Glass v. Doctors Hospital, Inc.

Hammond, J., delivered the opinion of the Court. Dr. Louis Glass, the appellant, founded, and for some time controlled, Doctors Hospital, Inc., a non-stock corporation, the appellee. In late 1954, the board of trustees which for some years had managed the hospital in accordance with the direction of its charter, terminated Dr. Glass’ privilege to practice there as of January 1, 1955. He filed a bill against the hospital, seeking declarations that his dismissal was of no effect, that he is a permanent member of the non-stock corporation with all of the rights and privileges of a member, including the right to practice at the hospital, and asking that the trustees be enjoined from depriving him of his rights as a member of the medical staff.

After consideration of testimony produced at a trial that lasted three weeks and of one hundred exhibits, the chancellor, in an able opinion, denied Dr. Glass any relief, and dismissed his bill. The evidence shows that Dr. Glass and his brother were engaged in the practice of medicine in Baltimore, while at the same time carrying on a very active real estate business. In 1938 they purchased property on Washington Boulevard, which they used as their offices and as a small hospital. The brother then went into the military service.

In 1941, Dr. Glass with some associates incorporated Doctors Hospital, Inc., as a non-stock corporation. In 1943 title to the Washington Boulevard property was transferred to the corporation, which thereafter paid rent to the brothers. From 1938 to 1947, the hospital was financed by the Glass family and ⁵⁰ managed by Dr. Louis Glass exclusively. The board of trustees consisted largely of the Glass family.

In 1944, Doctors Hospital, Inc., bought property in the 2700 block of North Charles Street from the Maryland Academy of Sciences, intending to convert it into a hospital. Seemingly, because outside capital could not be attracted to a non-profit corporation, Dr. Glass caused to be formed a stock corporation, known as Doctors Hospital of Maryland, Inc. All of its capital stock was subscribed and paid for in cash and other valuable considerations by the Doctors Glass and three other doctors, but the certificates were never issued. A deed for the Charles Street property was executed to the new corporation but never recorded. The present hospital building was constructed on the Charles Street property with capital funds and the proceeds of a mortgage on the property in accordance with Dr. Glass’ plans and under his personal supervision.

It was decided then that Doctors Hospital, Inc., should run the institution and it did so from the time it began operations on Charles Street in 1947. Dr. Glass organized the medical staff, appointed the heads of departments, gave out privileges and was personally in control of all operations. Almost immediately it was thought necessary to acquire membership in the Maryland Hospital Association, commonly known as Blue Cross. It was learned that this could not be done if the hospital was operated by those who controlled it financially.

Doctors Hospital of Maryland, Inc., transferred all of its assets to Doctors Hospital, Inc., and was thereafter dissolved. Dr. Glass’ testimony is that as part of the arrangement by which Doctors Hospital, Inc., acquired assets of the stock corporation, it assumed all obligations, and that he and another doctor were given permanent rights to be members of the hospital and of its staff. In 1948, a second mortgage was executed from Doctors Hospital, Inc., to Dr. Glass and his wife and others, in the sum of $200,000, representing all monies advanced by anyone who had contributed in any way to the construction of the hospital building, including, as the chancellor found, amounts paid for the stock of the stock corporation. One ⁵¹ hundred thousand dollars is stated in the mortgage to be owing to Dr. Glass and his wife.

The hospital then sought accreditation from the Baltimore City Medical Society, acting as agent for the American Medical Association. A survey committee advised the hospital of its finding that the board of directors was too small and should be expanded to fifteen members, with backgrounds of public service and with no previous business affiliations with the hospital or its staff. Dr. Glass, his brother, and two other directors resigned from the board and new members were elected in their places. Dr. Glass was appointed administrator of the hospital.

He continued to be the dominant force in its operation, and the board, from time to time, found it necessary to remind him that it was the governing body to whom he was responsible. In 1950, the Baltimore City Medical Society suggested that Dr. Glass should not be the executive officer of the hospital because he was on the staff and because the hospital was heavily obligated to him financially. Pursuant to this recommendation, Dr. Glass, in 1951, resigned as administrator and was appointed “Hospital Consultant”. In 1951, Mr. Sokol, a lawyer of Baltimore, became a member of the board and friction between Dr. Glass and the board increased acutely, chiefly because he was unwilling really to relinquish control of the hospital and to face up to the realization that its affairs were to be in fact as well as in legal theory, managed and controlled by the trustees, so that he could no longer treat and manage the hospital as if it were his personal creature.

As the chancellor put it: “Behind this skeletal history loom conflicts of personality and battles for administrative control of the hospital in whose formation, indubitably, the plaintiff played the major part. * * * Through his efforts and the efforts of the members of the Board of Trustees and the staff, the hospital today has attained a real place in Baltimore’s roster of medical institutions. It has over eighty beds for patients; its staff numbers between 150 and 200 physicians and dentists; it has approximately seventy-five employees; it is registered by the American Medical Association and the American Hospital Association, and provisionally accredited ⁵² by the Joint Commission on Accreditation of the American Medical and American Hospital Associations. It was included among the Baltimore hospitals to which, after investigation, the Ford Foundation recently awarded grants'. It is unique in Baltimore in that the great majority of the members of its staff are general practitioners.

As to the institution, the plaintiff’s ambition has been realized, but in the process his own connection with it has been terminated. In his eyes, like Frankenstein, the creature to which he gave life has turned upon him.” The plaintiff’s efforts in a court of equity to regain his place on the medical staff of the hospital are grounded on the following contentions: (1) the appellee is a private corporation with members in addition to, and apart from, the board of trustees, and the doctor, despite his resignation from the board, is still a member whose corporate rights and privileges have been violated by the refusal to renew his medical privileges; (2) the corporate entity should be disregarded because the hospital always has been and still is a private enterprise of Dr. Glass and his brother and not a charitable institution; (3) Dr. Glass is the “founder” of the hospital and, in effect, grantor of a trust, the terms of which have been violated by the hospital’s refusal to renew his privileges to practice in it; (4) Dr. Glass has a contract right to practice for life in the hospital; and (5) the hospital’s refusal to renew his privileges to practice in the hospital was illegal because (a) he had no previous notice of the action and was not given the opportunity to be heard, (b) the board of trustees that took the action was not legally in office at the time, and (c) the action taken was unlawful, capricious, arbitrary, unwarranted and unjust. We think that appellant’s contention as to membership in the hospital will not stand up. The- charter of Doctors Hospital, Inc., sets the original number of directors at five and provides that the number may be changed in any lawful manner that the by-laws may from time to time provide, and that the corporation is to have no stock.

The management of the business and affairs of the corporation is vested in the directors who shall determine all affairs, matters or things ⁵³ pertaining to its business or affairs. The by-laws provide that the board of trustees (that is, the board of directors) shall consist of nine members which may be increased or decreased, that they shall annually, in January of each year, elect their successors who shall serve for one year or until their successors are elected and take office, and that vacancies shall be filled by the remaining trustees. The chancellor held, correctly we think, that the hospital’s charter and by-laws provide that the only members of the corporation are the board of trustees. At the time of the formation of the corporation, Code, 1939 Ed., Art. 23, Sec. 17 (Code, 1956 Supp., Art. 23, Sec. 130 (a) is substantially to the same effect), provided that a non-stock corporation can restrict its members to its board of directors or trustees.

There is nothing in the charter or by-laws to suggest that there are to be members other than the board. Code, 1951, Art. 23, Sec. 48 (b), provides that members of succeeding boards in a non-stock corporation shall be elected by members at their annual meeting. As the chancellor said: “* * * in the defendant’s by-laws the provisions for the election by the members of the Board of their own successors in itself preclude the concept that there could be members of the corporation other than the members of the Board.” There is no provision in the charter or the by-laws for any meetings except those of the board, although meetings of members of non-stock corporations are authorized by the corporation article of the Code, which says also that by-laws may be altered or repealed by members of a non-stock company. The hospital’s by-laws provide that they may be amended, altered or repealed by a majority vote of the board.

It is our view, as it was that of the chancellor, that “* * * the members of the Board of Trustees are for all corporate purposes, the only members of the corporation.” See Brune, Maryland Corporation Law and Practice, Rev. Ed., Sec. 99, p. 96. Dr. Glass contends that the provisions of the corporation article (Sec. 17 of Code 1939, and Sec. 130 (a) of Code, 1956 Supp.) that “* * * in any case in which any such corporation has in fact no members other than the members of its governing * * * board * * * the members for the time being of its ⁵⁴ governing * * * board shall * * * be taken to be the members of such corporation * imply that a non-stock corporation in fact may have other members than its board, even though no express provision is made for such members. The chancellor held, and we agree, that this provision covers only the contingency where the charter or by-laws provide for members other than the board and thereafter, because of resignations or death, the only remaining members are the board of trustees. We think there was abundant and almost overwhelming evidence to show that Doctors Hospital, Inc., is, and for many years has been, a charitable corporation.

Dr. Glass himself, in order to secure tax exemptions or tax refunds, repeatedly stated (a number of times under oath) that the hospital was non-profit, that it never turned down a free case, that there was no difference between its operations and those of any other charitable hospital in Baltimore. Testimony of board members was to the same effect. The hospital is exempt from all City and State taxes as a recognized charitable corporation. The federal tax authorities at one time ignored the •corporate entity in order to tax the Glass brothers on a net worth basis, but subsequently restored the hospital’s charitable income tax exemption for the full period on which limitations had not run, and the hospital has never paid, nor been asked to pay, federal income taxes.

The Ford Foundation gave it funds as a non-profit institution. The record establishes beyond question that no part of the income or profits of the hospital inures to the benefit of any individual. Salaries and compensation for services rendered are, of course, paid but this does not prevent the hospital from being a charitable institution, and neither does the fact that most patients pay their way, since the monies received continue to be applied entirely towards facilities for the care and cure of those needing medical or surgical help. 4 Scott on Trusts, 2d Ed., Secs. 372 and 372.1. The record also clearly sustains the chancellor’s finding that Dr. Glass had voluntarily relinquished all control of the operation and management of the hospital and had conceded that this belonged to the board of trustees in fact as well as ⁵⁵ in legal theory.

In January, 1949, Dr. Glass himself emphasized this at a medical staff meeting: “the Board of Trustees is entirely in charge of the hospital.” In 1950, Dr. Glass signed an application for privileges as a member of the medical staff, in which he agreed to abide by the by-laws of the staff (which had to be approved and put in force by the trustees) and by such rules and regulations as might be from time to time enacted, and he testified that he fully understood the effect of the document and intended to be bound by it. A few days after this, Dr. Glass’ accountant, with his knowledge and consent, wrote to the Bureau of Internal Revenue that “* * * the hospital * * * is under the complete control of a lay Board of Trustees, none of whom has any financial interest in the hospital.” On the stand, Dr. Glass admitted that he had “* * * turned over the control of the hospital itself, as far as managerial and governing is concerned, to the lay board of trustees.” Earlier, he had congratulated himself for “* * * voluntarily divesting himself of authority.” Dr. Glass’ resignation from the board, as well as his subsequent relinquishment of all authority to the trustees, was prompted by the fact that recognition by the Blue Cross and accreditation by the American Medical Association would not be forthcoming without it. We think the chancellor put it well when he said: “He made his choice, however, between retaining his personal control, and surrendering it for his larger objective. Having made it, he is not now in a position to ask the Court to restore the personal control the displacement of which was a condition of the hospital’s success.” Much of what has been said answers Dr. Glass’ contention that because he was the “founder” and in effect the grantor of a trust, the hospital had no right to violate the terms of the trust by refusing him his privilege to practice at the hospital.

As far as the funds invested in the hospital by the doctor are concerned, the chancellor found that all of them, including “the amounts subscribed to the stock of Doctors Hospital of Maryland, Inc.”, had been incorporated in the mortgage. If there ever was a trust that the hospital be managed, so as to provide facilities for all competent general ⁵⁶ practitioners, including Dr. Glass, that objective has been realized. The hospital provides facilities for over one hundred general practitioners. Indeed, the substantial majority of the staff are general practitioners who have privileges in all fields for which they are qualified.

Dr. Glass, having relinquished personal control and having agreed to abide by the rules and regulations of the hospital, cannot complain that in an honest exercise of discretion the governing body has barred him from future practice in the hospital. We turn then to Dr. Glass’ contention that he has a contract right to practice in the hospital for life. The hospital makes the vigorous contention that there was never any such agreement, pointing out that the contract alleged by the doctor was not mentioned in the original bill filed in the case, nor in the petition for leave to file an amended bill after the demurrer to the original bill had been sustained, as well as that the contract was substantiated only by an unsigned minute written on one side of the doctor’s letterhead, on the reverse of which was the history of the blood pressure of a patient. In the alternative, the hospital urges that if it be found that such a contract was made, it was ultra vires and void as against public policy and further, that by his application for privileges in 1951, Dr. Glass waived his rights under the contract.

We find it unnecessary to