Menorah Medical Center v. Health and Educational Facilities Authority

Citation584 S.W.2d 73
Decision Date29 June 1979
Docket NumberNo. 61031,61031
PartiesMENORAH MEDICAL CENTER, a Not-for-Profit Missouri Corporation, the Washington University, a Not-for-Profit Missouri Corporation, and St. Louis University, a Not-for-Profit Missouri Corporation, Plaintiffs-Respondents, and John Ashcroft, Attorney General of the State of Missouri, Intervenor-Plaintiff-Respondent, v. HEALTH AND EDUCATIONAL FACILITIES AUTHORITY of the State of Missouri, a Body Politic and Corporate, Dr. Gale T. Bartow, Luther G. Bellinger, Dr. Samuel C. Bonney, R. J. (King, R. J.) Massman, III, Lewis H. Wallace and Raphael Zapien, Constituting All of the Members of the Missouri Health and (Educational Facilities Authority) of the State of Missouri, Defendants-Appellants.
CourtUnited States State Supreme Court of Missouri

Thomas E. Wack, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, for defendants-appellants.

Lawrence M. Berkowitz, Webb R. Gilmore, Kansas City, Thomas C. Walsh, Michael G. Biggers, St. Louis, for plaintiffs-respondents.

MORGAN, Chief Justice.

Menorah Medical Center, Washington University and St. Louis University, as plaintiffs, sought a declaratory judgment that the Health and Educational Facilities Act (passed in 1975 and now constituting Chapter 360 of the statutory law of this state) did not contravene any provisions of the Missouri and United States Constitutions. Defendants were the Health and Educational Facilities Authority, created by the Act, and the individual members thereof.

Judgment was entered in the Circuit Court of Cole County in favor of plaintiffs. It was predicated obviously upon twenty-six Findings of Fact and thirty-seven Conclusions of Law, entered of record, which we find delineated and resolved all issues. We affirm.

The uncontroverted purpose of the Act is to establish a mechanism whereby "educational institutions" and "health institutions," as defined therein, 1 may obtain funds for financing capital improvements or to refinance any existing indebtedness under terms, hopefully, more favorable than that in the private market.

The Authority is designated as a "body politic," a "public instrumentality," and an entity "deemed and held to be (in) the performance of an essential public function." § 360.020. Being assigned to the Department of Consumer Affairs, Regulations, and Licensing, the Authority must report annually to the director of that department. § 360.140. Under § 360.025, "The proceedings and actions of the authority shall comply with all statutory requirements respecting the conduct of public business by a public agency." "Educational institution" and "health institution" include any "private association, corporation, or institution not operated for private or corporate profit . . . ." The educational or health facilities which may be financed are broadly defined in § 360.015 but exclude "property used or to be used for sectarian instruction or study or as a place for religious worship or any property used or to be used primarily in connection with any part of a program of a school or department of divinity of any religious denomination." The income and property of the Authority and the income on the bonds it issues are tax-exempt. §§ 360.085 and 360.135. Bonds are not an obligation or liability of the state. § 360.080. The proceeds of the bonds are not revenues of the state. § 360.115. Bonds are payable solely out of the revenues and receipts derived from the leasing or sale by the Authority of the facility involved or as may be designated in a trust indenture authorized by the Authority. § 360.060. Investments which may be made with Authority funds are specified in § 360.120, including permissible investments by private fiduciaries in Authority bonds. § 360.125. The benefits of this arrangement are that the tax-exempt status of the Authority bonds provides greater marketability at lower interest rates than bonds sold through a private issue, and that the interest rate charged by the Authority to the institutions is correspondingly lower than that which would be charged by a private lender.

The Authority may either (1) finance new institution-owned facilities, (2) refinance existing institution-owned facilities, or (3) lease Authority-owned facilities to the private institution. Broad discretion as to the type of financial assistance to be provided is given to the Authority, E. g., loans, purchases of securities, construction and sale, purchase and lease-back, contracts, mortgages, and indentures are all possible alternatives under §§ 360.050-.075 and 360.105. Section 360.100 specifies when the Authority must convey the facilities to the institution involved.

The three plaintiffs in this action, all not-for-profit Missouri corporations, proposed differing forms of financing to the Authority.

Menorah, a short term acute care general hospital governed by a Jewish board of directors, proposed purchase and lease-back financing. Under this proposal, the Authority would use the proceeds of a bond issue to purchase a portion of the hospital facilities and retire the existing debt on it. The Authority would then lease the facilities back to Menorah at a rental amount sufficient to pay the principal and interest due on the bonds. Menorah would be authorized to reacquire title to the leased property directly from the Authority after the bonds are paid in full. Under the lease, Menorah is given the power to alter the facility as it deems desirable, to extend the lease for up to six five-year periods beyond the term of the bonds at a nominal rent, to terminate the lease and/or purchase the facility prior to the redemption of the bonds by paying a sum sufficient to retire the bonds, to purchase a part of the facility at any time without paying off the bonds, and to grant easements and licenses. Menorah also submitted a proposed trust indenture to the Authority. Under the indenture a private corporate trustee would handle the bond proceeds. The trustee would also receive and disburse the revenues from the projects in order to pay the principal and interest on the Authority bonds. In the event of default, the trustee would be entitled to take over management of the facility, improve, repair, operate, lease, or foreclose the facility or place it in receivership.

Washington University, a nonsectarian institution for higher education proposed a loan agreement for the refinancing of existing graduate student and faculty housing. Under the agreement, the Authority would loan the proceeds of a bond issue to the University, which in turn would use the loan to pay the existing indebtedness on the housing. The loan would be repaid solely from operating funds of the University. The loan agreement was accompanied by a trust indenture similar to that submitted by Menorah.

St. Louis University, a not-for-profit corporation organized for educational purposes, was originally founded as a Jesuit Academy. Today, two-thirds of the board members are of the Catholic faith. St. Louis University proposed a sale agreement. Under the agreement the Authority would use the bond issue proceeds to purchase an audio-visual system. The system would then be sold to the University School of Medicine. Installment payments would be made by the University. The Authority would receive no mortgage or other security for repayment. In the event of default, the Authority would have no right to take possession of the facility. A trust indenture similar to those of Menorah and Washington University accompanied the sale agreement.

The three sets of agreements were approved as to form and content by the Authority in a meeting on May 10, 1978. Counsel for the Authority then identified various legal issues, nearly identical to those raised in this case, including the possibility of personal liability of the Authority members, which led him to advise the Authority not to execute the agreements. The members then passed a resolution refusing to execute the agreements. This suit was then filed.

At the outset, we note that the burden is on appellants to demonstrate that the legislative enactments in question are unconstitutional. In State ex rel. Farmers' Electric Cooperative, Inc. v. State Environmental Improvement Authority, 518 S.W.2d 68, 72 (Mo. banc 1975), we recognized the long established principle of constitutional construction that:

The state constitution, unlike the federal constitution, is not a grant of power, but as to the legislative power, it is only a limitation; and, therefore, except for the restrictions imposed by the state constitution, the power of the state legislature is unlimited and practically absolute. Kansas City v. Fishman, 362 Mo. 352, 241 S.W.2d 377 (1951).

See also State ex rel. Jardon v. Industrial Development Authority, 570 S.W.2d 666, 673 (Mo. banc 1977); and, Americans United v. Rogers, 538 S.W.2d 711, 716 (Mo. banc 1976).

I.

Appellants contend that Chapter 360 authorizes the lending of public credit and grant of public money by the General Assembly in violation of Article III, 2 §§ 38(a), 39(1) and 39(2), in that the state's name and credit are used on the Authority's bonds, and thus default on the bonds could impair the state's own credit, and in that no public purpose is involved in the issuance of these bonds to private institutions.

Article III, § 39 of the Missouri Constitution provides, in part, that:

The general assembly shall not have the power: (1) To give or lend or to authorize the giving or the lending of the credit of the state in aid or to any person, association, municipal or other corporation;

(2) To pledge the credit of the state for the payment of the liabilities, present or prospective, of any individual, association, municipal or other corporation; . . .

It is argued that the credit of the state is being lent in two ways: First, the title of the Authority, "the Health and Education Facilities Authority Of the State of Missouri," (§ 360.020) indicates that the state is involved and stands...

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