Lloyd Noland Found., Inc. v. City of Fairfield Healthcare Auth.,
No. 1000889 (Ala. Feb. 22, 2002)

A health care foundation (the Foundation) sold its hospital to a medical system (the System) pursuant to a stock purchase agreement. The agreement between the parties gave the Foundation the right to purchase back 100-120 beds if the Foundation was able to obtain a Certificate of Need (CON) to operate the beds for long-term care patients. The agreement required the System to cooperate with the Foundation in its efforts to obtain a CON. The parties also agreed that the System would lease hospital space to the Foundation, for the purpose of operating its long-term care services, should the Foundation obtain a CON.

The Foundation filed an application for a CON, which was contested by another local health care organization seeking a similar CON for its facility. The two parties to that contest eventually worked out their differences and came to an agreement that would allow both to obtain their desired CONs. Thus, the parties were merely waiting for the court to enter judgment in accordance with their agreement.

However, during the delay caused by the contest, the System sold the hospital to yet another health care organization (the Organization). That Organization intervened in the Foundation's CON application, claiming that the Foundation had no standing to seek a CON since it did not own the beds at issue but, rather, only had an option to purchase them. Also, the Organization claimed that it had not assumed the System's obligation to sell beds to the Foundation.

The circuit court dismissed the Foundation's application for a CON, on the basis that it no longer owned the beds at issue. The Foundation appealed. The Supreme Court of Alabama held that the CON statute specifically authorizes an individual who has not yet acquired ownership of health care assets to apply for a CON. Therefore, the Foundation did not lack standing to apply for a CON and its application was improperly dismissed. The court held also that the Organization had expressly assumed the obligation of the System to sell back 100-120 beds and to cooperate with the Foundation in its efforts to obtain a CON. Accordingly, the Organization was in breach.