Richmond County Hosp. Authority v. Richmond County, s. 42571

• Decision Date: 21 November 1985
• Docket Number: 42670,Nos. 42571,s. 42571
• Citation: 255 Ga. 183,336 S.E.2d 562
• Parties: RICHMOND COUNTY HOSPITAL AUTHORITY et al. v. RICHMOND COUNTY et al. (two cases).
• Court: Georgia Supreme Court

Page 562

336 S.E.2d 562

255 Ga. 183

RICHMOND COUNTY HOSPITAL AUTHORITY et al. v. RICHMOND COUNTY et al. (two cases).

Nos. 42571, 42670.

Supreme Court of Georgia.

Nov. 21, 1985.

Patricia Warren Booker, Knox & Zacks, P.C., Wyckliffe A. Knox, Jr., Knox & Zacks, P.C., Augusta, Ted H. Clarkson, for Richmond County Hosp. Authority et al.

Robert C. Daniel, Jr., Augusta, for Richmond County, Georgia, et al.

Reinhardt & Whitley, Bob Reinhardt, James F. Grubiak, Hunter, Maclean, Exley & Dunn, Malcolm Maclean, Roland B. Williams, Wade W. Herring II, Alston & Bird, G. Conley Ingram, Jack Spalding Schroder, Jr., Barnes, Browning, Tanksley, Carr & Casurella, Roy E. Barnes, Thomas J. Casurella, Jeffrey G. Casurella, amici curiae.

MARSHALL, Presiding Justice.

The Richmond County Hospital Authority (the Authority) is a governmental entity which was created in 1960 by resolution of the Board of Commissioners of Richmond County, pursuant to the Hospital Authorities Act (OCGA § 31-7-70 et seq.; Ga.L.1964, p. 499), to operate the University Hospital as a public facility in Richmond County.

In 1984, the Authority approved a restructuring of the hospital, whereby it was leased for 40 years, pursuant to OCGA § 31-7-75(7), for operation by four private corporations which were formed: University Health Services, Inc., the nonprofit lessee; University Health, Inc., the nonprofit holding company; University Extended Care, Inc., the nonprofit sublessee of University Health Services, Inc., for the operation of the extended-care facility; and University Health Resources, Inc., the profit corporation to conduct health-care activities. By its terms, the lease became effective on February 1, 1985.

On February 19, 1985, Richmond County, by five of the six members of the Richmond County Board of Commissioners, brought this action against the Authority and the four private corporations to declare the lease null and void, and to enjoin its further implementation. The Authority appeals from the judgment adverse to it (Case No. 42571) and from the denial of its motion to amend the findings of fact and conclusions of law, and for a new trial (Case No. 42670). We reverse.

1. The appellees contend that the lease of the hospital was not a valid exercise of the Authority's power under the Hospital Authorities Act, supra. In Bradfield v. Hospital Auth. of Muscogee County, 226 Ga. 575, 583(1), 176 S.E.2d 92 (1970), this court, in upholding the lease of an authority hospital to a private nonprofit corporation, held: "Under the Hospital Authorities Law, this governmental obligation [to provide for the health of the people] can be discharged ... by the ... lease of the hospital to others ... (as well as by the Hospital Authority's operation thereof). [OCGA § 31-7-75.] There is no apparent reason why a suitable private corporation could not properly operate the hospital, either as lessee or as owner, so as to likewise promote the public health functions of government."

Here, following the holding in Bradfield, supra, a lease was made to a nonprofit corporation which must continue University Hospital operations in the same manner as they now exist: nonprofit and for the benefit of the community. While the technique of a lease to a corporation organized at the instance of the Authority was not addressed in Bradfield, it follows legally sound principles which come from the statute and decisions of this court. As stated in 1938, when an unsuccessful challenge was made to the legality of the Augusta Housing Authority: " 'A legislative project of this nature goes beyond anything heretofore attempted in this State. It naturally invites, therefore, the attack of those who are inclined to regard all experiments in our social and economic life as presumptively unconstitutional. Such challenges must fail, however, if upon analysis it appears that the only novelty in the legislation is that approved principles are applied to new conditions. Neither our State nor our Federal constitution forbids changes, merely because they are such, in the nature or the manner of use of methods designed to enhance the public welfare; they require only that the new weapons employed to combat ancient evils shall be consistent with the fundamental scheme of government of the commonwealth and the nation, and shall not violate specific constitutional mandates.' " Williamson v. Housing Auth. of Augusta, 186 Ga. 673, 693 (199 S.E. 43) (1938). OCGA § 31-7-96 provides: "This article, being necessary for the welfare of the citizens of the state, shall be liberally construed to effect the purposes hereof; and insofar as this article may be inconsistent with any other law, whether by charter of any political subdivision of the state or otherwise, this article shall be controlling."

The appellees raise several arguments against the lease. Their allegation that the lessee can engage in joint ventures for purposes unconnected with health care, overlooks the facts that the articles of incorporation clearly restrict the operations of University Health Resources, Inc., to health-related activities, and that the type ventures mentioned by the appellees would violate the nonprofit character of the lessee's articles of incorporation if undertaken by the lessee. The alleged inadequacy of the consideration for the lease ($1, an agreement to provide indigent care, and an agreement to furnish annual reports) fails to take into account the lessee's agreements, inter alia, to operate the hospital for the public benefit on a nonprofit basis; to maintain the hospital; to provide emergency treatment; to set rates using the same nonprofit criteria applicable to hospital authorities (thus not an improper delegation of the Authority's right to fix rates and charges); to provide ambulance services; and to assume a significant indigent-care burden, plus many millions of dollars in operating liabilities. The appellees' implication--that the hospital was built solely with county funds and that the taxpayers have paid for all of its existing structures--fails to recognize that most of the money for the hospital came from the proceeds of three revenue anticipation certificates issued by the Authority (in 1966, 1967 and 1977); that these issues have been defeased by the Authority, resulting in a direct savings to the taxpayers; that, prior to defeasance, the county paid only approximately one half of the principal of the first two issues and none of the last one, which was the largest of the three; that other non-county monies were involved in the construction of the hospital; and that the Authority was not required to defease a previous (1963) bond issue in order to lease the hospital.

(a) The superior court held that there was no lease to "others," as required by OCGA § 31-7-75(7), supra, because: the lease is to a corporation created at the direction of the Authority, the incorporator of the defendant corporations is also the attorney for the Authority, the Authority expended its funds to create the corporations, and there are Authority members serving on the board of trustees. This holding overlooks the principle that corporations are separate and distinct entities in the eyes of the law, notwithstanding even common ownership of two corporations and the relationship of one corporation as the wholly-owned subsidiary of another. Williams Plaza v. Sedgefield Sportswear Div., 164 Ga.App. 720, 297 S.E.2d 342 (1982); Collins v. Booker, 129 Ga.App. 824, 825(1), 201 S.E.2d 676 (1973).

(b) OCGA § 31-7-75(7) authorizes leases by the authority, with one proviso being "that the authority shall have retained sufficient control over any project so leased so as to ensure that the lessee will not in any event obtain more than a reasonable rate of return on its investment in the project, which reasonable rate of return, if and when realized by such lessee, shall not contravene in any way the mandate set forth in Code Section 31-7-77 specifying that no authority shall operate or construct any project for profit." (Emphasis supplied.)

The appellees contend that this provision requires that the lessee make an investment. However, the term "its investment" is relevant only insofar as it contributes to the measurement of the "reasonable rate of return" which § 31-7-75(7) indicates may be earned by a proprietary corporation or other person which or who is not legally prohibited from enjoying a personal profit or private inurement. The lessee, not being such a proprietary corporation, is untouched by the concept of reasonable rate of return and the investment which contributes to the measurement of such reasonable rate. Furthermore, the statutory language in question does not require an "investment"; it simply indicates that if an investment is made in connection with the lease, the rate of return will be limited to that which is reasonable.

(c) OCGA § 31-7-75(7) authorizes the lease of a project "provided that the authority shall have first determined that such lease will promote the public health needs of the community by making additional facilities available in the community or by lowering the cost of health care in the community ..." (Emphasis supplied.) In those situations wherein the legislature has conferred on other governmental entities the right and duty to make certain decisions, this court has consistently ruled that the courts of this state must not interfere with such decisions as made unless a governmental unit in question clearly abused its discretion. Chatham County v Mulling, 248 Ga. 878, 286 S.E.2d 735 (1982); City of Atlanta v. Wansley Moving etc., Co., 245 Ga. 794, 267 S.E.2d 234 (1980); Smith v. Bd. of Commrs., 244 Ga. 133, 259 S.E.2d 74 (1979); Cobb County etc., Hosp. Auth. v. Prince, 242 Ga. 139, 249 S.E.2d 581 (1978); Charles v. Cobb County, 231 Ga. 696, 203 S.E.2d 503 (1974). In the Prince case, 242 Ga. 139, supra, p. 146, 249 S.E.2d 581, we made very clear in a hospital-authority setting...