Marin Healthcare Dist v. Sutter Health

• Decision Date: 14 November 2002
• Docket Number: No. C034127.,C034127.
• Citation: 127 Cal.Rptr.2d 113,103 Cal.App.4th 861
• Court: California Court of Appeals Court of Appeals
• Parties: MARIN HEALTHCARE DISTRICT, Plaintiff and Appellant, v. SUTTER HEALTH et al., Defendants and Respondents.

127 Cal.Rptr.2d 113

103 Cal.App.4th 861

MARIN HEALTHCARE DISTRICT, Plaintiff and Appellant, v. SUTTER HEALTH et al., Defendants and Respondents.

No. C034127.

Court of Appeal, Third District.

November 14, 2002.

Review Denied February 25, 2003.

Steefel, Levitt & Weiss, Stephen S. Mayne, San Francisco, and David T. Vanalek, for Plaintiff and Appellant.

McDonough, Holland & Allen, Richard E. Brandt, Sacramento, for Defendant and Respondent Sutter Health.

Keegin, Harrison, Schoppert & Smith, Jeffrey S. Schoppert and Wendy L. Wyse, San Rafael, for Defendants and Respondents Marin General Hospital and Marin Community Health.

KOLKEY, J.

In this action, we must determine whether the judicially created doctrine enunciated in Hoadley v. San Francisco (1875) 50 Cal. 265, 1875 WL 1581 (Hoadley)—that the statute of limitations does not apply to actions by the state to recover property dedicated for public use against an adverse possessor—should be extended to bar the application of the statute of limitations to the state's action to void a lease of public-use property. Because the purpose of the Hoadley doctrine is to prevent public-use property that the state cannot directly alienate from being indirectly alienated through the passage of time—that is, through the statute of limitations—we conclude that the doctrine has no application to a lease of property which the state is authorized to make.

In this case, the plaintiff, Marin Healthcare District (the District), a political subdivision of the state, brought suit to recover possession of a publicly owned hospital and related assets that it had leased and transferred in 1985 to defendant Marin General Hospital (Marin General)¹ pursuant to the terms of the Local Health Care District Law (Health & Saf.Code, § 32000 et seq.). The District's complaint alleges that the 1985 agreements are void because its chief executive and legal counsel had a financial interest in the agreements at the time of their execution, in violation of Government Code section 1090, which prohibits state employees from having any financial interest in any contract made by them or by any body of which they are members.² But because the action was filed 12 years after the agreements were signed, the trial court concluded that the suit was time-barred.

The District contends here—as it did in the trial court—that under the California Supreme Court's decision in Hoadley, "a suit by a governmental entity to recover public-use property from a private party to whom it was illegally or invalidly transferred is never barred by any statute of limitations."

We conclude, to the contrary, that Hoadley stands for the more narrow rule that "property held by the state in trust for the people cannot be lost through adverse possession." (People v. Shirokow (1980) 26 Cal.3d 301, 311, 162 Cal.Rptr. 30, 605 P.2d 859.) Other cases have only extended the doctrine to prevent the statute of limitations from barring the recovery of public-use property that the state had no authority to alienate. (E.g., Sixth District Etc. Assoc. v. Wright (1908) 154 Cal. 119, 129-130, 97 P. 144.) The doctrine has no application to the lease of property into which the state is authorized by law to enter (and which property the state will recover at the end of the lease term).

Extension of the Hoadley doctrine here would conflict with the Legislature's determination to apply statutes of limitations to actions brought by the state including the type pleaded here. Specifically, ever since the first session of the California Legislature, "`[t]he general legislative policy of California [has been] that the state shall be bound by its statute of limitations with respect to the bringing of actions for the enforcement of any and all such rights as may accrue to the state.'" (People v. Osgood (1930) 104 Cal.App. 133, 135, 285 P. 753.) While there are good policy reasons both for and against subjecting void leases of public property to the statute of limitations, we must defer to the Legislature's determination that the state, like other parties, is bound by the statute of limitations. We shall therefore affirm the judgment barring this 12-year-delayed suit from unsettling the balance of Marin General's lease term.

FACTUAL AND PROCEDURAL BACKGROUND

The facts underlying this action are undisputed.

The District, a political subdivision of the State of California, is a local health care district organized and operating under the provisions of the Local Health Care District Law (Health & Saf.Code, § 32000 et seq.). The District owns an acute care hospital facility located in Marin County.

The statutory scheme governing local health care districts permits such districts to delegate pursuant to a lease of up to 30 years the responsibility of operating and maintaining a district-owned hospital (former Health & Saf.Code, § 32126), and authorizes them to transfer the assets to a nonprofit corporation "to operate and maintain the assets" (former Health & Saf. Code, § 32121, subd. (p)(1)).³ "The Legislature's stated reason for allowing such transfers [was] to permit local hospital districts `to remain competitive in the ever changing health care environment....' (Stats.1985, ch. 382, § 5, p. 1556.)" (Yoffie v. Marin Hospital Dist. (1987) 193 Cal. App.3d 743, 746, 238 Cal.Rptr. 502.)

In or about November 1985, pursuant to those statutory provisions, the District leased the hospital's facilities and transferred certain of the District's assets used in the operation of the hospital, including cash, accounts receivable, and inventory, to defendant Marin General, a nonprofit public benefit corporation. The relevant agreements included a 30-year Lease Agreement and an Agreement for Transfer of Assets (collectively, the 1985 contracts). Marin General has continuously operated the hospital facility since 1985.

At the time the 1985 contracts were entered, the District's chief executive officer was Henry J. Buhrmann. However, while Buhrmann was still employed as the District's chief executive officer, he became president and chief executive officer of Marin General and signed the 1985 contracts on behalf of Marin General. Two of the District's directors executed the contracts on the District's behalf. Moreover, the District's legal counsel, Quentin L. Cook, became legal counsel to Marin General before the 1985 contracts were executed. And when Marin General later combined to form another health care entity, Cook became chief executive officer of that entity.

In November 1997, nearly 12 years after the 1985 contracts were signed, the District filed the instant action against Marin General and the affiliated defendants, Marin Community Health and Sutter Health. (See fn. 1, ante.) The operative (first amended) complaint alleges that at the time the 1985 contracts were entered, Buhrmann's and Cook's simultaneous employment by Marin General and the District created a prohibited financial interest in those contracts within the meaning of Government Code section 1090. That statute prohibits state, county, district, and city officers or employees from being "financially interested in any contract made by them in their official capacity, or by any body or board of which they are members."(Ibid)⁴ And because the 1985 contracts were purportedly made in violation of Government Code section 1090, the complaint alleges that the contracts are void under Government Code section 1092.⁵

The first and second causes of action of the complaint seek a declaration that the 1985 contracts are void by virtue of Buhrmann's or Cook's alleged financial interest in the contracts and that therefore the District is entitled to recover the assets transferred by the 1985 contracts. The District also seeks to impose a constructive trust on all hospital assets (the fifth cause of action), to conduct an accounting of the assets transferred under the 1985 contracts and their proceeds (the sixth cause of action), and to direct defendants to deliver the assets to the District (the seventh cause of action).⁶

Defendants admitted the existence of a controversy concerning the District's claim that the 1985 contracts are void, denied any wrongdoing, and alleged that the causes of action based on the purported invalidity of the 1985 contracts (the first, second, fifth, sixth, and seventh causes of action) were barred by the applicable statutes of limitations.

Defendants then brought a motion for summary adjudication with respect to the first, second, fifth, sixth, and seventh causes of action on the grounds that they were barred by all applicable statutes of limitations.⁷ In support of their motion, defendants argued that the gravamen of the District's complaint was a claim that the 1985 contracts were void in violation of Government Code section 1092. As such, they claimed that the suit was an action "other than for the recovery of real property" within the meaning of Code of Civil Procedure section 335 et seq. and was barred by the applicable statutes of limitations.

The District, in turn, moved for summary adjudication of, among other things, "defendants' affirmative defense of the statute of limitations." Relying on the common law principle adopted by the California Supreme Court in Hoadley, supra, 50 Cal. 265, the District argued, both in support of its motion and in opposition to defendants' motion, that under settled case law, "a suit by a governmental entity to recover public-use property from a private party to whom it was illegally or invalidly transferred is never barred by any statute of limitations."

The trial court rejected the District's purported application of Hoadley and granted defendants' motions. In its tentative decision, which was subsequently incorporated into the judgment, the trial court opined in part that the "contracts here are fundamentally different from those in the Hoadley line of cases. The 1985 lease and sale of assets were legitimate contracts. Violation of...