## Facts

- Manhattan Eye, Ear & Throat Hospital (MEETH) was a New York not-for-profit acute care specialty hospital founded in 1869 and operating a renowned facility on East 64th Street in Manhattan.
- MEETH’s certificate of incorporation stated purposes centered on operating and maintaining a hospital providing acute short-term care (including specialties in eye, ear, nose, and throat), plastic surgery, postgraduate instruction, and related research.
- By the 1990s, MEETH reported financial distress attributed to changes in health-care economics and reimbursement.
- MEETH’s board decided to close the 64th Street inpatient hospital and sell the hospital complex, which constituted substantially all corporate assets.
- The proposed transaction contemplated selling one building to Memorial Sloan-Kettering Cancer Center for expansion and selling remaining buildings to a real-estate developer for residential redevelopment.
- MEETH represented that sale proceeds would fund a shift to free-standing diagnostic and treatment centers in underserved areas (including Harlem and the South Bronx).
- Appraisals valued the complex at roughly $46–50 million, while the agreed sale price was about $41 million.
- MEETH considered reframing its mission toward serving poor and underserved communities but did not amend its certificate of incorporation.
- MEETH petitioned for judicial approval under Not-For-Profit Corporation Law (N-PCL) § 511; the New York Attorney General appeared as a statutorily required party and opposed approval.
- After a 13-day evidentiary hearing, the court addressed the merits of the approval request.

## Issues

1. Whether MEETH proved that the consideration and terms of the proposed sale were fair and reasonable under N-PCL § 511(d).
2. Whether MEETH proved that the proposed sale would promote MEETH’s corporate purposes as stated in its governing documents under N-PCL § 511(d).
3. Whether the board’s process, including reliance on conflicted or non-independent financial advice and limited evaluation of alternatives, supported approval of a sale of substantially all charitable assets.

## Decision

- The court denied MEETH’s petition and disapproved the proposed sale.
- The court held MEETH failed to carry its burden to show the consideration and terms were fair and reasonable.
- The court held MEETH failed to show the transaction would promote the corporation’s stated purposes.
- The court credited evidence that MEETH and its advisors treated the assets primarily as real estate and did not adequately account for the hospital’s value as an operating specialty hospital with teaching and research functions.
- The court relied on evidence of process concerns, including conflicts of interest in financial advice and insufficient exploration of alternatives to closure and sale.

## Legal Principles

- A not-for-profit’s sale of substantially all assets requires court approval under N-PCL §§ 510–511.
- Under N-PCL § 511(d), approval requires proof that (1) the consideration and terms are fair and reasonable and (2) the transaction promotes the corporation’s purposes.
- The proponent of the transaction bears the burden of proof; the Attorney General participates to protect the public interest in charitable assets.
- “Fair and reasonable” review may require consideration of enterprise or going-concern value, not solely real-estate value, when the assets include an operating charitable hospital.
- Courts may consider conflicts of interest and the independence of advisors when assessing whether value was maximized and whether directors met mission-related fiduciary obligations.
- “Promotion of corporate purposes” is evaluated against the organization’s stated purposes in its governing documents; proposed future programs that are speculative or not yet authorized may be insufficient to satisfy the statutory standard.

## Conclusion

The court refused to approve MEETH’s proposed sale of substantially all assets because MEETH did not prove that the transaction reflected fair and reasonable value or that it would advance the hospital’s stated charitable purposes, and the record showed valuation and process deficiencies inconsistent with the statutory protections for charitable assets.


Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 186 Misc. 2d 126, 715 N.Y.S.2d 575 (Sup. Ct. N.Y. Cnty. 1999)