American Hospital Management Corp. v. Patricia Harris , Secretary of Health & Human Services Blue Cross of Northern California, Blue Cross Association

Appellant American Hospital Management Corporation [AHMC] appeals from a dismissal of its action challenging the validity and applicability of 42 C.F.R. § 405.427 (1980). We affirm the judgment of dismissal.

The facts are not in dispute. In 1972, AHMC owned and operated Unity Hospital in San Francisco. AHMC was at that time in extreme financial difficulty, and urgently needed substantial funds to remain in business. After trying, unsuccessfully to negotiate a sale and leaseback arrangement concerning Unity Hospital with outsiders, AHMC sold and leased back the facility from California Medical Properties Company [Cal Med], a limited partnership formed by a group of AHMC stockholders.

The agreement was consummated on November 1, 1972, with a purchase price of $1,800,000, and a lease calling for an annual rental of $180,000 for 20 years. At the time of the sale the facility had an appraised value of $2,254,000. Without the cash funds and the assumption of the delinquent taxes, AHMC would have been forced into bankruptcy.

Allan C. Shaw, the only general partner of Cal Med, was also the president of AHMC. He held 44.94 percent of the common stock of AHMC and a 10 percent interest in…