Court Opinion

ID: 5666240
Source: CourtListenerOpinion
Date Created: 2022-01-12 03:56:06.482919+00
Date Added: 2024-06-11T08:39:17.700564
License: Public Domain

BANKE, J., Concurring.
I concur in the opinion and judgment and write separately to further discuss why I agree the government salary “noninterest” exception (Gov. Code, § 1091.5, subd. (a)(9)) provides an appropriate framework for analyzing the conflict of interest issues presented by this particular case.
First, the history of the Eden Township Healthcare District (District), including the creation and operation of Eden Medical Center (EMC), is telling in this regard. “Eden Township Hospital District [is] a governmental entity functioning under The Local Hospital District Law,” Health and Safety Code section 32000 et seq.1 (Rosner v. Eden Township Hospital Dist. (1962) 58 Cal.2d 592, 594 [25 Cal.Rptr. 551, 375 P.2d 431].) The “primary purpose” of this law is to protect “the public health and welfare by furnishing hospital services in areas where hospital facilities are for some reason inadequate, especially in those rural districts where hospitals cannot be maintained without extraordinary governmental support.” (Talley v. Northern San Diego County Hosp. Dist. (1953) 41 Cal.2d 33, 40 [257 P.2d 22].) The law allows the formation of hospital districts by a “favorable vote of a majority of the voters in the district.” (Id. at p. 38.) Once established, a district is typically run by a five-person board of directors. (§§ 32100, 32100.6.)
Hospital districts can “establish, maintain, and operate” health care facilities. (§ 32121, subd. (j).) To this end, districts have discretion to exercise a broad array of powers, including “any and all. . . acts and things necessary to carry out” their mission. (Id., subd. (k).) They can, for example, levy taxes and issue bonds (§§ 32200-32243, 32316-32321) and enter into employment agreements and service contracts with professional health care providers (§ 32121, subds. (g)-(h)). They also have the option of “delegat[ing] pursuant to a lease of up to 30 years the responsibility of operating and maintaining a district-owned hospital” and may “transfer the assets to a nonprofit corporation ‘to operate and maintain the assets.’ ” (Marin Healthcare Dist. v. Sutter Health (2002) 103 Cal.App.4th 861, 868 [127 Cal.Rptr.2d 113], citing §§ 32126, 32121, subd. (p)(l).) “ ‘The Legislature’s stated reason for allowing such transfers [was] to permit local hospital districts “to remain competitive in the ever changing health care environment. . . .” (Stats. 1985, ch. 382, *231§ 5, p. 1556.)’ ” (Marin Healthcare Dist. v. Sutter Health, supra, at p. 868, quoting Yoffie v. Marin Hospital Dist. (1987) 193 Cal.App.3d 743, 746 [238 Cal.Rptr. 502].)
Pursuant to this law, the District was created in 1948 to build and operate a hospital for Castro Valley and surrounding communities. It built Eden Township Hospital (Eden) during the 1950’s and operated the facility through the 1990’s. By the 1990’s, however, Eden required significant seismic upgrades to remain in operation. The District could not afford the necessary upgrades on its own, so in 1995, it solicited partnering proposals from major health care providers. Catholic Healthcare West, Columbia/HCA, Summit Medical Center, Tenet Healthcare, and Sutter Health (Sutter) each submitted proposals to partner with the District. After extensive analysis and public hearings, the District placed on the ballot, and the voters approved, a detailed measure authorizing the District to enter into a partnering agreement.
As contemplated by, and pursuant to, the voter-approved measure, the District and Sutter entered into a memorandum of understanding (1997 MOU) to form a California nonprofit public benefit corporation called NewCo, which later became known as EMC. The 1997 MOU recited that the District, Sutter and then NewCo could “best serve the health-related needs of District residents by transferring and operating certain of the District’s assets under the ownership and direction of NewCo.” It also provided the organization of the nonprofit corporation would take place contemporaneously with the closing of the transactions called for by the partnering proposal and the 1997 MOU.2
As required by the 1997 MOU and as specified in the nonprofit’s bylaws, the public benefit corporation would be owned by two “members,” the District and Sutter, and would be governed by an 11-member board of directors. All five of the District’s own elected board members would automatically also become board members of the nonprofit, and Sutter, in turn, would appoint five board members, one of whom had to be a physician. Sutter’s initial board choices also had to be ratified by the District. The 11th board member would be the CEO (and thus an employee) of the nonprofit. The first CEO would be chosen by the District. Subsequent CEO’s would be nominated by the District, subject to the approval of Sutter. The District would also select the initial chair of the board.
A majority of the nonprofit’s board members from the District and also those selected by Sutter had to approve a number of significant actions—such *232as approving operating and capital budgets, approving new hospital programs or services or significant changes to them, and selecting subsequent CEO’s. This “block voting” requirement ensured the nonprofit could not take significant actions without the agreement of both the District and Sutter. The proponents of the partnering proposal accordingly assured voters Sutter would not have undue control of the new public interest corporation. The ballot materials emphasized “[t]he new 11-member hospital board will include all five elected District Board members and the CEO of Eden Hospital— a majority. And the District Board must approve the remaining five members.” (Original underscoring.)
EMC was thus created and structured to take over the administration and operation of Eden, which had previously been done directly by the District. Hospital workers, for example, ceased to be employees of the District and were offered employment with the nonprofit “upon substantially the same terms and conditions of employment, including wages, benefits and seniority.”
The 1997 MOU also allowed the District to procure its own management services from the nonprofit, and the District did so, signing a management services agreement effective in January 1998. The District has paid approximately $250,000 a year to EMC for these services, which have included hiring District personnel, administrative support for the District’s board of directors, furnishing information systems, recordkeeping, and administration of employee benefit plans. The 1997 MOU further gave the District a right of first refusal to reacquire assets transferred to the nonprofit upon its dissolution or other similar event.
EMC is therefore an entity unique to the context at hand. In order to obtain the significant financial resources necessary to make Eden hospital, which the District built and is charged with operating, seismically safe, the District created an entity (as permitted by The Local Hospital District Law; § 32000 et seq.) (a) that assumed the District’s administrative and operational responsibilities and (b) over which the District retained, during all periods in question, primary control. This control was, and has been, effectuated by having all of the District’s own board members also serve as members of EMC’s board of directors, the District approving the board members initially selected by Sutter, the District selecting the first board chair of EMC, the District selecting the first CEO of EMC and nominating all future CEO’s, and the requirement that any significant action taken by EMC be approved by a majority of the board members supplied by the District.
In sum, throughout the relevant time periods, EMC has effectively functioned as an arm of the District and, although a nonprofit public benefit *233corporation, it partakes of the attributes of a governmental entity, including having a significant, departmentalized workforce. Accordingly, a reasoned conflict of interest analysis in this particular case—and one that comports with the Legislature’s explication as to what is, and is not, a cognizable conflict that voids a public contract and subjects an individual to felony prosecution—is properly informed by the government salary “noninterest” exception. (Gov. Code, § 1091.5, subd. (a)(9).)
If EMC were a purely governmental entity, there would be no question but that the government salary “noninterest” exception would apply (as the majority opinion notes, we need not and do not decide whether George Bischalaney actually acted as an “official” of the District in connection with its 2008 agreements with EMC). The Supreme Court made it clear in Lexin, as the majority opinion explains, that if a contract “involves no direct financial gain, [and] does not . . . affect the official’s employing department, and is only with the general government entity for which the official works, the interest is a minimal or noninterest under section 1091.5(a)(9) and no conflict of interest prohibition applies.” (Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1081 [103 Cal.Rptr.3d 767, 222 P.3d 214].) It cannot have been the intent of the Legislature, in expressly authorizing hospital districts to enter into public-private partnerships to assume the governmental body’s management and operational health care responsibilities and to ensure the financial survival of public hospitals, that a different conclusion would inure simply by virtue of the fact these unique entities are only “half’ public (although subject to the control of a district, as EMC was here). What is properly examined, then, is the fundamental purpose and substance of the conflict of interest laws. Such analysis, as the majority opinion explains, leads to the conclusion that as to the 2008 agreements, Bischalaney’s employment with EMC was a noninterest.
Second, the propriety of taking guidance from the substance of the government salary noninterest exception in this case finds support in the Legislature’s enactment of three statutes specifically addressing conflicts of interest in connection with service on the governing boards of hospital districts (Health & Saf. Code, § 32111), county hospitals (id., § 1441.5) and municipal hospitals (Gov. Code, § 37625). These statutes were jointly enacted in 1996 to ensure that health care professionals who work at these hospitals can also serve on their boards, without fear that in so doing, they and the boards on which they serve will be crippled by a conflict of interest.
The Senate Local Government Committee analysis explained the impetus for the legislation as follows: “Municipal hospitals and local health care districts want the most qualified, experienced, and educated governing board member they can find. In some cases, this means seeking out doctors, *234pharmacists, and other health care professionals. But when a health care professional sits on a governing board, he or she cannot [under current conflict of interest statutes, including Government Code section 1090] contract with that hospital for services and office space. If confronted with a choice of public service or professional best-interest, public service is often sacrificed.” (Sen. Local Gov. Com., Analysis of Sen. Bill No. 1554 (1995-1996 Reg. Sess.) as amended Mar. 18, 1996, p. 4.) “When the Legislature authorized counties to administer Medi-Cal managed care programs with the assistance of health care professionals, it allowed those board members to contract with the hospital subject to certain safeguards (e.g., disclosure, limits on contract terms, vote abstentions). Because municipal and district health care providers want to take advantage of health care professionals’ expertise too, [Senate Bill No. 1554] gives their governing board members the same flexibility as the governing boards in Medi-Cal managed care counties, while keeping the Political Reform Act limitations intact.”3 (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 1554 (1995-1996 Reg. Sess.) as amended Mar. 26, 1996, p. 4.)
The Senate floor analysis similarly summarized the arguments in support of the legislation: “Municipal hospital districts and local health care districts are encountering difficulties convincing knowledgeable, experienced members to serve on their boards or advisory bodies. Doctors, pharmacists, and health administrators who agree to help run the hospital agency give up [under current law] their ability to contract with that agency for office space, professional services and other items. To make sure that health care professionals can manage public hospitals and maintain their livelihood, health care districts want to give them the same contracting flexibility as the governing board members of Medi-Cal managed care counties.” (Sen. Rules Com., Off. of Sen. Floor Analyses, Unfinished Business Analysis of Sen. Bill No. 1554 (1995-1996 Reg. Sess.) as amended June 19, 1996, p. 5.)
These statutory provisions thus “provide that no member of a municipal hospital’s or health care district’s medical or allied health professional staff who is an officer of the municipal hospital or health care district, nor any member of a county hospital’s medical or allied health professional staff who is an officer of the board of supervisors, or a board or commission appointed by the board of supervisors for the operation of a county hospital shall be deemed to be financially interested in designated contracts made by the municipal or county hospital or health care district body or board of which the officer is a member, if the officer abstains from any participation in the making of the contract, the officer’s relationship to the contract is disclosed to *235the body or board and noted in its official records, and thereafter the body or board, without any participation by the officer, finds that the contract is fair to the district and in its best interest and authorizes the contract in good faith.” (Legis. Counsel’s Dig., Sen. Bill No. 1554, 6 Stats. 1996 (1995-1996 Reg. Sess.) Summary Dig., p. 172.) The three designated contracts (e.g., § 32111, subds. (b)(l)-(3), (d)) are those allowing the officer, or a medical group of which he or she is a member, to provide professional services at the hospital and to lease office space from the hospital for providing such services, “provided that similar contracts exist with other staff members and the amounts payable under the contract are no greater than the amounts payable under similar contracts covering the same or similar services” (e.g., id., subd. (b)(1)) or the terms are “no more favorable than those offered any other party who is a member of the district’s medical or allied health professional staff” (e.g., id., subd. (b)(3)).
This legislation is of interest here for two reasons. First, it is an express recognition by the Legislature that it is important for health care professionals to be able to serve on public hospital boards, and specifically the boards of the hospitals in which they work, so they can bring their experience and expertise to bear in the management and operation of these hospitals. Second, it indicates the only conflict problem the Legislature discerned in health care professionals serving on such boards—and thus making management and operational decisions about these hospitals—occurs in connection with contracts for their own professional services, made directly with them or their medical groups so they can work at these hospitals. It follows, then, since the Legislature enacted this legislation expressly so health care professionals can participate in the management and operation of public hospitals, that the Legislature determined they can participate in contracts pertaining to the general management and operation of such hospitals and any asserted “indirect” benefit to them from such contracts is so tangential it is a noninterest.
The 2008 agreements at issue in this case concern the general management and operation of Eden and San Leandro hospitals. The agreements are not contracts made directly with health care professionals (either an administrator or physician) for professional services to be performed in the hospitals’ facilities, which would implicate conflict of interest laws. Rather, they are the kind of agreements—pertaining to the general operation and management of the District’s public hospitals—the Legislature has taken steps to make clear health care professionals who serve on the governing bodies of such hospitals can make, even if they also work at the hospitals on whose boards they serve. Again, given the Legislature’s purpose and intent in this regard, the only reasoned conclusion that can be reached here is that neither of the health care *236professionals whose actions are in question, Bischalaney or Dr. Francisco Rico, was afflicted with a conflict of interest that precluded them from participating in the 2008 agreements concerning the general operation and management of the District’s public hospitals.
Appellant’s petition for review by the Supreme Court was denied April 11, 2012, S199758.

 All further statutory references are to the Health and Safety Code unless otherwise indicated.

 As discussed above, while the District itself is empowered to manage and operate its hospital facilities, and for many years managed and operated Eden, it can also delegate these tasks to a nonprofit corporation. (See § 32121, subd. (p)(l).)

 Such legislative history is properly a matter of judicial notice. (See Evid. Code, §§ 452, subd. (c), 459, subd. (a).)