Judges： Schreiber, Pashman
Filed Date： 6/24/1981
Status： Precedential
Modified Date： 11/11/2024
The opinion of the Court was delivered by
This litigation involves a constitutional attack on an amendment to the Health Care Facilities Planning Act (“Act”), N.J. S.A. 26:2H-1 et seq., which exempts certain nonprofit corporations from the requirement of obtaining an initial certificate of need to operate as a hospital. It is asserted that the amendment, N.J.S.A. 26:2H-7.1 (section 7.1), violates the State proscription against special legislation, N.J.Const. (1947), Art. IV, § VII, par. 9(8), and the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution.
These issues arose when plaintiff, Paul Kimball Hospital, Inc., a hospital located, in Lakewood, instituted suit against the Brick Township Hospital, Inc. (“Brick”) and Joanne E. Finley, Commissioner of Health. The amendment in question exempted from the Act’s licensing requirement a nonprofit corporation which, before the effective date of the Act on August 21, 1971, had acquired land for a hospital to be located within a municipality which had appropriated funds for its construction as authorized by N.J.S.A. 44:5-10.2. The Attorney General intervened as a party defendant and the Regional Health Planning Council, Bergen-Passaic Health Systems Agency, Southern New Jersey Health Systems Agency, Inc. and Hudson Health Sys
The following factual picture emerges from the documents submitted on the motions for summary judgment, viewed favorably to the defendants in accordance with established doctrine regarding such motions. See Judson v. Peoples Bank & Trust Co., 17 N.J. 67 (1954).
A group of citizens residing in Brick Township organized Brick Township Hospital, Inc., a private nonprofit corporation, in May 1968 for the purpose of establishing and maintaining a hospital in the Township. Motivations for establishing the hospital were the long waiting periods for Township residents to obtain hospital beds and the need to travel distances beyond the municipality to various hospitals. On January 16, 1970 defendant purchased for $45,000 a 30-acre tract of land in the Township where the hospital was to be located. These funds had apparently been raised from private contributions. The municipal government of Brick Township, pursuant to N.J.S.A. 44:5-10.2, appropriated $50,000 each year from 1970 through 1975 toward the construction and operation of the hospital. Commencing in 1976 the annual appropriation was reduced to $25,-000. In this manner $375,000 has been accumulated and is currently being held in escrow. Schematic drawings of the proposed hospital made by consultants depicted the general design of the building, designated the area and elevations and showed interior space allocation. In addition the consultants prepared a planning report that contemplated a 500-bed hospital, the first phase consisting of 110 beds.
All the activities described above had been accomplished before the Health Care Facilities Planning Act became effective. The uncontradicted affidavit of J. Robert Lackey, Director of the Office of Comprehensive Health Planning in the State Department of Health, states that the defendant had substan
The Health Care Facilities Planning Act radically altered the extent of regulation and control over health care facilities and services. Among other things the Act required procurement of a certificate of need for construction or expansion of a health care facility or for institution of new health care services. N.J.S.A. 26:2H-7. A certificate of need was not required for hospitals which had been or were being constructed on August 21, 1971.
Brick requested permission from the Department of Health to construct the phase I facility without a certificate of need. Initially the Department ruled Brick did not qualify for the exemption. Subsequently, the Department decided to reconsider this decision and held a hearing for that purpose. The hearing officer recommended that Brick’s activity prior to the effective date of the Act did not warrant the exemption. The recommendation was submitted to the Commissioner of Health, who did not act on the recommendation because Brick had in the meantime applied for a certificate of need. The Commissioner recognized “a need for some beds in the area,” but denied the application for a certificate of need. However, she granted Brick permission to construct a full range ambulatory care facility. The denial was subject to review by the Health Care Administration Board and the applicant was entitled to a hearing prior to the Board’s determination. N.J.S.A. 26:2H-9. Brick sought such a hearing and review. While the hearing was pending, the Legislature passed N.J.S.A. 26:2H-7.1 which reads as follows:
Any nonprofit entity chartered by the State of New Jersey as a nonprofit corporation pursuant to Title 15 of the Revised Statutes, which had been so chartered and had acquired land for the purpose of constructing a hospital prior to the effective date of the act to which this act is a supplement, and when the land so acquired by such nonprofit corporation is located within a municipality that has provided an appropriation for the construction of a health care facility as authorized by P.L.1954, c. 266 (C. 44:5-10.2), then the proposed hospital of*438 such nonprofit corporation shall be exempt from the requirement of section 7 of P.L.1971, c. 186 (C. 26:2H-7) relating to a certificate of need.
This section effectively exempted Brick from obtaining a certificate of need for construction of its phase I facility. It placed Brick in the same category as other facilities which on August 21, 1971 existed, were under construction, or had submitted construction plans to the Department.
The law was drawn with the Brick situation in mind. When introduced into the Assembly, the Statement attached to the Bill read as follows:
This bill is narrowly drawn to permit certain proposed health care facilities exemption from the requirement to obtain a certificate of need under the Health Care Facilities Planning Act. The bill would have the effect of enabling a hospital to be built in Brick Town, Ocean county. [Senate Institutions, Health and Welfare Committee, Statement to Assembly Bill 369 (1978)]
Both the trial court and the Appellate Division concluded that the amendment constituted special legislation in contravention of Art. IV, § VII, par. 9(8) of the New Jersey Constitution. Finding that the purpose of the Health Care Facilities Planning Act was to prevent costly and unnecessary duplication of health care facilities, N.J.S.A. 26:2H-1, the trial court reasoned that the amendment by eliminating the requirement of a certificate of need did not comply with this purpose. Since no rational relationship existed between the amendment and the stated objective of the Act, the amendment was invalid as special legislation and violated the equal protection of the law required by the Fourteenth Amendment.
The Appellate Division acknowledged that the test of whether a law is special legislation is the same as that which determines whether there is a denial of equal protection under the Fourteenth Amendment. It stated that this standard requires an analysis of the purpose and object of the enactment and whether the classification rests upon any rational or reasonable basis relevant to the purpose and object of the act. Recognizing that the grandfather clause embodied in the amendment may have been intended to further the legislative purpose in N.J.S.A. 44:5-10.2, the Appellate Division nevertheless found
Brick and the Attorney General filed notices of appeal. Brick also filed a petition for certification which was granted. 85 N.J. 113 (1980).
I.
The Health Care Facilities Planning Act substantially expanded governmental control and regulation over hospitals. The legislation was enacted to effectuate the public policy that “hospital and related health care services of the highest quality, of demonstrated need, efficiently provided and properly utilized at a reasonable cost are of vital concern to the public health.” N.J.S.A. 26:2H-1. No hospital was to be constructed or expanded until a certificate of need had been obtained. N.J.S.A. 26:2H-7. The certificate was not be to issued unless the “action proposed . . . [was] necessary to provide required health care in the area to be served, [could] be economically accomplished and maintained, and [would] contribute to the orderly development of adequate and effective health care services.” N.J.S.A. 26:2H-8. Moreover no agency of the State or of any municipal government was permitted to approve the grant of funds for a health care facility constructed or expanded in violation of the Act. N.J.S.A. 26:2H-7. Furthermore, each facility had to obtain a license to operate, N.J.S.A. 26:2H-12 a(l), and a license could only be issued if the institution’s premises, equipment and personnel were “fit and adequate,” N.J.S.A. 26:2H-12 b(2). Uniform systems of cost accounting, reports and audit had to be established and maintained. N.J.S.A. 26:2H-12 a(2). A long range plan, reviewable annually, for health care facilities compatible with the State Health Plan, had to be prepared. N.J.S.A. 26:2H-12 a(4). Payments by government agencies for
The Act did not require that certificates of need be obtained for existing hospitals, although a certificate would be needed for any future expansion or construction. This exception grew out of the definition in the Act of “construction” as
the erection, building, or substantial acquisition, alteration, reconstruction, improvement, renovation, extension or modification of a health care facility, including its equipment, the inspection and supervision thereof; and the studies, surveys, designs, plans, working drawings, specifications, procedures, and other actions necessary thereto. [N.J.S.A. 26:2H-2(c)]
Accordingly hospitals in existence were not required to obtain a certificate of need justifying their present status. Furthermore, the Department of Health exempted any hospital from obtaining a certificate of need for construction if the hospital had obtained a license or if its plans had been approved by or submitted to the Department. Thus some proposed new hospitals were exempted from obtaining a certificate of need even though physical construction of the facility had not begun.
In 1978 the Legislature added to this class those nonprofit institutions which had acquired land within a municipality provided the municipality had appropriated funds as authorized by N.J.S.A. 44:5-10.2 for construction of the hospital on that property. N.J.S.A. 26:2H-7.1. Proposed hospitals that satisfied these provisions as of August 21, 1971 were, like existing hospitals or those whose plans had been approved, excused from obtaining a certificate of need with respect to the initial facility. It is this amendment that plaintiffs challenge.
Exceptions of this type to regulatory statutes are commonly referred to as grandfather clauses. Grandfather clauses operate to exempt from the requirements of legislative enactments certain defined individuals or entities that, at the time the requirements become effective, meet specific defined criteria. The time of enactment is not critical when qualifica
Beneficiaries of grandfather clauses being exempt from a regulatory scheme created under the State’s police power are not within the ambit of all requirements of that scheme.
Examples supporting grandfather clauses against equal protection attacks are bountiful. In Independent Elec. Ass’n v. N.J. Bd. of Exam., 54 N.J. 466 (1969), this Court upheld a grandfather clause that excused those who had been engaged in the electrical contracting business for at least six years prior to the effective date of a licensing statute from taking an examination before being licensed as an electrician. In testing the reasonableness of the classification, we adhered to the doctrine
*442 that the Legislature has, under fundamental principles, an especially wide discretion in determining what requirements it will impose in such a clause, [id. at 478]
We also quoted approvingly from the New York Court of Appeals opinion in Wasmuth v. Allen, 14 N.Y.2d 391, 398, 252 N.Y.S.2d 65, 70, 200 N.E.2d 756, 760 (1964), app. dism. 379 U.S. 11, 85 S.Ct. 86, 13 L.Ed.2d 23 (1964):
“Nothing turns on the circumstance that the Legislature excused under the grandfather clause some and not others from passing the basic subject test.” [54 N.J. at 478]
The clause was upheld because of a “practical necessity” when a trade is initially licensed and because of the legislative judgment involved in setting the precise perimeters of the excepted class. Id. at 477-478.
Grandfather clauses have survived equal protection attacks when the excepted class consists of an existing business. In United States v. Maher, 307 U.S. 148, 59 S.Ct. 768, 83 L.Ed. 1162 (1939), the Court implicitly upheld a grandfather clause in the Motor Carrier Act excluding common carriers from proving requirements for a certificate of need for routes previously served. In New Orleans v. Dukes, 427 U.S. 297, 96 S.Ct. 2513, 49 L.Ed.2d 511 (1976), the Supreme Court upheld a grandfather provision exempting two vendors from the ban of an ordinance on pushcart selling because the “city could reasonably decide” that the exempted vendors “had themselves become part of the distinctive character and charm” of the French Quarter. Id. at 305, 96 S.Ct. at 2517, 49 L.Ed.2d at 518. The Court stated that “in the local economic sphere, it is only the invidious discrimination, the wholly arbitrary act, which cannot stand consistently with the Fourteenth Amendment.” Id. at 303-304, 96 S.Ct. at 2516-2517, 49 L.Ed.2d at 517.
Similarly, provisions in zoning ordinances that permit continuance of a nonconforming use have been held valid. See Belleville v. Parrillo’s, Inc., 83 N.J. 309 (1980); United Advertising Corp. v. Borough of Raritan, 11 N.J. 144 (1952). For other cases in which validity of nonconforming uses was upheld see cases cited in Annotation, “Exception of existing buildings or busi
Tested by these precepts, the grandfather clause in question satisfies traditional equal protection criteria. The Legislature decided that a prerequisite to an exemption was an appropriation of funds, in accordance with N.J.S.A. 44:5-1 to 44:5-10, by a municipality with no hospital located within its borders for the purpose of constructing a hospital. The primary thrust of these sections authorizing appropriations is to provide facilities for the indigent sick within the municipality. In addition only a nonprofit corporation which had acquired land within the municipality was eligible. Under all these circumstances the nonprofit corporation would have taken certain overt steps — formation, fund raising, expenditures and acquisition of land. Furthermore, a governmental decision would have already been made that a hospital was needed within the municipality to care for its poor and indigent. The Legislature accepted the judgment of the municipality that a hospital is needed within its borders that will presumably be more readily accessible to all members of the community including the poor.
The Legislature has seen fit in its wisdom and judgment to excuse this exempted class from the requirements of a certificate of need. It is the Legislature, not alone the courts, that determines the policies which foster the general welfare of the public. Its prudence is not for us to judge. New Jersey Association on Correction v. Lari, 80 N.J. 199, 211 (1979).
Unlike most other classification cases, the argument is made that the differences within the exempted class make similar treatment inappropriate. Neither plaintiff nor defendant requires a certificate of need for the initial hospital facility. Thus, plaintiff seeks to deny defendant a benefit that plaintiff itself enjoys. Moreover, plaintiff argues that it is inequitable to require it to obtain a certificate of need to construct additional facilities when Brick need not do so with respect to the hospital
The Legislature exercised broad discretion when it defined the class and in the absence of arbitrariness its decision should be upheld. The policy excluding existing hospitals and proposed facilities when need has been determined by a municipality and when funds have been raised and land acquired is a legislative recognition of reliance made in good faith on the state of the law which existed prior to the effective date of the Act. See Affiliated Distillers Brands Corp. v. Sills, 56 N.J. at 263. Though these hospitals may not fulfill all the stated purposes of the Act, at least those in the category of section 7.1 have received a governmental declaration of need in the community. This declaration is in keeping with the spirit of the grounds for issuance of a certificate of need, namely the necessity “to provide health care in the area to be served.” N.J.S.A. 26:2H-8. Only one hospital is permitted under N.J.S.A. 44:5-10.2 within a municipality. It could be argued that only section 7.1 institutions should have been exempted from the certificate of need requirement. This group fits within the general legislative scheme that only hospitals that are needed in an area should be permitted. However, the Legislature has also seen fit to include existing hospitals and those under construction. The legislative intent in this respect was addressed to the impact of future hospital development. The exercise of this discretion accords with the traditional principle that the Legislature may recognize degrees of harm and correct the situation which it considers most appropriate. In Katzenbach v. Morgan, 384 U.S. 641, 86 S.Ct. 1717, 16 L.Ed.2d 828 (1966), the Court restated the principle in this fashion:
[W]e are guided by the familiar principles that a “statute is not invalid under the Constitution because it might have gone farther than it did,” Roschen v. Ward, 279 U.S. 337, 839, [49 S.Ct. 336, 336,] 73 L.Ed. 722, 729, that a legislature need not “strike at all evils at the same time,” Semler v. Dental Examiners, 294 U.S. 608, 610, [55 S.ct. 570, 571] 79 L.Ed. 1086, 1089, and that “reform may take one step at a time, addressing itself to the phase of the problem which seems*445 most acute to the legislative mind,” Williamson v. Lee Optical Co., 348 U.S. 483, 489, 75 S.Ct. 461, 465, 99 L.Ed. 563, 573 [384 U.S. at 657, 86 S.Ct. at 1727, 16 L.Ed.2d at 839]
We hasten to point out that the defendant will be subject to the same panoply of regulation as the plaintiff and other hospitals, whether within the grandfather exemption or not, in all other respects. Therefore, defendant, too, will require a license to operate and certificates of need for expansion, will be subject to reporting and accounting requirements and will have its rates reviewed and fixed in the same manner as other hospitals.
II.
Plaintiff also contends that the grandfather provision, N.J. S.A. 26:2H-7.1, violates the state constitutional interdiction against special legislation. The provision reads:
[t]he Legislature shall not pass any private, special or local laws:
(8) Granting to any corporation, association or individual any exclusive privilege, immunity or franchise whatever. [N.J. Const. (1947), Art. IV, § VII, par. 9(8)]
However, the particular determinant of a special law is the appropriateness of the objects which it excludes. This well-accepted standard is found in Budd v. Hancock, 66 N.J.L. 133 (Sup.Ct.1901), which reads as follows:
A law is special in a constitutional sense when, by force of an inherent limitation, it arbitrarily separates some persons, places or things from others upon which, but for such limitation, it would operate. The test of a special law is the appropriateness of its provisions to the objects that it excludes. [Id. at 135]
The Court has restated the principle on several occasions. In Roe v. Kervick, 42 N.J. 191, 233 (1964), we said:
A law is “general” (1) if the class of subjects established, recognized or regulated is distinguished by characteristics sufficiently marked and important to make it a class by itself, and (2) if it encompasses all of the subjects which reasonably belong within the classification, and does not exclude any which naturally belong therein.
So, too, in Harvey v. Essex Cty. Bd. of Freeholders, 30 N.J. 381, 389 (1959), we stated:
*446 In deciding whether an act is general or special, it is what is excluded that is the determining factor and not what is included. Budd v. Hancock, 66 N.J.L. 138, 135—136 (Sup.Ct 1901). If no one is excluded who should be encompassed, the law is general. Another requirement of a general law is that it must affect equally all of a group who, bearing in mind the purposes of the legislation, are distinguished by characteristics sufficiently marked and important to make them a class by themselves. In Van Riper v. Parsons, 40 N.J.L. 1,9 (Sup.Ct. 1878) the court pointed out that local and special laws rest on a false or deficient classification in that “their vice is that they do not embrace all the class to which they are naturally related; they create preference and establish inequalities; they apply to persons, things or places possessed of certain qualities or situations, and exclude from théir effect other persons, things or places which are not dissimilar in these respects.” See also City of Passaic v. Consolidated Police, etc., Pension Fund Commission, 18 N.J. 137, 146 (1955); Sherwood v. Bergen-Hackensack, etc., Authority, 24 N.J.Misc. 48, 53-54 (Sup.Ct. 1946), affirmed, 135 N.J.L. 304-306 (Sup.Ct. 1946). With this distinction between a special and a general law in mind, the question is whether any appropriate person is excluded to which the law, but for its limitations, would apply. Koons v. Board of Com’rs of Atlantic City, 134 N.J.L. 329, 333 (Sup.Ct. 1946), affirmed per curiam, 135 N.J.L. 204 (E. & A. 1947); In re Freygang, 46 N.J.Super. 14, 23 (App.Div. 1957), affirmed, 25 N.J. 357 (1957).
An analysis similar to that used in the equal protection model has traditionally been applied to determine if legislation is proscribed as special. See Robson v. Rodriguez, 26 N.J. 517, 526 (1958) (“The test of whether a law constitutes special legislation is essentially the same as that which determines whether it affords equal protection of the laws.”). As we stated more recently in Vreeland v. Byrne, 72 N.J. 292, 299 (1977): “The test, of course, is whether the classification is reasonable, not arbitrary, and can be said to rest upon some rational basis justifying the distinction.”
The propriety of exclusions must be examined utilizing the principles generally applicable to equal protection. Thus the Legislature has wide discretion in determining the perimeters of a classification, Harvey v. Essex Cty. Bd. of Freeholders, 30 N.J. at 390, distinctions may be made with substantially less than mathematical exactitude, Lane Distributors, Inc. v. Tilton, 7 N.J. 349, 358-359 (1951), and an adequate factual basis for the
In section 7.1 the Legislature added to the group of hospitals existing or under construction oh August 21, 1971. As we have seen the additional category included nonprofit corporations that proposed to construct a hospital in a municipality that had decided that a hospital was necessary for the treatment and care of its indigent. The municipal decision must have been buttressed by an appropriation of municipal funds, and the corporation must have acquired a site for that purpose.
As discussed above, the Legislature could justifiably omit institutions that did not have a municipal determination of need, supported by an appropriation, for a hospital within its borders to care for its inhabitants. Plaintiff’s contention that an institution that has raised all its funds by voluntary contributions should be within the class overlooks the fact that there would have been no public decision of a governmental agency of the need for the facility. Moreover, the governmental determination does not represent some vague sentimental approval, but is supported by the use of taxpayers’ funds by officials accountable to the public.
Another argument advanced by plaintiff is that the condition that land must be located within the municipality is unreasonable. Here again the restriction to those situations where the site is within the municipality accords with the need to service its inhabitants generally and the poor and indigent in particular.
Exclusion of institutions that have not acquired any land is related to the reliance factor accommodated by the Legislature through prospective application of the Act. As indicated previously, a requirement of reliance on law prior to the Health Care Facilities Planning Act justifies a grandfather classification. The nature and extent of that reliance supportive of inclusion in the excepted class are peculiarly matters for legislative judgment.
The fact that only one entity that meets the specific provisions of the amendment has been identified thus far
Moreover, the classification as applied rests upon a rational basis relevant to the purpose and object of the Act. See Vreeland v. Byrne, 72 N.J. 292 (1977). Enabling this defendant’s hospital to exist furthers a purpose of the Act for it is a step in the direction of providing “for the protection and promotion of the health of the inhabitants of the State.” N.J.S.A. 26:2H-1. It is consonant with the statutory purpose of prospectivity reflected by elimination of certificates of need for existing hospitals or those which had attained the planning stage. However, all health care facilities are brought under the umbrella of mandatory compliance with hospital operational requirements and other safeguards in the Act, including certificates of need for any future expansion. Cf. Vreeland v. Byrne, 72 N.J. 292 (1977) (future impact of the legislation resulted in different pay for individuals performing the same services; the legislation as applied was held special legislation).
Our statement in McKenney v. Byrne, 82 N.J. 304, 320 (1980), is equally applicable here:
The statute is not a special or local law because the classification is constitutionally reasonably, all within the group have characteristics which are sufficiently identifiable so that they constitute a class, and none has been excluded which should have been encompassed within the classification.
The judgment of the Appellate Division is reversed.
For reversal — Justices SULLIVAN, SCHREIBER and HANDLER — 3.
Dissenting — Justices PASHMAN and CLIFFORD — 2.
We are not concerned herein with classifications involving fundamental personal rights or inherently suspect distinctions such as race or alienage.
At oral argument another comparable institution was said possibly to exist.