Corona Unified Hospital Dist. v. Superior Court of Riverside County

Citation40 Cal.Rptr. 745,395 P.2d 817,61 Cal.2d 846
CourtUnited States State Supreme Court (California)
Decision Date22 October 1964
Parties, 395 P.2d 817 CORONA UNIFIED HOSPITAL DISTRICT et al., Petitioners, v. The SUPERIOR COURT OF RIVERSIDE COUNTY, Respondent; Richard W. MANGAN, Real Party in Interest. L. A. 27924.

Clayson, Stark, Rothrock & Mann and Roy H. Mann, Corona, for petitioners.

No appearance for respondent.

Walker, Sullivan, Hews, Brown & Yakutis and Alexander B. Yakutis, Riverside, for real party in interest.

SCHAUER, Justice. *

By this proceeding in prohibition the Corona Unified Hospital District (hereinafter called the district) and the Corona Unified Hospital District Leasing Company (hereinafter called the leasing company) seek to restrain the Riverside Superior Court from taking any further steps in a taxpayer's action challenging the validity of a statute authorizing use of the 'lease-back' method of financing public hospital construction in certain limited situations. As will appear, we have concluded that (1) the sole ground of the underlying superior court action (i. e., alleged unconstitutionality of Health & Saf.Code, § 32221, par. 2, quoted hereinafter) is unmeritorious; (2) the subject action appears to have been instituted for the purpose of defeating the consummation of a valid community project for the construction of a public hospital; and (3) the mere pendency of the action will have that effect, for even though the district and the leasing company have prevailed on demurrer, the normal delays incident to an appeal will cause the financing arrangements and hence the entire project to fail. In these circumstances, relief by way of prohibition is necessary to prevent the frustration of a remedial statutory purpose and the defeat of a valid project for public health and safety.

The principal allegations of the petition may be summarized as follows: For more than ten years prior to 1961 various community groups had unsuccessfully sought to obtain modern hospital facilities for the Corona area; the present hospital district was voted into existence in June 1961 by a 2 1/2 to 1 ratio of voter approval; it thereupon conducted surveys, consultations, and architectural planning, which culminated in a proposed hospital design in late 1962. A bond issue to finance the building of such hospital was submitted to an election in February 1963, but although it was approved by a majority of the voters it fell short of the two-thirds approval necessary for adoption. The district then proposed that the hospital be built by a nonprofit corporation to be created for that purpose, which would in turn lease the facility to the district; that the project would be financed by bonds to be sold by the leasing company; that rentals (to service such bonds) would be paid by the district from hospital revenues and if necessary from taxes; and that title to the hospital facility would eventually vest in the district.

Effective September 20, 1963, Health & Safety Code, section 32221 (which places certain limitations on the power of a hospital district to expend its 'fund for capital outlays') was amended by adding the following second paragraph: 'Notwithstanding the provisions of this section, nothing in this article shall limit the power of a district formed after June 1, 1961, which, prior to the adoption hereof, has not operated a hospital or established a fund for capital outlay, to lease, lease-back, lease with option to purchase or lease with provision for title to vest in the district on termination, hospital buildings or facilities with rentals to be paid from revenues and taxes, subject to the limitation prescribed by Section 32203, provided any such lease is entered into prior to June 1, 1964.'

The petition further alleges that in November 1963 the leasing company was duly organized as a non-profit corporation for the purpose of issuing its bonds to finance construction of the hospital project; that in the ensuing months the district exercised its option on the building site selected, the site was annexed to the City of Corona, the building plans were prepared and approved by all the necessary agencies, a construction contract was entered into, the lease to the district was drawn and executed, the bond counsel gave their unqualified favorable opinion as to the validity of the bonds to be sold by the leasing company, a 'tax-free' ruling on the bonds was obtained from the Internal Revenue Service, the entire bond issue was subscribed for at a favorable interest rate, and the Commissioner of Corporations was prepared immediately to issue a permit for the sale of the bonds. Nothing remained but the mechanics of the bond sale and transfer of funds which were scheduled to take place on May 26, 1964.

On May 25, however, one Richard W. Mangan filed an action against the district and the leasing company (Riverside Superior Court No. 82368, hereinafter called the Mangan action) to have the lease declared void and to have the district enjoined from levying any tax to carry out the lease agreement. The filing of that action prevented the leasing company from executing a 'no-litigation certificate' which is a condition precedent to the bond sale, and that sale has accordingly been postponed.

Petitioners (the district and the leasing company) now seek prohibition to restrain the superior court from taking any further steps in the Mangan action, on the ground that even though they have been successful in that action at the trial level 1 the entire hospital project wil nevertheless be destroyed by the normal delays incident to an appeal. The following considerations govern our decision to issue the peremptory writ:

1. There appears to be no other plain, speedy, and adequate remedy in the ordinary course of law. The absence of another adequate remedy is determined by the granting of an alternative writ (City & County of S. F. v. Superior Court (1959) 53 Cal.2d 236, 243(1), 1 Cal.Rptr. 158, 347 P.2d 294); yet because of the unusual facts of this case i. e., petitioners have prevailed thus far in the underlying action by their successful demurrer it is appropriate to spell out more fully our reasons for making such determination. As noted above, the immediate effect of the filing of the Mangan action was to prevent the leasing company from executing the required 'no-litigation certificate' and hence resulted in postponement of the bond sale until that action is finally disposed of, i. e., including appeal and petition for hearing in this court. In the peculiar circumstances here shown, however, a number of further consequences flow from that postponement:

a) Loss of construction contract: that contract was expressly made contingent on the sale of the leasing company's bonds prior to June 30, 1964; petitioners allege that failure to consummate that sale has released the contractor from his obligations.

b) Loss of site: because the leasing company has no funds other than those anticipated from the bond sale, it could not close the escrow prior to the July 8 deadline. The owners of the site are said to have received a more attractive offer to sell, and petitioners allege that it is therefore 'extremely unlikely that the site will be available' if the planned purchase is not timely completed.

c) Loss of benefit of statute: it is alleged that if petitioners are thus unable to acquire the precise site which is the subject of the lease, then the entire 'lease-back' financing project will fail. This appears to be so because (1) a lease of some new site would have to be entered into, and that would now have to be done after June 1, 1964; (2) the bond counsel have advised that they cannot give their unqualified opinion as to the validity of such a lease entered into after June 1, 1964, for that was the cut-off date for the authorization to 'lease back' granted by Health and Safety Code, section 32221, paragraph 2, without which a serious legal question exists as to the validity of that form of financing when undertaken by a public hospital district; and (3) such refusal of bond counsel to give their unqualified opinion will in turn preclude the sale of the bonds.

d) Loss of money: it is alleged that if petitioners are thus unable to finance and carry through this specific hospital project the district will lose the benefit of some $115,000 already expended in preparation therefor (fees of architects, hospital consultants, and attorneys).

None of the foregoing allegations is denied by Mangan in his return and answer. Each of the mentioned losses will be incurred even though petitioners have prevailed in the trial court: on an appeal by Mangan the judgment would not ordinarily...

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