Manhattan Eye, Ear and Throat Hospital v. Spitzer

Manhattan Eye, Ear and Throat Hospital (“MEETH”) (plaintiff) was a long-standing, well-respected nonprofit research, teaching, and acute care specialty hospital. MEETH’s primary corporate purposes are to establish, provide, conduct, operate and maintain a hospital by means of general treatment of acute short-term illnesses; plastic surgery; treating of diseases affecting eye, ear, nose, or throat; and maintaining a medical post graduate school. MEETH had opened an Outpatient Extension Center in Harlem that served mainly as an outpatient clinic and referred patients requiring more care to the East 64th Street location. In 1999, MEETH’s Board of Directors (BOD) decided to sell the East 64th Street facility due to financial troubles. Memorial Sloan Kettering Cancer Center (MSKCC) and Downtown Group/Colony Capital (“Downtown”) were the agreed upon purchasers of the facility. MSKCC planned on using the purchase to expand its cancer treatment center while Downtown planned on using the land to build an apartment complex. The Board also agreed to terminate its residency program, close all hospital functions, and to transform the Harlem location and another location to free standing Diagnostic and Treatment (D&T) Centers. Although the appraised value of MEETH’s real estate was $46-55 million, the Board agreed to sell the property for $41 million. MEETH submitted a closure plan to the New York Department of Health (DOH) and took other steps to effectuate closure and receive regulatory approval for its plan. MEETH entered into a contract for the sale and then sought required court approval under § 511 of the New York Not-for-Profit Law. Section 511 requires court approval when a nonprofit corporation seeks to dispose of all, or substantially all, of its assets since there are no shareholders able to approve the transaction. In order to authorize approval, the court must determine whether the seller’s use of the proceeds will best serve the corporate purposes. Pursuant to the state law, New York’s Attorney General, Spitzer (defendant) is made a necessary party to the petition.