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Re: Appeal of Dunwoody Village From the Decision of the Board of

July 9, 2012


The opinion of the court was delivered by: Robert Simpson, Judge

Argued: May 15, 2012




In this charitable tax exemption case, Dunwoody Village, Inc. (DVI or the Village), a not-for-profit corporation, appeals from an order of the Court of Common Pleas of Delaware County (trial court) that affirmed a decision of the Delaware County Board of Assessment Appeals (Appeals Board) denying it a real estate tax exemption. DVI operates a continuing care retirement community on its 85.5-acre property located in Newtown Township. It contends the trial court erred in determining that it failed to qualify as an institution of purely public charity under Article VIII, Section 2(a)(v) of the Pennsylvania Constitution because it could not satisfy the five-prong test established in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985), generally known as the HUP test. DVI further contends the trial court erred in upholding the denial of its exemption without considering whether DVI met the statutory criteria in the Institutions of Purely Public Charity Act,*fn1 commonly referred to as Act 55. For the reasons that follow, we affirm.

I. Background

A. Generally

1. History

DVI, originally incorporated in 1915 as the Dunwoody Home, is governed by a board of 15 trustees who serve without compensation.*fn2 Presently, DVI operates a continuing care retirement community with three different levels of care: independent living, assisted living and skilled nursing.

DVI‟s origins date back to the last will and testament of William Hood Dunwoody. In the early 1900s, Dunwoody devised his family‟s farm in Newtown Township to certain named trustees to establish a home for indigent men. The facility became known as the Dunwoody Home.

In 1972, the Dunwoody trustees petitioned the Court of Common Pleas of Delaware County, Orphans‟ Division (orphans‟ court), seeking to construct and operate a retirement village on the undeveloped portion of the property surrounding the Dunwoody Home. In October 1972, the orphans‟ court granted DVI‟s petition "with the understanding that no person, once admitted into the retirement village, will be obliged to leave the retirement village for financial reasons .." See DVI Ex. 38; Reproduced Record (R.R.) at 965a.

In the early 1990s, upon the orphans‟ court‟s approval, DVI demolished Dunwoody Home and replaced it with a modern assisted living unit. DVI transferred the remaining residents from Dunwoody Home to the assisted living unit.

2. Present

DVI currently maintains 239 residential units: 65 country houses and 174 apartments. See DVI Ex. 15b; R.R. at 778a. DVI‟s President and Chief Executive Officer, Sherry L. Smith (CEO) testified regarding admission to DVI‟s residential units. Applicants for admission to the residential units must sign a life care contract. They must submit a medical application, which is reviewed by a nurse and DVI‟s Medical Director. Applicants must also submit a financial application, which is reviewed by DVI‟s Chief Financial Officer (CFO). DVI also charges a $1,000 fee to be put on its waiting list.

If accepted, the applicants must pay a one-time entrance fee and thereafter a monthly fee. Entrance fees are either non-refundable or 50% refundable, at the applicant‟s option. At the time of this appeal, none of DVI‟s residents opted for the more expensive partially refundable entrance fee. At the low end, the 2008 non-refundable entrance fee for a single person in a 420 square-foot studio apartment was $82,000. At the high end, the 2008 non-refundable entrance fee for a couple in a 1,750 square foot, two bedroom country house was $237,000. In 2008, the monthly fees ranged from $2,203 for a studio apartment to $6,691 for a couple in two bedroom country house. See DVI Ex. 15b; R.R. at 778a. DVI‟s CFO, Joseph Bobrowski (CFO), testified that residents with a life care contract can move through all three levels of care as needed. Their monthly fees remain the same even though they receive higher levels of care in the assisted living and skilled living units. Once admitted, DVI‟s residents will never be evicted for inability to pay. However, they may be evicted for willful refusal to pay despite the ability to pay.

Also, DVI residents are urged to contribute to a Residents‟ Reserve Fund (Reserve Fund) to provide funds for those residents who can no longer afford their monthly fee. DVI itself does not contribute to the Reserve Fund. Nevertheless, CEO testified that DVI considers this to be charitable care. See Notes of Testimony (N.T.), 05/20/10, at 116; R.R. at 119a. In 2008, four residents were receiving support from the Reserve Fund. At the date of the 2010 hearing, two residents were receiving support, with three or four applications pending.

DVI also maintains 81 assisted living units. Some persons are admitted from the residential units pursuant to their life care contracts. Some persons are admitted directly into these units from outside the Village. Nonresident admission to assisted living is also subject to certain financial and medical criteria. However, CEO did not know the number of persons admitted directly to assisted living or skilled nursing. Id. at 118; R.R. at 121a.

Nonetheless, the Dunwoody Trust, a separate entity from DVI, exists to provide financial assistance to persons who would not otherwise financially qualify for admission to the assisted living unit. See DVI Ex. 23; R.R. at 807a-10a. CEO testified that eight or nine persons received some assistance from the Dunwoody Trust in 2008 and 2009.

CEO further testified DVI maintains 81 beds in its skilled nursing unit. Each bed is in a private room. DVI accepts direct admissions, as well as residents under a life care contract, to the skilled nursing unit. Some are short term admissions, for physical, occupational or speech therapy. Others need long term care, such as treatment for dementia.

DVI, however, does not have a Medicaid provider agreement. Therefore, it does not accept residents under Medicaid. DVI does, however, accept Medicare. On average, it treats between 14 and 20 Medicare patients in its skilled nursing unit.

B. Charitable Exemption Request

In 2007, Delaware County assessed DVI‟s real property at $31 million. DVI filed an assessment appeal for the year 2008 claiming the subject property is exempt from taxation as an institution of purely public charity. In November 2007, after hearing, the Appeals Board denied DVI‟s exemption request and determined that the subject property remained taxable.

C. Appeal to Trial Court

DVI appealed to the trial court and requested a hearing. DVI averred it is an institution of purely public charity under Section 5 of Act 55, 10 P.S. §375, and under Article VIII, Section 2(a)(IV) of the Pennsylvania Constitution (relating to tax exemptions and special provisions). DVI further averred it is exempt from taxation under Section 204 of the General County Assessment Law*fn3 (relating to exemptions from taxation).

The Marple Newtown School District (Taxing Authority) appeared in opposition to DVI‟s appeal. It also represented the interests of Newtown Township and Delaware County, the other taxing authorities with a financial stake in the case.

The trial court held a one-day bench trial in May 2010 at which both parties presented evidence. Thereafter, the parties submitted proposed findings of fact and conclusions of law. In June 2011, the trial court entered an order denying DVI‟s appeal. DVI timely appealed to this Court.*fn4

II. Issues

On appeal here,*fn5 DVI contends the trial court erred in holding DVI failed to satisfy any of the five prongs of the HUP test. In particular, DVI asserts the trial court erred in concluding it: (a) does not advance a public purpose; (b) does not donate or render gratuitously a substantial portion of its services; (c) does not benefit a substantial and indefinite class of persons who are legitimate subjects of charity; (d) does not relieve the government of some of its burden; and, (e) does not operate entirely free from private profit motive. DVI also contends that to qualify as a purely public charity, it need only meet the statutory criteria of Act 55, not the HUP test. Thus, DVI asserts, the trial court erred in denying its appeal under the HUP test without consideration of the specific criteria in Act 55.

In response, Taxing Authority asserts DVI failed to preserve the issue of whether it need only comply with Act 55 by failing to raise it before the trial court. In addition, Taxing Authority contends it is entitled to counsel fees and costs under Pa. R.A.P. 2744 because DVI‟s appeal is patently frivolous.

III. Discussion

A. Trial Court Opinion Generally

1. Argument

DVI first makes the general argument that the trial court erred in determining it failed to meet any of the HUP criteria for a charitable tax exemption. DVI contends the trial court misconstrued the HUP test and applied standards that no entity seeking a charitable tax exemption could possibly meet. DVI also argues the trial court erred in determining DVI did not meet Act 55‟s requirement that a charitable institution operate entirely free from profit motive.

Taxing Authority counters that the trial court‟s order must be affirmed in that the trial court did not err or abuse its discretion, and its findings are supported by substantial evidence. Taxing Authority asserts the failure to meet any one of the HUP requirements is fatal. Here, it maintains, the trial court correctly determined DVI failed to meet even one of the HUP criteria.

The County Commissioners Association of Pennsylvania (CCAP), as amicus curiae, or friend of the court, also urges that the trial court be affirmed. CCAP asserts DVI fails the HUP test by a comfortable margin; DVI does not come close to meeting several, if not all, of the HUP requirements.

2. Analysis

Article VIII, Section 2 of the Pennsylvania Constitution provides in pertinent part:

(a) The General Assembly may by law exempt from taxation: ..

(v) Institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.

PA. CONST. art. VIII, §2(a)(v).

Prior to its 1985 decision in HUP, the Supreme Court determined that DVI‟s continuing care retirement community, as it existed in the late 1970s, did not qualify for a real estate tax exemption under Section 204(a)(3) of the General County Assessment Law, 72 P.S. §5020-204(a)(3) (exemption for institutions of benevolence or charity). Appeal of Marple Newtown Sch. Dist., 500 Pa. 160, 455

A.2d 98 (1982). There, the Supreme Court recognized that Village residents pay a hefty entry fee, depending on the size of the unit. Thereafter, they pay a monthly charge for care and service under what DVI termed its complete life care package. Further, DVI determines an applicant‟s annual income and ability to pay before admission.

In Marple Newtown, the common pleas court and this Court sustained DVI‟s exemption for its retirement care community on the ground that the Village qualified as an institution of benevolence or charity pursuant to Presbyterian Homes Tax Exemption Case, 428 Pa. 145, 236 A.2d 776 (1968). In reversing, our Supreme Court observed the retirement facility in Presbyterian Homes had three different admission plans. One plan presupposed the applicants had sufficient assets to maintain themselves for the remainder of their lives. However, the other two plans were designed for elderly persons of limited means. These plans permitted an applicant to be admitted on the strength of the assignment of old-age assistance grants. Of the total number of residents in Presbyterian Homes, just over a majority were admitted under the plan designed for the financially secure residents.

Conversely, in Marple Newtown our Supreme Court noted:

Here, however, the record is clear that financial security is a prerequisite to the admission of all residents of the Dunwoody Village. If an applicant fails to meet this prerequisite, the applicant will not be further considered. Subsidization of a resident‟s required charges by the Village is a remote possibility, at best, as indicated by the fact that only one resident of the Village has been subsidized since the Village has been in operation. Even when the possibility of a need for subsidization arises, the decision to subsidize is wholly within the discretion of the Village, whose other options include the termination of the care agreement. Thus, on this record, it cannot be concluded that the charitable purposes found in Presbyterian Homes is shared by Dunwoody Village, a private housing facility which for all practical purposes offers its residents no services beyond those which the residents demonstrate an ability to afford.

Marple Newtown, 500 Pa. at 165-66, 455 A.2d at 100.

Thereafter, in HUP, the Supreme Court established a minimum test for determining whether an institution qualifies is a "purely public charity" under Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. Here, the trial court determined DVI failed to meet any of the five HUP requirements. We ...

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