Case Name: ST. VINCENT INFIRMARY MEDICAL CENTER v. DIRECTOR OF LABOR
Court: Arkansas Court of Appeals
Jurisdiction: Arkansas
Decision Date: 1990-10-17
Citations: 32 Ark. App. 71
Docket Number: E 89-243
Parties: ST. VINCENT INFIRMARY MEDICAL CENTER v. DIRECTOR OF LABOR
Judges: Jennings and Rogers, JJ., dissent.
Reporter: Arkansas Appellate Reports
Volume: 32
Pages: 71–86

Head Matter:
ST. VINCENT INFIRMARY MEDICAL CENTER v. DIRECTOR OF LABOR
E 89-243
797 S.W.2d 460
Court of Appeals of Arkansas En Banc
Opinion delivered October 17, 1990
[Rehearing denied October 31, 1990.]
Jack, Lyon & Jones, P.A., by: Philip K. Lyon and Gary D. Jiles, for appellant.
Bruce H. Bokony, for appellee.

Opinion:
Ernie E. Wright, Acting Chief Judge.
Appellant, St. Vincent Infirmary Medical Center (hereinafter referred to as SVI), made application in 1988 to the Arkansas Employment Security Division for a determination that services performed in its employ are exempt from coverage as an employer under the Arkansas Employment Security law. After a hearing by the Board of Review, the Board entered its order denying the exemption. This appeal is from that decision.
The applicable statute is Ark. Code Ann. § 11-10-210(a) (4) (1987). The statute provides that "employment" within the meaning of the Act does not apply to services performed:
(A) In the employ of:
(i) A church or convention or association of churches; or
(ii) An organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches[.]
In 1972 SVI was determined to be liable for the unemploy ment tax and this had not been contested. As SVI was exempt from federal income tax it exercised its option to reimburse ESD in lieu of paying the employment security tax.
Appellant contends the Board of Review erred in finding that SVI is not operated primarily for religious purposes, and in denying the exemption on that ground.
We agree with appellant and reverse.
The finding and decision of the Board recognizes the evidence establishes that appellant met all of the requirements for exemption under Ark. Code Ann. § 11-10-210(a)(4)(A)(ii) with the exception of the finding SVI is not operated "primarily for religious purposes." Therefore, we examine the evidence applicable to this specific issue.
The Sisters of Charity of Nazareth ("SCN") is a religious order of Catholic Sisters whose corporate name is Nazareth Literary and Benevolent Institution, a Kentucky charitable corporation organized in 1829 ("NLBI"). As a religious aposto-late, the Sisters of Charity performs many charitable functions in the United States and abroad, including the operation of St. Vincent Infirmary in Little Rock, Arkansas, since 1888. St. Vincent Infirmary was organized as a separate Arkansas charitable corporation in 1958. Sisters of Charity of Nazareth Health Corporation, a Kentucky charitable corporation ("SCNHC"), was formed as a subsidiary of NLBI to manage health care operations for the Sisters of Charity of Nazareth. St. Vincent Infirmary is a subsidiary of SCNHC.
One of the stated purposes of SCNHC is: "To further any and all religious, charitable, scientific, literary or educational purposes in which Sisters of Nazareth now are and hereafter may become engaged, both within and outside the State of Kentucky, in carrying out the apostolate of the Sisters of Charity of Nazareth."
Article I of the Articles of SCNHC includes the following provision:
The Corporation shall be operated and conducted in conformance with the theology, philosophy, teachings, and doctrine of the Roman Catholic Church of the United States; the philosophy and mission of the Sisters of Charity of Nazareth; the Ethical and Religious Directives of the Catholic Health Facilities; and other medico-moral directives promulgated from time to time by the National Conference of Catholic Bishops.
The three nonprofit corporations to which we have referred have interlocking director arrangements so that SCN has final control, subject only to the directives of the National Conference of Catholic Bishops and the Pope.
Article 1 of the Bylaws of SVI includes the following:
Section 2. Purposes and Catholic Identity. The purposes of the corporation are:
To further any and all religious, charitable, scientific, literary or educational purposes in which SCNHC or Nazareth Literary and Benevolent Institution ("NLBI") now is and hereafter may become engaged, both within and outside the State of Arkansas, in carrying out the aposto-late of the Sisters of Charity of Nazareth.
St. Vincent Infirmary is a member of the Catholic Health Association of the United States, which is an ecclesial community participating in the mission of the Catholic Church through its ministry of healing.
The preamble to the Credo of SVI states:
THIS WE BELIEVE
. . . .that, as an integral part of the work of the Church, our basic purpose must be to serve God and preserve the dignity of all people by providing a consistently high quality of health care in response to the needs of our community and state.
The Ethical and Religious Directives for Catholic Health Facilities were approved in 1971 by the National Conference of Catholic Bishops. The preamble states:
Catholic health facilities witness to the saving presence of Christ and His Church in a variety of ways: by testifying to transcendent spiritual beliefs concerning life, suffering and death; by humble service to humanity and especially to the poor; by medical competence and leadership; and by fidelity to the Church's teachings while ministering to the good of the whole person.
The directives prohibit a number of procedures which can be performed in Catholic health care facilities based upon religious and moral considerations of the Church.
St. Vincent Infirmary is listed in the official Catholic Directory of the Roman Catholic Church, and if an organization is listed in the official Directory of the Church the Internal Revenue Service deems its employees to be the employees of the church. However, this ruling of the Internal Revenue Service is not binding in the determination of the issue before us.
Sister Margaret V. Blandford, who is presently chairperson of the Board of SVI, testified she has been involved in the health ministry since 1945 and during most of this time has been head of a hospital; that she has served as a member of the legal corporate structure of NLBI and has served as coordinator of all of the Sisters of Charity of Nazareth hospitals. She stated the Sisters of Charity was founded in Kentucky in 1812 and was officially accepted as a religious congregation by having pontifical approval in Rome, and that the constitution and bylaws were approved in Rome. It is a religious order within the Roman Catholic Church. She further testified that once an organization is approved by the Church to carry out pontifically approved work it is governed by canon law as well as by legal laws. When asked the question, "In your opinion is St. Vincent Infirmary a church?" her reply was, "I think it's — it's a wing, so to speak of the church." She went on to say it exists because of the Church and to carry out an apostolic mission of the Church in operating a hospital. When asked if an indigent person unable to pay, came to the hospital in dire need of medical services would SVI take the patient, Sister Blandford answered, "Since the beginning in 1888, if any physician states that a person needs medical care and it has to be a physician, because we can't practice medicine — that patient is admitted to our hospital whether they can pay or not." When she was asked, "Sister, based on your educational background, both in Cannon [sic] Law, as well as the teachings of the church, and your experience in working with St. Vincent Infirmary Medical Center for years, do you have any doubt m your mind, but that St. Vincent Infirmary Medical Center is an organization which is operated primarily for religious purposes?" her answer in part was, "I have no question in my mind because every day I know what my limitations of authority are as the chairperson and I know what channels that I have to report to, I know the authority of those over me and ultimately I know, that if we do not carry out our mission of service to people, based on our philosophy, our Christian philosophy, that we will no longer be there." She testified, "Our basic purpose must be to serve God and preserve the dignity of people by providing consistently high quality of care in response to the needs of the patient — to the community." She stated, "We use the St. Vincent as a big hospital as a means to an end. It's kind of a conduit, so to speak, to carry out our mission of service to the sick." Religious services are conducted in the chapel maintained at the hospital.
When SVI buys, sells or mortgages property it must obtain approval from the Catholic Bishop of the Diocese and the Church in Rome.
Mr. Jack Reynolds, the chief executive officer of SVI testified he considered SVI to be the instrument enabling the Sisters of Charity of Nazareth to carry out the mission of the congregation to care for the sick and injured. He said the mission of SVI is to care for the ill and injured in a Christian environment, that is to minister to them in accordance with the values of SCN and the ethical and moral requirements of the Catholic Church. He identified SCN as a congregation of religious women that have agreed to devote their life to doing works in the service of God, works for mankind that are beneficial in the service of God.
In denying SVI qualifies for exemption from the employment security tax, the Board of Review found that SVI is not a church or convention or association of churches, and that, although it is operated, supervised, controlled and principally supported by the Catholic Church it fails to qualify for exemption under the second part of the statute because it is not "operated primarily for religious purposes" within the meaning of the statute. The Board found the religious purposes of SVI were secondary and incidental to SVFs function of providing health care and medical services.
We conclude the Board of Review properly found that SVI is not entitled to an exemption on the theory that its employees should be deemed to be employees of the Catholic Church as Ark. Code Ann. § 11-10-208 (1987) defines an "employing unit" for purposes of the unemployment insurance taxes as including any corporation which has one or more individuals performing services for it within the State of Arkansas. As SVI is incorporated as a nonprofit corporation it is an employing unit for purposes of the Employment Security Act. Arkansas Code Annotated § 11-10-208(2) (1987) specifically provides that each individual employed for work in the service of an employing unit shall be deemed to be engaged by the employing unit for all purposes. Therefore, the employees of SVI cannot be deemed employees of the Catholic Church.
On the issue as to whether SVI is operated primarily for religious purposes we must determine what is meant by the word "primarily" as used in the context of the statute in question. In Malat v. Riddell, 383 U.S. 569 (1966) the United States Supreme Court held that the word "primarily" as used in the Internal Revenue Code means "of first importance" or "principally." This is in keeping with the dictionary definition and the ordinary meaning. We believe this to be the meaning of the word as used in the statute in question.
We believe that in order for SVI to be deemed operated primarily for religious purposes, the religious purpose of SVI must be of first importance. While unquestionably SVI delivers health care and health care is not necessarily delivered for religious purposes, we find and conclude from the evidence as a whole that the health care provided by SVI is pursuant to the religious mission and purpose of the Sisters of Charity of Nazareth, a congregation of women existing within the framework of the Roman Catholic Church, and that SVI is operated under the sponsorship of SCN primarily for religious purposes in carrying out its religious mission in the service of God. We believe the religious motivation and purpose of SCN and SVI to be of first importance in the operation of the hospital.
The Arkansas Appellate Courts have not had occasion to decide the precise issue as to the meaning and application of the word "primarily" in the context of the statute in question. We find that the Idaho Supreme Court in Nampa Christian Schools Foundation v. State, 110 Idaho 918, 719 P.2d 1178 (1986) dealt with this issue arising under an employment security tax exemption statute almost identical to the Arkansas statute in question. In that case a group of parents had organized a school to provide a Christian education to their children. The school was supported by several churches. The Idaho Industrial Commission found that the school was operated primarily for religious purposes, and was principally supported by a group of churches. On appeal, the decision of the Industrial Commission approving the employment security tax exemption was upheld. The case most directly in point appears to be Kendall v. Director of Division of Employment Security, 393 Mass. 731, 473 N.E.2d 196 (1985). The issue there was whether a training center for retarded children incorporated as a nonprofit corporation separately from the Catholic Church and owned by a religious order of nuns was exempt from employment security taxes under a statute almost identical to the Arkansas exemption statute. The Massachusetts Supreme Court stated:
The board found that the Center satisfies these statutory requirements because its purpose, the rehabilitation of the mentally handicapped, is religiously motivated and the Center is subject to control by the Sisters of St. Francis of Assisi and, under canon law, by the Archbishop of Boston.
The Massachusetts court rejected appellant's contention that only a school devoted to religious instruction can be said to operate "primarily for religious purposes" and said:
The claimant asks us to set aside the board's findings and adopt a narrower definition of "religious purposes" than that applied by the board. Essentially, she contends that only if a school is devoted to religious instruction can it be said to operate "primarily for religious purposes." We decline to impose such rigid criteria in defining religious pursuits. . . .
One of the religious missions of the Center's founders, the Sisters of St. Francis of Assisi, is the educational care of mentally handicapped persons. The fact that the Center is open to handicapped children on a non-denominational basis is entirely consistent with the accomplishment of this stated purpose. . . .
. . .The fact that the religious motives of the Sisters of St. Francis of Assisi also serve the public good by providing for the education and training of the mentally retarded is hardly reason to deny the Center a religious exemption.
This is not a case in which there is conflicting testimony to be resolved. Upon our review of all of the testimony, stipulations and exhibits we find that SVI is a hospital founded and operated primarily for religious purposes. It is clear from the record SVI would not have been founded and would not continue to operate but for the religious motivation and purpose. There is no substantial evidence in the record to support the finding of the Board of Review to the contrary. On appeal, we reverse where there is no substantial evidence to support the finding of the Board of Review upon which its decision is based. Green v. Carder, 282 Ark. 239, 667 S.W.2d 660 (1984); Ark. Code Ann. § 11-10-308(c) (1987).
In our review of the record we have disregarded reference in appellant's reply brief to facts not in the record.
Reversed and remanded.
Jennings and Rogers, JJ., dissent.