By Joshua Urquhart on November 15, 2013
This decision came down on Nov. 7. (Full disclosure: I was involved in the litigation in the district court.) Obligatory summary: In 2011, national health care giant HCA acquired full ownership of the HCA-HealthOne joint venture, which owns and operates a number of hospitals around Colorado. That list includes Presbyterian/St. Luke’s, Rose and Swedish (to name three hospitals that my accident-prone family has given business to). Prior to that acquisition, the nonprofit Colorado Health Foundation (CHF) had owned 40 percent of the venture. My old boss (OK, my former boss), Attorney General John Suthers, determined that the Colorado Health Transfer Act, which generally governs transactions involving nonprofit hospitals, did not apply because there was no change of control. But he did decide to exercise his common law authority as attorney general to review the transaction involving a charitable trust. Suthers approved the $1.45 billion sale contingent on certain conditions.
Well, no good deed goes unpunished, and a group of former CHF officers and directors sued him seeking to overturn the transaction. The AG first argued that these individuals – none of whom had any current connection to the CHF – lacked standing to bring their claims. That didn’t work, much to my chagrin, since I was lead counsel up to this point. In fact, the Rule 12(b)(1) oral argument was my last official act at the AG’s office. However, a few months later, the trial judge dismissed the case as moot, essentially finding that the transaction couldn’t be unwound in any real sense. The plaintiffs appealed; in addition to defending the mootness dismissal, the AG re-raised the standing argument.
As you can see from the Court of Appeals decision in Anderson, et al. v. Suthers, et al., I was right and the trial court was wrong. Neener neener! (Just kidding.) In Colorado – as is the case in the federal court system – a plaintiff generally can only bring a lawsuit if he or she has suffered some discrete injury-in-fact. (Yes, yes, there’s taxpayer standing – I’m aware of it.) The Court of Appeals held that the former officers and directors weren’t able to show that they would be tangibly affected by the sale, and thus, that meant no injury, which meant no standing.
I think that’s the right result. But this raises a good question, and one that is unsettled under Colorado law. Who does have standing to challenge a transaction involving a charitable trust (either by attacking the deal directly or by trying to force the attorney general to intervene)? In one sense, it seems like the beneficiaries to the trust might have standing: They should be able to claim that their benefits flowing from the trust are threatened. But while that may work for a trust intended to benefit a small class of people (such as a trust meant to provide housing to the clergy at a church), some charitable trusts are meant to broadly protect the public at large. Would anybody off the street be able to sue?
Well, no. It turns out that courts from other states generally have embraced Section 391 of the Restatement (Second) of Trusts, which states: “A suit can be maintained for the enforcement of a charitable trust by the Attorney General or other public officer, or by a co-trustee, or by a person who has a special interest in the enforcement of the charitable trust.” (There isn’t a good way to link to the Restatement (Second), but click here for a case demonstrating Section 391 in operation.) This limits standing to individuals with a “special interest” in the charitable trust.
But what does that mean? Unfortunately, there’s not an easy answer. Courts tend to be all over the map in construing the special interest doctrine. Some interpret it liberally and will let public interest groups challenge a charitable trust transaction (under the theory that they are “specially interested” in the subject matter; others are much more conservative. The article by Alison Manolovici Cody in this issue of the NYU Annual Survey of American Law is particularly good, but the link seems to be broken, so you’ll have to access it yourself. This article has a decent discussion of the issue as well. In general, I think it’s safe to say that someone who is an actual (and not just potential) beneficiary of a charitable trust will have standing to sue. So in the HealthOne context, a patient who is actually using hospital services and fears that those services may be reduced probably would have standing; someone who claims that he or she wants to use unnamed hospital services in the future would not.
Those courts are in other states, though. Colorado courts are silent on this issue, or at least they were until the Anderson decision was handed down. This Colorado Supreme Court decision cites Section 391 favorably for the proposition that the Attorney General can challenge a transaction involving a charitable trust, so that implies that Colorado courts would adopt a “special interest” doctrine, but the case certainly doesn’t address this issue. That’s why the Court of Appeals decision in Anderson is so interesting. It doesn’t go all the way in embracing Section 391’s “special interest” requirement, but it comes pretty close. I think it’s enough that, if I was briefing the issue, I’d probably cite the decision for the proposition that only a member of the public with a special interest can challenge a charitable trust transaction. I’m curious to see what the plaintiffs in the case do. If they’re inclined to appeal, I think the Supreme Court just might take the case.