Using the Articles of Incorporation and Bylaws

St. Luke’s Hospital in San Francisco was created in 1871 with a benevolent and innovative mission: “St. Luke’s doors as a charitable hospital are open wide to our community for the reception of all colors, nationalities and creeds. Its benefits, refused to none, will be limited only by its means.” Its 1885 original articles of incorporation stated that it was created for the purpose of “founding and maintaining a hospital in the City and County of San Francisco, State of California, and not for pecuniary profit.” Even though changes were made to the articles through the years, the phrase “in the City and County of San Francisco, State of California” was always maintained. When Sutter Health, a nonprofit system with more than two dozen acute care hospitals in California sought to “affiliate with” St. Luke’s, it said that all of its hospitals were operated by nonprofit corporations governed by local community boards. When Consumers Union reviewed the asset purchase agreement, however, we found that St. Luke’s articles of incorporation would be significantly changed, removing the requirement that the hospital be maintained in San Francisco. At public hearings before the California Attorney General, Consumers Union raised objections to this change; the Attorney General responded by placing a condition on the transaction that prohibited any changes to the charitable purposes without his express consent.

St. Luke’s 1946 articles of incorporation stated that upon dissolution all of its property “shall be distributed to a fund, foundation or corporation organized and operated for religious, hospital or charitable purposes or to the United States of America, the State of California, or any political subdivision of either thereof as may be selected or designated by the Board of Directors.” Again, despite subsequent changes to the articles, it was clear that the original and maintained intent of the nonprofit was that the board of directors would direct where the assets would eventually go. Sutter Health’s proposed articles of incorporation, on the other hand, would not have allowed the property to be distributed as designated by the board of directors, but would instead “become the property of Sutter Health.” The community was concerned that, if Sutter Health sold or closed St. Luke’s, the charitable asset would be lost forever to the coffers of Sutter Health. Consumers Union asked the California Attorney General about this issue; he responded by requiring Sutter Health to pay a monetary penalty if it sold the facility within 10 years of the affiliation.