Home for Incurables v. University of Maryland Medical System Corp.

ELDRIDGE, Judge. The controversy in this case concerns a paragraph in a will which makes a charitable bequest to a private nonprofit hospital known as the “Home for Incurables of Baltimore City” or the “Keswick Home.” The purpose of the bequest, as stated in the will, was for the Keswick Home to construct a new building for “white patients who need physical rehabilitation.” The racially discriminatory “white” patient limitation on the use of the building is clearly illegal. 1 The will further provides that if the bequest is “not acceptable to the Keswick Home, then this bequest shall go to the University of Maryland Hospital to be used for physical rehabilitation.” The University of Maryland Hospital is part of the University of Maryland Medical System Corporation. 2 The Keswick Home will not and cannot comply with the racially discriminatory condition, but otherwise the bequest is fully acceptable to the Home. The alternative disposition to the -University of Maryland Hospital does not contain the unlawful racially discriminatory condition. The broad question before us is whether, under Maryland law, a court will enforce the illegal racially discriminatory ⁷⁰ condition by ordering that the proceeds be paid to the alternative beneficiary, the University of Maryland Hospital.

Our answer to this question shall be “No.” Instead, the provisions of the will should be applied without giving any effect to the word “white.” I. In the trial court, both the appellant Keswick and the appellee University Hospital filed motions for summary judgment based upon a stipulation of facts as well as numerous other documents. The trial court disposed of the case by granting the University’s motion for summary judgment. Consequently, we shall set forth the facts in the light most favorable to Keswick. Lovelace v. Anderson, 366 Md. 690, 695 , 785 A.2d 726, 728-729 (2001), and cases there cited.

Nevertheless, there do not appear to be any disputed factual issues which are material to our decision in this case. Dr. Jesse C. Coggins executed six wills, with multiple codicils, over the course of his lifetime. Beginning with his original will prepared in January 1944, and in every will thereafter, Dr. Coggins left the residue of his estate in trust and provided that, upon termination of the trust, the corpus was to be distributed to the “Keswick Home, formerly Home for Incurables of Baltimore City, with the request that said Home use the estate and property thus passing to it for the acquisition or construction of a new building to provide additional housing accommodations to be known as the ‘Coggins Building....’” Throughout the years, Dr. Coggins and his wife were closely associated with the Keswick Home. Thus, Dr. Coggins operated the Laurel Sanitarium from which he regularly transferred patients to Keswick because of its rehabilitative capabilities.

Mrs. Coggins became a nurse at the Sanitarium in 1940, and she and her husband continued to operate the sanitarium for the next 23 years. Mrs. Coggins served actively on Keswick’s Board of Directors, and, toward the end of her life, Mrs. Coggins was a resident in Keswick’s integrated Coggins Building. According to a memorandum by the Trustee, Mercantile Safe Deposit & Trust Company, in ⁷¹ 1986 Mrs. Coggins requested that the Trustee change some of the securities in the trust, “despite the fact that her . .. income would decline.. . . ” The memorandum stated that “[h]er feeling is that her personal assets are also pledged to Keswick and that this gesture will enlarge the ultimate gifts which Keswick will receive.” Dr. Coggins died on January 21, 1963. In his last will, dated December 27, 1962, after making a bequest of tangible personal property and a number of other bequests, Dr. Cog-gins gave the residue of his estate to the Mercantile Safe Deposit & Trust Company (“Mercantile”) to be held by it as Trustee under “ITEM 5” of the will.

The trust provided for monthly payments to four income beneficiaries until the death of the last of them. The last of these annuitants was Dr. Coggins’s widow who died on September 10, 1998. Paragraph (f) of ITEM 5 of the will stated that, upon the death of the survivor of the four annuitants, “the trust shall terminate and the assets thereof as then constituted together with all unpaid income shall be paid over free of trust unto the KESWICK HOME, formerly Home for Incurables of Baltimore City, with the request that said Home use the estate and property thus passing to it for the acquisition or construction of a new building to provide additional housing accommodations to be known as the ‘Coggins Building,’ to house white patients who need physical rehabilitation. If not acceptable to the Keswick Home, then this bequest shall go to the University of Maryland Hospital to be used for physical rehabilitation.” The clause “to house white patients who need physical rehabilitation,” and the alternative gift over to University Hospital, appeared for the first time in Dr. Coggins’s final will executed less than one month before his death.

On February 7, 1963, about two weeks after Dr. Coggins’s death, John T. Kenny, Vice President of Mercantile, provided a copy of the will to Keswick and stated in an accompanying letter: ⁷² “On the death of the last survivor of the four annuitants, the trust terminates, and the estate passes free of trust to the Keswick Home as directed in Item 5(f) of the Will.” In 1964, Keswick’s Board of Directors began to discuss a plan, prepared by Keswick’s “New Building Committee,” for the construction of a new building. Keswick’s Board of Directors in 1969 designated the new building that was to be constructed as the “Coggins” building, “in honor of the late Dr. Jesse C. Coggins and in appreciation of his great generosity to ‘Kes-wick.’ ” , Construction of the building began in 1970 and was financed by a loan from Mercantile, gifts, and a grant under the federal Hill Burton Act, 42 U.S.C. § 291 et seq. Construction was completed in 1974, and the building was dedicated as the “Coggins Building” in 1975. During the next twenty years, Keswick made renovations and constructed a major addition to the Coggins Building.

These were paid for by donations and bank loans. As of the date the trust terminated, Keswick had expended nearly $11 million in construction costs and capitalized repairs for the Coggins Building, which was being used to house approximately 160 residents, all of whom were or had been receiving physical rehabilitation services. After operating the Coggins building for many years, Keswick presented Mercantile with future plans that outlined a program for the expenditure of an additional $15.5 million, to be taken from the Coggins Trust, in construction costs for more additions and renovations to the Coggins Building. Upon the death of Mrs. Coggins in September 1998, a Mercantile memorandum stated: “The last beneficiary of this trust died recently.

Therefore, the trust now terminates and the balance.transfers to Keswick Home. According to the will, the money is for construction of the Coggins Building. Keswick actually built the Coggins Building with their own money ($10 million) ... because they needed the building at that time and because we agreed to reimburse them from the trust when it terminated.” ⁷³ Nevertheless, Mercantile did not turn over the trust proceeds to Keswick. Instead, in 1999 Mercantile filed the present interpleader action pursuant to Maryland Rule 2-221, asserting that, depending upon the will’s construction, the trust assets were to be “distribut[ed] to one of two ... named, competing, and alternative beneficiaries.” Mercantile stated that, in order to fulfill its obligation to distribute the trust assets properly, and being concerned that an improper distribution might subject Mercantile to liability, an order of inter-pleader was necessary.

The Circuit Court for Baltimore City entered an order of interpleader whereby Keswick was designated as the plaintiff and University Hospital was designated as the defendant. As earlier mentioned, both parties filed motions for summary judgment, and the case was presented to the Circuit Court on a stipulation of facts and several documents. Keswick argued that Dr. Coggins did not intend the racial restriction to be a binding condition for Keswick to receive the bequest, and that he did not intend for the gift to fail if it became legally impossible for Keswick to comply with the racial restriction. Keswick also argued that it had “accepted” the bequest within the meaning of the will’s language.

In addition, Keswick contended that, as a matter of public policy and Maryland law, the illegal racial restriction should be excised. Keswick maintained that Maryland law does not “present Keswick with a Hobson’s choice: either violate the law or forfeit a bequest that would significantly assist Keswick in pursuing its charitable endeavors.” Keswick also relied upon the federal Civil Rights Act of 1866, 42 U.S.C. §§ 1981 and 1982, upon the Fourteenth Amendment, upon the Maryland Constitution, upon Maryland anti-discrimination statutes, and upon Maryland cases declining to enforce conditions in wills which are impossible to perform, illegal, or contrary to public policy. See, e.g., Keyser v. Calvary Brethren Church, 192 Md. 520, 524-525 , 64 A.2d 748, 749-750 (1949); Fleishman v. Bregel, 174 Md. 87, 96-100 , 197 A. 593, 597-599 (1938); Ellicott v. Ellicott, 90 Md. 321, 331-333 , 45 A. 183 , 187-188 ⁷⁴ (1900); Martin v. Young, 55 Md.App. 401, 404-408 , 462 A.2d 77, 78-81 , cert. denied, 297 Md. 418 (1983). University Hospital argued that the controlling factor in the case was Dr. Coggins’s intention and that, based on the language of the will as well as the surrounding circumstances, it was clear that Dr. Coggins intended for the Coggins building to “house only white patients.” University Hospital argued that, if Keswick would not comply with this racial restriction, Dr. Coggins clearly intended that the trust pass to the alternative beneficiary, University Hospital.

University Hospital further contended “that the racial restriction” was not “so heinous that it should simply be read out of the will,” and that the cases under the Fourteenth Amendment’s Equal Protection Clause did not require that the racial restriction “ ‘be treated as absolutely void.’ ” University Hospital claimed that judicial enforcement of the racially discriminatory restriction would not constitute state action in violation of equal protection principles. University Hospital maintained that, because the will involved a charitable bequest, the issue was controlled by the cy pres doctrine under state law. Moreover, according to University Hospital, the cy pres doctrine would not permit the striking of the illegal racial restriction because of the presence of the gift over to an alternative beneficiary. University Hospital argued that cases striking out illegal or impossible conditions in non-charitable trusts, such as Fleishman v. Bregel, supra, 174 Md. 87 , 197 A. 593 , were inapplicable to charitable trusts .because the latter were controlled by the Maryland Uniform Charitable Trusts Administration Act, known as the cy pres statute, Code (1974, 2001 Repl.Vol), § 14-302 of the Estates and Trusts Article.

University Hospital’s position was that, even though it would be “illegal for Keswick to accept the bequest on Dr. Coggins’ terms,” nevertheless “the principle of freedom of testation entitled Dr. Coggins to impose the racial condition.... ” The Circuit Court filed a written opinion which essentially adopted the arguments by University Hospital. The court entered a judgment granting University Hospital’s motion for summary judgment and ordering “that the proceeds of the ⁷⁵ bequest in question, ... in the amount of $28,834,000.00, plus any additional interest earned minus costs of the proceeding shall be paid to University of Maryland Medical System Corporation.” Keswick appealed, and this Court issued a writ of certiorari prior to any proceedings in the Court of Special Appeals. Home for Incurables v. University of Maryland Medical System, 357 Md. 233 , 743 A.2d 245 (2000).

II

The issues raised and the arguments made by the parties in this Court are basically the same as those advanced in the Circuit Court. We find it unnecessary, however, to address every argument made by the parties. Instead, we shall assume, arguendo, that Dr. Coggins intended the racial restriction to be a condition for Keswick to have the bequest, that Keswick’s inability to comply with the illegal condition means that Keswick has not “accepted” the gift within the meaning of the will, and that judicial enforcement of the racially discriminatory condition, by awarding the proceeds to University Hospital, will not violate the United States Constitution, federal statutes, or the Maryland Constitution. Nonetheless, we shall hold that, under our cases dealing with illegal conditions in wills as well as the cy pres doctrine, the bequest should be awarded to Keswick.

This Court has long held that where a bequest is conditioned upon the commission of an illegal act or an act which is legally impossible of fulfillment, the condition is invalid on the ground of public policy. Under these circumstances, the condition will not be enforced by awarding the bequest to an alternative beneficiary; instead, the illegal condition will be excised. Thus, in Fleishman v. Bregel, supra, 174 Md. 87 , 197 A. 593 , the testator left her estate in trust, with directions that the trustee pay one-half of the net income to her older son William and one-half of the net income to her younger son Calvin. The will further provided that, when the younger son reached the age of 30, at which time, “if William ... shall be no longer ⁷⁶ married to his present wife,” the trust would terminate and the corpus would become the property of both sons “equally, as tenants in common.” If, however, when Calvin became 30, William “shall be living with his present wife,” the trust would continue as to him.

He would receive a share of the income but would never receive any of the corpus which would pass under an alternative disposition. After the testator’s death, William brought a declaratory judgment action challenging the viability of the condition that he divorce or cease living with his wife. In holding that the condition was unenforceable, and that William was entitled to one-half of the corpus of the trust upon Calvin’s reaching the age of 30, this Court initially stated ( 174 Md. at 99 , 197 A. at 598 ): “But under the conditions of that item, he must divorce his wife or in any event cease to live with her in order to have the corpus. He is thus afforded a financial reward for securing a divorce or ceasing to live with his wife.

Since he has no valid reason for not living with her, he can secure a divorce only through fraud or collusion, and in either case the conditions which induce him to take such action for reward are against public policy. To enforce them by compliance would tend to disrupt appellant’s family relations, and it is inconceivable that a more improper motive for terminating such relations could be held out to him than by the provisions in question.” The Court then concluded ( 174 Md. at 99-100 , 197 A. at 598-599 ): “[T]he conditions of that item relating to appellant’s marital status, both in regard to no longer living with his wife and with reference to securing a divorce from her, are void as against public policy, and ... the bequest is consequently unaffected by such conditions. These conclusions concerning those conditions are in no way affected by the expression used by testatrix in the second paragraph of that item requiring their performance by the time of her decease, for since during the twenty-three days which elapsed between the date of executing the will and death of testatrix there existed no cause entitling appellant to a divorce from his ⁷⁷ wife, it must be assumed that he could not have procured one. That requirement must, therefore, be regarded as impossible of fulfillment.” The principle applied in Fleishman v. Bregel has also been applied by this Court to charitable bequests.

In Keyser v. Calvary Brethren Church, supra, 192 Md. at 522 , 64 A.2d at 748 , the testator left a sum of money to the Calvary Brethren Church “for the building of a Church to be held in trust for five years[;] if they do not build within five years then this returns to my estate.” The testator died on May 14, 1942. The United States Government had restricted the use of building materials on April 9, 1942, because of the Second World War, and did not lift the restrictions until June 1947. In July 1947, more than five years from the testator’s death, the Church began construction of the building. The executor and the residuary legatees appealed from a trial court order directing distribution of the bequest to the Calvary Brethren Church, relying on the noncompliance with the condition that the building be constructed within five years.

Viewing the five-year building requirement as a “condition subsequent,” this Court affirmed the decree on two grounds. The Court expressed the view that “[w]e cannot suppose that the testatrix intended that such a condition should defeat her express desire that the appellee build a church. It started to build such a church as soon as it could, and has now constructed one----” 192 Md. at 524 , 64 A.2d at 749 . Alternatively, the Court pointed out that the federal law restrictions made the condition legally impossible to comply with, and that “ ‘[a] condition which is legally impossible of performance without violation of law may ordinarily be regarded as invalid by reason of illegality rather than of impossibility.’ ” 192 Md. at 524-525 , 64 A.2d at 750 .

The Court then summarized ( 192 Md. at 525 , 64 A.2d at 750 ): “We conclude that, from either of these points of view, the church is relieved from compliance with the condition subsequent. The testatrix could not have intended to require performance in the contingency that arose, and the church could not have performed without a violation of law. In ⁷⁸ deed, it may be doubted if it could have performed at