Covenant Healthcare System Inc. v. City of Wauwatosa

• Decision Date: 19 July 2011
• Docket Number: Nos. 2009AP1469,2009AP1470.,s. 2009AP1469
• Citation: 800 N.W.2d 906,2011 WI 80
• Parties: COVENANT HEALTHCARE SYSTEM, INC., Plaintiff–Respondent–Petitioner,v.CITY OF WAUWATOSA, Defendant–Appellant.
• Court: Wisconsin Supreme Court

800 N.W.2d 906

2011 WI 80

COVENANT HEALTHCARE SYSTEM, INC., Plaintiff–Respondent–Petitioner,

v.CITY OF WAUWATOSA, Defendant–Appellant.

Nos. 2009AP1469

2009AP1470.

Supreme Court of Wisconsin.

Argued April 15, 2011.Decided July 19, 2011.

For the plaintiff-respondent-petitioner there were briefs by Don M. Millis, Kristina E. Somers, and Reinhart Boerner Van Deuren S.C., Madison, and oral argument by Don M. Millis.For the defendant-appellant there was a brief by Robert Horowitz and Stafford Rosenbaum, L.L.P., Madison, Alan R. Kesner, city attorney and Beth Thorson Aldana assistant city attorney, Wauwatosa and oral argument by Robert Horowitz.There was an amicus brief by Jennifer A. Slater Carlson and Legal Advantage, L.L.C., Cedarburg on behalf of Association of Assessing Officers.There were amicus briefs by Beth Ermatinger Hanan and Chrispother P. Dombrowicki and Gass Weber Mullins, L.L.C., Milwaukee on behalf of Attorneys for Rural Wisconsin Heath Cooperative.There was an amicus brief by Claire Silverman, Legal of Wisconsin Municipalities, Madison on behalf of League of Wisconsin Municipalities.There were amicus briefs by David J. Edquist and von Breisen & Roper, S.C., Milwaukee on behalf of Attorneys for the Wisconsin Hospital Association.MICHAEL J. GABLEMAN, J.

¶ 1 This is a review of a published decision of the court of appeals ¹ that reversed the judgment and order of the circuit court for Milwaukee County, the Honorable Elsa C. Lamelas presiding, in favor of Covenant Healthcare System, Inc. (Covenant). Covenant is the sole member of the St. Joseph Regional Medical Center, Inc., (St. Joseph) which in turn owns the St. Joseph Outpatient Clinic (Outpatient Clinic). In 2003, Covenant constructed a five-story building in the City of Wauwatosa (the City) to house the Outpatient Clinic. The Outpatient Clinic provides a broad range of outpatient medical services, including a 24–hour urgent care center.

¶ 2 Covenant filed timely Property Tax Exemption Requests with the City in each year from 2003 to 2006. Covenant sought a tax exemption for the Outpatient Clinic as property used exclusively for the purpose of a hospital under Wis. Stat. § 70.11(4m)(a) (2007–08).² The city assessor denied the exemption for each of these four years and Covenant paid the assessed tax. Covenant then brought an action pursuant to Wis. Stat. § 74.35(3)(d) to recover the amount of the City's allegedly unlawful assessment. The City primarily argued that the Outpatient Clinic was a doctor's office, and therefore was not entitled to the property tax exemption under § 70.11(4m)(a). In the alternative, the City argued that the Outpatient Clinic was not exempt because it was used for commercial purposes and because a benefit inured to St. Joseph's sole member, Covenant.

¶ 3 We hold that the Outpatient Clinic is used for the primary purposes of a hospital and therefore qualifies as tax-exempt property under Wis. Stat. § 70.11(4m)(a). Additionally, we hold that the Outpatient Clinic is neither a doctor's office nor a property used for commercial purposes within the meaning of § 70.11(4m)(a). Finally, we conclude that no benefit inures to any member of St. Joseph because the term “member” under § 70.11(4m)(a) does not include not-for-profit entities.

I. BACKGROUND

¶ 4 We draw our facts from the extensive factual findings made by the circuit court after it conducted a nine-day bench trial on the issues we now review.

A. St. Joseph Outpatient Clinic

¶ 5 The Outpatient Clinic is a freestanding outpatient medical facility located in the City. The Outpatient Clinic was owned and operated by St. Joseph from 2003 through 2006, the tax years in dispute. Covenant is the sole member of St. Joseph.³

¶ 6 In 2003, Covenant constructed a five-story building to house the Outpatient Clinic and transferred ownership of the building and improvements to St. Joseph. Covenant continued to own the land on which the building was located but leased it to St. Joseph. The Outpatient Clinic is located on three of the five floors: the first, third, and fourth. St. Joseph leased the second floor to the Covenant Medical Group, Inc., and leased the fifth floor to various physicians and other medical providers. Covenant seeks property tax exemptions for only the three floors occupied by the Outpatient Clinic.

¶ 7 The Outpatient Clinic was constructed to significantly higher standards than a typical medical office building. It was constructed in conformity with the standards imposed by the Wisconsin Department of Health and Family Services for facilities that provide hospital ambulatory services. ⁴ The Outpatient Clinic operated under a hospital license. It was accredited by the Joint Commission on the Accreditation of Hospitals, an organization that does not accredit physician clinics. St. Joseph purchased all of the equipment necessary to provide outpatient services at the Outpatient Clinic, and the equipment is used exclusively by the Outpatient Clinic.

¶ 8 The Outpatient Clinic has a gift shop as well as a cafeteria that serves food to patients, visitors, and staff. Space within the Outpatient Clinic is available for community use, as well as internal education and support groups, such as pregnancy education classes. A separate parking structure and surface parking areas are adjacent to the Outpatient Clinic, but not connected to the Outpatient Clinic building.

¶ 9 The outpatient services provided at the Outpatient Clinic include: cardio/pulmonary services, continence and pelvic floor ⁵ services, laboratory services, outpatient surgery, pain management services, pediatric rehabilitation, physical therapy, radiology, sleep disorder services, women's health services, and wound care services.⁶

¶ 10 The Outpatient Clinic has an urgent care center (Outpatient Clinic Urgent Care Center) staffed by board-certified emergency department physicians and nurses. The Outpatient Clinic Urgent Care Center is operated 24 hours a day, seven days a week. The Outpatient Clinic Urgent Care Center is complemented by a laboratory services department, also located within the Outpatient Clinic. The laboratory services department is also operated 24 hours a day, seven days a week. The Outpatient Clinic Urgent Care Center contains 18 beds which could be used as overnight beds in the case of a pandemic, epidemic, natural or man-made disaster. In the event of such an emergency, the Outpatient Clinic is prepared to house up to 45 patients overnight. The Outpatient Clinic Urgent Care Center, pursuant to the Emergency Medical Treatment and Active Labor Act, 42 U.S.C. § 1395dd, may not turn anyone away based on inability to pay.

¶ 11 The Outpatient Clinic Urgent Care Center treats all levels of emergency room care, but patients with more serious conditions are stabilized and then transferred to a different medical facility. Patients who visit the Outpatient Clinic Urgent Care Center are charged emergency room rates. The most common conditions treated by the Outpatient Clinic Urgent Care Center are broken bones, injuries requiring sutures, sprains and strains, accidents and falls, asthma, allergy attacks, eye injuries, rashes, minor burns, colds, and flu.

¶ 12 The Outpatient Clinic does not provide inpatient care. The circuit court's findings of fact explain that the Outpatient Clinic does keep patients overnight in the sleep laboratory, but those patients are not considered inpatients. Apart from the Outpatient Clinic Urgent Care Center, all services normally require referrals and appointments during regular business hours. Physicians performing services at the Outpatient Clinic may use open cubicles as temporary workspace, but workspace is not designated or assigned to individual physicians.

B. St. Joseph Hospital

¶ 13 In addition to the Outpatient Clinic, St. Joseph operates St. Joseph Hospital, a full-service hospital with 550 to 600 inpatient beds located on Chambers Street (the St. Joseph Chambers Street Hospital). The St. Joseph Chambers Street Hospital serves Milwaukee's inner city and its western suburbs, and is located approximately five miles from the Outpatient Clinic. It is undisputed that the St. Joseph Chambers Street Hospital is a tax-exempt hospital under Wis. Stat. § 70.11(4m)(a).

¶ 14 St. Joseph constructed the Outpatient Clinic with a desire to move services away from the St. Joseph Chambers Street Hospital. There were a variety of reasons for this: to relieve parking difficulties at the St. Joseph Chambers Street Hospital, to free up space for outpatient services at the St. Joseph Chambers Street Hospital, to reduce diversion of ambulances to the St. Joseph Chambers Street Hospital and other hospital emergency rooms, to provide medical services that cover the lifespan of women in one location, to improve efficiency and reduce the footsteps required of nurses when providing medical services, to facilitate recruitment of physicians through convenient highway access and parking, and to provide hyperbaric chambers care for which the St. Joseph Chambers Street Hospital lacked space. Additionally, St. Joseph hoped to facilitate recruitment of nurses and address nursing shortages because nurses at the Outpatient Clinic would not be on call after hours or on weekends (in contrast to the outpatient surgery nurses at the St. Joseph Chambers Street Hospital who were on call after hours as well as on the weekends).⁷

¶ 15 The St. Joseph Chambers Street Hospital has a number of features that are integrated with the services offered at the Outpatient Clinic. All hospital and outpatient records are accessible at both locations, and the facilities share an online registration system. The same four physician groups provide radiology, anesthesiology, pathology (laboratory), and urgent care services at both locations. They also share the same billing system and operate under the same hospital license. Patients and/or insurance providers pay a facility fee for use of the Outpatient...