Estate of Alexander v. Sparks Reg'l Med. Ctr. , 533 S.W.3d 618 ( 2017 )

Cite as 2017 Ark. App. 588
ARKANSAS COURT OF APPEALS
DIVISIONS II &III
No. CV-16-805
Opinion Delivered: November 8, 2017
IN THE MATTER OF THE ESTATE OF
TOM ALEXANDER, DECEASED, AND
DAVID NEAL, ET AL. APPEAL FROM THE SEBASTIAN
APPELLANTS COUNTY CIRCUIT COURT, FORT
SMITH DISTRICT
V. [NO. 66FPR-15-201]
SPARKS REGIONAL MEDICAL HONORABLE JIM D. SPEARS,
CENTER JUDGE
APPELLEE
AFFIRMED IN PART; REVERSED
IN PART
BART F. VIRDEN, Judge
A group of the natural heirs of Tom Alexander, namely David Neal, Judy Kruse,
John Holleman, Cynthia Frazier, Marianne Massey, Kathy Barber, Alice Boyle, and Evelyn
(Brooks) House, Martha Breeden, Robert Brooks, and James Brooks appeal the Sebastian
County Circuit Court decision to grant Alexander’s estate to Sparks Regional Medical
Center. We affirm in part and reverse in part.
I. Facts
Tom Alexander executed a will in 1966 when he was twenty-one years old. Though
he was unmarried and did not have children at the time he executed the will, Alexander set
up a testamentary trust for a wife and any children he might have in the future. The will
provided that if he was not survived by a wife or children, then his estate would go to his
brother Frank and his mother Ruth. Alexander directed that if his brother and mother
Cite as 2017 Ark. App. 588
predeceased him, then Edna Brewer, a family employee, would receive an annuity of $400
per month. All of the named beneficiaries predeceased Alexander; however, Alexander also
provided that in the event that occurred,
I give, devise and bequeath the remainder of my property as follows: To Sparks
Hospital, Fort Smith, Arkansas as a memorial gift to permit the hospital to make
necessary improvements or to purchase necessary equipment.
Over the years, Sparks Memorial Hospital (SMH), the legal entity that owned and
operated Sparks Hospital, went through various changes, including changing its name to
Sparks Regional Medical Center (SRMC) in 1970. In 2002 SRMC became a part of Sparks
Health Systems (SHS), including different entities operating health-care facilities in the
region. SRMC remained a nonprofit hospital that served the Fort Smith area. In 2009
Health Management Associates, Inc. (HMA), a publicly traded for-profit entity, bought
SHS, which included SRMC and its “hospital business.” HMA later became a subsidiary of
Community Health Systems (CHS), a for-profit, publicly traded corporation based in
Tennessee. HMA remained a separate legal entity from CHS; however, HMA was required
to comply with certain restrictions placed on it by CHS.
When Alexander died in 2015, a petition to submit the will to probate was filed by
Elise Alexander, the personal representative of the estate. 1 The circuit court granted the
petition and appointed a personal representative of the estate who then filed a petition to
determine heirship. Notice of the petition was sent to Alexander’s possible natural heirs and
1
David Neal replaced Elise Alexander as representative through a joint petition of the
parties.
2
Cite as 2017 Ark. App. 588
to CHS, SHS, and SRMC. An inventory of Alexander’s estate was performed, and the assets
were determined to be $5,661,104.
In the multiple briefs filed by the appellants, four main arguments surfaced: (1) Sparks
Hospital no longer exists, thus Alexander’s devise must fail and the estate passes in
accordance with the intestacy statute; (2) Alexander’s charitable bequest to a local, nonprofit
hospital intended to assist in the operation and improvement of the hospital could not be
effectuated by granting the residuary estate to SRMC or Fort Smith HMA; (3) alternatively,
Alexander exhibited no charitable intent in his devise to Sparks Hospital, therefore the
doctrine of cy pres could not be used to reform the will; and (4) the doctrine of cy pres may
only be applied to charitable trusts, and Alexander did not set up such a trust in his will.
There was extensive testimony at the trial, including that of Thomas Webb, the
executive director of SRMC, who testified about the changes SMH had gone through since
1966. Webb explained that, pursuant to the asset-purchase agreement in 2009, SRMC no
longer owns the hospital, it does not have a license to operate a hospital, it does not intend
to operate a hospital, and SRMC does not provide any medical care directly to patients.
Webb stated that SRMC still is a not-for-profit organization and that “[t]he function of
Sparks Regional Medical Center is to continue its mission of providing healthcare and
healthcare education for the surrounding area of western Arkansas and eastern Oklahoma.”
Webb explained that this charitable function was accomplished through money; specifically,
the $40-$50 million SRMC received in profits from the asset-purchase agreement and from
the collection of accounts receivable that existed prior to December 1, 2009. Webb testified
that $41 million had been given to the Degen Foundation for the development of an
3
Cite as 2017 Ark. App. 588
osteopathic school to train physicians to serve the Fort Smith community. Webb stated that
the Degen Foundation will own the building and that Mercy Health Systems, a nonprofit
organization, will operate and manage the facility. Webb explained SRMC’s plan to build
the school and purchase equipment for the school is within the parameters of Alexander’s
bequest to “make necessary improvements or to purchase necessary equipment.”
In the proposed findings of fact and conclusions of law, SRMC asserted that
Alexander intended to leave his estate first to his mother and brother, both of whom
predeceased Alexander. In that event, Alexander intended to make a charitable devise to
SMH as a memorial gift that would permit the hospital to make improvements and purchase
necessary equipment. Appellee argued that SRMC is the same legal entity as SMH, and
thus the devise stands. Appellee asserted that, alternatively, if SRMC is not the same entity
and Alexander’s bequest cannot be effectuated, then Alexander’s charitable intent may be
fulfilled by applying the cy pres doctrine and granting the estate to SRMC. By doing so,
the circuit court could fulfill Alexander’s charitable intent as closely as possible, and SRMC
suggested several ways the court could direct the estate to be used.
In an order entered on June 15, 2016, the circuit court concluded:
[I]t is clear that the Testator intended to bequeath his residuary estate as a memorial
gift to Sparks Memorial Hospital, (hereinafter “SMH”), the legal entity that owned
the nonprofit Sparks Hospital at the time he executed his Will, to specifically benefit
the Fort Smith area with improved healthcare services. As such, the Testator strove
to support care administered in hospitals rather than the physical structure itself.
The circuit court recounted the history of SMH since 1966 when Alexander
executed his will, and it made the following findings of fact. In 1966 SMH was a nonprofit
hospital with the charitable purpose of providing healthcare in the Fort Smith area. In 1970
4
Cite as 2017 Ark. App. 588
SMH changed its legal name to Sparks Regional Medical Center, but it remained
incorporated as the same nonprofit entity. In 2002 SRMC changed from a nonprofit
association to a nonprofit corporation and maintained its charitable purpose; however,
SRMC added that its purpose was also “to establish, maintain, and operate a vertically
integrated, primary care driven, regional healthcare delivery system designed to enhance the
accessibility, quality, and cost-effective healthcare services in the communities served by the
corporation.” SRMC’s purpose and function remained the same despite these changes. In
2009, SRMC sold substantially all of its assets, including the hospital and the “Sparks” name
to Fort Smith Regional Healthcare Foundation. SRMC received between $40 and $50
million in this sale, known as the “asset-purchase agreement,” and the purchase was not a
merger. SRMC would collect and retain unpaid accounts. As of the date of the trial, the
board of directors for SRMC varied only slightly from the board of directors at the time of
Alexander’s death, and SRMC’s mission continues to be “providing healthcare and
healthcare education” for the surrounding area. From the profits of the asset-purchase
agreement, SRMC has pledged up to $50 million to the Arkansas College of Health
Education (ACHE), a corporation founded to create and develop an osteopathic medical
school, which would educate osteopathic physicians to render patient care to the Fort Smith
community. SRMC had already donated $41 million to the Degen Foundation to build the
school, and there were plans to build a $4.1 million clinic across the street from the school.
The Degen Foundation will own the clinic, but it will be operated by Mercy Health
Systems, a nonprofit organization. The clinic will be a “fully functioning clinic that is staffed
with regular physicians, nurses and staff” providing services to the public. The funds from
5
Cite as 2017 Ark. App. 588
Alexander’s residuary estate could be used to complete the medical school building and
purchase necessary medical equipment for the school. The building will have several kinds
of functioning labs requiring specialized equipment and a state-of-the-art audio-visual
system. Medical care had developed over the years, and services that had traditionally been
performed in hospitals were now conducted in clinics. SRMC’s clinic would provide “a
variety of hospital-like operations” and SRMC’s mission is to “improve the health status of
the residents of the community by initiating and supporting programs which are designed
to improve the community’s health and well-being,” thus SRMC continues its charitable
purpose through education, research, and patient care. Alexander intended to benefit the
Fort Smith area “with improved healthcare services. As such, the Testator strove to support
care administered in hospitals rather than the physical structure itself.”
The circuit court concluded that although SRMC operates under different articles
of incorporation and a different name, it remains a nonprofit corporation capable of carrying
out the intent of the Testator, and it is entitled to Alexander’s estate. Alternatively, the
circuit court found:
Even if the Court were to find that the Testator intended Sparks Hospital, the
nonprofit hospital, not the nonprofit entity, to be the beneficiary of his residuary
estate, the nonprofit hospital no longer exists. Sparks Hospital, the hospital, is being
operated today as a for-profit hospital. As such, this Court may look to the doctrine
of cy pres.
The circuit court found that cy pres may be applied to Alexander’s bequest.
Specifically, it determined that cy pres applies to charitable bequests, that Alexander had the
necessary charitable intent as evidenced by his specific devise, that Alexander’s intent was
the promotion of health, that Sparks Hospital was a charitable organization that had ceased
6
Cite as 2017 Ark. App. 588
to exist in 2009, that it is impossible to carry out Alexander’s charitable purpose for that
reason, and that SRMC is the appropriate cy pres beneficiary.
The circuit court ordered that SRMC must use Alexander’s estate “solely in pursuit
of its hospital-like services such as providing medical care and community programs at the
medical school or in the clinic owned by SRMC” and that SRMC must memorialize
Alexander’s bequest as directed in the Will.
The day the order was entered the natural heirs filed notices of appeal.
II. Issues on Appeal
On appeal, appellants raise two main issues: whether the circuit court erred by finding
that Alexander intended to give his estate to a specific legal entity, and whether the circuit
court erred by applying cy pres to direct the residuary estate to SRMC. We will address
these issues as five distinct points: (1) whether the circuit court erred in finding that
Alexander intended to leave his estate to a specific legal entity; (2) whether SRMC
continued to exist throughout the changes that took place from 1966 to 2014; (3) whether
the doctrine of cy pres may be applied to charitable bequests; (4) whether Alexander had
charitable intent when he devised his estate to Sparks Hospital; and (5) whether SRMC is
similar enough to SMH to be capable of carrying out Alexander’s intent. We reverse the
circuit court’s finding that SRMC is the same entity as SMH. On all other points we affirm.
A. Whether Alexander Intended to Leave His Estate to a Specific Legal Entity
Appellants argue that the circuit court erred in finding that Alexander intended to
bequeath his estate to the legal entity that owned and operated Sparks Hospital, rather than
to the hospital itself. We disagree, and we affirm.
7
Cite as 2017 Ark. App. 588
This case is subject to a de novo standard of review. Covenant Presbytery v. First Baptist
Church, 2016 Ark. 138, at 4, 489 S.W.3d 153, 156. The circuit court’s decision should not
be reversed unless there is a finding that is clearly erroneous. Id. A finding is clearly erroneous
when the appellate court is left with a firm conviction that a mistake has been committed.
Id. We give due deference to the superior position of the circuit court to review the
credibility of the witnesses. Id.
The court’s primary objective when construing the language in a will or trust is to
ascertain and effectuate the intent of the testator or settlor as long as that intent is not
contrary to the law. Id.; See Bailey v. Delta Tr. & Bank, 359 Ark. 424, 198 S.W.3d 506
(2004). Where the language of a will expressly states the testator’s intention, the intent must
be gathered from the four corners of the instrument. Covenant, 2016 Ark. 138, at 4, 489
S.W.3d at 156. It is proper to invoke the rules of construction only when the language is
ambiguous. Id. In order to determine the intentions of the testator, consideration must be
given to every part of the testamentary instrument. Id. Extrinsic evidence may be received
on the issue of the testator’s intent if the terms of the will or trust are ambiguous. Burnett v.
First Commercial Tr. Co., 327 Ark. 430, 939 S.W.2d 827 (1997).
The circuit court found that “it is clear that the Testator intended to bequeath his
residuary estate as a memorial gift to Sparks Memorial Hospital (hereinafter, “SMH”) the
legal entity that owned the nonprofit Sparks Hospital.” As SRMC points out, a building
cannot make improvements or buy equipment. Throughout the arguments of the parties,
the status of Sparks Hospital as a nonprofit entity, an institution operated for charitable
purposes, is a key fact that reveals the essential role of SMH, the entity that operated Sparks
8
Cite as 2017 Ark. App. 588
Hospital at the time the will was executed. With that in mind, it is impossible to say that
we have a firm conviction that the circuit court made a mistake in its finding on this issue.
Furthermore, the circuit court referred to the possibility that Alexander simply
misnamed the entity he intended to receive the residuary estate. At the time Alexander
executed his will Sparks Memorial Hospital was popularly known as “Sparks Hospital.”
Citing Lowery v. Jones, 272 Ark. 55, 58, 611 S.W.2d 759, 760 (1981), the circuit found that
“for over a century it has been held that a bequest or devise will not fail because of a mere
inaccuracy in the designation of the beneficiary.” We find no error in the circuit court’s
conclusion that the bequest to “Sparks Hospital” rather than “Sparks Memorial Hospital”
could have been a simple misnomer.
Giving due deference to the circuit court, we are not left with a firm conviction that
the circuit court erred when it determined that Alexander intended for his residuary estate
to go to the entity that owned and operated Sparks Hospital. It is a logical conclusion, and
we hold that the circuit court successfully effectuated the intent of the testator.
B. Whether the Function of SRMC Remained the Same Throughout Its Transitions
In its order, the circuit court found that “SRMC is the same legal entity as SMH. It
is immaterial that the articles of incorporation of the entity were modified and that the name
of the entity was changed from SMH to SRMC since the entity’s purposes and functions
remained the same.” On appeal appellants argue that the circuit court erred in finding that
the purpose and functions of SRMC remained the same throughout its transition from a
nonprofit association to a nonprofit corporation, and from a nonprofit corporation to the
modern-day SRMC. We agree with the appellants, and we hold that SRMC is not the
9
Cite as 2017 Ark. App. 588
same entity as the “Sparks Hospital” Alexander named in his will, nor does SRMC have
the same function as SMH.
In 1970, SMH’s articles of association identified “charity care” as its purpose.
Appellants assert that in 2002 SMH “exploded into a ‘vertically integrated, primary care
driven, regional healthcare delivery system’” and no longer identified “charity care” as one
of its purposes. The 1970 articles of incorporation set forth that one purpose of the
association is “to provide such [medical] services as a charitable institution and not for
profit[.]” The 2002 articles of incorporation identify SRMC as a “public benefit corporation
which shall be governed by the provisions of the Arkansas Nonprofit Corporation Act of
1993” and that SRMC “shall be operated exclusively for charitable, scientific, and
educational purposes for the benefit of Sparks Health System, an Arkansas nonprofit
corporation[.]”
Appellants argue that even if SRMC remained the same entity, despite the foregoing
changes, then the 2009 sale of substantially all of SRMC’s assets in the asset-purchase
agreement to HMA, a publicly traded for-profit entity, is the point at which “‘Sparks
Hospital, Fort Smith, Arkansas’ predeceased Tom Alexander[.]” We agree that the changes
that took place in 2009 are transformative. After the asset-purchase agreement, SRMC no
longer operated a hospital, held a hospital license, or provided direct medical care. Instead,
SRMC mainly collected unpaid accounts using the Sparks name and transferred those assets
to other entities, such as the Degen Foundation, to establish an osteopathic medical school.
Appellee argues that the present case is similar to Lowery, supra, in which the testator
devised property to “Shriners Hospital for Crippled Children, Little Rock, Arkansas” which
10
Cite as 2017 Ark. App. 588
did not exist. In Lowery, our supreme court affirmed the probate court’s decision that the
testator clearly intended a bequest to go to Shriners Hospital for Crippled Children, A
National Organization, and the testator’s designation in the will was a simple misnomer.
The instant case is distinguishable. We previously held that the circuit court did not err in
finding that Alexander’s bequest to Sparks Hospital, rather than Sparks Memorial Hospital,
could have been a misnomer; however, in light of the testimony and evidence discussed
above, Lowery is inapplicable to the issues of whether SRMC was the same entity as SMH,
and whether the two entities had the same function. By 2009, the differences between SMH
and SRMC were more profound and not a simple difference between the names as discussed
in Lowery.
Because SRMC is not the same entity as SMH and does not serve the same purposes
set forth in the 1970 articles of incorporation, Alexander’s devise fails; therefore, we must
address the issues regarding cy pres.
C. Whether the Doctrine of Cy Pres Applies to Charitable Bequests
First, we address appellants’ argument that cy pres applies only to charitable trusts.
We disagree, and we affirm the circuit court’s decision that cy pres may be applied to
charitable bequests.
Cy pres is a doctrine of approximation. State ex rel. Att’y Gen. v. Van Buren Sch. Dist.
No. 42, 191 Ark. 1096, 1102, 89 S.W.2d 605, 607–08 (1936). The equitable doctrine of cy
pres “is the principle that equity will, when a charity originally or later becomes impossible
or impracticable of fulfillment, substitute another charitable object which is believed to
approach the original purpose as closely as possible. Equity has the power to shape a
11
Cite as 2017 Ark. App. 588
charitable trust to meet emergencies.” Slade v. Gammill, 226 Ark. 244, 252, 289 S.W.2d
176, 181 (1956).
In 2005, the General Assembly codified cy pres as it relates to charitable trusts in
Arkansas Code Annotated section 28-73-413:
[I]f a particular charitable purpose becomes unlawful, impracticable, impossible to
achieve, or wasteful:
(1) the trust does not fail, in whole or in part;
(2) the trust property does not revert to the settlor or the settlor’s successors in
interest; and
(3) a court may apply cy pres to modify or terminate the trust by directing that the
trust property be applied or distributed, in whole or in part, in a manner consistent
with the settlor’s charitable purposes.
There is no indication in section 28-73-413 that the legislature sought to end the
application of cy pres to bequests. A legislative act “will not be construed as overruling a
principle of common law ‘unless it is made plain by the act that such a change in the
established law is intended.’” White v. State, 290 Ark. 130, 136, 717 S.W.2d 784, 787 (1986)
(citing Starkey Constr., Inc. v. Elcon, 248 Ark. 958, 457 S.W.2d 509 (1970)).
In Lowery, our supreme court upheld the probate court’s decision that the bequest to
“Shriner’s Hospital for Crippled Children, Little Rock, Arkansas” should in fact be read as
“Shriners Hospital for Crippled Children, a National Organization[.]” 272 Ark. at 58, 611
S.W.2d at 761. The court also held that the probate court’s decision was sustainable as an
application of cy pres doctrine:
The bulk of the cases applying cy pres involve charitable trusts, rather than bequests,
as here, and there is some authority that the doctrine is limited to charitable trusts.
But the growing weight of authority, and better reasoned, is that the doctrine of cy
pres is equally applicable to charitable bequests and devises. Scott on Trusts, Vol. IV,
# 348, # 399; Bogert, 2d Edition, Trusts and Trustees, Vol. 2A, # 431; Miller v.
Mercantile-Safe Deposit and Trust Co. (1961) 224 Md. 380, 168 A.2d 184. We can see
no reason why the logic of cy pres, which was conceived as a method of achieving
12
Cite as 2017 Ark. App. 588
the ultimate aim of the donor “as nearly as possible” where his expressed intent for
some reason became unattainable, is not equally sound where the bequest is outright
rather than in trust, and this view is consistent with some of the dicta of our own
decisions. Fordyce v. Woman’s Christian Nat’l Library Assn., 79 Ark. 550, 96 S.W. 155
(1906); Bosson v. Woman’s Christian National Library Association, 216 Ark. 334, 225
S.W.2d 336 (1949).
Lowery, 272 Ark. at 58-59, 611 S.W.2d at 761.
The appellants dismiss this language regarding cy pres and charitable bequests as dicta
and immaterial to the issue at hand; however, we consider the well-reasoned alternative
holding of the Arkansas Supreme Court in Lowery to have greater validity. (Dicta consists of
statements and comments in an opinion concerning some rule of law or legal proposition
not necessarily involved nor essential to determination of the case in hand, and lacks the
force of an adjudication. Burnette v. Perkins & Assocs., 343 Ark. 237, 242, 33 S.W.3d 145,
150 (2000)).
The General Assembly was presumably aware of the Lowery case and the existence
of the issue of whether cy pres applied to bequests as well as trusts when the statute was
enacted in 2005, yet the legislature did not address bequests in its codification of cy pres. In
Bosson, 216 Ark. at 338, 225 S.W.2d at 338, the Arkansas Supreme Court acknowledges
that cy pres may be applied to devises and trusts alike: “There are many cases from this and
other jurisdictions in which courts of equity have applied the cy pres doctrine in the
execution of a charitable trust or devise.”
Though not binding on our courts, the Uniform Law Comment to Ark. Code Ann.
§ 28-73-413 also offers some guidance on the issue:
The doctrine of cy pres is applied not only to trusts, but also to other types of
charitable dispositions, including those to charitable corporations. This section does
not control dispositions made in nontrust form. However, in formulating rules for
13
Cite as 2017 Ark. App. 588
such dispositions, the courts often refer to the principles governing charitable trusts,
which would include this Code.
Ark. Code Ann. § 28-73-413 ed. notes (Westlaw through 91st Ark. Gen. Assembly).
The commentary supports SRMC’s argument that the legislature had no intention
of forbidding the application of cy pres to charitable bequests, and it certainly did not
expressly do so. The General Assembly has not removed bequests from the realm of cy pres;
thus, the circuit court did not err in applying the doctrine to the charitable devise at issue
here.
D. Whether Tom Alexander Had Charitable Intent
Having affirmed the circuit court’s finding that cy pres applies to charitable bequests,
we now discuss appellants’ contention that Alexander did not have charitable intent when
he made the devise to Sparks Hospital. Appellants argue that Alexander intended the bequest
to be a gift and not a charitable devise when he set forth that the residuary estate should go
to SMH “as a memorial gift to permit the hospital to make necessary improvements or to
purchase necessary equipment.” Appellants argue that without the testator’s declaration of a
specific purpose, “such as fighting a disease or helping a certain class of citizens,” the circuit
court found charitable intent where there is none. We disagree.
The analysis in Covenant, supra, is relevant to our discussion of the instant case. In
Covenant, one issue was whether the testator had charitable intent when he created a
testamentary trust intended for the management of property and to pay income to life-estate
beneficiaries.
14
Cite as 2017 Ark. App. 588
Our supreme court held:
Although First Presbyterian and First Baptist are charitable organizations, the will
neither provided that the devise was to serve a charitable purpose nor restricted the
churches from using the farm’s proceeds for noncharitable purposes. Rather, a plain
reading of the instrument reveals that the only identifiable purpose of the
testamentary trust was to administer the life estates, which are not charities. The will
directed the trustee to “give, devise and bequeath” the residue of his property to the
churches. It then directed the trustee “to sell all real estate in their discretion as soon
as the law permit[s], taking into consideration the existence of the life estates
hereinbefore created, and distribution of the proceeds therefrom in accordance with
this bequest.” Giving these plain words their ordinary meaning, we find that the only
duty Carpenter gave to the trustee was to hold the farmland as a testamentary trust
during the life of the lifetime beneficiaries and to thereafter distribute the proceeds
of the property to the churches. It does not direct the bank trustee or the churches
to ensure that the use of the property be for a purpose benefiting any charity. Our
statute limits the application of cy pres to instances where a “particular charitable
purpose becomes unlawful, impracticable, impossible to achieve, or wasteful.” Ark.
Code Ann. § 28-73-413(a). Since the will identifies no particular charitable purpose,
cy pres could not be used to reform the trust.
Covenant, 2016 Ark. 138 at 7-8, 489 S.W.3d at 158.
In creating a charitable trust the settlor must describe a purpose of substantial public
interest. Kohn v. Pearson, 282 Ark. 418, 420, 670 S.W.2d 795, 796 (1984). The finding of
Alexander’s charitable intent hinges on the circuit court’s interpretation of his specific
bequest that his estate was “a memorial gift to permit the hospital to make necessary
improvements or to purchase necessary equipment.” The circuit court found that this
bequest fell under the charitable purpose of the “promotion of health.” Arkansas Code
Annotated section 28-73-405 identifies “the promotion of health” as a charitable purpose,
and the necessity of up-to-date medical equipment and facilities in a hospital for the
promotion of health is self-evident. Unlike the testator in Covenant, Alexander set forth a
specific use for his estate, and the court’s reasoning concerning the underlying charitable
intent of that bequest—to promote public health—is not clearly erroneous.
15
Cite as 2017 Ark. App. 588
E. Whether SRMC is Capable of Carrying Out Alexander’s Charitable Intent
Appellants argue that the circuit court erred when it found that SRMC was the
appropriate cy pres beneficiary of Alexander’s bequest because SRMC is not similar to SMH
and thus incapable of carrying out any charitable intent. While we agree that SRMC is not
the same entity as SMH, we disagree that SRMC is not the appropriate cy pres beneficiary
and affirm.
Appellants assert that
[t]here is nothing in the will that indicates that Tom Alexander intended for his estate
to benefit an osteopathic medical school. The circuit court’s decision was heavily
based on the circuit court’s conclusion that Tom Alexander intended to support care
administered in hospitals rather than the physical structure itself.
The circuit court ordered SRMC to use the funds from the estate “solely in pursuit
of its hospital-like services such as providing medical care and community programs at the
medical school or in the clinic owned by SRMC in Fort Smith, Arkansas, and to
memorialize the accomplishments in the name of Tom Alexander[.]” The circuit court
referred to the following relevant findings to support its decision that SRMC is the
appropriate cy pres beneficiary. SRMC executive director Thomas Webb testified that
SRMC continues SMH’s mission of “promoting healthcare through money.” From the
profits of the asset-purchase agreement and SRMC’s collection of past-due accounts,
SRMC has pledged up to $50 million to the Degen Foundation to create and develop an
osteopathic medical school. The purpose of the osteopathic school is to train physicians who
will, in turn, provide healthcare to the Fort Smith community. The clinic will be across the
street from the medical school, which will be built and owned by the Degen Foundation,
and will be managed by the nonprofit organization, Mercy Health Systems, will be “a fully
16
Cite as 2017 Ark. App. 588
functioning clinic that is staffed with regular physicians, nurses, and staff that will be
providing services to our public” and will have “full functioning treatment rooms.” SRMC
pledged that if the residuary estate is granted to it, SRMC will direct the funds toward
completion of the medical school building and purchasing necessary medical equipment for
the medical school. SRMC also suggested that the funds could be used to build the clinic
to provide healthcare to the community. Clinics now provide care that was once relegated
to hospitals, and Alexander “sought to support care administered in hospitals rather than the
physical structure itself.” SRMC fulfills a charitable purpose by educating and training
doctors, conducting medical research, and providing patient care.
We have upheld the circuit court’s decision that the entity that operated Sparks
Hospital was the intended object of Alexander’s bequest and that Alexander had the
charitable intent to promote public health when he made the devise to Sparks Hospital. It
follows that we find no error in the circuit court’s decision that Alexander’s estate should
be used to further the patient-care and community programs that a new clinic will provide
to the Fort Smith community. The circuit court reasonably surmised that Alexander
intended to help provide medical care and promote the good health of the people in the
surrounding area with his express direction that the residuary of his estate should be used to
purchase necessary equipment and make necessary improvements. The circuit court
fashioned a use for the funds as near to Alexander’s intent as possible under the
circumstances, and on this point we affirm.
Affirmed in part; reversed in part.
GLADWIN, GLOVER and WHITEAKER, JJ., agree.
17
Cite as 2017 Ark. App. 588
HIXSON and BROWN, JJ., dissent.
KENNETH S. HIXSON, Judge, dissenting. I agree with the majority’s conclusion
that Sparks Regional Medical Center (SRMC) is not the same entity as Sparks Hospital, and
thus that the trial court’s decision cannot be affirmed on that basis. I also agree with the
majority’s holding that the cy pres doctrine can, under the proper circumstances, be applied
to a charitable bequest for the reasons stated by our supreme court in Lowery v. Jones, 272
Ark. 55, 611 S.W.2d 759 (1981). However, upon examination of these facts, I believe the
trial court clearly erred in applying the cy pres doctrine to direct the residuary of the estate
to SRMC. Therefore, I would reverse the trial court’s decision, and I respectfully dissent.
The primary objective when construing the language of a will is to ascertain and
effectuate the intent of the testator. Covenant Presbytery v. First Baptist Church, 2016 Ark.
138, 489 S.W.3d 153. The cy pres doctrine is the principle that equity will, when a charity
originally or later becomes impossible or impracticable of fulfillment, substitute another
charitable object which is believed to approach the original purpose as closely as possible.
Slade v. Gammill, 226 Ark. 244, 289 S.W.2d 176 (1956). It is a principle of construction of
trusts based on a judicial finding of the donor’s intention as applied to new conditions. 14
C.J.S. Charities § 44 (2017). The reason for the cy pres doctrine is to permit the main
purpose of the donor of a charitable trust to be carried out as nearly as possible when it
cannot be done to the letter. Bosson v. Woman’s Christian Nat’l Library Ass’n, 216 Ark. 334,
225 S.W.2d 336 (1949).
The will executed by Tom Alexander bequeathed the remainder of his property to
Sparks Hospital to permit the hospital to make necessary improvements or to purchase
18
Cite as 2017 Ark. App. 588
necessary equipment. At the time the will was executed, Sparks Hospital owned and
operated a nonprofit hospital in Fort Smith. It is evident that Mr. Alexander’s will
contemplated the existence of an operating hospital and that his intent was to fund
improvements to that hospital.
By the time of Mr. Alexander’s death, Sparks Hospital had changed its name to
SRMC and sold its hospital business to Health Management Associates, Inc., a publicly
traded for-profit entity. As a result of the sale in 2009, SRMC no longer owns or operates
a hospital. SRMC does, however, continue to exist as a nonprofit corporation.
The executive director of SRMC testified that the present function of SRMC is to
continue its mission of providing healthcare and healthcare education for the surrounding
area of western Arkansas and eastern Oklahoma. He further testified that the name “Sparks”
is only used to handle business matters, which he characterized as “financial unwinding.”
He went on to state that SRMC contributed financial support to an osteopathic medical
school and that it planned to fund construction of a clinic across the street from the school.
In my view, the current functions of SRMC are not aligned with the testamentary
intent expressed in Mr. Alexander’s will. SRMC no longer operates a hospital, no longer
has a license to operate a hospital, and no longer provides any medical care directly to
patients. If granted the residuary estate, SRMC will not use the funds to make
improvements to a hospital or purchase necessary equipment for a hospital as contemplated
by the will. Under these circumstances cy pres should not have been applied, and therefore
I would reverse the trial court.
19
Cite as 2017 Ark. App. 588
WAYMOND M. BROWN, Judge, dissenting. For the following reasons, I
respectfully dissent from the majority opinion.
I. Facts
On July 21, 1966, at the age of 21, an unmarried Tom Alexander executed a valid
Last Will and Testament stating the following, in pertinent part:
ITEM II
If I am not survived by a wife or by any children, I then give, devise and
bequeath all of my property of every kind and character and wheresoever situated as
follows: one-half to my brother, Frank Alexander, and one-half to my mother,
Wanda Alexander.
ITEM III
If I am not survived by a wife or by any children, I then give, and if either of
the beneficiaries mentioned in Item II above should predecease me, I then give,
devise and bequeath all of my property of every kind and character and wheresoever
situated to the survivor of said beneficiaries.
ITEM IV
If I am not survived by a wife or by any children, and if my mother and
brother both predecease me . . . . After the allowance for Edna Brewer, I give, devise
and bequeath the remainder of my property as follows: To Sparks Hospital to make
necessary improvements or to purchase necessary equipment.
Tom died on March 18, 2015, having no wife, no children, and being predeceased by both
his mother and brother as well as Edna Brewer. An order probating Tom’s will and
appointing M. Elise Alexander as the personal representative of the estate was entered on
April 15, 2015. On August 27, 2015, Elise filed a Petition to Determine Heirship. 2 Noting
2
An August 25, 2015 inventory of the estate estimated the value of real estate to be
$5,661,104.
20
Cite as 2017 Ark. App. 588
that Frank passed leaving a spouse, Ellen Bales, she referenced the language in Item III
regarding “survivors [sic] of said beneficiaries.” 3 She went on to note other language in the
will that was “without any reference to the foregoing language regarding ‘the survivors [sic]
of said beneficiaries,’” which established an annuity for the benefit of Tom’s former nanny
and sought distribution of the balance of the estate to Sparks Hospital. She further advised
that Sparks Hospital had become a part of Sparks Health System in 1999; that Sparks Health
System 4 had been purchased by Health Management Associates, Inc. (HMA), in 2009; and
that HMA had been purchased by Community Health Systems Professional Services
Corporation (Community Health) in 2014. 5 Twenty potential heirs were listed in the
petition, including Community Health, Sparks Regional Medical Center (SRMC), and
Sparks Health System. 6
John Holleman, a named heir and attorney, 7 responded to the petition on January 5,
2016, asserting that “all the gifts in [Tom’s] will fail” and “must be distributed through
3
The will references a survivor and not “survivors.”
4
The secretary of state showed the corporation of Sparks Health System to have a
fictitious name of Fort Smith Regional Healthcare Foundation.
5
In its March 4, 2016 response to the requests for admissions from James Brooks and
Robert Brooks, SRMC admitted that Community Health purchased by Fort Smith HMA,
LLC in 2013; however, Fort Smith HMA, LLC denied the same in its February 29, 2016
response to the requests for admissions from James Brooks and Robert Brooks.
6
Regions Bank (Regions) was substituted for M. Elise Alexander as the estate’s
personal representative on December 1, 2015.
7
He was joined by two other attorneys.
21
Cite as 2017 Ark. App. 588
intestacy.” Other heirs would subsequently enter appearances and join and adopt
Holleman’s response. Fort Smith HMA, LLC d/b/a SRMC responded to the petition on
January 15, 2016, asserting that “it should be permitted to honor Mr. Alexander in the
manner he specifically requested, i.e. by benefitting the community with necessary
improvements to the campus or the addition of new equipment” and asserted a claim for
unpaid services rendered to Tom. 8 Separate appellant Evelyn House filed her response to
the petition on January 25, 2015, asserting that Sparks Hospital “no longer exists,” having
been bought by SRMC, and that cy pres does not apply because “[a] plain reading of the
whole instrument does not show that *** had a solely or purely charitable purpose ***
when he created his ***” and that, in any event, Fort Smith HMA, LLC, is not a charitable
entity that cy pres can apply to.
SRMC responded to the petition on January 26, 2016, stating that Sparks Memorial
Hospital was an Arkansas nonprofit association at the time Tom executed his will in 1966;
that Sparks Memorial Hospital became SRMC, an Arkansas nonprofit association, on June
2, 1970; and that SRMC became an Arkansas nonprofit corporation on June 27, 2002. On
December 1, 2009, SRMC sold “substantially all of its tangible assets”; however, SRMC
asserted that it “is still in existence and that the purpose of the entity remains the same,
namely to promote healthcare in the Fort Smith Region.” Accordingly, SRMC argued that
“the fact that [SRMC] no longer owns the hospital does not necessarily mean the bequest
8
The secretary of state and the State of Arkansas’s Department of Health both showed
the corporation of SRMC to also have a fictitious name of Fort Smith Regional Healthcare
Foundation.
22
Cite as 2017 Ark. App. 588
lapses” and asserted that the cy pres doctrine should allow SRMC to be determined to be
the beneficiary of Tom’s will.
Holleman replied to SRMC’s response on January 23, 2016, stating that Tom did
not intend to devise his estate to an entity that does not operate a hospital, thereby asserting
that while SRMC may exist, it “no longer bears any resemblance to the ‘Sparks Hospital’”
mentioned in Tom’s will where the hospital iS not run by SRMC but a for-profit entity.
Holleman also noted that SRMC’s assets that were excluded from sale were used to create
the Degen Foundation, which is a nonprofit corporation whose purpose is to build and
operate a new medical school in cooperation with the Arkansas Colleges of Health
Education, and that it is the Degen Foundation that is performing SRMC’s asserted purpose,
not SRMC. Additionally, Holleman reasserted House’s argument that cy pres does not apply
because the sole purpose of Tom’s will was not a charitable purpose, but “only intended to
be a last resort in the event his other devises failed.” Alternatively, he argued that if cy pres
could apply, an award to SRMC would not accomplish Tom’s intent.
A hearing on the matter was held on April 5, 2016. In pertinent part, not already
covered above, Thomas Webb, executive director of SRMC, testified that SRMC no
longer owns the hospital, no longer has a license to operate a hospital, “does not intend to
operate a hospital,” and no longer provides “any medical care directly to patients.” Webb
testified that SRMC’s function was “to continue its mission of providing healthcare and
healthcare education for the surrounding area of Western Arkansas and Eastern Oklahoma”
and that it did so “with money.” This was despite his testimony that the name SRMC “is
only used to handle business matters, financial unwinding type of information” and that the
23
Cite as 2017 Ark. App. 588
“bulk of the $41 million-plus” gained from the sale of the hospital’s assets was “gifted in a
restricted manner to the Degen Foundation for the development of an osteopathic medical
school”; Webb is the executive director of the Degen Foundation as well. Because of its
gift to the Degen Foundation and the purpose of that gift, he testified that he thought
SRMC is a hospital. He provided options for which Tom’s bequest could be used, including
the college’s building itself at a price in the “$1 million range”; to purchase medical
equipment—none of which would be used on actual patients—at a cost of $1,168,000; 9 a
digital audio-visual system with “two of only three laser type projectors that exist in
Arkansas” at a cost of $1,066,000; and the construction of a “fully-functioning” clinic across
the street from the school at a cost of $4.1 billion.
Webb further admitted SRMC would not own any part of the college and does not
intend to own any part of it, the school would not have a hospital license, and the building
would be owned by the Degen Foundation. The clinic would be managed by Mercy,
operating under its Medicare and Medicaid provider numbers with Mercy branding and a
reference to the Arkansas College of Health Education, and was “owned by us”; “us” was
not defined. 10 He denied that Tom’s will gave a charitable gift and opined that “the citizens
9
The equipment would include a model lab and a simulation lab.
10
The lack of definition is confusing because of Webb’s positions as executive director
of both SRMC and the Degen Foundation. It may be presumed he meant SRMC, but this
seems unlikely given that $41 million of the $40–$50 million SRMC acquired during the
sale was gifted to the Degen Foundation.
24
Cite as 2017 Ark. App. 588
that use the facilities on an ongoing basis would benefit from having a hospital with
improvements and necessary equipment to run it.”
John Wommack, testified that Tom’s estate would have to pay estate taxes of about
$350,000 to $400,000, if the gift went to anyone who was not a charitable 501(c)(3)
organization, though the gift would be a “100 percent estate tax charitable deduction” if
the bequest was entirely to a charity with that status. David Rothenberger testified that he
is an employee of “Sparks Health System, which is ultimately owned by Fort Smith HMA,
LLC,” which is an “owned subsidiary of Community Health Systems,” all of which are for-
profit companies. He is the market chief officer for Fort Smith HMA, LLC. He testified to
doing the “due diligence” for the sale which was for the purchase of the “entire tangible
and intangible assets of Sparks Health System,” which included “substantially all the assets”
of SRMC, which were transferred to Fort Smith HMA, LLC on December 1, 2009. At
12:01 a.m., while continuing to use the SRMC name, Fort Smith HMA, LLC, took over
operations, having hired all the employees and medical staff as part of the agreement,
implemented their patient-registration system, using the same Medicare and Medicaid
provider numbers from prior to the sale, and providing hospital services “comparable to”
and “not substantially changed” from the services SRMC provided. 11 Rothenberger testified
that Fort Smith HMA, LLC, would recognize Tom with “some kind of memorial whether
11
Fort Smith HMA, LLC ceased providing a couple of services and added a few
services in addition to renovating ten emergency rooms and adding ten operating rooms.
25
Cite as 2017 Ark. App. 588
it be a plaque, if we could do that, if it’s a particular wing of the hospital or if it’s something”
along that line, “whatever would fit the need.” He believed that Fort Smith HMA, LLC,
should receive the funds “because the will specifically mentions Sparks Hospital” and Fort
Smith HMA, LLC, “[has] continued to operate Sparks Hospital.” He went on to testify that
the sale of assets from SRMC to Fort Smith HMA LLC, was “not a merger” and “not a
continuation of the same entity that was operating Sparks Hospital in 1966,” but was an
“asset purchase.”
Following the hearing, post-trial briefs were filed by Tom’s heirs and SRMC filed
its proposed findings of fact and conclusions of law. The circuit court entered its order with
findings of fact and conclusions of law on June 15, 2016, in which it found the matter to be
a case of first impression in the State of Arkansas. Furthermore, it stated the following:
31. This Court cannot ignore the realities of the development of medical care.
Medical procedures that were formerly conducted only in hospitals are now
performed in clinical settings. This fact is critical here because the Testator sought to
support care administered in hospitals rather than the physical structure itself. SRMC,
through the clinic, will provide a variety of hospital-like operations. Furthermore,
the Court cannot ignore the fact that providers, such as, doctors, are necessary to
provide healthcare to the community and allow healthcare institutions, such as clinics
and hospitals to function. SRMC’s overall mission is essentially to improve the health
status of the residents of the community’s health and well-being. SRMC is
continuing it’s [sic] charitable purpose by educating and training doctors, conducting
medical research, and providing patient care at the medical clinic in Fort Smith.
32. The Court finds that SRMC, although operating under different articles
of incorporation and in a different name, currently exists as a legally viable non-profit
corporation that continues to function and is capable of carrying out the intent and
purpose of the Testator’s memorial gift, and is therefore, entitled to the Testator’s
residuary estate.
33. Furthermore, this holding is sustainable for a second reason. Even if the
Court were to find that the Testator intended Sparks Hospital, the non-profit
hospital, not the non-profit entity, to be the beneficiary of his residuary estate, the
26
Cite as 2017 Ark. App. 588
non-profit hospital no longer exists. Sparks Hospital, the hospital, is being operated
as a for-profit hospital. As such, this Court may look to the doctrine of cy pres.
....
35. Before the cy pres doctrine can be applied, however, a court must find that
the testator intended for a devise to have a charitable purpose. For a devise to have a
charitable purpose, the devise must achieve some public benefit, such as promotion
of health.
36. This Court finds that the Testator’s bequest was to a charitable
organization and for a charitable purpose. At the time the Testator executed his Will,
“Sparks Hospital” was a charitable institution and organization. If fact, it remained a
charitable institution and organization until December of 2009. Although it has
recently been held that the fact that a devise is left to a charitable institution alone
does not designate a devise as a charitable devise (Presbytery, 2016 Ark. 138 (2016)),
the Testator’s devise was to a charitable institution and organization and contained a
charitable purpose. Particularly, the Testator expressly stated in his Will that the
residuary of his estate was to be used by Sparks Hospital for the purposes of
purchasing necessary equipment and making necessary improvements. The Decedent
expressly restricted the bequest to maintaining and updating the community non-
profit hospital. The devise is devoted to the accomplishment of the promotion of
health, a purpose beneficial to the community and of substantial public interest.
37. Furthermore, Mr. Wommack testified that if the Testator’s residuary estate
were received by anyone other than a charitable organization, the estate would have
to pay estate taxes estimated to be around $400,000. However, if someone who is a
charitable organization received the Testator’s residuary estate, the estate will not
have to pay any estate taxes; the estate will receive an estate charitable contribution
deduction. Additionally, Mr. Rothenberger testified that if [Fort Smith HMA, LLC]
were to receive the Testator’s residuary estate, the estate would incur a corporate
income tax in addition to the estate tax.
38. Since Sparks Hospital, the non-profit hospital, no longer exists, the Court
finds that it is impossible to carry out the Testator’s stated charitable purpose. As
such, the Court may utilize cy pres to reform the will.
39. For the reasons set forth in paragraphs 23-31 or this Order, the Court
finds that SRMC, is the appropriate cy pres beneficiary of the Testator’s bequest.
This timely appeal followed.
II. Standard of Review
27
Cite as 2017 Ark. App. 588
We review probate matters de novo but will not reverse the circuit court’s findings
of fact unless they are clearly erroneous. 12 A finding is clearly erroneous when, although
there is evidence to support it, the appellate court is left on the entire evidence with the
firm conviction that a mistake has been committed. 13 We must also defer to the superior
position of the lower court sitting in a probate matter to weigh the credibility of the
witnesses. 14
The appellants’ first argument on appeal is that the circuit court erred by finding that
Tom Alexander intended to give his estate to a specific legal entity and its corporate
successors. They specifically argue that all Tom’s intended gifts lapsed, specifically the gift
to Sparks Hospital, which no longer exists and that the circuit court erred in finding that
Tom’s gift was to the entity behind the hospital and that he was “uninterested in the physical
structure itself.” Finally, they argue that the circuit court erred in finding that the functions
of SRMC remained the same through its transition from Sparks Hospital and by conflating
SRMC with the Arkansas Colleges of Health Education.
This court’s primary objective when construing the language in a will or trust is to
ascertain and effectuate the intent of the testator or settlor as long as that intent is not
12
Patton v. Fulmer, 2016 Ark. App. 260, at 7, 492 S.W.3d 512, 516 (citing In re Estate
of Kemp, 2014 Ark. App. 160, 433 S.W.3d 911).
13
Id.
14
Id.
28
Cite as 2017 Ark. App. 588
contrary to the law. 15 Where the language of a will expressly states the testator’s intention,
the intent must be gathered from the four corners of the instrument. 16 It is only proper to
invoke the rules of construction when the language is ambiguous. 17 In order to determine
the intentions of the testator, consideration must be given to every part of the testamentary
instrument. 18 Extrinsic evidence may be received on the issue of the testator’s intent if the
terms of the will or trust are ambiguous. 19
Looking for the intent of the testator, Tom, the will expressly states, “If I am not
survived by a wife or by any children, and if my mother and brother both predecease me .
. . . After the allowance for Edna Brewer, I give, devise and bequeath the remainder of my
property as follows: To Sparks Hospital to make necessary improvements or to purchase
necessary equipment.” He was predeceased by every named person in the will, leaving only
the bequest to Sparks Hospital. A clear reading of the will first shows that Tom intended a
charitable gift to “Sparks Hospital” for the benefit of improving Sparks Hospital. However,
Sparks Hospital, the nonprofit, no longer exists as Tom knew it, having become SRMC, a
for-profit. In order to move any further, this court must determine if Tom’s bequest was a
15
Covenant Presbytery v. First Baptist Church, 2016 Ark. 138, at 4, 489 S.W.3d 153,
156 (citing Bailey v. Delta Tt. & Bank, 359 Ark. 424, 198 S.W.3d 506 (2004)).
16
Id.
17
Id.
18
Id.
19
Id. (citing Burnett v. First Commercial Tr. Co., 327 Ark. 430, 939 S.W.2d 827
(1997)).
29
Cite as 2017 Ark. App. 588
charitable trust because all the appellants’ arguments are moot if Tom’s will did not create a
charitable trust.
A trust may be created by transfer of property to another person as trustee during the
settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death. 20 When
a charitable trust is created, legal title is passed to the trustee to hold it for the benefit of a
charitable purpose. 21 This court has stated that in creating a charitable trust, the settlor must
describe a purpose of substantial public interest. 22 Arkansas Code Annotated section 28-73-
305 lists specific charitable purposes:
(a) A charitable trust may be created for the relief of poverty, the advancement of
education or religion, the promotion of health, governmental or municipal purposes, or
other purposes the achievement of which is beneficial to the community.
(b) If the terms of a charitable trust do not indicate a particular charitable purpose or
beneficiary, the court may select one (1) or more charitable purposes or beneficiaries. The
selection must be consistent with the settlor’s intention to the extent it can be
ascertained. 23
20
Ark. Code Ann. § 28-73-401(1) (Repl. 2012).
21
Stone v. Washington Reg’l Med. Ctr., 2017 Ark. 90, at 9, 515 S.W.3d 104, 110 (citing
Covenant Presbytery, 2016 Ark. 138, 489 S.W.3d 153).
22
Id. (citing Kohn v. Pearson, 282 Ark. 418, 670 S.W.2d 795 (1984).
23
Ark. Code Ann. § 28-73-305(a) & (b) (Repl. 2012)).
30
Cite as 2017 Ark. App. 588
It is elementary that charitable trusts will not be permitted to fail if the intention of the
creator of such trusts can be carried out, and effect be given thereto. 24
The record is clear that Tom did not create a trust of any sort, let alone charitable,
as his gift was to be given directly to Sparks Hospital for it to use in accordance with his
direction. The cy pres doctrine is inapplicable to a will that does not create a charitable
trust. 25 In addressing the appellants’ second point, appellee cites Lowery for the following
statement:
The bulk of the cases applying cy pres involve charitable trusts, rather than bequests,
as here, and there is some authority that the doctrine is limited to charitable trusts.
But the growing weight of authority, and better reasoned, is that the doctrine of cy
pres is equally applicable to charitable bequests and devises. We can see no reason
why the logic of cy pres, which was conceived as a method of achieving the ultimate
aim of the donor “as nearly as possible” where his expressed intent for some reason
became unattainable, is not equally sound where the bequest is outright rather than
in trust, and this view is consistent with some of the dicta of our own decisions. 26
However, it is clear that this language is dicta and not binding as our supreme court affirmed
the circuit court based where it held that:
[The] elementary rule of construction that a bequest or devise will not fail because
of a mere inaccuracy in the designation of the beneficiary, where the meaning of the
testator can be gathered with reasonable certainty from the instrument itself, or where
the identity of the object of his bounty can be shown by extrinsic evidence and such
24
State ex rel. Att’y. Gen. v. Van Buren Sch. Dist. No. 42, 191 Ark. 1096, 89 S.W.2d
605, 609 (1936) (citing Schell v. Leander Clark College, 10 F.2d 542, 555) (1926)).
25
Covenant Presbytery, 2016 Ark. 138, at 6, 489 S.W.3d at 157 (citing Ark. Code Ann.
§ 28-73-413(a)).
26
Lowery v. Jones, 272 Ark. 55, 58–59, 611 S.W.2d 759, 761 (1981) (internal citations
omitted).
31
Cite as 2017 Ark. App. 588
evidence is always admissible for the purpose of identifying the beneficiary, where
there is uncertainty or ambiguity in the designation. 27
Under these facts, (1) Tom did gift to the entity of Sparks Hospital and likely its
successors, but for the benefit of that hospital, i.e., that building; (2) like his other attempted
gifts, his gift to Sparks Hospital lapsed so the circuit court erred in failing to find so; (3) the
circuit court erred in finding that the functions of SRMC remained the same through its
transition from Sparks Hospital; and (4) the circuit court erred by conflating SRMC not
only with the Arkansas Colleges of Health Education, but also with the Degen Foundation.
Accordingly, I would reverse and give the money to appellants. Items 2, 3, and 4 are
addressed below in my discussion of Sparks Hospital.
III. Sparks Hospital
The evidence before the circuit court was that Sparks Hospital had become SRMC.
However, SRMC sold substantially all its assets, including its goodwill and the use of its
name to Fort Smith HMA, LLC. Webb testified that SRMC was allowed use of the name
SRMC “only to handle business matters, financial unwinding type information.”
Rothenberger’s testimony made it clear that SRMC had no connection to the hospital after
Fort Smith HMA, LLC, purchased it and that Fort Smith HMA, LLC, was in complete
control of the hospital. As the existing entity after the sale of its assets, goodwill, and name,
SRMC does business as Fort Smith Regional Healthcare Foundation. Webb testified that
SRMC’s resolution states that its distributed funds “shall be used only for the purposes of
27
Id. at 59, 611 S.W.2d at 760.
32
Cite as 2017 Ark. App. 588
establishing an institution of health education and various activities relating to” and admits
that Tom’s will does not state any designation of funds for health education. But even if the
will designated health education as a purpose for the bequest, the resolution explicitly states
that the restricted purpose of SRMC’s gift was communicated to the Degen Foundation.
This is because the Degen Foundation will actually be doing the work to start the school
and not SRMC.
Throughout his testimony, Webb speaks of “we” with regard to the actions being
taken to open the osteopathic medical school and clinic. However, he clearly stated that
SRMC d/b/a Fort Smith Regional Healthcare Foundation was not operating as a hospital;
cannot operate a hospital; was managing accounts receivable accrued prior to the December
2009 sale, from which money was “still trickling in”; and gifted the “bulk of the $41 million-
plus” gained from the sale of the hospital’s assets “in a restricted manner to the Degen
Foundation for the development of an osteopathic medical school.” It appears that the
“we” of which Webb is speaking is actually the Degen Foundation, which he is also the
executive director of. Webb’s testimony conflates the actions and intended actions of two
completely separate entities. The circuit court apparently did so as well and did so in error.
Webb’s testimony and other evidence from below, without regard to whether
SRMC ever intends to dissolve, shows that SRMC—and therefore Sparks Hospital—no
longer existed as an entity anywhere near similar to the entity that Tom made his bequest. 28
Furthermore, all the work that SRMC speaks of that it could use Tom’s bequest for is being
28
Webb testified that all SRMC had was its cash and its accounts receivable.
33
Cite as 2017 Ark. App. 588
done and shall be maintained by entities other than itself. SRMC will own no stake in the
intended medical school nor the intended clinic across the street and will have no hand in
the creation or running of either as that will be handled by a combination of the Degen
Foundation, the Arkansas Colleges of Health Education, and Mercy Hospital. Regardless of
Webb’s testimony that SRMC’s function is to “continue its mission of providing healthcare
and health education for the surrounding area of Western Arkansas and Eastern Oklahoma”
by using money, the fact remains that, the entity itself, is no longer in the “hospital
business”; 29 and therefore, was in no position “to make necessary improvements or to
purchase necessary equipment” as Tom directed his bequest to be used for. Furthermore,
Webb testified that if SRMC received the bequest, its board of directors would decide what
to do with the money, a decision which could be contrary to Tom’s intent. Accordingly, I
would affirm on this point.
Because I think we should reverse on the appellants’ first point, I would not address
the appellants’ second argument that the circuit court erred in finding that the cy pres
doctrine applies in the matter. However, alternatively, if a charitable trust was created and/or
the cy pres doctrine can apply to charitable bequests, I would remand and order the circuit
court to give the money to a similarly situated nonprofit as was Sparks Hospital, noting that
29
“Hospital business” was defined in the agreement as “the Hospital and other
healthcare facilities and business (including clinics and outpatient operations) owned and
operated by Seller, including all real property, whether developed or undeveloped,
associated with any of the foregoing and all business, structures, fixtures and other
improvements thereof[.]”
34
Cite as 2017 Ark. App. 588
the Degen Foundation or even the Sparks Healthcare Foundation—“the philanthropic arm
of the hospital that raised funds that supported the hospital” according to Webb—may be
an option if either is a nonprofit. I agree with the circuit court that the bequest cannot be
given to Fort Smith HMA, LLC, because it would result in a large taxable event to the
estate, which was clearly not Tom’s intent having made his bequest to a non-profit hospital.
In Bosson v. Woman’s Christian National Library Association, our supreme court stated that:
The meaning of the doctrine of cy pres is that when a definite function or duty is
to be performed, and it cannot be done in exact conformity with the scheme of the
person or persons who have provided for it, it must be performed with as close
approximation to that scheme as reasonably practicable; and so, of course, it must be
enforced, and the reason or basis for the doctrine is to permit the main purpose of
the donor of a charitable trust to be carried out as nearly as possible where it cannot
be done to the letter. 30
Giving Tom’s gift to SRMC is not a performance of Tom’s will as it is not “as close
approximation to that scheme as reasonably practicable[.]”
Therefore, I respectfully dissent.
Holleman & Associates, P.A., by: Timothy A. Steadman and Jerry Garner, for appellants
David Neal, Judy Kruse, John Holleman, Dr. Cynthia Frazier, Dr. Marianne Massey, Kathy
Barber, and Alice Boyle.
Booth Law Firm, P.L.C., by: Frank W. Booth, for appellant Evelyn Ann House.
Jones, Jackson & Moll, PLC, by: Mark Moll and Kathryn A. Stocks, for appellee.
30
216 Ark. 334, 338–39, 225 S.W.2d 336, 338 (1949).
35