State v. Good Samaritan Hosp. of Maryland, Inc., 100

• Decision Date: 11 April 1984
• Docket Number: No. 100,100
• Citation: 473 A.2d 892,299 Md. 310
• Parties: , 45 A.L.R.4th 869 STATE of Maryland et al. v. The GOOD SAMARITAN HOSPITAL OF MARYLAND, INC. Sept. Term 1983.
• Court: Maryland Court of Appeals

Page 310

299 Md. 310

473 A.2d 892, 45 A.L.R.4th 869

STATE of Maryland et al. v. The GOOD SAMARITAN HOSPITAL OF MARYLAND, INC.

No. 100 Sept. Term 1983.

Court of Appeals of Maryland.

April 11, 1984.

Howard L. Sollins, Asst. Atty. Gen., Baltimore (Stephen H. Sachs, Atty. Gen., and Randall M. Lutz, Asst. Atty. Gen., Baltimore, on the brief), for appellants, State of Md. and Adele Wilzack, Secretary, Md. Dept. of Health and Mental Hygiene.

Richard Bloch, Baltimore (Reuben Shiling, Richard M. Weintraub and Shiling & Bloch, P.A., Baltimore, on the brief), for appellants, Maryland Podiatry Ass'n and Anthony J. Costa, D.P.M.

John C. Evelius, Baltimore (Gallagher, Evelius & Jones, Baltimore, on the brief), for appellee.

Werner Strupp, Washington, D.C., on the brief, for amicus curiae, American Podiatry Ass'n.

John F. King, Jeanette A. Plante and Anderson, Coe & King, Baltimore, on the brief, for amicus curiae The Medical and Chirurgical Faculty of Maryland.

Argued before MURPHY, C.J., ELDRIDGE, COLE, DAVIDSON, RODOWSKY and COUCH, JJ., and W. ALBERT MENCHINE, Retired, Specially Assigned Judge.

MURPHY, Chief Judge.

The primary question in this case is whether Maryland Code (1982), § 19-351(b) of the Health-General Article (the podiatry statute), as applied to The Good Samaritan Hospital of Maryland, Inc. (Good Samaritan), violates Article I, § 10 of the United States Constitution which prohibits any state from enacting "any ... Law impairing the Obligation of Contracts."

Section 19-351(b) provides:

"(b) Podiatrists.--(1) A hospital or related institution that provides medical or surgical care of the foot, other than incidental care, shall include, in its bylaws, rules, or regulations, provisions for use of facilities by and staff privileges for qualified podiatrists.

(2) The hospital or related institution may restrict use of facilities and staff privileges by podiatrists to those podiatrists who meet the qualifications that the hospital or related institution sets for granting those privileges."

The podiatry statute thus requires that any hospital which offers medical or surgical foot care must permit qualified podiatrists to obtain staff privileges and to use the hospital's facilities. While the statute prohibits such hospitals from categorically excluding all podiatrists, it permits the hospital to determine those individuals whom it will accept as "qualified podiatrists." ¹

I.

Good Samaritan filed a declaratory judgment action in the Circuit Court for Baltimore City, challenging the constitutionality of the podiatry statute as being in violation of (1) the Contract Clause of the Federal Constitution, (2) the Due Process and Equal Protection Clauses of the Fourteenth Amendment and Article 24 of the Maryland Declaration of Rights and (3) § 33 of Article III of the Constitution of Maryland. ²

The evidence at trial established that Good Samaritan is a private, nonprofit community hospital built and operated pursuant to a testamentary bequest of Thomas O'Neill, a Catholic philanthropist, who died in 1919. O'Neill's will provided for the establishment of a corporation to use his bequest "for the purposes of erecting and maintaining a hospital" in a designated location. It also directed that "the policy, supervision and general direction and management of [the] hospital is at all times to be subject to the control of the ... Board of Trustees." In 1920, the State granted Good Samaritan a corporate charter pursuant to the general corporation law; the charter enumerated, as the hospital's corporate purpose, "the acquiring of land and ... other property and erecting and maintaining a hospital."

As shown by the evidence, Good Samaritan is a 259-bed hospital constructed in 1967-1968. It has a medical staff of 375 health care professionals. Among its many services, the hospital renders medical and surgical care of the foot through general, vascular and orthopedic surgeons. Of these physicians, five are hospital-based orthopedic specialists and thirty-five provide medical care and treatment related to the foot. These physicians hold full staff privileges at the hospital.

The evidence further showed that there are 150 to 200 podiatrists in Maryland. While a number of hospitals in the State grant full staff privileges to podiatrists, Good Samaritan grants only limited out-patient staff privileges to these individuals. Good Samaritan declined to amend its bylaws to conform to the podiatry statute's requirements. The Vice-Chairman of Good Samaritan's Board of Trustees testified as to the reasons for the Board's decision:

"[T]he board of trustees ... felt that since we had a charter from the State to act as a medical care institution we had the right to in our own bylaws ... talk about the kind of care and how we would deliver it. Our hospital is a very busy institution. We didn't feel that the facilities there were capable of taking on other services without infringing upon those that were already established. We felt that the State was intruding in the board room, that we have an intrinsic right to have our hospital deliver the care in the manner that it does and in the areas that it does and so the board voted against changing the bylaws to allow podiatrists to have full medical privileges on the staff."

Other evidence adduced on behalf of Good Samaritan tended to establish that foot care at the hospital, as presently provided by physicians holding staff privileges, was entirely adequate; that podiatrists are, therefore, not needed to provide foot care at Good Samaritan; that the hospital's surgical facilities are presently scheduled to capacity, with a substantial waiting period for elective surgery; that the addition of podiatrists to Good Samaritan's staff would require more ancillary personnel and more operating rooms, as well as an enlargement of the hospital's present building; and that Good Samaritan could not increase its foot care facilities without infringing upon current hospital services and overtaxing its resources.

The trial court (Grady, J.) concluded that the podiatry statute constituted an impermissible use of the State's police power in violation of the Contract Clause of the Federal Constitution, resulting in an unconstitutional taking of the use of the hospital's property. The court correctly noted that under Robert T. Foley Co. v. W.S.S.C., 283 Md. 140, 389 A.2d 350 (1978), a claim that a legislative enactment invalidly impairs contractual obligations implicates a three-pronged test--first, whether a contract exists; second, whether an obligation under the contract was changed; and third, if it was, whether the change unconstitutionally impairs the contractual obligation. Applying the Foley test, the trial court first held that Good Samaritan's charter constituted a contract with the State. In next considering whether the podiatry statute changed an obligation under the contract, the court, relying upon Levin v. Sinai Hosp. of Balto., 186 Md. 174, 46 A.2d 298 (1946), said that a private, nonprofit hospital has "the basic right ... to manage its internal affairs with particular reference to selecting its staff." The court, after noting that a right of management and control of corporate assets is vested in the corporation as one of the incidents of ownership, determined that the requirements of the podiatry statute "materially affect the Hospital's right to manage its affairs," thus satisfying the second prong of the Foley test. The court next considered Foley's final prong, i.e., whether the podiatry statute "unconstitutionally impairs the contract obligation." In holding that it did, the court said that the podiatry statute was not predicated upon the abatement of a nuisance or upon an immediate threat to public health and safety. It therefore concluded that because the statute affirmatively required Good Samaritan to spend its resources pro bono publico, an unconstitutional taking of the use of the hospital's property had occurred, thereby impairing the contract obligation, even though Good Samaritan was not deprived of the substantial enjoyment of its property.

The State and other parties defendant in the case appealed to the Court of Special Appeals from the declaratory judgment entered by the trial court. ³ We granted certiorari prior to consideration of the appeal by the intermediate appellate court to consider the issues of public importance raised in the case.

II.

Read literally, the Contract Clause appears to proscribe any impairment. The Supreme Court has made clear, however, that the constitutional prohibition is not absolute. Finding technical impairment is just a first step toward resolving the more difficult question of whether the impairment is permitted by the Constitution. See, e.g., Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978); United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977); Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413 (1934).

It is well settled that the Contract Clause must be accommodated to the inherent police power of a sovereign state to protect the general welfare of its people. Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983); East New York Sav. Bank v. Hahn, 326 U.S. 230, 66 S.Ct. 69, 90 L.Ed. 34 (1945); Edgar A. Levy Leasing Co. v. Siegel, 258 U.S. 242, 42 S.Ct. 289, 66 L.Ed. 595 (1922). "The legislature cannot bargain away the police power of a State." Stone v. Mississippi, 101 U.S. 814, 817, 25 L.Ed. 1079 (1880). Accordingly, a reservation of that power is "an implied condition of every contract." East New York Sav. Bank, supra, 326 U.S. at 232, 66 S.Ct. at 70. The doctrine that a state's police power is paramount to contract rights applies regardless of whether the rights in question are between individuals, between an individual and a state or between a...