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No. Ill. Medical Cen. v. Home State Bank









Appeal from the Circuit Court of McHenry County; the Hon. Leonard Brody, Judge, presiding.


This opinion addresses three separate appeals which have been consolidated for the purposes of our review. Northern Illinois Medical Center (hereinafter NIMC) plaintiff-appellant in appeal No. 84-0628, the Crystal Lake Hospital Association and Sherman Hospital, (hereinafter collectively referred to as CLHA or Crystal Lake Ambutal) plaintiffs-appellants in appeal No. 84-0648, and the Attorney General of the State of Illinois, intervenor-appellant, in appeal No. 84-0629, each appeal from the trial court's judgment denying the plaintiff medical health care organizations status as beneficiaries under a charitable testamentary trust established by paragraph 11 of the last will and testament of Thomas W. Ames.

The following issues have been raised for our consideration: (1) whether this court should engage in an independent analysis of the record and resolve the instant cases as a matter of law; (2) whether the doctrines of res judicata and/or collateral estoppel preclude NIMC, Crystal Lake Ambutal, and the Attorney General from maintaining the instant actions; (3) whether the plaintiff medical health care facilities qualify as beneficiaries under a reasonable construction of Mr. Ames' charitable testamentary trust; (4) whether the plaintiff medical health care facilities are entitled to the proceeds of the charitable testamentary bequest under the doctrine of equitable deviation; and (5) whether the trial court erred in excluding certain evidence on the grounds of relevance and materiality.

Thomas W. Ames died on February 8, 1963. In his last will and testament, he left the bulk of his estate, valued at $850,000 at the time of trial, in trust for the charitable purpose of establishing a hospital in or near the city of Crystal Lake within 20 years of his death. Defendant, the Home State Bank of Crystal Lake was named as trustee of the testamentary trust and has continuously served as trustee from October 10, 1966, to the present.

All three consolidated appeals center on the construction and enforcement of the charitable testamentary trust bequest, which is set forth in paragraph 11 of Mr. Ames' will and provides, in relevant part:

"Eleventh: After the payment of the items hereinabove provided * * * I then hereby give, devise and bequeath all of the rest, residue and remainder of my estate, * * *, unto the HOME STATE BANK OF CRYSTAL LAKE, 40 Grant Street, Crystal Lake, Illinois, IN TRUST, nevertheless, as Trustee for the following uses and purposes: I direct said Trustee to sell and convert into cash all of the rest, residue and remainder of my estate, as aforesaid, at either public or private sale, for such price or prices as it may deem best as soon as practicable after my decease and to use and apply the proceeds realized therefrom toward the cost of incorporating and establishing a not-for-profit hospital association or foundation in or near the City of Crystal Lake, Illinois, and toward the cost of erecting, constructing and maintaining of a hospital building or buildings and also toward the cost of the operation of such hospital when so constructed for the diagnosis, treatment, medical care and cure of sick, injured and diseased persons. I direct further that such hospital association or foundation be so incorporated and established, the hospital building or buildings erected and the hospital operating as such within twenty (20) years after my decease, and said Trustee is hereby given the right to select the location and site for such hospital building or buildings in or near the City of Crystal Lake, Illinois, as aforesaid. In the event, however, that said Hospital association or foundation is not so incorporated or established, the hospital building or buildings not erected and the hospital not operating as such within said twenty-year period after my decease, then and in that event I hereby direct said Trustee to use and apply such proceeds in its hands from the sale of the rest, residue and remainder of my estate, as aforesaid, toward the sponsoring of whatever other public or worthwhile charitable cause or project said Trustee in its good judgment and discretion may consider for the best interest and welfare of the people residing in or near the City of Crystal Lake, Illinois. When the above purpose has been accomplished and if it is feasible to do so, it is my wish and will that such hospital or other project be named in my memory."

Paragraph 11 essentially delineates six requirements which must be satisfied by an organization seeking to qualify as a recipient beneficiary under its terms. A qualifying beneficiary must establish: (1) first, that it is a not-for-profit hospital, association, or foundation, not in existence at Mr. Ames' death; (2) second, that it is located "in or near" the city of Crystal Lake; (3) third, that it is a hospital constructed for the diagnosis, treatment, medical care and cure of sick, injured and diseased persons; (4) fourth, that it was operating as a hospital on February 8, 1983, within 20 years of Mr. Ames' death; (5) fifth, that the trust provision gave the trustee the right to select the location and site for the hospital; and (6) sixth, that the new facility is to be named in memory of Thomas W. Ames, if it is feasible to do so.

The consolidated cases underlying the instant appeals represent a second attempt by NIMC and Crystal Lake Ambutal to obtain the Ames trust proceeds. In 1975, a prior action was instituted by Crystal Lake Ambutal against Home State Bank, as trustee, seeking the trust monies. NIMC, formerly McHenry Hospital, was permitted to intervene in the 1975 suit. Following a bench trial, Judge Michael J. Sullivan issued a memorandum opinion on July 1, 1981, delineating his express finding that Crystal Lake Ambutal was not a "hospital" within the provisions of the Ames trust. In a subsequent September 17, 1981, order, the court entered its further finding that McHenry Hospital (currently NIMC) was not "in or near the City of Crystal Lake" as contemplated by the Ames trust. In entering judgment against all plaintiffs, the court noted "that at the time of entry of this Order, the cause is not ripe for the application of the doctrine of cy pres or any other such equitable doctrine," indicating that its decision was based solely on its construction of the trust provisions and that it did not consider any equitable theory. Neither plaintiff appealed the earlier 1981 decisions.

Plaintiff, NIMC is an Illinois not-for-profit corporation formed on June 7, 1982, as a result of a major corporate reorganization of McHenry Hospital. Evidence adduced at trial showed that McHenry Hospital was incorporated on March 16, 1956, and was in existence both prior to the time Thomas Ames executed his will on August 30, 1962, and prior to the date of Ames' death on February 8, 1963. All assets and liabilities of McHenry Hospital were transferred to NIMC and to two other successor corporations. Both NIMC and McHenry operate under the same license and share many of the same employees. Old McHenry Hospital had 40 beds and, after an expansion, was increased to 136 beds.

In August 1981, the Illinois Department of Health approved NIMC's application for a new 180-bed hospital facility. At the time of the second trial (May 1984), the new NIMC facility was 95% complete; however, it was not scheduled to be finished and operational until June 15, 1984, more than 20 years after Ames' death. The projected bed capacity has been increased to 195.

NIMC's new facility is located at Route 31 and Bull Valley Road within the city of McHenry. At trial, consulting engineer John Smith testified concerning the distances and travel times between the new NIMC facility and the city of Crystal Lake. Smith informed the court that NIMC's new facility is located approximately 4.18 miles and five minutes away on Route 31 from the northern boundary of Crystal Lake, 2.23 miles nearer than NIMC's previously existing facility. Smith also characterized the travel route along Route 31 between the northern border of Crystal Lake and the new NIMC facility as rural, with no stop signs or stoplights. However, on cross-examination he noted that depending on where a Crystal Lake resident resided, he had to travel past commercial enterprises, retail establishments, a residential subdivision, other municipalities, and a railroad crossing to reach the new facility. Smith also admitted that his measurements were only from the northern boundary of Crystal Lake and that he was unaware of the location of Crystal Lake's other geographic boundaries. Smith also measured the distance from Crystal Lake to Memorial Hospital and found Memorial to be 6.63 miles and 9.9 minutes away. A map depicting Smith's measurements was admitted into evidence by the court.

Statistics introduced at trial also showed that in 1981 the old NIMC (formerly McHenry Hospital) facility, located in the business district of the city of McHenry, admitted 9.7% of its in-patients from Crystal Lake. Similar NIMC admissions ranging from 12.1% in 1979 to 8.4% in 1983 were reported for the years immediately prior and subsequent to 1981. No admission figures for the new NIMC facility were available, as it was not operating at the time of trial. NIMC's board of directors have also indicated a willingness to name a portion of the new NIMC facility in memory of Thomas W. Ames if his charitable bequest is distributed to it.

In 1978, Sherman Hospital established prior to Ames' death in 1963 and located in Elgin, approximately 12.6 miles and 9.9 minutes from the nearest boundary of Crystal Lake, began to operate an ambulatory care facility known as the "Crystal Lake Ambutal." Ambutal is a not-for-profit corporation and was operational within the 20-year trust limitation period. The Crystal Lake Ambutal is located within the corporate boundaries of Crystal Lake, and approximately 50% of the out-patients treated at the facility are residents of Crystal Lake.

Ambutal is not licensed as a hospital by the Illinois Department of Public Health and operates under Sherman Hospital's license. It does not have certificate of need approval from the Illinois Health Facilities Planning Board. Ambutal also does not provide in-patient hospital care.

At trial, John Graham, president and chief executive officer of Sherman Hospital, testified that, as of the time of trial, Ambutal's out-patient services included an emergency room, a trauma room, a clinical laboratory, a blood bank, respiratory treatment, cardiac rehabilitation, a four-bed kidney dialysis department, an educational and speech facility, a pre- and post-natal care facility, a limited overnight observation facility, an emergency response system for the elderly, a minor surgical suite, an X-ray department, EKG services, and a neurodiagnostic service.

Graham did note, however, that Ambutal does not have an obstetrics department, a pediatric department or a pharmacy, and is not equipped to do sophisticated laboratory analysis or provide radium therapy. Babies are only delivered at the Ambutal facility in emergency situations, and only five births have occurred in the facility's short history. Graham also noted that Ambutal is not equipped to provide general anesthesia or intensive care to its patients.

Ambutal has indicated that it would be willing to name a portion of its facility in memory of Thomas W. Ames should it be awarded the trust proceeds.

The following facts relating to the plaintiffs' early efforts to establish a hospital in Crystal Lake within the 20-year trust limitation period were introduced into evidence by way of written stipulations and accompanying exhibits as agreed to by all parties. These stipulations and exhibits showed that in May 1969, the Hospital Planning Council for Metropolitan Chicago adopted a resolution which required McHenry Hospital, Memorial Hospital, and the Crystal Lake Hospital Association (CLHA), a group formed for the purpose of establishing a hospital in Crystal Lake, to work together toward the establishment of a regional health care facility serving all of the neighboring areas. After several unsuccessful efforts by the three organizations, Memorial Hospital withdrew from the project. Shortly thereafter, McHenry Hospital (NIMC) and the Crystal Lake Hospital Association (Ambutal) explored alternative sites. Two new sites came under consideration: Site A, favored by McHenry Hospital, was located on the east side of Route 31, approximately 2 1/2 miles south of Route 120 and approximately 4 1/2 miles north of Route 176. Site B, favored by CLHA and located within the city of Crystal Lake, is the present site of the Crystal Lake Ambutal. McHenry Hospital and CLHA retained A.T. Kearney and Company, an international consulting firm, to evaluate the two sites. Kearney prepared and submitted a "Site Selection and Evaluation Study Report," on September 3, 1971. While the report concluded that either site could be used for a new hospital, it recommended that Site B be selected as the location for the joint health facility. In response to a subsequent inquiry by McHenry Hospital, the consulting firm sent a letter dated November 24, 1971, to McHenry reaffirming its position that "it is the A.T. Kearney recommendation that the southern [Crystal Lake] site be selected for the proposed Regional Health Park * * *. The northern [McHenry] site should be selected if the southern site could not be obtained * * *. The southern site is definitely the preferred site."

On October 1, 1971, McHenry Hospital and the CLHA jointly acquired an option to purchase "Site B." They then filed an application to rezone the property. The Home State Bank, as trustee, was not consulted and did not take part in the purchase of the option, or the rezoning application.

On April 10, 1972, before Site B was rezoned, Clara Stilling offered to donate 40 acres of land located at the southwest corner of the intersection of Route 31 and Bull Valley Road to McHenry Hospital and to give McHenry Hospital an option for the purchase of 60 additional adjacent acres. This land was approximately one-quarter mile north of Site A. On April 18, 1972, McHenry Hospital's board of directors voted to accept the offer and on April 21, 1972, it gave written notice of acceptance. The Home State Bank, as trustee, was not consulted concerning this acquisition, and there were no communications between the Home State Bank and McHenry Hospital concerning the Stilling property. At this point, the joint venture fell apart. McHenry Hospital indicated its preference for the Stilling (McHenry) location, while CLHA expressed its preference for the Site B (Crystal Lake) location, as the future sites of the proposed health park. Consequently, CLHA purchased McHenry Hospital's interest in the option to purchase Site B.

In July 1972, McHenry Hospital received an initial permit from the Illinois Department of Public Health which authorized it to prepare architectural plans and specifications for construction on the Stilling property. The site was subsequently annexed by the city of McHenry and rezoned, feasibility experts were retained, and preliminary architectural plans were prepared. In May of 1974, McHenry Hospital submitted a preliminary application for financing to the Illinois Health Facilities Authority. The first stage of the review was completed in June 1974. Before the second stage of the review was completed, however, the Illinois Health Facilities Planning Act became effective. (Ill. Rev. Stat. 1983, ch. 111 1/2, par. 1151 et seq.) The Act required the sponsor of a new hospital to obtain a "Certificate of Need" permit from the Health Facilities Planning Board before a new hospital could be erected. As a result of this legislation, McHenry Hospital temporarily abandoned its efforts to construct a new facility.

In 1979, McHenry Hospital again explored with Memorial Hospital the feasibility of jointly developing a hospital facility. In accord with consultants' recommendations, McHenry Hospital adopted a resolution to merge with Memorial; however, Memorial did not adopt a reciprocal resolution, and McHenry's efforts to establish a new facility were again disbanded.

McHenry Hospital then reconsidered the possibility of building a new hospital on the Stilling site. In August 1981, it obtained "Certificate of Need" approval from the Illinois Health Facilities Planning Board. In June 1982, McHenry underwent corporate reorganization and established its NIMC subsidiary. A new hospital was then constructed by NIMC on the Stilling location; however, its new hospital was not operational until June 1984, more than 20 years after Ames' death.

While NIMC established its new facility, CLHA also considered establishing its own hospital on the Site B location. In November of 1972, officers of CLHA approached Sherman Hospital about the possibility of constructing a satellite hospital on Site B. A series of meetings were held, and on November 8, 1973, the board of managers of Sherman Hospital adopted a resolution approving the construction of a 125-bed satellite hospital under certain conditions. On April 24, 1974, CLHA approached the Home State Bank, as trustee, and asked it to contribute $108,000 out of the Ames trust to CLHA so it could exercise its option and purchase 44 acres of Site B for the development of a hospital. Home State Bank agreed, and thereafter, the purchase was consummated.

Home State Bank then leased Site B to the CLHA for the sum of $1 per year provided that CLHA utilize the property in connection with the future construction and operation of a hospital facility. At this time, however, pursuant to the then newly enacted certificate of need legislation, the Illinois Health Facilities Planning Board adopted a plan that, through 1976, there was only a need for an additional six hospital beds in McHenry County. The plans for a 125-bed satellite facility were thereby foreclosed. In response to this legislative obstruction, Sherman and the CLHA agreed to erect an ambulatory health care facility, the Crystal Lake Ambutal, on part of the Site B location. Shortly thereafter, in 1976, the Home State Bank, as trustee, notified Sherman Hospital that the funds in the Ames trust would not be available for use in construction of the Crystal Lake Ambutal. On or about March 17, 1977, Home State Bank, as trustee, the CLHA, and Sherman Hospital entered into an agreement where Sherman Hospital would purchase the real estate upon which the Ambutal is currently located, terminating the interests of Home State Bank and CLHA. Accordingly, Home State Bank's initial contribution from the Ames trust was refunded.

The CLHA, through fund-raising efforts among citizens of Crystal Lake, raised approximately $1.2 million, which was applied toward the construction of the Crystal Lake Ambutal at its present site. On May 26, 1978, Sherman Hospital/Crystal Lake Ambutal opened and began providing out-patient medical services to the general public.

On or about December 27, 1982, as the 20-year trust limitation deadline neared, the three plaintiff not-for-profit corporations, Crystal Lake Ambutal, NIMC and Memorial Hospital, each filed separate causes of action below alleging that they were qualified recipients under the provisions of the Ames trust.

The 20-year limitation period expired on February 8, 1983, and the Home State Bank, as trustee, had not yet distributed the funds in accordance with Ames' primary purpose of erecting a hospital in or near Crystal Lake. In defense of its failure to distribute the trust proceeds, the trustee noted that it could not fulfill Ames' primary purpose because the trust was insufficiently funded.

In a letter dated April 29, 1983, the trustee stated that by February 8, 1983, 20 years after Mr. Ames' death, no hospital had been established "in or near Crystal Lake." The trustee noted that the area hospitals, Memorial, NIMC and Sherman, were all in existence when Mr. Ames' executed his will and "presumably, therefore, he did not intend that any of them be the beneficiary of his gift." The trustee also reasoned that Ambutal, although "in or near the city of Crystal Lake is not a hospital," and that "it is apparent that Mr. Ames' vision of a single hospital located in, identifiable with, and principally serving Crystal Lake, will not be realized." Instead, the trustee decided to distribute the funds pursuant to the charitable trust's alternative gift over provision. It then concluded that the proceeds of the trust should be awarded to the Crystal Lake Public Library, which was built and maintained exclusively for persons residing "in or near Crystal Lake." This charitable award was subsequently accepted by the library; however, the funds will only be distributed pending the outcome of the instant litigation.

In addition to the above named plaintiffs, two parties were permitted to intervene in the consolidated actions. The city of Crystal Lake, intervenor-appellee in appeal Nos. 84-0628, 84-0629 and 84-0648, was permitted to intervene on behalf of the Crystal Lake Public Library. Neil F. Hartigan, the Attorney General of the State of Illinois, was also allowed to intervene and file a petition for construction of trust and instructions pursuant to its common law authority. (See Metropolitan Sanitary District of Greater Chicago ex rel. O'Keeffe v. Ingram Corp. (1981), 85 Ill.2d 458, 478-79, 426 N.E.2d 860; In re Estate of Tomlinson (1976), 65 Ill.2d 382, 387-88, 359 N.E.2d 109; People ex rel. Hartigan v. National Anti-Drug Coalition (1984), 124 Ill. App.3d 269, 275, 464 N.E.2d 690.) The petition requested the court to construe Ames' testamentary trust and urged that NIMC, Memorial Hospital and Crystal Lake Ambutal all were entitled to the charitable bequest. The Attorney General has separately appealed the trial court's adverse ruling in appeal No. 84-0629. No issue has been raised in these appeals concerning the Attorney General's right to intervene or whether he can assert a construction of the trust in favor of a party who has lost below and has not appealed, or in favor of a party who may be barred by the doctrines of res judicata or collateral estoppel. We, therefore, need not examine these matters unnecessarily.

The trustee-defendant, Home State Bank, filed motions to dismiss pursuant to sections 2-615 and 2-619 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, pars. 2-615, 2-619) alleging, inter alia, that the plaintiffs did not qualify as beneficiaries under the terms of the trust and that both NIMC's and Crystal Lake Ambutal's actions were barred by the doctrine of res judicata and/or collateral estoppel based upon the prior 1981 court decision ...

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