Matter of Mount Sinai Hospital

164 N.E. 871, 250 N.Y. 103, 62 A.L.R. 564, 1928 N.Y. LEXIS 990

• Court: New York Court of Appeals
• Decided: December 31, 1928
• Status: Published

Opinion

Pound, J.

Mount Sinai Hospital is a charitable corporation,. It was incorporated in the year 1852 under the name of “ The Jews Hospital in New York,” under a general act (L. 1848, ch. 319) entitled: "An Act for the incorporation of. benevolent, .charitable, scientific and missionary societies.”. The affairs of such a corporation are, under such act, controlled and managed by a board or trustees or directors. The purpose of the incorporation, as stated, in the certificate, was: " medical and surgical aid to persons, of the Jewish persuasion and for all other purposes appertaining to Hospitals and Dispensaries.” Its name was . changed by a special act of the Legislature (L. 1866, ch. 627) to “ The Mount Sinai Hospital.” The act of 1848 provided: “ the society so incorporated may annually elect from its members its trustees, directors or managers, at such time and place, and in such manner as may be specified in its by-laws.”

By Laws of 1857, ch. 651, entitled: “ An Act to amend the constitution of the Jews’ Hospital, in New York,” a special act, it was provided: “ the business of the Jews’ hospital, in New York, shall be managed by twelve directors, and the said directors, shall be so classified that one-fourth part of the whole number thereof, shall be annually elected by the members of the society.” In 1922 the number of the board was increased to forty-two, divided into seven classes of six each, six' being elected each year for the term of seven years. Many other special acts amending the charter of the Mount Sinai Hospital have been enacted. Two only will be referred to. Laws of 1918, chapter 80, changed the style of “ directors ” to “ trustees.” Laws of 1904, chapter 365, provides:

“ Section 1; The purposes and objects of the Mount Sinai hospital of the city of New York are hereby declared to- be ‘ the support and maintenance of. an institution to be knówn as the Mount Sinai hospital, for the purpose of affording dispensary service and medical and surgical aid and nursing sick and disabled poor of the city of New York and - others- of -- any. race, creed or nationality,’ and its certificate of incorporation is hereby amended accordingly.” .. .....

Thereby the non-sectarian character, of the charitable activities of the hospital was established.

By Laws of 1917, chapter 269, the “ Federation for the support of Jewish Philanthrophie Societies of New York City,” was incorporated, and by Laws of 1917, chapter 498, charitable corporations Were authorized to affiliate with Federation. Mount Sinai became affiliated with Federation.

Federation is a central collecting agency for Jewish societies-. By -its by-laws no affiliated institution may solicit funds except permanent endowments and legacies. Mount Sinai submits to Federation its annual budget. Members of beneficiary societies may designate in contributing to Federation the particular societies to which their contributions may be applied. The purpose is to enable all members of .Jewish charitable societies to pay Federation rather than to keep up individual -memberships.

The corporation is one of the greater charities of the city bf New York. It has a membership numbering about four thousand and from small beginnings has accumulated property of the estimated value of from $12,000,000 to $15,000,000.

Laws of 1925, chapter 17, provides:.

( " The various classes of the board of trustees of the Mount Sinai Hospital, as now constituted, shall continue in office until the-expiration of their respective terms, and the successors of said" respective classes shall be elected by a majority vote of the remaining members of the board of trustees annually Upon the expiration Of the terms of said respective classes»”

The election of the members of the board in the year 1925 Was held "Under the provisions bf this act. ’ The constitutionality of the statute is challenged in this proceeding, not by the corporation, but by two members of the society, paying annual dues, one as a $10 member and the other as a donor or $25 member. Membership consists of “ those persons who have' enrolled their names ” in one of several classes of members, the classification being dependent" on the amount received. It is also provided that a member in arrears for one year may be dropped. The only question is whether the act violates any Of the appellants’ constitutional rights to have their Contracts unimpaired and their property and liberty uníntérfefed With, except by due process of law, and to the protection of equal laws.

The change is not arbitrary or unreasonable. A board of trustees Once elected by the members of the corporation becomes sélf-perpetuating. The purpose of the enactment máy be regarded as two-fold: First, to meet the situation of a possible falling membership, and secondly, to make certain the self-perpetuating control of the society by the board as against the' possible dangers of popular elections. Such a change must be upheld unless, under the Circumstances, it violates fundamental principles of justice, inconsistently with constitutional limitations on the legislative power."

The certificate of incorporation is subject to alteration by the Legislature. Not only did the Constitution of New York of 1846, in force when the hospital was incorporated, provide, as does the present Constitution (Art. VIII, § 1): “All general laws and special acts passed pursuant to this section may be altered from time to time or repealed,” but the act of 1848 (§ 10) also contained a provision: “ The legislature may at any time amend, annul or repeal any incorporation formed or created under this act.” This reservation is a part of the charter (Pratt, Inc., v. City of New York, 183 N. Y. 151, 162.) Furthermore, the Legislature may, when in its judgment the objects of the corporation cannot be attained under general laws, create corporations by special act. (Art. VIII, § 1.) Thus we have the Mount Sinai Hospital with a charter consisting of its certificate of incorporation as amended by special acts. We have such special acts accepted by the corporation. We have the act of 1925, challenged as unconstitutional by two members who assert that the board of trustees may not accept the amendment without their consent. They rest on the proposition that, so long as they choose to remain members of the corporation, the Legislature may not under the reserved power to amend the corporate charter, without their consent, deprive them of their right to vote for trustees.

The reserved power to amend corporate charters prevents the charter from becoming a contract, between State and corporation protected from impairment, by the Constitution. (Dartmouth College Case, 4 Wheat. [U. S.] 518.) Under it anything may be done by the Legislature that could be done if the Federal Constitution did not prohibit a State from passing a law impairing the obligation of contracts. (U. S. Const. art. 1, § 10.) Any alteration may be made “ which will not. defeat or substantially impair the object of the grant, or any rights vested under it, and which the. legislature may deem necessary to secure either that object or-any public right ” or “ to promote due administration of the affairs of the corporation.” (Tomlinson v. Jessup, 15 Wall. [U. S.] 454; Holyoke Co. v. Lyman, 15 Wall. [U. S.] 500, 519; Miller v. State, 15 Wall. [U. S.] 478, 498; Close v. Glenwood Cemetery, 107 U. S. 466, 476.) A State may not, by using the form of charter amendment, deprive a corporation of any of its substantial property or property rights, except in the legitimate exercise of the legislative or police power, under the due process and equal protection clauses of the State and Federal Constitutions. (Zabriskie v. Hackensack, etc., R. R. Co., 18 N. J. Eq. 178, 192; People v. Beakes Dairy Co., 222 N. Y. 416.) In other words, a corporate charter is no longer, a contract between the corporation and the State which the State, may not alter without the consent of the corporation; but the corporation and its members are not subject to any kind of confiscatory legislation or discriminatory burden which takes the guise of an amendment to the charter. " The alterations [under the reserved power] must be reasonable; * * * and be consistent with the scope and object of the act of incorporation.” (Shields v. Ohio, 95 U. S. 319, 324; Commonwealth v. Essex Co., 13 Gray [Mass.], 239, 253; People v. O’Brien, 111 N. Y. 1, 52; Chicago Mil. & St. P. R. R. Co. v. Wisconsin, 238 U. S. 491, 501.) Tested by this rule, the amendment is unobjectionable on constitutional grounds and is a proper exercise of the reserved power to alter charters, wholly independent of the exercise of the police power of the State. (Cf. Erie R. R. Co. v. Williams, 233 U. S. 685, 700.)

The grant of a special charter to a corporation does not deny to it or to other corporations “ the equal protection of the laws.” (U. S. Const. 14th Amendment, § 1.) A corporate, charter creates a legal entity, distinct from its members and from other corporations. The trustees of one charitable or educational corporation may be elected by the members; of another by the board itself; of a third by cooptation: (Education Law [Cons. Laws, ch. 16], § 1031.) One corporation may have many and great powers; another few and small powers. They differ as individuals differ. The effort to require incorporation under general laws has proved both half-hearted and ineffective. The monition contained in the New York Constitution that " corporations may be formed under general laws ” has been heeded by the Legislature only so far as it has been deemed expedient by the Legislature itself to do so and the determination of the Legislature is controlling on the courts. (People v. Bowen, 21 N. Y. 517; Economic P. & C. Co. v. City of Buffalo, 195 N. Y. 286, 299.) The act of 1925, even though the corporation sought to reject it, as it does not, is not discriminatory legislation placing an unequal burden on the Mount Sinai Hospital or on its members. It is not a penal statute, such as was unsuccessfully challenged by a member of the Ku Klux Klan in People ex rel. Bryant v. Zimmerman (241 N. Y. 405 ; 278 U. S. 63), nor is it a statute which intentionally and arbitrarily discriminates. against the corporation or its members. It is a governmental regulation of the method of electing trustees as to which no rule of uniformity exists and which is a common regulation of charitable corporate charters. If the Legislature, in its wisdom, deems it necessary or appropriate, on grounds of public policy, to enact such a statute to carry into execution its power over the conduct. of the business of its creature, the equal protection of the laws is not thereby withheld.

The corporation itself has been deprived of no property “ without due process of law ” (U. S. Const. 14th Amendment, § 1), for the provision that the trustees should be elected by its members, although a contractual right between State and corporation, subject to amendment under the reserved power, is not a property right of . the corporation of which it could not be deprived without its consent. It has, moreover, sought the change in the-law for its benefits and accepted and acted on it; so that the test is not what'are its rights in this regard but what are the rights of the appellants as members of the corporation? If their privilege to vote for. trustees presents any evidence of ownership or vested right to share in the control of the corporation such as we associate with the idea of property, it may be beyond the power of the Legislature to take it from them. (Lord v. Equitable Life Assur. Soc., 194 N. Y. 212.) They had the bare right to vote for trustees because they were mere members of the corporation paying an annual membership fee. When they became members of the corporation they consented in advance to everything that could be done by legislative amendment to the charter which did not deprive them of their constitutional rights. (McKee v. Chautauqua Assembly, 124 Fed. Rep. 808; 130 Fed. Rep. 536.) They took the risk of a true amendment.

A member’s right to a voice in the management of a corporation may under conditions not presented here be a vested interest entitled to protection under the Constitution. What vested interest does a mere voting member of a charitable corporation devoted in part, at least, to public uses, have to protect of which he is deprived when he is deprived of his right to vote? Not, as in the case of the stockholders of a business corporation, property interests of his own (Lord v. Equitable Life Assur. Soc., supra; Davis v. Louisville G. & E. Co., 142 Atl. Rep. 654; 14 Cornell Law Quarterly, 85), because he has no interest in the property of the corporation. If the corporation were dissolved, the funds would not be awarded to the individual members. (Sherman v. Richmond Hose Co., 230 N. Y. 462.) The members do not invest their money. They give it to charity. Not the right of a founder, or one who contributes money under express conditions, to have the statutes of his foundation as to the powers of trustees, or the terms of his conditions, strictly adhered to, except so far as he consents to their alteration. (Allen v. McKeen, 1 Sumner, 276; Printing House v. Trustees, 104 U. S. 711.) Appellants are not founders nor did they attach any express conditions to the payment of their membership dues. Appellants are not asserting the right of the corporation to prevent the transfer of the corporate property from one board of trustees to another by the creation of a new corporation under a new charter (Ohio v. Neff, 52 Ohio St. 375; Sage v. Dillard, 15 B. Mon. [Ky.] 340, 360; Regents, etc., v. Williams, 9 G. & J. [Md.] 365) for no such transfer is attempted. The corporation continues to elect its own trustees. Nor are they asserting the right of the corporation to prevent diversion of the funds raised for the corporation (Bryan v. Board of Education, 151 U. S. 639, 653); the corporation and its purposes remain intact. The voting power was exercised by the members for the benefit of the corporation. Appellants have no beneficial interest of their own to protect (Matter of Morse, 247 N. Y. 290, 303, 304); no “ definite right secured to him [them] by a contract with the corporation.” (Grobe v. Erie Co. Mut. Ins. Co., 39 App. Div. 183, 186; affd., 169 N. Y. 613; Polk v. Mutual Reserve Fund, 207 U. S. 310, 325, 328.)

Under the reserved power of amendment, when in the judgment of the Legislature the interests of a charitable corporation will be promoted by a change in the method of electing trustees, once intrusted to the members, whereby the members are disfranchised and the board is made self perpetuating, no one’s property is taken; no one is deprived of his liberty, except by the rightful exercise of the reserved power. (People ex rel. Bryant v. Zimmerman, supra, at p. 72.) Methods of administration are regulated (Lord v. Equitable Life Assurance Soc., supra; Sinking-Fund Cases, 99 U. S. 700, 719, 720), and properly regulated.

As was pointedly said in Looker v. Maynard (179 U. S. 46, 54): “ Remembering that the Dartmouth College case, (which was the cause of the general introduction into the legislation of the several States of a provision reserving the power to alter, amend or repeal acts of incorporation,) concerned the right of a Legislature to make a change in the number and mode of appointment of the trustees or managers of a corporation, we cannot assent to the theory that an express reservation of the general power does not secure to the Legislature the right to exercise it in this respect.”

The appellants’ case has been presented to the court from many different angles, none of which has been overlooked. The court has carefully considered all their points. It has reached the conclusion that the right of a member of a charitable corporation to participate in the control of the corporation by voting for trustees, must, under the reserved power, yield to the greater right of the State and the corporation to provide for the more efficient administration of the affairs of the corporation, as their judgment dictates.

It would be .contrary to all correct ideas of the reserved power to say that one who once becomes, by the payment of annual dues, a voting member of a charitable corporation of four thousand members, becomes also a party to a perpetual contract that he shall not be divested of his voting rights without his consent so that he may insist on retaining his membership to bar the adoption of a detail of administration, such as the method of electing trustees, which is deemed salutary by the Legislature and the corporation. Such is the substance of appellants’ claim. We find no authority which compels such a conclusion.

If appellants are not satisfied with the amendment, they have an ample remedy in the right to refrain from paying membership dues in the future.

The order should be affirmed, with costs.

Crane, Andrews, Kellogg and O’Brien, JJ., concur; Cardozo, Ch. J., and Lehman, J., not sitting.

Order affirmed.