Colorado Constitution.

plaintiffs requested injunctive and declaratory relief.

Prior to the enactment of sections 23-21-401 to -410, the organization of the University Hospital was addressed in sections 23-21-101 to -113, 9 C.R.S. (1988). ³ The hospital was utilized for the health science education programs provided by the University of Colorado. § 23-21-104. Under section 23-21-102(1), control of the hospital was vested in the Board of Regents (the Regents) of the University of Colorado, members of which were elected to office pursuant to section 1-4-204, 1B C.R.S. (1980). The Regents were empowered "to manage, control, and govern such hospitals" under regulations it prescribed, § 23-21-102(1), and to provide for the operation of the hospitals "by any entity, public or private, profit or nonprofit" to administer the operation of the hospital adequately and efficiently, § 23-21-102(3)(a).

Although the former statute granted the Regents a great degree of flexibility regarding the type of entity they could establish to operate the hospital, the Regents' power to provide for any entity was limited in section 23-21-102(3)(c) which stated, "No such provision shall adversely affect the rights, benefits, and privileges of any existing state personnel system employees of the university of Colorado nor deprive them of their status under the state personnel system." Furthermore, the Regents were required to appoint all employees of the hospital, "pursuant to the provisions of section 13 of article XII of the state constitution" which is the Civil Service Amendment, § 23-21-102(1). Under section 23-21-106.5, the Regents controlled the fees charged for professional services and the way in which such fees, when collected, were spent in the operations of the hospital. This last provision was not substantially changed by the new statute. See § 23-21-410, 9 C.R.S. (1990 Supp.).

The statute before us, consisting primarily of sections 23-21-401 to -410, was enacted in 1989 to enable the reorganization of University Hospital. In the statute, the legislature explains its rationale for this measure:

(1) The general assembly hereby finds and declares that: ...

(c) The present hospital, known as the university of Colorado university hospital, is unable to become and remain economically viable because it is subject to various kinds of government policy and regulation.

(d) Unless the hospital can become and remain economically viable, it will become ever more dependent upon state subsidies, and the quality of medical service and education will inevitably decline.

(e) The needs of the citizens of the state of Colorado and the university of Colorado health sciences schools will best be served if the hospital is reorganized to operate as a private nonprofit corporation charged with the mission of operating a teaching hospital for the benefit of the health sciences schools and providing care for the medically indigent.

§ 23-21-401. Because the Regents were already authorized under the prior statute to establish the hospital as a private, nonprofit entity, the Regents' authority to "[t]ake all steps necessary to create a private nonprofit-nonstock corporation" granted in section 23-21-403(1)(a) grants no new authority to the Regents.

Several of the new provisions do result in changes in the organization of the hospital. Under the new provisions, the Regents transferred the hospital assets and liabilities to the corporation on October 1, 1989, except for the land which was leased to the corporation for a term not to exceed ninety-nine years. § 23-21-403(1)(b). The corporation is required by the statute to award hospital privileges exclusively to the "health care providers who are faculty members of the health sciences schools of the university of Colorado." § 23-21-404(1)(e). The statute specifically states, "The corporation shall not be an agency of state government, nor a department or political subdivision ⁴ thereof." § 23-21-403(1)(a). Accordingly, this new corporation "shall not be subject to any provisions of law affecting only governmental or public entities." Id. Should the corporation dissolve, the assets of the corporation less amounts owed to creditors will revert to the Regents. § 23-21-404(1)(g).

The corporation is governed by a Board of Directors (the Directors) composed of nine members who are appointed by the Regents and confirmed by the Senate. § 23-21-404(1)(b). The Regents may remove the Directors at any time. Id. The Directors are responsible for operating the hospital day-to-day and have the explicit power to issue bonds or borrow money on behalf of the corporation. § 23-21-404(1)(d). However, they may not borrow more than ten million dollars at any time. Id.

The statute allows the Regents and the Directors to borrow money and to issue bonds. The Regents may do so on behalf of the corporation for any of its lawful purposes. § 23-21-403(1)(e). Any bonds issued by the Regents must comply with the requirements applicable to counties and municipalities. Id. The Directors are authorized to borrow up to ten million dollars on behalf of the corporation without the Regents' approval. § 23-21-404(1)(d). The aggregate indebtedness incurred by both the Regents and the Directors is thirty million dollars in the first fiscal year and sixty million dollars in the second fiscal year. § 23-21-404(1)(i).

The reorganization affected the status of approximately 2,000 classified employees of the University Hospital. According to the terms of subsections 23-21-406(1) and (2), any hospital employee who is classified as an employee under the state personnel system may elect to become an employee of the new corporation, thereby leaving the state personnel system, or may stay on with this new corporation as a state employee under contract for up to two years. Once the employee elects to join the new corporation, that employee is not eligible to return to the state personnel system and ceases to be an active member of the Public Employees Retirement Association (PERA). §§ 23-21-406(2), -407(1).

Section 23-21-407 governs how the rights of the former state employees to retirement benefits are affected by the reorganization. Although...