State v. Good Samaritan Hospital of Maryland, Inc.

³¹⁵ MURPHY, Chief Judge. The primary question in this case is whether Maryland Code (1982), § 19-351(b) of the Health-General Article (the podiatry statute), as applied to The Good Samaritan Hospital of Maryland, Inc. (Good Samaritan), violates Article I, § 10 of the United States Constitution which prohibits any state from enacting “any . . . Law impairing the Obligation of Contracts.” Section 19-351(b) provides: “(b) Podiatrists. — (1) A hospital or related institution that provides medical or surgical care of the foot, other than incidental care, shall include, in its bylaws, rules, or regulations, provisions for use of facilities by and staff privileges for qualified podiatrists. (2) The hospital or related institution may restrict use of facilities and staff privileges by podiatrists to those podiatrists who meet the qualifications that the hospital or related institution sets for granting those privileges.” The podiatry statute thus requires that any hospital which offers medical or surgical foot care must permit qualified podiatrists to obtain staff privileges and to use the hospital’s facilities.

While the statute prohibits such hospitals from categorically excluding all podiatrists, it permits the hospital to determine those individuals whom it will accept as “qualified podiatrists.” 1 ³¹⁶ I. Good Samaritan filed a declaratory judgment action in the Circuit Court for Baltimore City, challenging the constitutionality of the podiatry statute as being in violation of (1) the Contract Clause of the Federal Constitution, (2) the Due Process and Equal Protection Clauses of the Fourteenth Amendment and Article 24 of the Maryland Declaration of Rights and (3) § 33 of Article III of the Constitution of Maryland. 2 The evidence at trial established that Good Samaritan is a private, nonprofit community hospital built and operated pursuant to a testamentary bequest of Thomas O’Neill, a Catholic philanthropist, who died in 1919. O’Neill’s will provided for the establishment of a corporation to use his bequest “for the purposes of erecting and maintaining a hospital” in a designated location. It also directed that “the policy, supervision and general direction and management of [the] hospital is at all times to be subject to the control of the .. . Board of Trustees.” In 1920, the State granted Good Samaritan a corporate charter pursuant to the general corporation law; the charter enumerated, as the hospital’s corporate purpose, “the acquiring of land and ... other property and erecting and maintaining a hospital.” As shown by the evidence, Good Samaritan is a 259-bed hospital constructed in 1967-1968.

It has a medical staff of 375 health care professionals. Among its many services, the hospital renders medical and surgical care of the foot through general, vascular and orthopedic surgeons. Of these physicians, five are hospital-based orthopedic specialists and thirty-five provide medical care and treatment ³¹⁷ related to the foot. These physicians hold full staff privileges at the hospital.

The evidence further showed that there are 150 to 200 podiatrists in Maryland. While a number of hospitals in the State grant full staff privileges to podiatrists, Good Samaritan grants only limited out-patient staff privileges to these individuals. Good Samaritan declined to amend its bylaws to conform to the podiatry statute’s requirements. The Vice-Chairman of Good Samaritan’s Board of Trustees testified as to the reasons for the Board’s decision: “[T]he board of trustees . . . felt that since we had a charter from the State to act as a medical care institution we had the right to in our own bylaws . . . talk about the kind of care and how we would deliver it.

Our hospital is a very busy institution. We didn’t feel that the facilities there were capable of taking on other services without infringing upon those that were already established. We felt that the State was intruding in the board room, that we have an intrinsic right to have our hospital deliver the care in the manner that it does and in the areas that it does and so the board voted against changing the bylaws to allow podiatrists to have full medical privileges on the staff.” Other evidence adduced on behalf of Good Samaritan tended to establish that foot care at the hospital, as presently provided by physicians holding staff privileges, was entirely adequate; that podiatrists are, therefore, not needed to provide foot care at Good Samaritan; that the hospital’s surgical facilities are presently scheduled to capacity, with a substantial waiting period for elective surgery; that the addition of podiatrists to Good Samaritan’s staff would require more ancillary personnel and more operating rooms, as well as an enlargement of the hospital’s present building; and that Good Samaritan could not increase its foot care facilities without infringing upon current hospital services and overtaxing its resources. ³¹⁸ The trial court (Grady, J.) concluded that the podiatry statute constituted an impermissible use of the State’s police power in violation of the Contract Clause of the Federal Constitution, resulting in an unconstitutional taking of the use of the hospital’s property. The court correctly noted that under Robert T. Foley Co. v. W.S.S.C., 283 Md. 140 , 389 A.2d 350 (1978), a claim that a legislative enactment invalidly impairs contractual obligations implicates a three-pronged test — first, whether a contract exists; second, whether an obligation under the contract was changed; and third, if it was, whether the change unconstitutionally impairs the contractual obligation.

Applying the Foley test, the trial court first held that Good Samaritan’s charter constituted a contract with the State. In next considering whether the podiatry statute changed an obligation under the contract, the court, relying upon Levin v. Sinai Hosp. of Balto., 186 Md. 174 , 46 A.2d 298 (1946), said that a private, nonprofit hospital has “the basic right ... to manage its internal affairs with particular reference to selecting its staff.” The court, after noting that a right of management and control of corporate assets is vested in the corporation as one of the incidents of ownership, determined that the requirements of the podiatry statute “materially affect the Hospital’s right to manage its affairs,” thus satisfying the second prong of the Foley test. The court next considered Foley’s final prong, i.e., whether the podiatry statute “unconstitutionally impairs the contract obligation.” In holding that it did, the court said that the podiatry statute was not predicated upon the abatement of a nuisance or upon an immediate threat to public health and safety. It therefore concluded that because the statute affirmatively required Good Samaritan to spend its resources pro bono publico, an unconstitutional taking of the use of the hospital’s property had occurred, thereby impairing the contract obligation, even though Good Samaritan was not deprived of the substantial enjoyment of its property.

The State and other parties defendant in the case appealed to the Court of Special Appeals from the declaratory ³¹⁹ judgment entered by the trial court. 3 We granted certiorari prior to consideration of the appeal by the intermediate appellate court to consider the issues of public importance raised in the case.

II

Read literally, the Contract Clause appears to proscribe any impairment. The Supreme Court has made clear, however, that the constitutional prohibition is not absolute. Finding technical impairment is just a first step toward resolving the more difficult question of whether the impairment is permitted by the Constitution. See, e.g., Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 , 98 S.Ct. 2716 , 57 L.Ed.2d 727 (1978); United States Trust Co. of New York v. New Jersey, 431 U.S. 1 , 97 S.Ct. 1505 , 52 L.Ed.2d 92 (1977); Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398 , 54 S.Ct. 231 , 78 L.Ed. 413 (1934).

It is well settled that the Contract Clause must be accommodated to the inherent police power of a sovereign state to protect the general welfare of its people. Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400 , 103 S.Ct. 697 , 74 L.Ed.2d 569 (1983); East New York Sav. Bank v. Hahn, 326 U.S. 230 , 66 S.Ct. 69 , 90 L.Ed. 34 (1945); Edgar A. Levy Leasing Co. v. Siegel, 258 U.S. 242 , 42 S.Ct. 289 , 66 L.Ed. 595 (1922). “The legislature cannot bargain away the police power of a State.” Stone v. Mississippi, 101 U.S. 814, 817 , 25 L.Ed. 1079 (1880). Accordingly, a reservation of that power is “an implied condition of every contract.” East New York Sav.

Bank, supra, 326 U.S. at 232 , 66 S.Ct. at 70 . ³²⁰ The doctrine that a state’s police power is paramount to contract rights applies regardless of whether the rights in question are between individuals, between an individual and a state or between a corporation chartered by a state and the chartering state. The Supreme Court established very early that a state charter is a contract and that an agreement to which a state is a party comes within the protection of the Contract Clause. See, e.g., Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 , 4 L.Ed. 629 (1819); New Jersey v. Wilson, 11 U.S. (7 Cranch) 164 , 3 L.Ed. 303 (1812); Fletcher v. Peck, 10 U.S. (6 Cranch) 87 , 3 L.Ed. 162 (1810). The Court established further that “a corporate charter to operate a particular business in a particular manner does not exempt the corporation from the requirement that it obey state legislation touching corporate activities.” Helvering v. Northwest Steel Mills, 311 U.S. 46, 51 , 61 S.Ct. 109, 112 , 85 L.Ed. 29 (1940).

Yet the Contract Clause does “impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power.” Allied Structural Steel, supra, 438 U.S. at 242 , 98 S.Ct. at 2721 . As the Court there stated: “Despite the customary deference courts give to state laws directed to social and economic problems, ‘[ljegislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.’ ” 438 U.S. at 244 , 4 98 S.Ct. at 2722 , quoting in part United States Trust Co., supra, 431 U.S. at 22 , 97 S.Ct. at 1517 . Where, as here, a contract exists between the State and Good Samaritan, the threshold inquiry is “whether the ³²¹ state law has, in fact, operated as a substantial impairment of a contractual relation.” Energy Reserves Group, supra, 459 U.S. at-, 103 S.Ct. at 704-705 ; Allied Structural Steel, supra, 438 U.S. at 244 , 98 S.Ct. at 2722 . The severity of the impairment determines whether the action which impairs the contractual obligation has been effected in a constitutional manner.

Allied Structural Steel, supra, 438 U.S. at 244 , 98 S.Ct. at 2722 . Past regulation of the industry is a factor to be considered in assessing the extent of the impairment. Energy Reserves Group, supra, 459 U.S. at -, 103 S.Ct. at 705 . Our cases have recognized and applied these principles.

Automobile Trade Ass’n v. Ins. Comm’r, 292 Md. 15 , 437 A.2d 199 (1981); Robert T. Foley Co. v. W.S.S.C., 283 Md. 140 , 389 A.2d 350 (1978). The appellants contend that because the podiatry statute does not change or impair any contractual obligation arising out of Good Samaritan’s incorporation, the second prong of Foley was not satisfied and thus no contract clause violation occurred in this case. We agree.

At most, the contract between the State and Good Samaritan involves the hospital’s charter and the then existing general corporation law under which the hospital was chartered. See Dennis v. City of Rockville, 286 Md. 184, 189-90 , 406 A.2d 284 (1979) (statutes in existence at the time of making the contract are part of the agreement). Nothing in the provisions of Good Samaritan’s charter or in the general corporation law in existence in 1920 purports to inhibit the State from enacting laws impacting upon the hospital’s activities or upon the power of the board of trustees to select the hospital’s professional staff or to pass or not pass bylaws for the hospital’s governance. Thus, no provisions exist in the hospital’s contract with the State which would permit Good Samaritan to conduct its activities without regard to the enactment of legislation under the State’s police power to protect and promote the general welfare of the people of Maryland.

On the contrary, § 48 of Article III of the Constitution of Maryland explicitly provides that corporate charters are “subject to repeal or modification [and] may be altered, from ³²² time to time, or be repealed.” 5 Moreover, Maryland Code (1975), § 2-103 of the Corporations and Associations Article, dealing with general powers of corporations, authorizes such bodies in subparagraph (15) to adopt, alter and repeal bylaws if “not inconsistent with law or [the corporation’s] charter for the regulation and management of [the corporation’s] affairs.” To the same effect see § 2-110(a). These constitutional and statutory provisions are plain manifestations of the well-settled principle that a corporation holds its charter subject to the constitutional exercise of the State’s reserved police power to legislate in the public interest. See, e.g., Insurance Comm’r v. Blue Shield, 295 Md. 496 , 456 A.2d 914 (1983); Blum v. Engelman, 190 Md. 109 , 57 A.2d 421 (1948). In determining that Good Samaritan’s contract with the State contains no obligation impaired by enactment of the podiatry statute, we have considered Good Samaritan’s argument that our decision in Levin v. Sinai Hosp. of Balto., 186 Md. 174 , 46 A.2d 298 (1946), vested a right in the hospital as a private entity to manage and control the institution and to select its professional staff.

That case involved a suit by a physician excluded from staff privileges in the hospital. We there recognized that “a private hospital has the right to exclude any physician from practicing therein, and such exclusion rests within the sound discretion of the managing authorities.” 186 Md. at 179-80 , 46 A.2d 298 . Our holding, ³²³ however, was qualified by the further statement that a private hospital’s freedom to accept some applicants while rejecting others exists only “[i]n the absence of statute.” Id. at 180 , 46 A.2d 298 . One clear principle to be gleaned from Levin is that the hospital’s managerial prerogatives in this regard are subject to a proper exercise of the State’s police power.

Equally misplaced is the hospital’s reliance on Board of Regents v. Trustees, 206 Md. 559 , 112 A.2d 678 (1955). In that case, a statute transferred the power of management and control from one corporation to another. After recognizing that a charter is a contract between the State and the incorporators, we said that such a transfer, under the circumstances, was arbitrary and unreasonable in that it defeated or fundamentally changed the corporation’s purpose and was therefore beyond the reserved power of the legislature under § 48 of Article III of the Maryland Constitution. In so holding, we said that the character of the alteration is “[t]he nub of the controversy,” id. at 569, 112 A.2d 678 , and that the statute, in effect, amounted to “a nullification of the charter, without any justification arising out of the police power.” Id at 574, 112 A.2d 678 .

It is readily apparent that the provisions of the podiatry statute do not defeat or fundamentally change Good Samaritan’s corporate purpose to erect and maintain a hospital. As earlier observed, there is simply no impairment of any contractual obligation in this case. Indeed, the statutory intrusion into the management authority of the hospital’s board is minimal, at best. The statute does not mandate that the hospital provide additional foot care.

The hospital retains its authority to determine which, if any, podiatrists it may deem “qualified” for staff privileges. All that the statute requires is a hospital bylaw or regulation permitting use of hospital facilities by and staff privileges for qualified podiatrists. No violation of the Contract Clause is, therefore, involved in this case. Compare Md. Medical Service v. Carver, 238 Md. 466 , 209 A.2d 582 (1965), and see Exxon ³²⁴ Corp. v. Eagerton,-U.S.-, 103 S.Ct. 2296 , 76 L.Ed.2d 497 (1983).

III

In view of the trial court’s disposition of the case on Contract Clause grounds, the substantive due process, equal protection and “special law” contentions raised and presented by Good Samaritan were not decided. Under Maryland Rule 885, we ordinarily will not decide any question not passed upon by the trial court except where necessary or desirable for the guidance of the circuit court or to avoid the expense and delay of another appeal. Since our grant of certiorari encompassed these additional issues, and as they have been briefed and argued by the parties, we shall state our views as to each unresolved question. (A) Substantive Due Process and Taking of Property We find no merit in Good Samaritan’s argument that the podiatry statute constitutes an impermissible “taking” of the hospital’s incorporeal rights, internal management and property in violation of the due process clauses of the fourteenth amendment and Article 24 of the Maryland Declaration of Rights. 6 It is true, of course, that the State cannot, under the guise of exercising its police power, take private property for public use without payment of just