New London Hosp. Ass'n v. Town of Newport

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THE SUPREME COURT OF NEW HAMPSHIRE

___________________________

Sullivan
Case No. 2022-0592
Citation: New London Hosp. Ass’n v. Town of Newport, 2024 N.H. 33

THE NEW LONDON HOSPITAL ASSOCIATION, INC.

v.

TOWN OF NEWPORT

Argued: October 3, 2023
Opinion Issued: June 26, 2024

Devine, Millimet & Branch, Professional Association, of Manchester
(Matthew R. Johnson on the brief and orally), for the plaintiff.

Drummond Woodsum, of Manchester (Keriann Roman and Matthew
Serge on the brief and orally), for the defendant.

Preti Flaherty Beliveau & Pachios, PLLP, of Concord (Nathan R. Fennessy
on the brief and orally), for New Hampshire Hospital Association, as amicus
curiae.
 New Hampshire Municipal Association, of Concord (Stephen C. Buckley
on the joint brief), and Upton & Hatfield, LLP, of Portsmouth (Russell F. Hilliard
on the joint brief), for New Hampshire Municipal Association and Town of
Bedford, as amici curiae.

HANTZ MARCONI, J.

¶1 The plaintiff, The New London Hospital Association, Inc. (NLH),
appeals a decision of the Superior Court (Tucker, J.) dismissing its appeals
from denials by the defendant, Town of Newport (Town), of NLH’s applications
for charitable property tax exemptions for tax years 2015, 2017, and 2018.
The Town cross-appeals, challenging the trial court’s rulings that NLH satisfied
the second and third factors for charitable exemption that we articulated in
ElderTrust of Florida, Inc. v. Town of Epsom, 154 N.H. 693 (2007). We affirm
the trial court’s rulings that NLH satisfied the second and third ElderTrust
factors. We reverse its ruling that NLH failed to prove that it satisfied the
fourth ElderTrust factor, and remand.

I. Factual Background

¶2 The following facts are taken from the trial court’s narrative order
issued after a six-day bench trial or from the contents of documents in the
record. NLH is a nonprofit corporation exempt from federal income taxation
pursuant to section 501(c)(3) of the federal tax code. See 26 U.S.C. § 501(c)(3)
(2018). It is also a regulated charitable trust registered with the New
Hampshire Department of Justice Charitable Trusts Unit. NLH’s purpose, as
stated in its articles of agreement, is as follows:

The Corporation is established exclusively for the charitable,
scientific and educational purposes herein set forth, subject to the
provisions of New Hampshire RSA § 292 and the provisions of
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the “Code”). The principal purposes of the Corporation
shall be to operate an acute care hospital and related nursing
home facility, to provide other facilities, services and products for
the care of persons afflicted with illness or disabilities, without
regard to age, race, sex, color, creed or national origin; either
directly, through subsidiary or affiliated corporations or entities, or
by contract or joint venture with other individuals or entities; and
in furtherance thereof to acquire, hold, manage, invest, mortgage
and dispose of property and funds of whatever character and
generally to possess and exercise all powers permitted by the
voluntary corporations under the laws of the State of New
Hampshire.

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 All activities and functions of the Corporation shall be
conducted in a manner which is consistent with the requirements
of Section 501(c)(3) of the Code. Solely in furtherance of those
purposes that qualify the Corporation as exempt from federal
income tax pursuant to Section 501(c)(3) of the Code or any
successor provision, the Corporation is authorized to act in
furtherance of the best interests of Mary Hitchcock Memorial
Hospital, a New Hampshire non-profit corporation which is a tax-
exempt organization under Section 501(c)(3) of the Code, and
Dartmouth-Hitchcock Clinic, a New Hampshire non-profit
corporation which is a tax-exempt organization under Section
501(c)(3) of the Code, and to do everything necessary, suitable, or
proper for the accomplishment, attainment, or furtherance of, to
do every other act or thing incidental to, appurtenant to, growing
out of, or connected with, the purposes, objects, or powers set
forth in these Articles, whether alone or in association with others;
provided that nothing herein set forth shall be construed as
authorizing the Corporation to possess any purpose, object, or
power, or to do any act or thing forbidden of any organization
exempt from federal income tax pursuant to Section 501(c)(3) of
the Code, or any successor provision, which would threaten the
Corporation’s tax-exempt status.

¶3 NLH owns the property in Newport at issue here, on which it
operates the Newport Health Center (NHC). NHC is classified under federal law
as a Rural Health Clinic as part of a federal initiative addressing the shortage
of physicians in rural areas. NHC is the only outpatient treatment center in
Newport.

¶4 For a number of years, NLH leased “sub-optimal” space for NHC at
the property. NLH purchased the property in 2012 and constructed a new
facility with more space to accommodate additional physicians and serve
additional patients.

¶5 In tax year 2015, NLH applied for a charitable tax exemption for the
NHC property. The Town denied the exemption and NLH appealed to the
superior court. See RSA 72:34-a (2012 & Supp. 2023). Subsequent
applications for tax years 2017 and 2018 were also denied, and those denials
were appealed to the superior court. The three appeals were thereafter
consolidated.

¶6 NLH moved for summary judgment, which the trial court denied.
The court ruled that “[v]iewing the evidence in the light most favorable to the
Town, [NLH] established three of the four factors necessary for the exemption
(the so-called [ElderTrust] factors), but not the fourth.” The Town moved for
reconsideration, which the court granted in part and denied in part.

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Specifically, the court denied the motion as to the first ElderTrust factor, but
granted it as to the second and third, ruling that, with respect to those factors,
there were issues of material fact to be resolved at trial.

¶7 Following a bench trial, the court dismissed the appeals. It ruled
that NLH proved the second ElderTrust factor and that “NLH proved the third
criterion with respect to the property it occupied directly at [NHC] . . . [but not]
with respect to the space it leased for storage.” With respect to the fourth
factor, the court ruled that NLH failed to prove it met that criterion. This
appeal and cross-appeal followed.

II. Standard of Review

¶8 When reviewing a trial court’s decision after a trial on the merits, “we
uphold the trial court’s factual findings and rulings unless they lack
evidentiary support or are legally erroneous.” Jesurum v. WBTSCC Ltd. P’ship,
169 N.H. 469, 476 (2016). “We do not decide whether we would have ruled
differently than the trial court, but rather, whether a reasonable person could
have reached the same decision as the trial court based upon the same
evidence.” Id. “Thus, we defer to the trial court’s judgment on such issues as
resolving conflicts in the testimony, measuring the credibility of witnesses, and
determining the weight to be given evidence.” Id. “Nevertheless, we review the
trial court’s application of the law to the facts de novo.” Id.

III. Analysis

¶9 Determination of NLH’s right to an exemption from taxation is
statutory. Town of Peterborough v. MacDowell Colony, 157 N.H. 1, 5 (2008).
“The existence and extent of exemptions depends on legislative edict.” Id.
(quotation omitted). Therefore, “we will overturn the trial court’s decision if we
find that the court misapprehended or misapplied the law.” Id. (quotation and
brackets omitted). “We note that the legislative purpose to encourage
charitable institutions is not to be thwarted by a strained, over-technical and
unnecessary construction” of the applicable statutes. Id. (quotation and
brackets omitted).

¶10 NLH claims exemption under RSA 72:23, V, which applies to:

The buildings, lands and personal property of charitable
organizations and societies organized, incorporated, or legally
doing business in this state, owned, used and occupied by them
directly for the purposes for which they are established, provided
that none of the income or profits thereof is used for any other
purpose than the purpose for which they are established.

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RSA 72:23, V (2012). The term “‘charitable,’ as used to describe a corporation,
society or other organization” covered by RSA 72:23, V, is defined to mean:

a corporation, society or organization established and administered
for the purpose of performing, and obligated, by its charter or
otherwise, to perform some service of public good or welfare
advancing the spiritual, physical, intellectual, social or economic
well-being of the general public or a substantial and indefinite
segment of the general public that includes residents of the state of
New Hampshire, with no pecuniary profit or benefit to its officers
or members, or any restrictions which confine its benefits or
services to such officers or members, or those of any related
organization.

RSA 72:23-l (2012). RSA 72:23-l further provides, “The fact that an
organization’s activities are not conducted for profit shall not in itself be
sufficient to render the organization ‘charitable’ for purposes of this chapter,
nor shall the organization’s treatment under the United States Internal
Revenue Code of 1986, as amended.” Id. Moreover, RSA 72:23-l is expressly
“not intended to abrogate the meaning of ‘charitable’ under the common law of
New Hampshire.” Id. NLH bears the burden of establishing entitlement to an
exemption under RSA 72:23, V. See RSA 72:23-m (2012).

¶11 In ElderTrust, we distilled the requirements of RSA 72:23, V and
RSA 72:23-l into a single four-factor test, holding:

[T]he plain language of RSA 72:23, V and RSA 72:23-l requires the
institution to satisfy each of the following four factors; namely,
whether: (1) the institution or organization was established and is
administered for a charitable purpose; (2) an obligation exists to
perform the organization’s stated purpose to the public rather than
simply to members of the organization; (3) the land, in addition to
being owned by the organization, is occupied by it and used
directly for the stated charitable purposes; and (4) any of the
organization’s income or profits are used for any purpose other
than the purpose for which the organization was established.
Under the fourth factor, the organization’s officers or members
may not derive any pecuniary profit or benefit.

ElderTrust, 154 N.H. at 697-98. Only the trial court’s rulings on the second,
third, and fourth factors are challenged in this appeal.

A. Second ElderTrust Factor

¶12 In its cross-appeal, the Town argues that the trial court erred in
finding the second ElderTrust factor satisfied, because: (1) “NLH is not

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obligated to operate exclusively for its stated charitable purposes”; (2) NLH
ceased meeting one of its three stated purposes — operating a nursing home —
notwithstanding a community need; and (3) NLH’s sole member “exercised
discretionary control over NLH’s operations and its claimed charitable
purposes.” We address each argument in turn.

¶13 The second ElderTrust factor requires that an organization is
“obligated to perform its stated purpose to the public rather than simply to its
members.” Marist Bros. of N.H. v. Town of Effingham, 171 N.H. 305, 314
(2018) (quotation, brackets, and ellipsis omitted). “This factor has two
components: whether there is an actual obligation to perform the stated
purpose and whether such performance is to the general public or an indefinite
segment of it.” Id. The Town challenges the trial court’s finding that NLH
satisfied the first component. In determining whether the first component is
satisfied, “we look to both [NLH’s] charter or organizational statements and its
actions taken pursuant to those statements.” Id. at 315. “The public service
which plaintiff is to render must be obligatory so as to enable the Attorney
General or other public officer to enforce this right against it if the service is
not performed.” The Housing Partnership v. Town of Rollinsford, 141 N.H. 239,
241 (1996) (quotation and brackets omitted). “It follows that if the public
benefit is limited to that which the plaintiff sees fit to provide at its option or in
its uncontrolled discretion the requirements of RSA 72:23 V are not satisfied.”
Id. (quotation omitted).

¶14 The Town contends that this component is not satisfied, because
NLH’s articles of agreement do not require it to operate exclusively for its stated
charitable purpose. The Town contrasts NLH’s articles of agreement with those
of the taxpayer (ElderTrust) in ElderTrust. In that case, we noted, “By the
express language of its articles of incorporation, ElderTrust was required to be
‘operated exclusively for public charitable uses and purposes.’ (Emphasis
added.) In context, the use of the word ‘exclusively’ places a significant and
enforceable limitation on ElderTrust’s operation.” ElderTrust, 154 N.H. at 700
(brackets omitted). We ultimately concluded that “ElderTrust’s articles of
incorporation sufficiently define a charitable purpose such that the purpose
could be enforced. ElderTrust is not left with an impermissible level of
discretion.” Id.

¶15 In the instant case, NLH’s articles of agreement state that “[t]he
Corporation is established exclusively for the charitable, scientific and
educational purposes herein set forth.” Citing that statement, the Town argues
that “NLH’s Articles of Agreement do not state that it is required to operate
exclusively for its stated charitable purpose; instead, NLH’s Articles use the
word ‘exclusively’ to describe its formation purposes.” The Town further notes
that “as to its operations, [NLH’s articles of agreement] broadly stat[e] that it
may ‘exercise all powers permitted by the voluntary corporations under the
laws of the State of New Hampshire.’” Accordingly, the Town concludes, NLH’s

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articles of agreement do not contain an enforceable obligation to perform its
charitable purpose. We disagree.

¶16 Read as a whole, the statement of purpose in NLH’s articles of
agreement sufficiently obligates it to perform its charitable purpose. That
statement provides, in part, that “[t]he principal purposes of the Corporation
shall be to operate an acute care hospital and related nursing home facility, to
provide other facilities, services and products for the care of persons afflicted
with illness or disabilities, without regard to age, race, sex, color, creed or
national origin.” (Emphasis added.) Moreover, that statement of purpose
explicitly provides that “nothing herein set forth shall be construed as
authorizing [NLH] to possess any purpose, object, or power, or to do any act or
thing forbidden of any organization exempt from federal income tax pursuant
to Section 501(c)(3) of the Code, or any successor provision.” We conclude that
NLH’s articles of incorporation “sufficiently define a charitable purpose such
that the purpose could be enforced.” Id.

¶17 The Town further argues, however, that despite naming three
principal purposes in its articles of agreement (operation of an acute care
hospital, operation of a related nursing home, and provision of facilities,
services, and products for the care of persons with illness or disabilities), NLH
ceased to perform one of them. Specifically, in 2016, NLH closed a nursing
home. The Town cites no authority for the proposition that an entity that lists
multiple charitable purposes in its organizational documents must at all times
perform each and every one of them to qualify for a charitable property tax
exemption, and we have found none. Accordingly, we are not persuaded by the
Town’s argument.

¶18 The Town next argues that NLH failed to meet its burden on the
second ElderTrust factor as a result of its agreement with its sole member,
Dartmouth-Hitchcock Health (DHH). The Town points to the agreement of
NLH, DHH, and the Mary Hitchcock Memorial Hospital, and the Dartmouth-
Hitchcock Clinic (doing business together as Dartmouth-Hitchcock (D-H)), to
affiliate in which DHH “retain[ed] . . . [a number of] reserved powers over
[NLH].” The agreement lists a number of actions that “must be approved by”
DHH’s board of trustees, including “[t]o reallocate the assets and resources of
[NLH] and D-H/DHH as appropriate to serve the overall best interests of the D-
H System.” The Town contends that by these provisions, “DHH has the
authority to deplete NLH’s assets and resources for the benefit of the rest of the
Dartmouth Hitchcock system” and that “[t]his alone commands a conclusion
that NLH failed to meet its burden on the second ElderTrust factor.”

¶19 Reading the agreement as a whole, we are not persuaded. The
agreement’s statement of purpose notes that “the Parties desire to further their
respective charitable missions” and describes how they expect integration to
accomplish that objective. The agreement further provides that “[t]he parties

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have acknowledged the compatibility of their charitable missions, and those of
their subsidiaries, and no Party will be required to take any action that would
be materially inconsistent with or in contravention of its respective charitable
mission.” It also provides:

The D-H system at all times will be operated in a manner
consistent with the charitable missions of the Parties and their
subsidiaries and none of them will be required to take any action
pursuant to this Agreement which would jeopardize its tax exempt
or public charity status under federal income tax law or state law.
After the Effective Date, the assets of [NLH] shall continue to be
devoted to the charitable objectives of [NLH] and the needs of the
communities [NLH] serves, subject to D-HH’s reserved powers,
which will be exercised in a manner consistent with New
Hampshire law.

We conclude that the mere existence of DHH’s reserved powers over NLH does
not prevent NLH from satisfying the second ElderTrust factor. For the
foregoing reasons, we affirm the trial court’s ruling on that factor.

B. Third ElderTrust Factor

¶20 The Town next argues that the trial court erred in finding that NLH
satisfied the third ElderTrust factor, which required NLH to show that “the
land, in addition to being owned by the organization, is occupied by it and used
directly for the stated charitable purposes.” Id. at 698. The Town notes that
two of NLH’s stated purposes — operation of an acute care hospital and
operation of a related nursing home — were not performed at NHC. It then
contends that NLH’s third stated purpose — “to provide other facilities,
services and products for the care of persons afflicted with illness or
disabilities, without regard to age, race, sex, color, creed or national origin” —
was not performed at the Newport property, or if performed, any such
performance was “slight, negligible, or insignificant,” because NHC “provided
no inpatient services, no surgical services, no specialist services,” but rather
provided primary care service, women’s health services, and ancillary services.
See id. at 701 (“When the use is slight, negligible or insignificant, or not in the
performance of the public purpose, the applicant is not entitled to a tax
exemption.”). The Town argues that “NHC was set up intentionally to provide
primary care services with a mechanism in place for referrals for medical
treatment to NLH in New London or DHH in Hanover.” (Footnote omitted.) It
then asserts that “NHC was not used for NLH’s stated charitable purposes but
was used as a money maker for the DH system.”

¶21 We are not persuaded. We think it obvious that “the care of
persons afflicted with illness or disabilities” generally begins with diagnosis of
that illness or disability, and that referral to a specialist for a more definitive

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diagnosis and/or treatment is common. We cannot conclude that providing
primary care and women’s health services at NHC does not carry out NLH’s
third stated purpose.

¶22 The Town next argues that NLH did not operate NHC with an
underlying motive of generosity, benevolence, or altruism, which, the Town
contends, is required. NLH counters that the Town misreads the case law and
that “ElderTrust does not inquire into the subjective motives of the
organization seeking a charitable tax exemption.” We agree with NLH.

¶23 The Town relies on Young Women’s Christian Ass’n v. Portsmouth,
89 N.H. 40 (1937), and Society of Cincinnati v. Exeter, 92 N.H. 348 (1943). It
misreads both. In neither case did we require proof of a generous, benevolent,
or altruistic motive, but rather we presumed such a motive was “inherent in a
legal charity.” Id. As we stated in Young Women’s Christian Association, “if an
institution is organized and conducted to perform some service of public good
or welfare, with no pecuniary profit to its officers or members, and with no
restrictions which confine benefits to them, its descriptive character as
charitable under the statute follows.” Young Women’s Christian Ass’n, 89 N.H.
at 43. The required elements of a charitable institution’s organization and
conduct noted in Young Women’s Christian Association are now contained
within the four ElderTrust factors. Having rejected the Town’s challenges to
the trial court’s ruling on the third ElderTrust factor, we affirm that ruling.

C. Fourth ElderTrust Factor

¶24 NLH challenges the trial court’s ruling on the fourth ElderTrust
factor, which inquires whether “any of [NLH’s] income or profits are used for
any purpose other than the purpose for which [NLH] was established.”
ElderTrust, 154 N.H. at 698. The trial court found that NLH did not establish
that it satisfied this factor. The court found: “Circumstantial evidence that
Dartmouth-Hitchcock received a business benefit from NHC is found in the
policy on patient referrals, and [its] payment to independent contractors . . .
was not satisfactorily explained.”

¶25 According to the Town, the trial court’s ruling on the fourth factor
is further supported by “ample evidence presented at trial that called into
serious question the reasonableness of the salaries paid to NLH officers and
physicians.” The trial court found, however, that “NLH’s additional evidence on
the reasonableness of the compensation it paid its CEO and providers is not
enough to prove it did not use funds from NHC to advance economic interests
of Dartmouth-Hitchcock.” The parties dispute the meaning of this statement.
We read it to mean that the court credited NLH’s evidence that it paid
reasonable compensation to its CEO and providers, but nevertheless found
that NLH failed to meet the fourth factor on other grounds; namely, the patient
referral policy and payments to independent contractors. See Shearer v.

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Raymond, 174 N.H. 24, 37 (2021) (“The interpretation of a trial court order
presents a question of law for this court, which we review de novo.”). Thus, we
agree with NLH that the court “believed NLH’s compensation levels for its
officers and employees was reasonable” and we decline to address the Town’s
argument premised on a contrary interpretation of the evidence.

¶26 NLH first argues that the trial court erred in determining that DHH
received a business benefit from NHC through its patient referral policy. The
Town counters that DHH received such a benefit by “realiz[ing] downstream
revenues due to referrals from patients seen at [NHC].”

¶27 The referral policy states as its purpose: “All New London Hospital
Association, Inc. (NLHA) affiliated providers will refer patients for appropriate
medical care in an ethical and moral manner while adhering to state and
federal guidelines.” We interpret this policy to mean that NLH providers will
refer patients out of NLH when “appropriate medical care” cannot be provided
at NLH. See Petition of Warden (State v. Roberts), 168 N.H. 9, 18 (2015) (“We
interpret written documents de novo.”). Given that the policy concerns patients
in need of services, we conclude, as a matter of law, that the practice of
referring patients to DHH for “appropriate medical care” that NLH cannot
provide, does not confer on DHH a “pecuniary . . . benefit” prohibited under the
fourth ElderTrust factor. ElderTrust, 154 N.H. at 698.

¶28 NLH next contends that the trial court erred in finding that it failed
to satisfy the fourth ElderTrust factor based upon its payments to independent
contractors. It argues that “[t]here is no provision of the statutory scheme or
any other authority that prohibits a nonprofit charitable organization from
hiring a for-profit entity to provide services that advance the charitable
organization’s charitable mission.” The Town counters:

The predominant amount of independent contractor compensation
that NLH paid each year was paid to entities it is affiliated with,
such as DHH and New England Alliance for Health. NLH failed to
show how all these payments were being used in furtherance of
any charitable purposes downstream, as opposed to benefiting the
officers and employees of the other entities, for example.

This argument appears to implicate both prongs of the fourth ElderTrust
factor: (1) “[none] of the organization’s income or profits are used for any
purpose other than the purpose for which the organization was established”;
and (2) “the organization’s officers or members may not derive any pecuniary
profit or benefit.” Id. at 698.

¶29 As regards the first prong, the Town’s argument misses the mark.
The relevant inquiry is not whether the “downstream” use of those funds by the
independent contractors was in furtherance of any charitable purposes, but

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whether the services NLH purchased from the independent contractors
furthered NLH’s charitable purposes. Cf. id. (noting, with respect to the
companies in which certain ElderTrust director(s) held stock, that “ElderTrust
is one client of these two companies, and as such, it pays each company for
services rendered”).

¶30 The payments to independent contractors were disclosed on NLH’s
Form 990 federal tax returns, which required NLH to list the five highest-
compensated independent contractors to which NLH paid more than $100,000
in the reporting period. For the years in question, NLH listed various entities,
including DHH, the amounts paid to each, and a description of the services for
which such payments were made, including physician staffing and lab services,
imaging, and management services. NLH asserts that these services “advanced
its charitable mission” and that “[t]here was no evidence to the contrary that
these payments were made for an impermissible expense or for a reason other
than the reasons identified on NLH’s IRS form 990s.”

¶31 Similarly unpersuasive is the Town’s argument that, “unlike the
evidence in Marist Brothers[,] there was nothing presented to show how all of
the entities receiving compensation from NLH share the same charitable
mission.” Because NLH received services in exchange for the monies it paid the
independent contractors, it need not show that those contractors share NLH’s
charitable mission.

¶32 With respect to the second prong of the fourth ElderTrust factor, to
the extent the Town argues that any payments by a charitable taxpayer to its
member in exchange for goods or services violate the rule that “the
organization’s officers or members may not derive any pecuniary profit or
benefit,” id. at 698, Marist Brothers and ElderTrust support a contrary
conclusion. See Marist Bros., 171 N.H. at 321-24; ElderTrust, 154 N.H. at
706. In examining the taxpayer’s payments to an affiliated entity in Marist
Brothers, we cited cases from other jurisdictions holding that “similar
payments for assistance by a parent organization did not preclude a charitable
tax exemption.” Marist Bros., 171 N.H. at 323.

¶33 The Town nevertheless argues that “the burden is on NLH to show
that those expenses are being used exclusively to further its charitable
mission” and that it failed to meet that burden because “the trial court could
not rule out the possibility that some funds were not used for NLH’s claimed
charitable purposes.” We agree with NLH, however, that it was not required to
“rule out the possibility” that factor four was not satisfied. Rather, it was
required to prove its entitlement to a charitable tax exemption by a
preponderance of the evidence. Nashua Hous. Auth. v. Wilson, 162 N.H. 358,
361 (2011) (“In a civil action the burden of proof is generally on the plaintiff to
establish its case by a preponderance of the evidence.” (quotation omitted)).

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 [¶34] For the foregoing reasons, we affirm the trial court’s decision with
respect to the second and third ElderTrust factors. We reverse its decision with
respect to the fourth factor, and remand for proceedings not inconsistent with
this decision.

Affirmed in part; reversed
in part; and remanded.

MACDONALD, C.J., and DONOVAN, J., concurred.

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