PAUL KIMBALL HOSPITAL, INC., A NOT-FOR-PROFIT CORPORATION OF THE STATE OF NEW JERSEY v. BRICK TOWNSHIP HOSPITAL, INC., A NOT-FOR-PROFIT CORPORATION OF THE STATE OF NEW JERSEY; AND JOANNE E. FINLEY, M. D., COMMISSIONER OF HEALTH OF THE STATE OF NEW JERSEY, AND JOHN J. DEGNAN, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY
Supreme Court of New Jersey
Argued January 27, 1981—Decided June 24, 1981
86 N.J. 429
REGIONAL HEALTH PLANNING COUNCIL; BERGEN-PASSAIC HEALTH SYSTEMS AGENCY; SOUTHERN NEW JERSEY HEALTH SYSTEMS AGENCY, INC. AND HUDSON HEALTH SYSTEMS AGENCY, Intervenors-Plaintiffs-Respondents
Argued January 27, 1981—Decided June 24, 1981.
Peter R. Strohm, argued the cause for respondent Paul Kim-ball Hospital, Inc., etc. (Rothstein, Mandell & Strohm, attor-neys).
Burton L. Eichler argued the cause for respondents Regional Health Planning Council, et al. (Brach, Eichler, Rosenberg, Silver, Bernstein & Hammer, attorneys).
The opinion of the Court was delivered by
SCHREIBER, J.
This litigation involves a constitutional attack on an amend-ment to the Health Care Facilities Planning Act (“Act“),
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, Com-missioner 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 munici-pality which had appropriated funds for its construction as authorized by
The following factual picture emerges from the documents submitted on the motions for summary judgment, viewed favor-ably 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 hos-pital 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 defend-ant purchased for $45,000 a 30-acre tract of land in the Town-ship where the hospital was to be located. These funds had apparently been raised from private contributions. The munici-pal government of Brick Township, pursuant to
All the activities described above had been accomplished be-fore 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.
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 reconsid-er 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 hear-ing prior to the Board‘s determination.
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
such nonprofit corporation shall be exempt from the requirement of section 7 of P.L.1971, c. 136 (C. 26:2H-7) relating to a certificate of need.
This section effectively exempted Brick from obtaining a certifi-cate 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
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 re-quires an analysis of the purpose and object of the enactment and whether the classification rests upon any rational or reason-able basis relevant to the purpose and object of the act. Recog-nizing that the grandfather clause embodied in the amendment may have been intended to further the legislative purpose in
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 expand-ed 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.”
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, im-provement, 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 obtain-ing 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 hospi-tals 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 pro-vided the municipality had appropriated funds as authorized by
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.1 Grandfather clauses reflect the legislative policy that the new regulatory process shall be effective prospectively. Since that legislative policy may have a conceivably rational basis, grandfa-ther exclusions are not invidious per se and violative of equal protection. See Affiliated Distillers Brands Corp. v. Sills, 56 N.J. 251 (1970), mod. on other grounds 60 N.J. 342 (1972). The question from an equal protection viewpoint is whether there is a justifiable basis for the discrimination. A classification will not be set aside if any state of facts reasonably may be con-ceived to justify it. McGowan v. Maryland, 366 U.S. 420, 81 S.Ct. 1101, 6 L.Ed.2d 393 (1961). If there is a conceivable legitimate purpose for the grandfathering, the legislative action will be upheld.
Examples supporting grandfather clauses against equal pro-tection 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 exami-nation before being licensed as an electrician. In testing the reasonableness of the classification, we adhered to the doctrine
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 discrimina-tion, 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 continu-ance 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 Leg-islature decided that a prerequisite to an exemption was an appropriation of funds, in accordance with
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. Lan, 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 re-quires 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 munici-pality 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 commu-nity. This declaration is in keeping with the spirit of the grounds for issuance of a certificate of need, namely the necessi-ty “to provide health care in the area to be served.”
[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, 339, [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
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,
[t]he Legislature shall not pass any private, special or local laws:
....
(8) Granting to any corporation, association or individual any exclusive privi-lege, 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:
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 arbi-trary, 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 on August 21, 1971. As we have seen the additional category included nonprofit corpora-tions 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 institu-tion 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 determina-tion does not represent some vague sentimental approval, but is supported by the use of taxpayers’ funds by officials accounta-ble to the public.
Another argument advanced by plaintiff is that the condition that land must be located within the municipality is unreason-able. 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 far2 does not render legislation special. The test is, as we have seen, whether any health care facilities have been excluded that should have been included. Irrespective of whether any other hospital fits into the category, it is settled that a class of one is constitutionally permissible. Bayonne v. Palmer, 90 N.J.Super. 245, 284 (Ch.Div.1966), aff‘d 47 N.J. 520 (1966) (“The mere fact that a class will embrace but one entity which is distinct from all others, does not in itself mean that legislation affecting the one entity must be regarded as a special, private or local law“); Budd v. Hancock, 66 N.J.L. at 136 (“If ... this act is special
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 defend-ant‘s hospital to exist furthers a purpose of the Act for it is a step in the direction of providing “for the protection and promo-tion of the health of the inhabitants of the State.”
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 constitution-ally 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 HAN-DLER—3.
Dissenting—Justices PASHMAN and CLIFFORD—2.
PASHMAN, J., dissenting.
Because I believe that
... any private, special or local laws ... [g]ranting to any corporation, association or individual any exclusive privilege, immunity or franchise whatev-er.
This limitation on legislative powers has a firm historical foun-dation and grew out of a need to curb abuses peculiar to the legislative process. As a leading commentator has explained,
the legislative process lacks the safeguards of due process and the tradition of impartiality which restrain the courts from using their powers to dispense special favors. Over the course of time, as a result, the propensities of legislatures to indulge in favoritism through special legislation developed into a major abuse of governmental power.
As the bulk of special laws grew demands for reform became insistent, and constitutional prohibitions were enacted to limit the practice of enacting special legislation and to achieve greater universality and uniformity in the operation of statute law in respect to all persons. [2 Sutherland, Statutory Construction § 40.01 at 135 (4th ed. 1973)]
The statute challenged in this case illustrates the kind of “favoritism” that the constitutional prohibition should prevent: the passage of legislation clearly intended to benefit one person only and without regard to similarly situated persons. The challenged statute provides:
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 such nonprofit corporation shall be exempt from the requirement of section 7 of P.L.1971, c. 136 (C. 26:2H-7) relating to a certificate of need. [
N.J.S.A. 26:2H-7.1 (emphasis added)]
It is apparent that the statute, so hedged with qualifications, was drafted with only Brick Township Hospital in mind. This conclusion is squarely supported by the legislative history of the statute. The relevant Senate committee statement reads in its entirety 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.
In releasing this bill the committee acknowledges the need for a particular hospital whose construction was prohibited by the Statewide Health Coordinat-ing Council. However, this hospital represents a unique situation and committee approval of this legislation should not be construed as an attempt to undermine the State health planning process, which has functioned so well in New Jersey through the efforts of dedicated health professionals and lay persons. [Senate Institutions, Health and Welfare Committee, Statement to Assembly No. 369, June 1, 1978]
I fully agree with the majority‘s statements of the governing principles of law: that the test of a special law is “the appropri-ateness of the objects which it excludes,” ante at 445, and that “a class of one is constitutionally permissible,” ante at 448. However, the Legislature is not constitutionally permitted to enact a law that unreasonably excludes hospitals similarly situ-ated to the one covered by the statute. The Committee State-ment reveals that the Legislature has not considered whether other hospitals in situations similar to that of Brick Township Hospital should also be exempted from the certificate of need requirement. There may be hospitals which are funded by municipal appropriations but which are located in municipalities that have not helped pay for the construction, and hospitals funded by county appropriations rather than municipal appro-priations.1 Whatever policy reasons led the Legislature to con-clude that a hospital like Brick Township Hospital should be exempt from the certificate of need requirement necessarily would apply to hospitals in those classes as well. But the Legislature chose to limit the terminology of the exemption to
The facts of the case strongly support the conclusion that
The wisdom of state-wide planning for health care facilities, or Brick Township‘s need for its own hospital are, of course, irrelevant to this case. What I fear is that the decision of the Court today will be taken as a signal to any individual aggrieved or inconvenienced by a statute to seek special, effectively “pri-vate” legislative dispensation from coverage by the statute. This is what the constitutional prohibition of special legislation was designed to avoid.
Because I would hold
Justice CLIFFORD joins in this dissenting opinion.
Notes
It should also be observed that