Court of Appeals Order in Affirmance

    > 

=A 
      9 

 aICeg JE 

Suart M. Cohen Clork 3 Offfpee 
Clerk of the Count lary, Now York 12207-1095 

DECISION March 30, 1999 

2 No. 43 Order affirmed, with costs to plaintiffs. 

Campaign To Save Our Public Opinion by Judge Wesley. 

Hospitals - Queens Coalition, Chief Judge Kaye and Judges Bellacosa, 

&c., et al., Smith, Levine, Ciparick and Rosenblatt 

Respondents-Appellants, concur. 

Vv. 

Rudolph W. Giuliani, &c., et al., 

Appellants-Respondents. 

 



State of New Pork 

Court of Appeals 
2 No. 42 

Council of The City of New York, 
&C.,.et-al., 

: $  Reotondente- Appellants ; OPINION 
Vv. 

Rudolph W. Giuliani, &c., et al., This opinion is uncorrected and subject to revision 
Appellants-Respondents. before publication in the New York Reports. 

  

Campaign To Save Our Public 
Hospitals - Queens Coalition, 
&c., et al., 

Respondents-Appellants, 
Vv. 

Rudolph HW. Giuliani, &c., et al., 
: Appellants-Respondents. 

No. 42: 

Elizabeth Dvorkin, for appellants-respondents. 
Ira A. Finkelstein, for respondents-appellants. 

No. 43: 

Elizabeth Dvorkin, for appellants-respondents. 
Barbara J. Olshansky, for respondents-appellants. 
District Council 37, AFSCME, AFL-CIO, et al.; Progressive 

Rainbow Independents for Developing Empowerment (PRIDE), et al.; 
Community Service Society of New York, et al.; and Fernando Ferrer, 
et al., amici curiae. 

WESLEY, J.: 

These related appeals challenge the validity of a 

sublease of a hospital operated by the New York City Health and 

Hospitals Corporation (“HHC”) to a for-profit entity pursuant to 

the Health and Hospitals Corporation Act (“Act”). Although 

several issues are raised, the threshold question is: does the 

Act permit the City to sublease Coney Island Hospital and turn  



  

9 No. 42-43 

over its operations and service obligations to PHS New York Inc., 

a private entity? Like the courts below, we conclude that the 

statute precludes the proposed transaction. 

Historical Context 

In 1929 New York City established a municipal Hospitals 

Department to provide health care to all residents who were 

unable to obtain care from private providers because of poverty, 

location or discrimination. This Department, which administered 

the municipal health system, operated fairly well during the 

Great Depression and the years preceding World War II. 

The decades following World War II, however, witnessed 

a steady decline in the municipal health system, and by the 1960s 

it was in chronic crisis. This crisis was born of bureaucratic 

sclerosis, archaic management practices, inefficiency and a 

shortage of funds. New York City hospitals suffered from 

obsolete facilities, long clinic waits and little or no primary 

care. The hospitals were under public attack for making second- 

class citizens of those New Yorkers who were dependent on them 

for their care (see generally, Commission on the Delivery of 

Personal Health Services, Comprehensive Community Health Services 

fo Ww [Dec 1967]). 

In 1969 the Legislature enacted the New York City 

Health and Hospitals Act, establishing HHC (McKinney's Uncons 

laws of NY § 7381 et seq, [HHC Act § 1 eL.seg.]: 1.1969, ch 1016, 

as amended). HHC was the perceived antidote for the ills that 

wa
r 

 



  

= 43 i. No. 42-43 

plagued the City's health care system. The Act authorizes HHC to 

manage and operate the City's municipal hospital system 

(McKinney's Uncons Laws of NY § 7386[1] [a] [HHC Act § 6(1) (a))]). 

The mission of HHC is to provide efficient, comprehensive health 

and medical resources to protect and promote the safety and 

welfare of New York City residents (McKinney's Uncons Laws of NY 

§ 7382 [HHC Act § 2]1). According to the Act, the provision of 

health and medical services and “the exercise by such corporation 

of the functions, powers and duties as hereinafter provided 

constitutes the performance of an essential public and 

governmental function” (McKinney's Uncons Laws of NY § 7382). 

In conjunction with providing quality care to those in 

need, HHC was established to permit independent financing of 

municipal hospital construction and improvements and to 

facilitate professional management of the hospital system. It 

was intended to overcome the “myriad * * * complex and often 

deleterious constraints” which inhibited the provision of care by 

the City in its own operation of the municipal health system 

(McKinney's Uncons Laws of NY § 7382). The Act authorized the 

City to lease the City-owned hospitals to HHC to fulfill its 

corporate purposes, “for so long as [HHC] shall be in existence” 

(McKinney's Uncons Laws of NY § 7387[1] [HHC Act § 7(1)]). The 

property, plant and equipment associated with these facilities 

are owned by the City and leased to HHC for an annual rent of 

$1.00 in accordance with these provisions. 

 



  

Wp RR No. 42-43 

HHC has evolved into the largest municipal hospital 

system in the country, handling more than 6.5 million patient 

visits and 230,000 admissions per year. The municipal health 

care system consists of 11 acute care facilities (including major 

teaching facilities), five certified home health care agencies, 

five long-term care facilities, six diagnostic and treatment 

centers, a network of more than 20 satellite clinics and a 

prepaid health plan. 

The Contemporary Context and Present Litigation 
  

Today New York City is experiencing a deja vu regarding 

the provision of health care to the needy. Although different 

forces are at work in the contemporary health care industry, once 

again spiraling costs and a shortage of funds are the hallmarks 

of New York City's health care system (see, State Comptroller H. 

Carl McCall, Challenges Facing New York Citv's Public Hospital 
  

System, Report 4-99 [Aug 5, 1998]). The current administration, 

like its predecessor 30 years ago, began considering various ways 

to revive and redefine the provision of health care services to 

the needy. 

In 1994 the City explored the possibility of 

transferring the operation of three public hospitals under the 

auspices of HHC -- Coney Island Hospital, Elmhurst Hospital 

Center and Queens Hospital Center -- to private entities. In 

October 1995, the City, through the New York City Economic 

Development Corporation, and HHC issued an Offering Memorandum 

-
 

 



  

- Baw No. 42-43 

requesting proposals from health care providers for the operation 

and management of Coney Island Hospital under a long-term 

sublease of the hospital. 

In an effort to obtain broader public review of the 

privatization plan, the City Council in March 1996 commenced this 

declaratory judgment action against the Mayor and HHC. The City 

Council alleged that the privatization of the target hospitals by 

means of subleases with private entities required City Council 

approval and was subject to the Uniform Land Use Review Procedure 

([ULURP] NY City Charter § 197-c). A second declaratory judgment 

action, raising the same issues, was commenced in May 1996 by two 

unincorporated associations whose members live and work in the 

communities served by Coney Island Hospital and the targeted 

hospitals in Queens (see, Campaign To Save Our Pub. Hosp.-Queens 

Coalition v Giuliani, 242 AD2d 518). All parties moved for 

summary judgment. 

  

While the motions and cross motions were pending, the 

City and PHS New York Inc. (“PHS-NY”), a private entity, executed 

a letter of intent on June 26, 1996 calling for negotiations to 

achieve a long-term sublease of the property, plant and equipment 

of Coney Island Hospital to PHS-NY. A contract for PHS-NY to 

operate Coney Island Hospital as a community-based, acute care 

inpatient hospital during the term of the sublease was executed 

as well. 

Following a public hearing, on November 8, 1996 the 

 



  

vg a No. 42-43 

HHC Board of Directors authorized and approved the sublease of 

Coney Island Hospital to PHS-NY for an initial term of 99 years, 

with a renewal option for an additional 99 years. The sublease 

requires PHS-NY, as the tenant under the prcposed sublease of 

Coney Island Hospital, to make a commitment to HHC, as the 

landlord, to operate Coney Island Hospital as an acute care 

inpatient hospital during the term of the sublease and to provide 

a range of inpatient, outpatient and emergency health care 

services to the Coney Island community, including indigent 

members of that community. Thus, the proposed sublease would 

obligate PHS-NY to provide specified essential health care 

services “to substantially the same degree” as Coney Island 

Hospital currently provides. The sublease further provides that 

the City and HHC would enter into a separate agreement with PHS- 

NY in which they would agree not to compete with PHS-NY by 

operating a hospital within the “catchment area” of Coney Island 

Hospital. 

The sublease also includes several significant terms 

that would benefit the City and the communities served by the 

hospital. For example, there is a “charity care” provision in 

the sublease, providing that for the life of the lease FHS-NY 

would offer care without regard to ability to pay, up to a level 

115 percent greater than the charity care expense currently 

 



  

WE A No. 42-43 

carried by Coney Island Hospital.” Another provision requires 

PHS~NY to spend at least $25 million in the first five years of 

the sublease on capital projects, in addition to assuming all 

routine maintenance costs. PHS-NY also is obligated to assume 

the outstanding HHC and City bonds associated with Coney Island 

Hospital and all liability for using and operating the hospital. 

The plaintiffs in both actions amended their complaints 

to allege that the sublease of Coney Island Hospital constituted 

an ultra vires act; the motion papers were amended to address 

this issue. Supreme Court granted summary judgment to plaintiffs 

and declared that the subleasing of HHC facilities was subject to 

ULURP, that the sublease required the approval of the Mayor and 

City Council, and that HHC did not have the statutory authority 

to sublease Coney Island Hospital. The Appellate Division 

affirmed, holding that the Coney Island Hospital sublease is not 

authorized by HHC's governing statute. 

We granted leave from the Appellate Division order of 

modification in Council and a stipulation withdrawing certain 

pending claims in Campaign, treated as a final judgment, to bring 

up for review the prior Appellate Division order in that case. 

  

"The purported benefits of this “charity care” provision are 

hotly contested by plaintiffs. In a comprehensive analysis of 

the proposed sublease, Comptroller Alan Hevesi concluded that the 

terms of the sublease protect PHS-NY by limiting its liability 

and do not guarantee that the hospital will continue to serve 

indigent patients (see, Hevesi, An is of Fundamental I S 

at Have Y Resolved [Nov 7, 1996] at 1-2). 

- 17 

 



  

-'8 - No. 42-43 

Concluding that the proposed lease is not authorized by the 

controlling statute, we now affirm and therefore do not need to 

consider the remaining issues. 

Analysis 

Does the Act authorize the proposed sublease of Coney 

Island Hospital to PHS-NY? We begin with the plain meaning of 

the words used in the statute (see, Giuliani v Hevesi, 90 NYZ2d 

27, 39). In giving effect to these words, “the spirit and 

purpose of the act and the objects to be accomplished must be 

considered. The legislative intent is the great and controlling 

principle. Literal meanings of words are not to be adhered to or 

suffered to defear the general purpose and manifest policy 

intended to be promoted” (People v Ryan, 274 NY 149, 152). 
  

The statute clearly indicates that the municipal 

hospitals would remain a governmental responsibility and would be 

operated by HHC as long as HHC remained in existence. In the 

“declaration of policy and statement of purposes” (McKinney's 

Uncons Laws of NY § 7382), the Legislature declared that the 

provision of health care and the operation of the City's health 

facilities were of “vital and paramount concern.” As indicated 

above, the Legislature was deeply disturbed by the fact that the 

City's health facilities were inadequate and that the 

administrative system then in place obstructed and impaired the 

efficient operation of health and medical resources (McKinney's 

Uncons Laws of NY § 7382). The Legislature noted: 

 



  

= Om No. 42-43 

"It is found, declared and determined 
that in order to accomplish the purposes 
herein recited, to provide the needed 
health and medical services and health 
facilities, a public benefit corporation 
* * * should be created to provide such 
health and medical services and health 
facilities and to otherwise carry out 
such purposes; that the creation and 
operation Of the [HHC] * * * is in all 
respects for the benefit of the people 
of the state of New York and of the city 
of New York, and is a state, city and 
puolic purpose; and that the exercise by 
such corporation of the functions, 
powers and duties as hereinafter 
provided constitutes the performance of 
an essential public and governmental 
function" McKinney's Uncons Laws of NY § 
7382). 

The statute requires HHC and the City to enter into an 

agreement by July 1, 1970, “whereby the corporation shall operate 

the hospitals then being operated by the city for the treatment 

of acute and chronic diseases” (McKinney's Uncons Laws of NY § 

7386[1][a)l). Coney Island Hospital was among the hospitals that 

the City leased to HHC “for its corporate purposes, for so long 

as [HHC] shall be in existence” (McKinney's Uncons Laws of NY § 

7387[1)). The statutory mandate is manifest and self-evident. 

The statute's history is replete with similar 

expressions of the Legislature's intent. There is no indication 

that the Legislature intended to authorize HHC to operate City 

hospitals only to later transfer that authority to a private 

entity. For example, the Governor in his Approval Memorandum 

emphasized that HHC was established to “operate and maintain the 

City's municipal hospitals” (Governor's Mem approving L 19682, ch 

 



  

EE No. 42-43 

1016 [reprinted in 1969 McKinney's Session Laws of NY, at 2569]). 

The legislative intent was perhaps best captured in a letter 

written by Mayor Lindsay: “[I]n establishing a public benefit 

corporation, the City is not getting out of the hospital 

business. Rather it is establishing a mechanism to aid it in 

better managiic that business for the benefit not only of the 

public serviced by the hospitals but the entire City health 

service system” (see, Letter dated May 8, 1969, Bill Jacket, L 

1969, ch 1016). This letter indicated that “the health care 

system will continue to be the City's responsibility” (id.). 

In urging this Court to tevetse the Appellate Division 

decision, defendants argue that section 5(6) of the Act 

(McKinney's Uncons Laws of NY § 7385[6]) authorizes HHC to 

sublease the hospital. This section grants HHC the power to 

"dispose of by sale, lease, or sublease, 
real or personal property, including but 
not limited to a health facility or any 
interest therein for its corporate 
purposes * * * *" (emphasis added) 

Defendants also contend that section 5(8) of the Act (McKinney's 

Uncons Laws of NY § 7385[8]) authorizes the transfer because it 

grants HHC the authority 

"[t]o provide health and medical 
services for the public directly or by 
lease with any person, firm or private 
or public corporation, rhrough.and in 

a n 
and to make rules and regulations 
governing admissions and health and 
medical services." (emphasis added) 

To adopt defendants' arguments would frustrate the clear and 

LY 

 



  

oni 0 No. 42-43 

well-defined statutory purposes and legislative intent, and would 

transfer “the performance of an essential public and governmental 

function” (McKinney's Uncons Laws of NY § 7382) to the private 

sector. To this end the Legislature mandated the City to enter 

into an agreement with the newly created HHC “whereby [HHC] shall 

operate the hospitals then being operated by the city for the 

treatment of acute and chronic diseases” (McKinney's Uncons Laws 

Of NY § 738611)1a}l). 

Both of the sections upon which defendants rely 

recognize that HHC's ability to divest itself of its assets or 

services is limited by HHC's corporate purpose. To read these 

sections to permit the wholesale transfer of administrative, 

operations and management control over Coney Island Hospital to a 

private for-profit entity would be incongruous with the statutory 

purpose and intent of the Legislature. 

Defendants also contend that this transaction is merely 

a sublease of Coney Island Hospital, not a wholesale transfer, 

and should not be viewed as an attempt to privatize the hospital. 

There are, however, several aspects of the sublease that undercut 

defendants' argument. Most notably, the covenant by HHC not to 

compete in the catchment area surrounding Coney Island Hospital 

effectively takes HHC out of the hospital business altogether. 

This provision therefore prevents HHC from doing exactly what it 

is statutorily obligated'to do -- operate a public hospital for 

the benefit of New York City residents living in that area. 

 



  

= 12 No. 42-43 

We are also troubled by the inherent conflict between 

HHC's statutory mission and the profit-maximizing goals of a 

private, for-profit corporation. This clash of missions 

precludes the transfer of total operational control over a public 

hospital to a for-profit entity. A public benefit corporation 

like HHC is “organized to construct or operate a public 

improvement wholly or partly within the State, the profits from 

which inure to the benefit of this or other states, or to the 

people thereof” (General Construction Law § 66[4]). In contrast, 

a private, for-profit corporation exists to provide maximum 

economic returns to its shareholders. This inherent conflict 

between HHC's public purpose and the goals of a health care 

institution run by a private, for-profit entity was recognized by 

experts evaluating the public hospital system more than 30 years 

ago, and played a significant role in the Legislature's decision 

to create a public benefit corporation to run the municipal 

hospital system (see, Temporary Commission of Investigation of 

the State of New York, Eleventh Annual Report to the Governor and 

the Legislature of the State of New York [1Y6S] at 101). 

Moreover, unlike for-profit corporations, public 

  

benefit corporations cannot dissolve themselves. Indeed, there 

is a glaring absence of a suicide provision in the Act, and 

sections 7385(6) and (8) cannot be read to allow HHC to divest 

itself of its assets and property. The only way for HHC to exit 

the hospital business is the way it entered: through an act of 

- 12 - 

 



-i13 = No. 42-43 

the Legislature (see, e.g., City of Rve v Metropolitan Transp. 
  

Auth,, 24 NY2d 627, 634; r of Gallagher v Regan, 42 NY2d 

230, 234). 

Thus, the statutory language, amply buttressed by the 

legislative history, supports the result reached by both the 

trial court and the Appellate Division: the proposed transaction 

is not authorized by the statute. HHC was created to fulfill a 

critical public mission -- the provision of comprehensive, 

quality health care services to the poor and uninsured residents 

of the City. Although many of the provisions of the proposed 

sublease arguably would benefit the City and surrounding 

communities, and indeed, improve the provision of quality health 

care to the poor, this must be done within the context of the 

authorizing Act.’ Short of action by the Legislature, HHC must 

continue to fulfill its statutory mission within the confines of 

its powers and purposes as established by its enabling 

legislation. 

Accordingly, in Council, the judgment of Supreme Court 

appealed from and the order of the Appellate Division brought up 

for review should be affirmed, with costs. In Campaign, the 

order of the Appellate Division should be affirmed, with costs. 

 



  

WE WA No. 42-43 

* * * * %* %* * %* * * * %* %* * %* * %* 

No. 42: Judgment of Supreme Court appealed from and order of the 
Appellate Division brought up for review affirmed, with costs to 
plaintiffs. Opinion by Judge Wesley. Chief Judge Kaye and 
Judges Bellacosa, Smith, Levine, Ciparick and Rosenblatt concur. 

No. 43: Order affirmed, with costs to plaintiffs. Opinion by 
Judge Wesley. Chief Judge Kaye and Judges Bellacosa, Smith, 
Levine, Ciparick and Rosenblatt concur. 

Decided March 30, 1999 

 



  

Court of Appeals 
State of Netw Dork 

The Hon. Judith S. Kaye, Chief Judge, Presiding 

Remittitur 

2 No. 43 Foy CS — a 
Campaign To Save Our Public : | } 3 ie } 5 : y 1) H 

Hospitals - Queens Coalition, ae } 1 me % 

&e., et al., LY, hot } 

Respondents-Appellants, 

Vv. 
Rudolph W. Giuliani, &c., et al,, 

Appellants-Respondents. 

The appellants-respondents in the above entitled appeal appeared by 

Hon. Michael D. Hess, Corporation Counsel of the City of New York; 
the respondents-appellants appeared by Elaine R. Jones, Esq., NAACP 

Legal Defense & Education Fund, Inc. and Barbara J. Olshansky, Esq., 
Center for Constitutional Rights; and amici curiae appeared by Richard J. 
Ferreri, Esq.; Sipser Weinstock Harper & Dorn, LLP; New York Lawyers for 
the Public Interest; Queens Legal Services Corporation; Urban Justice 

Center; Juan Cartagena,Esq.; Harry Franklin, Esq. and Dorsey & Whitney, 

LLP. 

The Court, after due deliberation, orders and adjudges that the order is 

affirmed, with costs to plaintiffs. Opinion by Judge Wesley. Chief Judge 
Kaye and Judges Bellacosa, Smith, Levine, Ciparick and Rosenblatt 

concur. 

The Court further orders that this record of the proceedings in this 
Court be remitted to the Supreme Court, Queens County, there to be 
proceeded upon according to law. 

I certify that the preceding contains a correct record of the 
proceedings in this appeal in the Court of Appeals and that the papers 
required to be filed are attached. 

Mark M1. Gtr 
Stuart M. Cohen, Clerk of the Court 
  

Court of Appeals, Clerk's Office, Albany, March 30, 1999.