Sparks v. Hospital Authority , 241 Ga. App. 485 ( 1999 )

POPE, Presiding Judge.

This appeal presents questions of first impression concerning the construction of the Hospital Acquisition Act, OCGA §§ 31-7-400 through 31-7-412. For the following reasons, we conclude that the superior court erroneously interpreted the Act, and we reverse the court’s dismissal of Sparks’ complaint.

The Hospital Authority of the City of Bremen and County of Haralson, which owned and operated Higgins General Hospital in Bremen, negotiated an agreement with Tanner Medical Center, transferring the control and operation of the hospital from the Authority to Tanner. Under the agreement, Tanner would lease most of the real property of the hospital, purchase most of the personal property, and operate the hospital. This transaction was subject to the Act, under which no purchase or lease of 50 percent or more of the assets of a nonprofit hospital may take place without notifying the Attorney General of Georgia at least 90 days before “consummation” of the transaction. OCGA §§ 31-7-400 (2); 31-7-401.

Amos Sparks, the sole commissioner of Haralson County, objected to the transfer and filed a verified complaint in Haralson County Superior Court seeking a preliminary injunction. He also moved the court for a temporary restraining order to halt the transfer. On May 18,1998, after the court refused to grant the restraining order, the Authority and Tanner signed the agreement.¹ On June 9, 1998, they notified the Attorney General of the transaction. A public hearing, as required under the Act, was scheduled to be held on August 7, 1998.

On June 26, 1998, Sparks amended his complaint to seek a declaration that the lease and transfer agreement was null and void because the Authority had consummated the agreement by executing it before the disclosure and public comment period provided for under the Act. The Authority responded to the amended verified complaint and moved to dismiss it for failure to state a claim. The trial court granted the Authority’s motion to dismiss the complaint, concluding that the agreement was a “proposed transaction” within the meaning of the Act and that Tanner and the Authority had not violated the Act. Sparks appealed.

1. Sparks contends that the court erred in granting the Authority’s motion to dismiss because the complaint states a valid claim that the Authority violated the Act by executing the lease with Tanner before initiating the requisite public disclosure process. Sparks further argues that the purpose of the Act was frustrated because the agreement was executed before obtaining local input. We agree.

The crucial facts relevant to our inquiry are: on May 18, 1998, the Hospital Authority signed the agreement transferring the control and operation of the hospital from the Authority to Tanner. The agreement provided that it was binding on the parties, but that it would not be “consummated” until the fifth day after the issuance of the Attorney General’s finding that the transaction was in the best interest of the public. In other words, the Authority and Tanner agreed to the terms and the conditions of the transaction, but agreed that it would not be effective until the Attorney General approved the agreement.

In dismissing Sparks’ complaint, the superior court stated: “regardless of whether the parties submitted a preliminary agreement or an executed agreement, the transaction is not binding until the Attorney General approves it.” The superior court stated that in order to facilitate the Attorney General’s approval of an agreement under the Act, it was necessary that the parties submit the terms and conditions of the transaction to him. “Otherwise,” the court stated, “the Attorney General would have a difficult time approving the acquisition, as he would have no basis to consider the transaction with.” Accordingly, the court determined that the agreement between the parties was a “proposed transaction,” and that the parties had complied with the Act.

The problem with the superior court’s interpretation of the Act is that it allows the parties to a transaction to circumvent any meaningful public input about the transaction. And the Act clearly contemplates that before any transaction is consummated the Attorney General will hold a public hearing to provide a forum for meaningful public input about the transaction.

The Act first requires that the parties notify the Attorney General about prospective transactions. OCGA § 31-7-401 states: “[n]o acquiring entity shall engage in an acquisition without first notifying the Attorney General pursuant to this article.” The section later provides that: “the parties to the transaction shall provide the Attorney General with at least 90 days’ notice of the proposed transaction prior to its consummation.” The following sections, OCGA §§ 31-7-402 and 31-7-403, lay out the information about the transaction which the negotiating parties must provide to the Attorney General.

With regard to the public input regarding the proposed transaction, OCGA § 31-7-406 provides:

[t]he purpose of the public hearing shall be to ensure that the public’s interest is protected when the assets of a nonprofit hospital are acquired by an acquiring entity by requiring full disclosure of the purpose and terms of the transaction and providing an opportunity for local public input.

(Emphasis supplied.) To that end, OCGA § 31-7-404 requires the Attorney General to publish a notice of the proposed transaction in a general circulation newspaper. The section further requires that this notice state the specifics of the public hearing and “the means by which a person may submit written comments about the proposed transaction to the Attorney General.” OCGA § 31-7-405 then outlines the mechanics of the hearing — subsection (a) states that at the hearing the “Attorney General shall provide an opportunity for those persons in favor of the transaction, those persons opposed to the transaction, and other interested persons to be heard.” This section also provides that “the Attorney General shall also receive written comments regarding the transaction from any interested person.”

In this case, contrary to the superior court’s conclusion, the Authority and Tanner effectively consummated the transaction between themselves before any public hearing was held. Regardless of subsequent input which may have been provided through the public hearing process, the Authority was contractually bound to transfer control of the property to Tanner. The parties’ actions here contravened the Act’s purpose — to provide community involvement in the transaction. Accordingly, the superior court erred in dismissing Sparks’ complaint for failure to state a claim.

2. Sparks also argues that the Act does not vest the Attorney General with the power to approve or reject a transaction. We conclude that although in this case the parties failed to comply with the terms of the Act by failing to allow for meaningful local input, after a meaningful public hearing has been properly held on a proposed agreement, the Attorney General is authorized to determine whether a transaction is in the public interest and, thus, to approve or reject it.

Although the Act does not use the word “approve” or “deny” in describing the Attorney General’s duties, an overview of the provisions shows that his approval that the transaction is in the public interest is the final piece of a properly executed agreement. Under the Act, the Attorney General is involved in the hospital acquisition process from beginning to end. OCGA §§ 31-7-401 through 31-7-404 address the Attorney General’s role in overseeing the notice aspects of the proposed transaction. OCGA § 31-7-405 requires the Attorney General to conduct the public hearing on the proposed transaction and states that certain witnesses shall be subject to questioning by him. OCGA § 31-7-407 provides that the Attorney General shall have the authority to ensure compliance with all notices, may institute proceedings to enforce such compliance, and shall issue a report of findings regarding the public hearing. OCGA § 31-7-407.1 charges the Attorney General with issuing a report of findings addressing the 13 issues outlined in OCGA § 31-7-406 and provides that the time period for issuing the report may be extended “if the Attorney General finds there has been a failure by the entities involved in the transaction” to comply with the requisite disclosures. Under OCGA § 31-7-408, a hospital permit may not be issued or renewed and, in fact, may be revoked if a disposition or acquisition takes place without the required notice being provided to the Attorney General. OCGA § 31-7-410 explicitly states that no provision of the statute “shall derogate from the common law or statutory authority of the Attorney General.” OCGA § 31-7-411 states that the Attorney General shall have the same power to investigate as under OCGA § 45-15-17 (which authorizes the Attorney General to conduct investigations into, among other things, the affairs of the state and any department of the state). The final section, OCGA § 31-7-412, authorizes the Attorney General to instigate proceedings for unlawful dispositions or acquisitions.

Although the legislature has not explicitly stated that under the Act the Attorney General must approve that a proposed transaction is in the public interest, the statutory scheme clearly contemplates this role. The cumulative effect of these provisions is that if the Attorney General finds the disclosures inadequate or finds any of the factors that must be considered unfavorable, the report has the effect of disapproving the transaction. Given the broad powers in the entire process which the Attorney General has, it appears that the legislature simply failed to use the words “approve” or “deny” in defining his duty.

We find no merit in Sparks’ argument that if the General Assembly had intended for the Attorney General to determine whether the transaction was in the public interest or approve or disapprove of transactions, it would have framed the Act in compliance with the Georgia Administrative Procedure Act, OCGA §§ 50-13-1 through 50-13-44, or provided other procedural safeguards for due process.

Judgment reversed.

Eldridge, J., concurs. Smith, J., concurs specially.

1 The superior court entered an order denying the motion on May 28, 1998 nunc pro time to May 18,1998.