Opinion ID: 2520349
Heading Depth: 1
Heading Rank: 3

Heading: Third Issue on Appeal

Text: ¶ 28 The third issue is whether a vote of the people of Midwest City is necessary to authorize the Hospital Authority to use certain funds to purchase real estate. An urban renewal authority's participation in the project, does not resolve by itself issues involving the Hospital Authority's authority to use its funds. The Hospital Authority is providing the funds for the economic development project. [8] ¶ 29 The Midwest City Hospital Authority is a Trust. The Hospital Authority owns and leases the Midwest City Hospital. A lease was created with Health Management Associates, Inc., and Midwest City HMA, Inc. (collectively HMA). HMA provided forty-six million dollars to the Hospital Authority and operates the hospital. The Amended and Restated Trust Indenture of the Hospital Authority (Trust Indenture) describes this forty-six million dollars, with income and capital gains derived therefrom, as the Compounded Principal. ¶ 30 Landowners argue that the Compounded Principal may not be used for real estate investments unless approved by a vote of the people. The City and Authority disagree. The language of the Trust Indenture describing its purpose states: (d) To expend all funds coming into this Trust as revenue or otherwise for the payment of any indebtedness incurred by this Trust, and in payment of the aforesaid costs and expenses, and in payment of any other obligation properly chargeable against the Trust Estate, and to distribute the residue and remainder of such funds to the Beneficiary upon termination of this Trust in accordance with Article IX of this Amended Trust Indenture. The only funds of this Trust to which the previous provisions of this subparagraph shall not apply are those in the principal amount of approximately $46 million, hereinafter referred to as the Principal, that came into this Trust as a result of the lease and/or sale of this Trust's real and personal property. The Principal and all capital gains and all income of any nature or kind earned from the Principal shall hereinafter be referred to as the Compounded Principal. The Compounded Principal, less and except two percent (2%) of the market value of the Compounded Principal as of June 30 each year, shall be segregated and set apart, and shall not be spent for any reason except in the event that (1) the lease of the real property to Health Management Associates, Inc. and Midwest city HMA, Inc. terminates prematurely prior to the end of the lease and this Trust regains the operation and control of the lease property; or (2) an affirmative vote of a majority of the electors in the city of Midwest City expressed during a public election, duly called as required by law, authorizes an expenditure of all or any portion of the Compounded Principal for a specific public or governmental purpose or purposes and authorized and proper Trust function indicated on the ballot submitted at such an election. The two percent of the market value of the Compounded Principal excluded from the Compounded Principal each year, hereinafter referred to as the Discretionary Funds, shall be available for distribution each year as grants, for other expenditures and/or to be otherwise designated at the Trustees' sole discretion, subject to the restriction contained in this Amended Trust Indenture. The Trustees may distribute or expend all or any portion of the Discretionary Funds as the Trustees may deem prudent or make no distribution or expenditure of the Discretionary Funds at all. Undesignated Discretionary Funds shall be accumulated for use in subsequent years, provided grants from the Discretionary Funds are used for authorized and proper functions of the Beneficiary and follow the required channel of grant applications as set out in this Amended Trust Indenture; O.R. at 489-491, Amended and Restated Trust Indenture, Art. III, paragraph (1)(d), (emphasis added). ¶ 31 This provision plainly identifies five types of funds, (1) Trust Estate (2) Principal (3) Compounded Principal, (4) Discretionary and (5) Undesignated Discretionary. The Principal is defined as forty-six million dollars. The Compounded Principal is the Principal plus capital gains and income generated from the Principal. The identification of the Compounded Principal is important for interpreting other provisions of the Trust. This is so because Compounded Principal is excluded from the Trust Estate managed by the Trustees. The Trust Estate shall consist of: (1) The funds and property, and any income therefrom, except the Compounded Principal: (a) Presently owned by this Trust or to be acquired or constructed by this Trust; and (b) Dedicated by the Trustor and others to be used for this Trust's purposes; (2) Any and all money, property, contracts, leases, licences, franchises, benefits and all other things of value coming into possession of this Trust pursuant to the provisions of this Amended Trust Indenture; and (3) Any and all money and leasehold rights remised to this Trust by the Beneficiary as authorized and empowered by law. O.R. at 493, Amended and Restated Trust Indenture, Art. V., (emphasis added). Landowners point to another provision of the Trust Indenture describing the powers of the Trustees. (h) To do all other acts in the Trustees' judgment necessary or desirable for the proper and advantageous management, investment and distribution of the Trust Estate and the Compounded Principal and income therefrom, subject to the limitations contained in this Amended Trust Indenture; O.R. at 493, Amended and Restated Trust Indenture, Art. VII paragraph (1)(h), (emphasis added). Landowners argue that the limitations contained in this Amended Trust Indenture include that paragraph of the Trust Indenture limiting expenditures of the Compounded Principal. ¶ 32 The Authority relies upon two provisions of the Trust Indenture discussing the powers and duties of Trustees. According to one provision, the Trustees are authorized: (a) To finance, acquire, establish, develop, construct, enlarge, improve, extend, maintain, equip, operate, lease, furnish, provide, supply, regulate, hold, store and administer anything in the Trust Estate and the Compounded Principal, subject to the limitations contained in this Amended Trust Indenture, as the Trustees shall determine necessary for the benefit and development of the Beneficiary: O.R. at 497, Amended and Restated Trust Indenture, Art. VII, paragraph (1)(a). This first provision plainly states that the Trustees may finance, acquire, and lease property. However, this provision also plainly states that this authority to finance, acquire, and lease is subject to limitation on that authority found in the Trust Indenture. Which again raises the issue of the meaning of language in Article III limiting the Trustees authority to expend the Compounded Principal. ¶ 33 The Hospital Authority also relies upon the following provision of Article IV of the Trust Indenture, allowing Trustees: (e) To make and change investments, to lease, improve, exchange or sell, at public or private sale, upon such terms as the Trustees deem proper, and to resell, at any time and as often as they deem advisable, any or all the property in this Trust, to borrow money, or renew loans to this Trust, to refund outstanding bonded indebtedness and to execute therefor evidences of indebtedness, and to secure the same by mortgage, lien pledge or otherwise; to purchase property from any person, firm or corporation, and lease land and other property to and from the Beneficiary and construct, improve, repair, extend, remodel and equip utilities or buildings, and facilities thereon, and to operate or lease or rent the same to individuals, partnerships, associations, corporations and others, including the United States of America or the State of Oklahoma and agencies or authorities of the United States of America, or of the State of Oklahoma, or any municipality thereof, and also including all municipal or other political subdivisions of the State of Oklahoma as well as the Beneficiary, and to do all things provided for in Paragraph (1) of Article III of this Amended Trust Indenture, and procure funds necessary for such purpose by the sale of bonds or other evidences of indebtedness by the mortgage, lien, pledge or other encumbrance of such personal property, utilities and facilities owned or otherwise acquired, leased or controlled by this Trust, and by rentals income, receipts and profits therefrom, or from any other revenues associated with the ownership, operation or control of the property of this Trust or of which this Trust may become the owner or lessee. O.R. at 500-501, Amended and Restated Trust Indenture, Art. VII, paragraph (1)(e), (emphasis added). Even if we construe the provisions referring to property in or of the Trust to be more inclusive than Trust Estate and thereby include Compounded Principal as property of the Trust that is an investment which may be made and changed by the Trustees, this Article VII language also refers to paragraph 1 of Article III of the Trust Indenture which contains a limitation on expending the Compound Principal. The arguments of both sides to this dispute are based upon the meaning of the language in Article III of the Trust Indenture that limits spending the Compounded Principal. ¶ 34 The Hospital Authority uses a financial advisor located in New Jersey who routinely gives financial advice to fiduciaries. The Compounded Principal started at forty-six million dollars and grew to sixty-seven million dollars. Prior to 1998 the financial advisor counseled the Hospital Authority to maintain a 60/30/10 mixture, sixty percent stocks, thirty percent bonds, ten percent other forms of liquid assets. He then counseled a change in the proportion of stocks and bonds, and also recommended altering the proportion of foreign and local investments. He suggested that real estate investments could be beneficial. The Authority decided that a portion of their investments should be in real estate, and has recently authorized thirty million dollars of its funds to be used for the economic development project. ¶ 35 A Trustee of the Authority was questioned at trial whether moving the Authority's funds to a less liquid investment such as real estate, was a source of concern. He said; We no longer have any concerns. Tr. at 29. He stated that at one time the Authority was concerned that a company could lease the Hospital and close it to help other hospitals in Oklahoma County that the lessee-company owned or operated. The Hospital, after a fifty year lease, will revert back to the Hospital Authority, and the Authority did not want the Hospital diminished or stripped off by the acts of a lessee-company operating the hospital. Tr. at 30. The Trustee stated: Our concern in 1996 was that somebody might try to harm the hospital, close the hospital. Our concern now is not that somebody might try and close the hospital, but do we have enough physical space around the hospital to allow for their expansion. Tr. at 31. His testimony also included the following: A .... it's not the same concern that we had in 1996 where we thought we would have to repurchase the hospital, but rather now we want to make sure that we just maintain sufficient liquid capital so that if something happened to HMA corporate, we would be able to provide operating funds for the short term until another company could come in and run the hospital. Q. In your view, what is the liquidity of this 60 million dollar trust is [sic] necessary to make sure in the event of any catastrophe the hospital can be kept open? A. The 60 million dollars is really 67 plus million dollars. The twenty-seven million is tied up in real estate and 42 million is in liquid assets. We estimate that at least 30 million dollars would be necessary to run the hospital for two, maybe three years. We do not believe that it would ever be necessary to run it that long, but we believe that only 30 million would be necessary to provide operating funds. Tr. 31-32. ¶ 36 The parties discuss the meaning of the terms spent and investment with varying definitions for each. Instead of focusing on a definition that is not part of the Trust Indenture, we focus instead on the language that is part of that document, that which explains why the Compounded Principal is to be preserved. Where there is no ambiguity and the language of a trust is clear and plainly susceptible of only one construction, the plain provisions of the trust instrument must determine its construction. Matter of Home-Stake Production Co. Deferred Compensation Trust, 1979 OK 81, 598 P.2d 1193, 1196. The Trust Indenture states that the Compounded Principal shall not be spent for any reason except in the event that HMA prematurely terminates its lease or by a vote of the people. The Authority's position is that at one time it was of the opinion that it needed to maintain the Compounded Principal in liquid assets so that it could repurchase the hospital if HMA prematurely terminated it lease. However, it now takes the position that it need only maintain sufficient liquid assets to operate the hospital for two to three years should HMA prematurely terminate its lease. The Authority is confident that it would need to operate the hospital for no longer than two to three years until it finds an entity to replace HMA in the event of early termination of the lease. ¶ 37 An assertion that asset liquidity is merely a matter of degree with all investments and that this commercial real estate is, in fact, available in the event of an early termination of the hospital lease is contrary to how the Authority views this investment. The record shows that the amount invested in the real estate will not be readily available to the Authority for either operating the hospital or its repurchase in the event of HMA prematurely terminating the lease. The record shows that the Authority plans to use thirty million dollars of its Compounded Principal to own and lease commercial real estate for fifty (50) years with a thirty (30) year renewal option to a private redeveloper. The Authority is essentially stating that it no longer needs to put aside forty-six million dollars, with income derived therefrom, in case the hospital lease is prematurely terminated. The Authority's position is that it possesses the discretion to take thirty million of its sixty-seven million in Compounded Principal (45% of the Compounded Principal), and invest it in an ownership interest in non-hospital-related commercial real estate with projected multi-year leases. ¶ 38 The Hospital Authority is correct in asserting that the Trust Indenture does not specify the exact investment for the forty-six million dollars and its income. However, the Trust Indenture clearly states that all of the Compounded Principal, all forty-six million dollars and income therefrom, is preserved until either termination of the lease or a vote of the people. The Trust Authority's position is based upon the premise that investing thirty million dollars from the Compounded Principal in a retail shopping mall qualifies as preserving that thirty million dollars to be available in the event of an early termination of the lease. However the Authority is also stating that this thirty million dollars is not necessary in the event of early termination of the lease. The Trust states that it was formed to create and establish a trust ... to finance, operate, construct and administer hospital facilities, ... O.R. at 486, Article I(1). The Trust Indenture indicates that the Compounded Principal is a source of funds to provide hospital facilities in the event of early termination of the lease, unless the people, by their votes, assign a different purpose. ¶ 39 The Trust Indenture provides that the Compounded Principal may be spent when a vote of the people directs such expenditure. We agree with Landowners that the Trust Indenture requires a vote of the people for the Authority to invest thirty million dollars from the Compounded Principal in a commercial real estate project for the purpose of the Authority becoming the owner of the real estate in that project.