Manhattan Eye, Ear And Throat Hospital v. Spitze

Facts

P was a Type- B charitable corporation under N.Y. Not-For-Profit Corp. Law § 511. P's corporate purposes are: 'to establish, provide, conduct, operate and maintain a hospital in the City, County and State of New York for the general treatment of persons suffering from acute short-term illnesses; performing general plastic surgery; treating persons suffering from diseases of the eye, ear, nose or throat; and maintaining a school for post graduate instruction in the treatment of such illnesses, performing such surgery, and the treatment of such diseases, and conducting associated and basic research.' To date, P has outstandingly realized these corporate purposes. It operated an acute care specialty teaching hospital established in 1869. Because of significant advances in medical technology, and an upheaval in the dynamics and economics of health care, things did not go well for P as it suffered a reduction in revenue. In 1993, as a way to cope up with the changing landscape, P obtained approval to decertify beds and establish six additional rooms for ambulatory surgery. In 1995, P opened its Harlem Center and three years later P applied for authorization to open the Brooklyn Center. P eventually appointed an independent hospital consulting firm to make recommendations. P then created a Strategic Committee which included, an investment banking firm. They were to determine: (1) whether P could survive as an independent specialty hospital, (2) what were the available strategic options, (3) how P must respond to a possible offer from Memorial Sloan Kettering Cancer Center (MSKCC). Those involved quickly became convinced that in its current state P had no value nor did even its name carry any economic vitality. Cushman & Wakefield concluded that the value of the 64th Street real estate 'was in the range of $ 46 to $ 55 million, it being understood that an approximate 12-month marketing period would be required to attempt to realize such value in the real estate market.' P eventually agreed to sell the property for $41 million. New proposed operating budgets for 1999 forecast 'bottom line losses' ranging from $6,369,000 to 3,417,000. P even reconsidered a refinancing proposal. Another proposal suggested that P could be acquired by Mt. Sinai at a substantially lower price where P may continue to function but with a different corporate owner. But there was interest from other medical institutions in seeking to preserve P as a world-class teaching and research hospital, which were ignored by the Board. The board put P up for sale and decided to go with the MSKCC offer. MSKCC would have opened a breast cancer facility in P’s New Hospital Building, and the remaining real estate was to be purchased by a developer to build an apartment building. Additional proposals to preserve P were put forth but all were rejected. P was to close its existing specialty hospital and convert the existing Harlem Center and the already approved though-not-yet-built Brooklyn Center to the proposed D&T Centers. P also has proposed entering into a sponsorship agreement with New York-Presbyterian Hospital. P authorized an 'affiliation agreement … with [NYPH] relating to the Hospital's Harlem Center and its proposed Brooklyn Center.' The Board authorized the NYPH arrangement, and thereafter NYPH and P entered into a 'non-binding' memorandum of understanding, dated September 30, 1999. Ten million dollars of the proceeds from the sale of the real estate would be placed into a restricted fund for P's programs which would be housed at NYPH; the remaining $31 million would be available for P's use, including the D&T Centers proposal. By law, any fundamental changes had to be approved by the Trial Court as under N.Y. Not-For-Profit Corp. Law § 511. D in his official capacity opposed the petition on the ground that P’s staff deliberately chose a course of action that would lead to the closure of the hospital. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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