Simkins v. Moses H. Cone Memorial Hospital

HAYNSWORTH, Circuit Judge, with whom BOREMAN, Circuit Judge,

joins (dissenting).

Believing the conclusion of the majority both unprecedented and unwarranted, I respectfully dissent.

If it is not made plain in the opinion of the majority, it should be clearly understood that neither of these hospitals came into existence under the promptings of federal or state officials, or because of the lure of large governmental subsidies.

Moses H. Cone Memorial Hospital was first organized in 1911. Mrs. Bertha Cone, the widow of Moses H. Cone, provided large sums of money for the purpose of establishing and constructing a nonprofit hospital in Greensboro, North Carolina. The corporation which she caused to be organized in 1911 has since successfully operated a large hospital in Greensboro providing a wide variety of medical services. It owned and operated facilities having a depreciated cost value of many millions of dollars, and, in addition, it had a substantial endowment. It was not until 1954 that the Cone Hospital, contemplating an addition to cost $5,-277,023.32, made application for Hill-Burton funds in the amount of $462,000. In 1960, it filed a second application for Hill-Burton funds in the amount of $807,-950 in connection with the construction of a diagnostic and treatment center and a further addition to its general facilities, costing in the aggregate $2,090,000. Both of these applications were approved, with the result that the Cone Hospital has received a total of $1,269,950 in Hill-Burton funds in connection with additions costing $7,367,023.32. As the majority opinion points out, the subsidies Cone received amounted to a little more than seventeen per cent of the cost of the 1954 and 1960 additions, but the subsidies amounted to a very much smaller proportion of the total cost of all of its facilities.

The facilities of the small 78-bed Wesley Long Hospital in Greensboro were antiquated. In 1959 and 1961, it filed three applications for Hill-Burton funds in aid of reconstruction and expansion projects designed to replace its antiquated facilities with modern ones and to enlarge its capacity to 150 beds. These applications were approved in the aggregate amount of $1,948,100, being approximately fifty per cent of the total cost of the construction programs undertaken in 1959 and 1961. The proportion of subsidy to the total value of all of its facilities does not appear.

It is against this background that we must approach the question of whether or not the present operation of these hospitals is “state action” in a constitutional sense, so that their operation is subject to the requirements of the Fourteenth Amendment.

The plaintiffs contend that state action should be found to have arisen out of the “totality” of the circumstances that a minority of the members of the Board of Trustees of the Cone Hospital are appointed by designated public officials, that Cone voluntarily cooperates with two state supported colleges in a program for the training of. student nurses, and, with respect to both hospitals, that they are licensed by the state, as doctors, lawyers and restaurants are, that they enjoy a tax exemption, as every eleemosynary corporation in North Carolina does, and that they received Hill-Burton funds. Since the majority rests its opinion solely upon the receipt of Hill-Burton funds, we may dismiss the other suggested governmental contacts upon which the plaintiffs would rely, being unwilling to rely upon the Hill-Burton contention alone. The United States, as intervenor, readily concedes that the receipt of governmental subsidy alone would not make the subsequent operation of a hospital state action, but it finds in the Hill-Burton Act and the North Carolina statutes passed in compliance with it such regulation and power of control as to convert the operation of the hospitals into state action in a constitutional sense. This theory, *972 adopted by the majority, distorts the Hill-Burton Act, its purposes and its operation in practice.

The Hill-Burton Act 1

2 was enacted in 1944 in recognition of the fact that throughout the country construction of hospital facilities had lagged behind the growing needs of our growing population. The country had only recently passed through the long, deep depression of the 1930’s and was then still heavily engaged in the second world war. The avowed purposes of the Act were to assist the states in surveying the need for new hospital facilities and developing programs for the construction of needed facilities, and, secondly, to assist in the construction of “public and other nonprofit hospitals” in accordance with the state programs. Memory is not so dim, of course, that it cannot be recalled that, at the time, it was very politic to utilize state agencies wherever possible in the administration of federal programs of grants in aid and of assistance.

That the Congress intended the enactment of no regulatory scheme plainly appears from the provisions of the Act 3 that, “[ejxcept as otherwise specifically provided,” nothing in the Act should be construed as giving any federal officer or employee any right of supervision or control over any hospital receiving grants in aid under the Act. The exception encompasses only the powers of the Surgeon General of the United States to approve or disapprove state plans and specific applications for grants in aid. It is thus clear that the Congress intended that receipt by a private, nonprofit hospital of a grant in aid should not result in a continuing right of control by the Surgeon General or by any other official of the United States. In short, subsequent operation of a hospital which had received a grant in aid of a construction program was not to be federal action.

This is substantiated by the legislative history. In the hearings before the Senate Committee on Education and Labor, Dr. Donald M. Smeltzer, President of the American Hospital Association, made it plain that, once a grant had been paid to a private hospital, the money would belong to the hospital; the grant was a gift. 3 Dr. Parran, Surgeon General of the United States, testified that the purpose was to assist the states “to fill out the missing pieces in the present hospital pattern, and that the hospitals continue to be under local government and voluntary management as they are now.” 4

The donee of such a gift does not become an arm of the donor.

In 1945, North Carolina adopted a statute, 5 as contemplated by the Hill-Burton Act, authorizing the North Carolina Medical Care Commission to survey and determine the need for hospital facilities and what, if any, state assistance was needed by public and private nonprofit hospitals in financing their construction programs. The statute, of course, authorizes the Commission to receive funds from the United States and such funds as might be appropriated by North Carolina, out of which it was authorized to make grants in aid to public and private nonprofit hospitals for construction projects. The statute goes no further than to authorize the Commission to perform those administrative functions in cooperation with the Surgeon General, as are contemplated by the Hill-Burton Act. There is nothing in it which suggests that the Commission was empowered to exercise regulatory or supervisory functions over the operation of private nonprofit hospitals, whether or not their operators had been the recipients of grants in aid of construction projects. The Attorney General of North Carolina, rendered an opinion on February 10, 1962, *973 in which he stated that the Commission had no regulatory or supervisory powers in connection with the operations of these hospitals or of their administrative and professional staffs, and the Executive Secretary of the Commission filed an affidavit in which he disclaimed the existence of any such power. Indeed, the record is barren of any suggestion that the state statute contemplated exercise by the Commission of any such power or that the Commission ever undertook the exercise of any such power. 6

The Hill-Burton Act and the North Carolina statute complementing it thus provided the machinery by which a hospital, owned and supported by a subdivision of North Carolina or by a private nonprofit corporation, might apply for a grant in aid of a contemplated construction program. Such an application would be granted only if, based upon the Commission’s survey, it was found that there was a need for the contemplated facilities, and those of greater need were to be approved before those of lesser need. There is no suggestion whatever, however, that North Carolina undertook in any other way, as a function of the state, the provision of adequate hospital facilities throughout the state for the benefit of all of its people. The state does provide medical facilities of a specialized nature, as for the care of the* insane, but the statutes do not empower the Medical Care Commission to provide general hospital facilities in a locality in default of cooperative efforts by local governmental bodies or citizens for the provision of such facilities. The role of the Commission is strictly limited, as is the role of the United States, to providing grants in aid of local effort, and the Commission is empowered to do nothing in the absence of such local effort. The assertion of the United States that North Carolina had undertaken a duty to provide local hospital services, where none were otherwise provided, is without any support whatever.

In this aspect of the case, the so-called “state plan” is no more than a survey of existing facilities to be utilized as a basis for judgment as to the relative need of such additional facilities as might be proposed by local governmental bodies or private nonprofit corporations or groups. In this scheme of things, these two hospitals played the same role in the same way before they applied for and received grants in aid of construction programs as they did afterwards. The facilities they operated before necessarily were taken into account and were highly relevant to any determination of the need of additional facilities in Greensboro. After-wards, in exactly the same way, their expanded facilities entered into the survey and were highly relevant to a determination of any need for additional facilities in the area.’ 7 Whether the expansion and improvement of these hospitals were ac *974 complished with or without grants in aid, they would have affected the “plan” in precisely the same way. If then, the operation of these hospitals was not state action before their receipt of the grants in aid, a determination that their operation is now state action depends wholly upon the fact that they received the grants in aid. The parties in the controversy are agreed that receipt of the grants, alone, does not permit a conclusion that subsequent operation of the hospitals is. state action. Certainly, no court has yet held that the private operation of any endeavor becomes state action merely because its construction or operation has been subsidized by Government. But that is all there is in this case.

Here it should be noted that as to North Carolina the first of the stated purposes of the Hill-Burton Act was largely accomplished in 1945, or soon thereafter, when North Carolina enacted a statute within the contemplation of the Act, created its Medical Care Commission, and that Commission made the survey and adopted regulations meeting Hill-Burton’s requirements. Indeed, North Carolina had conducted its hospital survey before Hill-Burton’s enactment in 1944. When the first of these grants in aid was approved in 1954, approximately nine years after the first of the stated purposes of Hill-Burton had been accomplished, it was clearly in furtherance of the second of its stated purposes, to assist in the construction of “public and other nonprofit hospitals.” From this, one cannot reasonably infer that an “other” than public nonprofit hospital, the construction of which was thus assisted, became public because of the assistance.

The majority appears to make much of the fact that, as authorized by the statutes, the Surgeon General and the North Carolina Medical Care Commission require certain minimal construction standards as a condition of the approval of grants in aid, but it does not follow from such requirements that the United States or North Carolina has so reached into the operation of the hospitals as to make that function a governmental one. Inevitably, when Government subsidizes, it, requires assurance that its subsidy will be used for the intended purpose. Applications for grants in aid for construction programs which are not needed are not to be approved, nor should they be approved if the proposed facilities will not serve the intended purpose. The minimal construction standards are provided only for the purpose of assuring that the facilities actually constructed with the help of a grant in aid will adequately serve the need which prompted the allowance of the grant. Anything short, of that would be a profligate and irresponsible waste of public money; anything more than that cannot be spun out, of this record. 8

Finally, reference is made to the fact that there is a right to recapture a proportionate part of a grant in aid in the event that the constructed facilities are t abandoned for hospital purposes or transferred to an unqualified operator within twenty years. That provision, however,, creates no interest in the facilities. It is not comparable to a right of reverter retained by a public body. It simply creates a limited and declining personal right of action against the recipient of the grant in aid if it deserts the purpose it represented it had when it obtained *975 the grant. Again, this is no more than a necessary provision for the protection of public moneys against unreasonable profligacy.

Any system of governmental subsidization necessarily carries with it the terms or conditions which must be met if the subsidy is to be obtained by a particular applicant. The tobacco farmer cannot obtain price supports if he does not comply with the quota requirements. A farmer cannot obtain a soil bank payment if he devotes his land to an unallowable use. A private, nonprofit college cannot obtain from the Small Business Administration a grant in aid of research unless it agrees to devote the money to a research project calculated to be of assistance to small businesses and which merits the approval of the Small Business Administration. The imposition of such conditions upon the receipt of subsidies is not, in a legal sense, the exercise of such control or the assumption of such authority as to make the subsequent operations of the recipient state action in a constitutional sense. The tobacco farmer harvesting his in-quota tobacco or another farmer planting trees on his soil bank lancl is performing no function of state or nation, though his work, as all legitimate, productive work, contributes to the economic health of the nation.

Here, it is apparent that a private operator of a nonprofit hospital must meet the conditions upon which grants in aid are made available if it wants to obtain the grant, but, having done so, its subsequent operation is not made thereby a governmental function. We may extract from the statutes such words as “plans,” “surveys” and “programs,” but magnification of the extracted words cannot convert the conditions of the grant in aid program into an authoritative regulatory program which the Congress specifically proscribed and which the State of North Carolina disavows. The truth is plain. This scheme for grants in aid to hospitals differs neither in kind nor degree from any other provision for grants in aid of private endeavor.

The question should be regarded as foreclosed in this Circuit by our decision in Eaton v. Board of Managers of The James Walker Memorial Hospital, 4 Cir., 281 F.2d 521 . There, it appeared the municipality conveyed the original site to the hospital, reserving to itself a right of reverter in the event the land ceased to be used for hospital purposes. Public officials selected the original board of trustees, but the original facilities were constructed with the private funds of Mr. Walker. That occurred shortly after the turn of the century. Much later, other land was acquired in fee and additional facilities were built. The complaint, as the records of this court disclose, alleged that the hospital “received large grants of money from the Federal Government” for its expansion project, an allegation which was admitted by the motion upon which the case was decided. In addition, it appeared that the city and county made annual payments to current operating revenues under contracts providing for the care of indigent patients. During the six years, 1952 through 1957, these annual contributions to operating revenues amounted to more than $277,000. These contributions to operating funds, as the majority points out, amounted, on the average, to approximately four per cent of the operating budget, but they were far from inconsequential, and the fact is that the hospital had also received construction subsidies of federal origin, just as had the hospitals here.

It is true that, in holding that the Walker Memorial Hospital “was not an instrumentality of the State but a corporation managed and operated by an independent board free from State control,” our attention was concentrated upon the annual contributions to operating funds rather than upon the contributions to capital funds, but the case is quite indistinguishable in its facts. Indeed, the cases here are stronger for the defense, for these hospitals are not shown to have been the-recipients of any contributions toward operating revenues, and the land of neither is subject to any right of *976 reverter in favor of any governmental body.

I find no reason for thinking that our decision in Eaton was overruled or weakened, as applied to the facts here, by the decision of the United States Supreme Court in Burton v. Wilmington Parking Authority, 365 U.S. 715 , 81 S.Ct. 856 , 6 L.Ed.2d 45 . There, Wilmington Parking Authority, an agency of the State of Delaware, constructed a parking facility, of which a restaurant was an integral part. It leased the restaurant area to a restaurant operator. Under the lease, the Authority supplied to the restaurant heat and fuel, and the Authority maintained exterior surfaces and had the right to place directional signs upon them. Fixtures placed in the leased area by the lessee became the property of the Authority and were not subject to taxation. The entire building, however, and this is the point of Burton, was a public building owned by a public authority and serving a public purpose. It was conceived and constructed as an entity, the restaurant being a necessary or an appropriate adjunct to the other services offered in the building. That the Authority chose to operate the restaurant through a lessee did not destroy the public character of the restaurant which it inevitably acquired from the building. Concessionaires and lessees in governmental buildings such as capitols and courthouses take on the character of the buildings and of the primary functions they serve. They necessarily are understood to be serving a public purpose and discharging a public function.

Here, in contrast, these hospitals are not publicly owned. They serve no public purposes, except that their operation contributes to public health, just as it did before their receipt of Hill-Burton funds. The state has an interest in public health, but identity of interest does not convert a private organization into a public body. That a private organization’s operations are compatible with governmental purposes is a cause of satisfaction, but, when a private organization operates on its own premises, in its own way, free of governmental supervision and control, its operations cannot be said to be state action. 9

The suggestion of the majority that the Court of Appeals for the Fifth Circuit in Hampton v. City of Jacksonville, 5 Cir., 304 F.2d 320 , questioned our decision in Eaton in the light of the Supreme Court’s decision in Burton v. Wilmington Parking Authority is wholly unwarranted in this context. Chief Judge Tuttle, in his opinion, thought that, in the circumstances of the transfer of the golf course by the City, reservation of the right of re-verter was comparable to a lease arrangement such as that involved in Burton v. Wilmington Parking Authority. Thinking so, he suggested that Eaton might have been otherwise decided had it come before us after Burton, but only because of the presence in Eaton of the right of reverter in favor of the municipality. There is present here no right of reverter in favor of any governmental authority, and the question posed by Chief Judge Tuttle in Hampton is wholly inapposite here. There is nothing in his opinion even obliquely critical of Eaton in the context with which we are now concerned.

Interestingly, Judge Jones concurred in Hampton upon a very limited ground having no bearing upon the authority of Eaton in any context, while Judge Gewin dissented. Judge Gewin found Eaton persuasive after Burton v. Wilmington Parking Authority even in the specific context of the reserved right of reverter in favor of the municipality.

*977 The specific question with which we deal, the effect of the receipt of Hill-Burton funds upon the operation of an otherwise private, nonprofit hospital, has been considered by other courts. They have been unanimous in their conclusion that the operation of such hospitals is not state action so as to make applicable to them the provisions of the Fourteenth Amendment. The Supreme Court of Appeals of Virginia considered the question in Khoury v. Community Memorial Hospital, Incorporated, 203 Va. 236 , 123 S.E.2d 533 . Judge Michie, of the Western District of Virginia, dealt with it in Wood v. Hogan, 215 F.Supp. 53 . Finally, Eaton, who brought the earlier case against the Board of Managers of Walker Memorial Hospital before us, filed a new action against the Board of Managers of that hospital, seeking a readjudication based upon an attempt to more particularize the facts and upon a contention that the decision of the Supreme Court in Burton v. Wilmington Parking Authority changed the legal climate. Judge Butler held against the plaintiff and dismissed the complaint. Eaton v. Grubbs, E.D.N.C., 216 F.Supp. 465 . 10

Recent measures in the Congress may bear upon governmental understanding of what was undertaken by the Hill-Burton Act and the state statutes enacted in order to qualify hospitals within the states for the grants in aid. On August 7, 1963, the Senate rejected a proposal that henceforth grants in aid to hospitals under the Hill-Burton Act be restricted to hospitals which are desegregated and which practice no discrimination on account of race. 11 Other broader proposals for the elimination of racial discrimination in broad categories of institutions and businesses, to be applied prospectively, are now pending before the Congress. These proposals lend some emphasis to what is so clearly apparent from the original Hill-Burton Act that the Congress had no idea that grants in aid authorized through cooperative state agencies would convert the subsequent operation of recipient private hospitals into state action so as to bring them under the Fourteenth Amendment. The Congress may properly reconsider this matter, and, undoubtedly, it has the power, if it chooses to exercise it, to condition future grants of Hill-Burton funds to the execution of nondiscrimination agreements. Under these circumstances, it seems to me particularly inappropriate for us to now hold that the Congress, unbeknownst to itself, in 1944 had done what it now has under consideration for prospective operation only.

For the foregoing reasons, I would affirm the judgment.

. 42 TJ.S.O.A. § 291 et seg.

. 42 U.S.O.A. § 291m.

. Hearings before the Senate Committee on Education and Labor on S. 191, 79th Cong., 1st Sess. p. 22.

. Ibid. p. 60.

. General Statutes of North Carolina § 131-120.

. Under a separate statute, no hospital may be operated in North Carolina without a license from the Commission. § 131-126 et seq. No such license may be obtained or renewed unless the hospital meets certain maintenance and operational standards as prescribed by the Commission. The licensure statute, however, applies to every hospital in North Carolina, whether or not it ever received Hill-Burton funds. It is altogether comparable to statutes which require licenses for the practice of medicine and of law and which prescribe minimal standards of training and of competence. It is comparable to restaurant licensing statutes which prescribe minimal sanitary standards. All of such statutes are designed to protect the public from gross professional incompetence or slovenliness.

It bears repeating, however, that the licensing statute applies to all hospitals, those which have received no Hill-Burton funds as well as to those which have.

. I find no warrant for the majority’s statement that “the defendant hospitals operate as integral parts of comprehensive joint or intermeshing state and federal plans or programs designed to effect a proper allocation of available medical and hospital resources for the best possible promotion and maintenance of public health.” The fact that these hospitals exist and operate must be taken into account in determining what, if any, additional hospital facilities are needed in the Greensboro area. Their “operation” is no part, much less integral, of someone else’s plan to assist in providing *974 additional hospital facilities in the areas of greatest need. Neither those of us who are well fed nor those of us who are underfed may be said reasonably to “operate as integral parts” of a governmental plan to make surplus foods available to indigents. A determination of those of us who are indigent is an essential part of the plan, but those whose heads are counted are neither integrally nor otherwise a part of the plan, though those on one side of the dividing line are its beneficiaries.

. Minimal operational and maintenance-standards are prescribed as a condition of licensing, but the licensing statutes apply to all hospitals without regard to the receipt of Hill-Burton funds. See fn. 6, supra.

. Of course, when public facilities are nominally transferred to private interests in order to escape constitutional commands and with the intention that the facilities will continue to be devoted to public use as in the past, they are not private. Hall v. St. Helena Parish School Board, E.D.Ba., (Three Judge Court) 197 E.Supp. 649; Hampton v. City of Jacksonville, 5 Cir., 304 F.2d 320 ; and see Griffin v. Board of Supervisors of Prince Edward County, 4 Cir., 322 F.2d 332 ; cf. City of Greensboro v. Simkins, 4 Cir., 246 F.2d 425 .

. See also such cases as Norris v. Mayor and City Council of Baltimore, D.Md., 78 F.Supp. 451 , and Mitchell v. Boys Club of Metropolitan Police, D.C., D.D.C., 157 F.Supp. 101 .

. Vol. 10 Southern School News No. 3, p. 5.