source: Caselaw Access Project

author: LEWIS, J.,

license: Public Domain

text:
    Pennsylvania State University, Milton S. Hershey Medical Center v. Derry Township School District

      C.P of Dauphin County,
    no. 5042 S 1993.

      James M. Home, for Penn State University.

      Kenneth D. Chestek, for Dauphin County.

      John W. Beatty, for Derry Township School District.

      Carl G. Wass, for Dauphin County Board of Assessment Appeals.

      January 12, 2000
   LEWIS, J.,

Once again, this court is faced with the task of deciding the taxation fate of the Pennsylvania State University’s Milton S. Hershey Medical Center for the years 1993-1997. Over two years ago, on February 10,1997, this court granted the institution’s appeal and removed its property from the real estate tax assessment rolls issued by Dauphin County and the Derry Township School District. In this court’s 1997 opinion, the medical center, because of its connection to Penn State University, was found to be an instrumentality of the Commonwealth. However, this court reasoned that were it not for the university’s status, at least the hospital portion of the medical center would fail the HUP test, the analysis set forth to determine whether an establishment qualifies as a purely public charity for taxation purposes. (See Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985).)

In an opinion filed June 12,1998, the Commonwealth Court of Pennsylvania affirmed this court’s analysis and determined that Penn State University is an instrumentality of the Commonwealth and thereby immune from local real estate taxation on the property located in Hershey. (See Pennsylvania State University v. Derry Township School District, 711 A.2d 615 (Pa. Commw. 1998).) A year later, on June 22, 1999, the Pennsylvania Supreme Court, in an opinion authored by Chief Justice Flaherty, reversed this court and the Commonwealth Court. The Supreme Court found that Penn State University is not an instrumentality of the state and is therefore not immune for purposes of real estate taxation. The case was then remanded back to this court for a determination of whether the medical center qualifies for exemption as an institution of purely public charity. (See Pennsylvania State University v. Derry Township School District, 557 Pa. 91, 731 A.2d 1272 (1999).)

In prior cases before this court involving Dauphin County’s three other hospital facilities, Harrisburg Hospital, Polyclinic Hospital and Community General Osteopathic Hospital, this court had to ascertain whether those institutions qualified as purely public charities, and thus, were exempt from taxation under the guidelines laid down by the Pennsylvania Supreme Court in HUP as well as the statutory requirements of section 204(a)(3) of the General County Assessment Law, 72 PS. §5020-204(a)(3). In those cases, this court found that all three of the hospitals failed to meet the fifth prong of HUP in that the operations of the hospitals were not entirely free of a private profit motive. Therefore, the hospitals were not found to be exempt and were ordered to pay real estate taxes to the taxing authorities. (See Harrisburg Hospital v. Dauphin County Board of Assessment Appeals, 116 Dauphin 193 (1993); Polyclinic Medical Center of Harrisburg v. Dauphin County Board of Assessment Appeals, 5085 S 1993 (Dauphin County, unpublished opinion, September 10, 1996); Community General Osteopathic Hospital v. Dauphin County Board of Assessment Appeals, 116 Dauphin 160 (1996).) The decisions by this court were affirmed by the Commonwealth Court in the Harrisburg Hospital case and in the Polyclinic Hospital case; however, this court’s decision was reversed in the Community General Hospital case. (See Pinnacle Health Hospitals v. Dauphin County Board of Assessment Appeals, 708 A.2d 1284 (Pa. Commw. 1998); Pinnacle Health Hospitals v. Dauphin County Board of Assessment Appeals, 708 A.2d 845 (Pa. Commw. 1998); Community General Osteopathic Hospital v. Dauphin County Board of Assessment Appeals, 706 A.2d 383 (Pa. Commw. 1998).)

The first issue this court needs to address is exactly which institution will be assessed under HUP, the entire entity known as the Pennsylvania State University or simply the Milton S. Hershey Medical Center. Citing Appeal of Northwestern from Dauphin Co., 665 A.2d 856 (Pa. Commw. 1995), the medical center contends that as the landowner and the party to whom the tax notices were sent for the years in question, Penn State University is the institution required to undergo the HUP analysis in order to qualify for an exemption from real estate taxation as a purely public charity. In that case, the court discussed the relationship between Northwestern, a nonprofit corporate entity, and two of its subsidiaries. Northwestern owned Edge water Psychiatric Center, a nonprofit Pennsylvania corporation acting as a free-standing psychiatric hospital, and Riverview, a facility which offered a partial hospitalization program for the mentally ill. Northwestern argued for exemption from real estate taxes for the Riverview property as a charitable institution. The Commonwealth Court found that because Riverview had no separate existence as a corporate entity owning the property in question, it was not entitled to exemption. Northwestern, 665 A.2d at 859.

This court finds that a distinction can be made between the parcels of land in Northwestern and the present case. In this court’s initial opinion finding tax immunity, this court indicated that the hospital portion of the Hershey Medical Center complex, while interwoven with the university’s College of Medicine, as well as the research facilities, is distinct. Further, in remanding the case back to this court, the Supreme Court found unresolved the medical center’s claim for exemption as an institution of purely public charity, not an assertion that Penn State University should be analyzed for exemption since its immunity argument failed.

Although the Commonwealth Court in Northwestern found that the property in that case did not have a separate existence and therefore was not entitled to exemption, the court did recognize that the charitable activity of the entity must occur on the specific property for which the exemption is sought. Northwestern, 665 A.2d at 858. The court stated:

“The tax at issue here is not on the activity of the entity wherever its many branches and functions are located, but [real estate tax] is a tax based on the value of the parcel of real estate upon which the activity of that entity is located. Thus, it is the charitable activity which occurs on that parcel, and only that parcel, which is relevant.” Id.

Clearly here, a distinction can be made between the university operations and those of the medical center. Simply put, the medical center’s hospital is a separate operation sharing the same premises as the College of Medicine of the Pennsylvania State University as well as certain dormitory and research facilities. Accordingly, this court rejects the contention that the medical center falls under the institutional umbrella of Penn State University. Nevertheless, in the interest of caution, both Penn State University and the medical center will be separately examined under HUP and the constitutional requirements for exemption as a purely public charity. For purposes of the present opinion, this court will include the College of Medicine as part of the university and not the medical center.

PUBLIC PROPERTY EXEMPTION

The university argues that the medical center is “public property,” thus exempt from taxation under the state constitution (Article VIII, Section 2(a)(i)) as well as the General County Assessment Law, 72 P.S. §5020-204(a)(7). That section indicates that the General Assembly authorizes exemption from taxation, including real estate taxes, for:

“Paragraph 7. All other public property used for public purposes, with the ground thereto annexed and necessary for the occupancy and enjoyment of the same, but this shall not be construed to include property otherwise taxable which is owned or held by an agency of the government of the United States nor shall this Act or any other Act be construed to exempt from taxation any privilege, Act or transaction conducted upon public property by persons or entities which would be taxable if conducted upon nonpublic property regardless of the purpose or purposes for which such activity occurs, even if conducted as agents for or lessee of any public authority; ...” 72 P.S. §5020-204(a)(7).

This court does not find that the Hershey Medical Center facility is public property. Nor is the medical center operated for a public purpose. The University Hospital is simply a tertiary care hospital similar in all aspects to those operated in other areas of this county not sitting on land owned by Penn State University. Patients choose whether or not to take the services of the hospital and pay for those services in much the same way as they would at any other hospital. Accordingly, the university cannot claim that the medical center — including University Hospital — is public property. While the institution provides an undeniably useful service in meeting the health care needs of local citizens, “the usefulness of an enterprise is not sufficient basis for relief from the burden of sharing essential costs of local government.” In re Appeal of Doctor’s Hospital, 51 Pa. Commw. 31, 39, 414 A.2d 134, 138 (1980). The Supreme Court in its decision to remand this case back to this court has already determined that Penn State University is not an instrumentality or agency of the state. Therefore, under the wording of the General County Assessment Law mentioned above, the medical center premises is not excluded as public property and the operations conducted thereon are taxable.

PURELY PUBLIC CHARITY

Under Article VII, Section 2(a)(v) of the Pennsylvania Constitution, the General Assembly is empowered to confer tax exempt status to “institutions of purely public charity.” Pennsylvania Constitution Article VII, Section 2(a)(v). Therefore, the constitution does not, of itself, exempt any property; and rarely permits the legislature to do so within certain limits. G.D.L. Plaza Corporation v. Council Rock School District, 515 Pa. 54, 58, 526 A.2d 1173, 1175 (1987), quoting Donohugh’s Appeal, 86 Pa. 306, 309 (1878). In HUP, supra, the Pennsylvania Supreme Court interpreted the words “purely public charity” from the constitution. In that case, the court held that an entity qualifies as a purely public charity if it:

“(a) [a]dvanees a charitable purpose;
“(b) [d]onates or renders gratuitously a substantial portion of its services;
“(c) [b]enefits a substantial and indefinite class of persons who are legitimate subjects of charity;
“(d) [rjelieves the government of some of its burden; and
“(e) [ojperates entirely free from private profit motive.” HUP, 507 Pa. at 22, 487 A.2d at 1317.

The entity claiming to be a purely public charity has the burden of proving that its operation satisfies all five of these criteria for tax exemption purposes. In re Appeal of The Bethlen Home of The Hungarian Reformed Federation of America, 125 Pa. Commw. 315, 557 A.2d 828 (1989).

Once an entity seeking tax exemption establishes .that it is a purely public charity within Article VII of the constitution, it then must establish that it meets the statutory requirements of section 204(a)(3) of the General County Assessment Law, 72 PS. §5020-204(a)(3). Associated YM-YWHA of Greater New York/Camp Poyntelle v. County of Wayne, 149 Pa. Commw. 349, 613 A.2d 125 (1992). Section 204(a)(3) of the General County Assessment Law provides that:

“(a) The following property shall be exempt from all county, city, borough, town, township, road, poor and school tax to wit:
“(3) All hospitals, universities, colleges, seminaries, academies, associations and institutions of learning, benevolence, or charity, including fire and rescue stations, with the grounds thereto annexed and necessary for the occupancy and enjoyment of the same, founded, endowed, and maintained by public or private charity: Provided, that the entire revenue derived by the same be applied to the support and to increase the efficiency and facilities thereof, the repair and the necessary increase of grounds and buildings thereof, and for no other purpose ...72 PS. §5020-204(a)(3).

The parties opposing the university’s appeal argue that Penn State University and its medical center are not purely public charities because they do not meet all of the criteria set forth in the HUP test, nor do they meet the statutory guidelines of the General County Assessment Law outlined above. They argue that neither institution meets the statutory qualification for exemption because they are not maintained by public or private charity. This opinion concludes that Penn State University and its medical center easily clear four of the five hurdles established by the Pennsylvania Supreme Court in HUP. However, this court finds that the fifth test, whether the university and the hospital operate entirely free from private profit motive, creates an unfortunate obstacle to the continuation of the medical center’s tax exempt status. An analysis of the HUP criteria and the relevant Penn State University and Hershey Medical Center operations are set forth below.

PENN STATE UNIVERSITY AND THE HERSHEY MEDIAL CENTER ARE NOT PURELY PUBLIC CHARITIES UNDER HUP

A. Penn State University and The Hershey Medical Center Advance a Charitable Purpose

Based on the Commonwealth Court’s decision in City of Washington v. Board of Assessment Appeals of Wash ington County, 666 A.2d 352 (Pa. Commw. 1995), there can be no determination by this court other than that Penn State University advances a charitable purpose. In that case, the court reviewed several earlier appellate court decisions, all of which have historically held that the “education of youth is for the advancement of the public good.” Id. at 359.

With respect to the first prong of the HUP test as it applies to the medical center, this court’s analysis is concentrated on what the medical center provides to the community. Although providing medical care is not per se a charitable purpose, this court finds that the medical center, through its services, does advance a charitable purpose. Pennsylvania courts have broadly defined “charitable purpose” as including “every gift for a general public use, to be applied, consistent with existing laws, for the benefit of an indefinite number of persons, and designed to benefit.them from an educational, religious, moral, physical or social standpoint. In its broadest meaning it is understood ‘to refer to something done or given for the benefit of our fellows or the public.’ ” Council Rock School District v. G.D.L. Plaza Corporation, 91 Pa. Commw. 176, 182, 496 A.2d 1298, 1301 (1985), affirmed, 515 Pa. 54, 526 A.2d 1173 (1987), citing Hill School Tax Exemption Case, 370 Pa. 21, 25, 87 A.2d 259, 262 (1952).

There are many factors clearly demonstrating that the medical center, through the providing of health care services to the community, advances a charitable purpose. First, the fact that the hospital maintains an open admissions policy with respect to the patients they treat without regard to the ability to pay and on a non-discriminatory basis, indicate to this court a consistency with the Council Rock definition of charitable purpose. While an open admissions policy is not the only criteria used to determine the existence of a purely public charity, it nevertheless remains a primary factor in determining whether an entity is advancing a charitable purpose.

Second, the medical center provides a substantial amount of uncompensated services to further the health and welfare of the community, including expensive community education, support counseling, prevention programs, youth programs, health screening and other programs for the public at large. The hospital provides such services to the community at no cost or a nominal fee. Therefore, this court is more than satisfied that the medical center advances a charitable purpose, and thus meets the first prong of the HUP test.

B. Penn State University and The Hershey Medical Center Donate or Render Gratuitously a Substantial Portion of Their Services

First, it should be noted that the university functions as an integrated financial entity. There are no separate financial statements for hospital operations, or for that matter, any part of the university including undergraduate education. The university receives revenue from a variety of sources. The annual state appropriation approaches $275,000,000 for the years in question. The university receives money from state and federal research grants and contracts, charitable gifts, investment income, fees and charges to recipients of the university services, including fees paid for services at the medical center. The latter funding source includes revenue provided from insurance companies, governmental funding for patient care such as Medicaid and Medicare, as well as fees paid by the patients themselves.

In determining whether the services donated or rendered gratuitously by a purely public charity are “substantial,” the Pennsylvania Supreme Court has indicated that a “totality of [the] circumstances” test should be employed. HUP, 507 Pa. at 19 n.9, 487 A.2d at 1315 n.9. The court stated that “[t]he word ‘substantial’ does not imply a magical percentage [but rather] [i]t must appear from the facts that the organization makes a bona fide effort to service primarily those who cannot afford the usual fee.” Id.

Presently, the record clearly demonstrates that Penn State University donates and/or renders gratuitously a substantial portion of its services. For the fiscal year 1994-1995, revenue from tuition and fees charged to students was $389,000,000. Among the expenses incurred in providing those educational services to students were: instruction — $313,000,000; academic support— $116,000,000; student services — $48,000,000; institutional support — $87,000,000; physical plant— $80,000,000. These expenses total $564,000,000. The bottom line is that the university provides education to students at a cost far in excess of what it charges in tuition and fees. Moreover, it subsidizes a significant portion of the tuition and fees through financial aid. It then relies on public and private charity to provide the full level of education services, thereby benefiting every one of its students through charity.

Further, this court is satisfied that the medical center has demonstrated that its services were rendered to individuals who cannot otherwise afford to pay or were not covered by any other programs such as Medicaid or Medicare. Additionally, the medical center accepts government reimbursements for medical services to the indigent or to patients age 65 or older at rates which are substantially less than costs incurred by the hospital in providing such services.

The taxing authorities argue that participation in Medicaid or Medicare programs produces an economic benefit to the medical center and that reimbursement for such care results in a significant contribution to the medical center’s overhead and fixed costs, thereby rendering the provision of services to other patients in a more proper manner. This argument lacks logic. When the medical center opens its doors to treat a patient, whether paying or nonpaying, the lights are turned on, the furnace is operated and the staff is present to render care. Each patient is entitled to equal treatment. The argument suggesting that the medical center provides unequal treatment to those who cannot afford to pay for it because it would be more beneficial to treat those who can, is not consistent with the hospital’s open admissions policy and is an unfair contention.

The taxing authorities next argue that the medical center does not provide charity care to Medicaid or Medicare recipients; rather, it is substantially reimbursed the cost of caring for those patients and if any shortfall truly exists, it has passed off to the other payers in the form of higher charges. The fact that a reimbursement of only a portion of the costs actually incurred is actually received by the medical center does not change the simple reality that the hospital donates or renders gratuitously that portion of the services received by Medicaid or Medicare patients for which reimbursement is not received. St. Margaret Seneca Place v. Board of Property Assessment, Appeals and Review, County of Allegheny, 536 Pa. 478, 640 A.2d 380 (1994). The requirement that a particular institution donates or renders gratuitously “a substantial portion of its services does not imply a requirement that the institution forgo available government payments which cover part of its costs, or that it provide wholly gratuitous services to some of its residents.” St. Margaret Seneca Place, 536 Pa. at 486, 640 A.2d at 384. (emphasis in original) Thus, simply because the medical center expects and does receive some payment from the Medicaid or Medicare programs, does not mean that the hospital fails to render a substantially gratuitous service.

Testimony at the hearing through certain exhibits indicated that in the year ending June 30, 1995 the medical center provided direct charity through a wide variety of programs exceeding $16,000,000. A year earlier the figure exceeded $14,000,000. In addition, testimony indicated that the hospital provides an assortment of programs and educational services to the media and to the general population at no cost or sometimes for a small fee. These programs include prevention programs, support groups, health screening, etc. The taxing authorities argue that these services are more in the nature of public relations programs that are used to promote the hospital. This court disagrees. The hospital has not been compensated for health care related services it has delivered to the community. This court finds that the amount of uncompensated services is substantial. Accordingly, the second prong of the HUP test is satisfied.

C. Penn State University and The Hershey Medical Center Benefit a Substantial and Indefinite Class of Persons Who Are Legitimate Subjects of Charity

With regard to Penn State University, this court finds that educational services are open to the public as a whole, subject only to reasonable entrance requirements, thereby satisfying this prong of HUP. The record indicates that the university has a “need blind” admissions policy for students entering traditional degree programs. Under this policy, students are admitted to Penn State without regard to their ability to pay the tuition and related charges. In order to assist those who are admitted and in need of financial assistance, the university operates a financial aid office whose sole purpose is to put together packages of financial aid that will allow those who wish to attend the opportunity to do so. For example, during the 1994-1995 school year, 67 percent of those attending Penn State received financial assistance in one form or another. Overall, the amount of financial aid provided was $270,000,000, of which $129,000,000 was gift aid.

In addition, reference should also be made to the university’s anti-discrimination policies, which are intended to make certain that all who desire to use the university facilities and university resources may do so without regard to any impermissible characteristic. Such policies further evidence the fact that Penn State benefits a substantial and indefinite class of persons who are legitimate subjects of charity.

Viewing the medical center, this court finds that its open admissions policy is an important factor of this prong of the HUP test. The Pennsylvania Supreme Court has indicated that legitimate subjects of charity are those who are unable to provide themselves with what the institution provides for them. Y.M.C.A. of Germantown v. Philadelphia, 323 Pa. 401, 187 A. 204 (1936). Coupled with the medical center’s long-standing open admissions policy, the hospital’s charity care policy insures that the medical center will benefit numerous recipients who are legitimate subjects of charity.

The fact that the medical center provides its services to anyone who seeks it, without consideration of that person’s ability to pay, is a controlling factor. Sitting approximately 12 miles from the center of metropolitan Harrisburg, the medical center is strategically located to play host to a substantial and indefinite class of persons requiring medical services. Accordingly, the third prong is met.

D. Penn State University and The Hershey Medical Center Relieve the Government of Some of Its Burden

This court finds that Penn State University relieves the government of some of its burden in compliance of this prong of HUP. This court recognizes that the Pennsylvania Legislature created the State System of Higher Education, 24 P.S. §20-2001-A., in which the government has established an extensive state-owned system of higher education in order to partially carry out the governmental responsibility of providing institutions of higher learning like Penn State University. In addition, Penn State is the only educational institution in the Commonwealth which offers a full range of training and research in the area of agriculture, which is widely recognized as the Commonwealth’s leading industry. Penn State plays a vital role in furthering the Commonwealth’s, and more specifically, the Department of Agriculture’s, burden of assisting agriculture in Pennsylvania. Without Penn State’s facilities, the burden to the Commonwealth would increase dramatically.

Upon evaluation of the medical center’s operation, this court finds that the medical center also relieves the government of some of its burden. One of the government’s responsibilities in protecting its citizens is providing hospital services. School District of the City of Erie v. Hamot Medical Center of the City of Erie, 144 Pa. Commw. 668, 602 A.2d 407 (1992). Neither the Commonwealth, County of Dauphin nor the Derry Township School District provide a hospital servicing the population served by the medical center. No governmental entity operates or maintains a fully staffed, 24-hour emergency room to meet the emergency medical needs of its community and no governmental entity provides a primary care clinic meeting the needs of the numerous indigent residents in the City of Harrisburg and the surrounding communities.

In Couriers-Susquehanna Inc. v. County of Dauphin, 165 Pa. Commw. 192, 645 A.2d 290 (1994), the court concluded that, related to this prong, the test to be employed is merely whether an institution bears a substantial burden that would otherwise fall on the government. This is the case at present. If the medical center did not exist it would be the responsibility of the state, county or the township and the school district to provide such facilities. Conemaugh Valley Memorial Hospital v. Cambria County Board of Assessment Appeals, no. 1987-812 (Cambria Cty. 1990). The argument of the taxing authorities is without merit. There is no guarantee that a for-profit hospital would be established and serve the same area if the medical center did not exist. The responsibility of providing health care would still rest with the government. This court finds that the medical center, through its many operations, reheves the government of some of its burden. Accordingly, this fourth prong is met.

E. Penn State University and The Hershey Medical Center Do Not Operate Entirely Free From a Private Profit Motive

This prong requires this court to concentrate on the financial activities of Penn State University and the hospitals. Upon evaluation of the record in this case, this court finds that neither entity is entirely free from a private profit motive. This court begins its analysis with Penn State University.

One area in which a great deal of time was expended during the hearing in this case was the issue of the highest paid university employees, including employees of the medical center. This court ultimately excluded evidence as to the total salary paid to the top individual; however, parts of the total salary package for purposes of this prong of HUP can easily be characterized. The record demonstrated that in 1995, even before the university compensated this person with a salary, product endorsements and media appearances through the university earned this individual at least $260,000 per year— a sum greater than Penn State’s president at $250,008 per year. Of further interest is the employee who is third on the list of the top 10 university salaries for 1995, the coach of the men’s basketball team. This person is not someone in the educational department who might not be as visible as those who lead the university’s sporting activities and who facilitate endorsement packages for Penn State University.

Also very important to this court on the issue of wages is the process used for setting salaries and negotiating raises. The record indicated that while the board of trustees for the university sets the salary for the president, the remainder of the “executive” salaries, including athletic coaches, are set almost entirely at the discretion of the president. (N.T., vol. 1, p. 43.) In fact, testimony indicated that although the receipt of research grant funds does not directly affect a professor’s compensation, it is one factor which may be taken into account when a professor negotiates his raise. (N.T., vol. 1, p. 243.) Therefore, the process involved, coupled with the extremely high salaries of the university’s top-paid individuals, indicates to this court a process more akin to a profit-making institution rather than a truly charitable organization.

Another factor that demonstrates Penn State University’s private profit motive is commercial endorsements in which the university assists for-profit business in the selling of their products. The record showed that the university contracts with Nike, a clothing and shoe manufacturer, in which Nike pays Penn State an amount of money for the right to display the Nike logo on Penn State athletic uniforms and to have Penn State athletes and coaches wear Nike sneakers. (N.T., vol. 2, pp. 339-40.) The amount of money, depending on the contract year, has been as low as $164,000 to as high as $300,000. In addition, Penn State receives clothing and athletic footwear for all 29 of its varsity sports and, as part of the Nike contract, various coaches can be required by Nike to make promotional appearances on behalf of Nike. (N.T., vol. 2, pp. 340-42.)

This court also considered the fact that Penn State licenses its name and trademark and also the technology created as a result of its research activities. As a result of Penn State’s registration of its name, logos and insignias with the U.S. Patent and Trademark Office, the university can control the use of its name and logo on apparel and novelty items and exact a 7.5 percent royalty from any vendor who markets such products. Further, Penn State actively seeks out infringers of its license and has sued several companies for such infringement. Testimony indicated that Penn State’s licensing program has generated more than $2,000,000 in revenue in a given year. (Barrett deposition, pp. 5-13.)

Not only does the university seek royalties from vendors using its name and logos, but it also seeks to generate revenue from the commercial licensing of technology created as a result of its research. Upon hire, all professors assign to Penn State all rights to intellectual property that they may develop or discover during the course of their employment. (N.T., vol. 1, p. 236.) The record indicated that in the event a patentable idea is discovered, Penn State may then pursue the patent application and subsequently license the patent to third parties for royalties, 40 percent of which are returned to the inventor. (N.T., vol. 1, pp. 243-47.) This court finds that the licensing of Penn State’s name and logos in addition to research technology is indicative of a private profit motive for purposes of the HUP analysis. For these reasons in addition to the university’s excessive salaries and commercial endorsements, this court concludes that Penn State University is operated with a private profit motive and therefore fails this prong of the HUP test.

Next, this court turns its attention to the medical center. The taxing authorities argue that the medical center achieved net operating margins for fiscal years ending in 1992-1995. These surpluses total $8,400,000 in 1992; $6,400,000 in 1993; $4,700,000 in 1994 and $3,500,000 in 1995. However, this court finds that the mere fact that the hospitals operate with a positive net margin, having a surplus of revenues over expenses, does not indicate a private profit motive. St. Luke’s Hospital v. Board of Assessment Appeals of Lehigh County, no. 88-C-2691 (Lehigh Cty., 1990).

The taxing authorities next argue that the compensation paid to the employees of the medical center is excessive. They claim that such generous salaries indicate a private profit motive. St. Margaret Seneca Place v. Board of Assessment, supra; see also, Couriers-Susquehanna Inc. v. County of Dauphin, 165 Pa. Commw. at 200, 645 A.2d at 294 (1994). On this contention, the taxing authorities have a point.

It is this court’s finding that the top 10 salaries paid to employees at the medical center are excessive. The dean of the College of Medicine’s salary for calendar year 1995 was approximately $372,000. What is more revealing is that the dean’s salary is not one of the top 10 salaries at the medical center. The top salary at the medical center for 1995 was $490,000 for the chief of neurosurgery. The top five salaries for 1995 averaged $464,000. All of these employees are surgeons. The tenth highest salary for 1995 at the medical center is approximately $374,000. It should be noted that most, if not all, of these doctors also hold a teaching position at the College of Medicine. These figures are surprising in light of the medical center’s assertion that it is a purely public charity. It is this court’s opinion that these salaries are more consistent with a for-profit entity as opposed to a supposed charitable institution.

Additionally, the taxing authorities argue that the medical center has been engaged in various for-profit businesses. They argue that the hospital diverts money that could have and should have been spent on charitable care, but instead was used to purchase traditionally for-profit business, specifically physician practices. This court finds that the medical center’s participation in the physician practices is in direct competition with other businesses; namely, the private practice of medicine. The medical center’s practices are staffed by doctors who provide care and who are paid for their services. There is little if any difference in that respect with a private group of physicians operating such an enterprise except for the fact that because these medical practices have generally lost money, the medical center subsidizes them with other revenues. (N.T., vol. 2, p. 300.)

The fact that these practices are subsidized by the medical center arguably benefits the physicians in those practices in direct competition with other area physician practices. Thus, it can be determined that the medical center practices do not operate entirely free from a private profit motive since no compelling evidence was presented that any charitable care was rendered by the physician practice centers. The willingness of the medical center to fund these losses year after year lends credence to other motivations, primarily that the medical practices are not being acquired to ensure the availability of medical treatment to needy individuals, but rather to ensure the consistent flow of patient admissions to the medical center and not one of the other area hospitals.

Further, the physicians at these practices, in the event they were to leave the employ of the medical center, sign employment agreements containing noncompete clauses. It is clear that these noncompete covenants are not designed to benefit the patients who form long-standing relationships with their physicians, but to guarantee that the patients remain a “customer” of the medical center. This court finds that such a routine, in competition with other area physicians, is direct evidence of a competitive atmosphere uncharacteristic of a charitable institution. The excessive salaries paid to the medical center’s employees further indicate to this court that the medical center’s operations are not entirely free from a private profit motive.

In summary, this court finds that both Penn State University and the hospital portion of The Hershey Medical Center do not meet all of the elements of HUP and are therefore not purely public charities. This court holds that the hospital portion of The Hershey Medical Center is not entitled to tax exemption from county, township and school district real estate taxation. Because this court finds that the medical center has not met all of the elements of the HUP test and is therefore not a purely public charity, this court need not discuss the statutory requirements of 72 P.S. §5020-204(a)(3).

Accordingly, the following is entered:

ORDER

And now, January 12, 2000, it is hereby ordered that the appeal of the Pennsylvania State University, Milton S. Hershey Medical Center, from the decisions of the Dauphin County Board of Assessment Appeals dated November 30,1993, and December 21,1994, is denied. This court denies the university’s petition to remove its property from the real estate tax assessment rolls and to strike the tax assessments issued from Dauphin County and Derry Township School District consistent with the attached opinion.

      . The real estate in question includes six parcels of property located in Derry Township and owned by the university. The medical center comprises the university’s College of Medicine, together with dwelling units for medical students and residents, various research facilities, a general hospital and a children’s hospital known collectively as University Hospital.

      . The highest paid individual at the university intervened in these proceedings so that his total earnings would not be disclosed. This court granted “John Doe’s” motion to intervene and held that the disclosure of his annual salary as well as his identity was not essential in resolving this dispute. The issue of the private profit motive of the medical center is the decisive factor needed to evaluate this prong of the HUP test; therefore, the exact salary of the highest paid Penn State employee is not crucial for this court’s determination.


author: WETTICK, J.,

text:
    Warren v. Eckert Seamans Cherin & Mellott

      C.P. of Allegheny County,
    no. GD92-0910.

      David J. Manogue and Steven A. Haber, for plaintiffs.

      Timothy S. Coon, for defendants.
    April 25, 2000
   WETTICK, J.,

In this opinion, I address the issue of whether in this civil case that will be tried by a jury I have the authority to appoint (at the parties’ expense) an expert who will serve as a judicial tutor and, possibly, as a witness to testify at trial.

This is a legal malpractice case in which plaintiffs seek damages in excess of $12,000,000 because of defendants’ alleged failure to obtain a patent of appropriate breadth and scope.

Defendants filed a motion for summary judgment, seeking dismissal of the case on the ground that prior art precluded the issuance of the patent on which plaintiffs’ damage claims are based. The evidence that defendants offered in support of the summary judgment included (1) plaintiffs’ expert and supplemental expert reports, prepared by Charles N. Quinn, a patent attorney, which generally describe the claims for which a patent would have issued (according to Mr. Quinn) and (2) the prior art that allegedly would have precluded the issuance of any patent generally described in Mr. Quinn’s expert reports. The prior art that was submitted included (a) a December 20,1983 patent issued to Gedeon — which consists of two drawings and more than 20 pages (if double spaced) of a technical description of the invention; (b) a 20-page double-spaced technical description of the Engstrom Erica ventilator; and (c) the Engstrom Erica reference manual (more than 60 double-spaced pages).

In their brief in support of the motion, defendants rely on an expert report of Harry F. Manbeck Jr., a patent attorney, who compares the features of the Gedeon patent and the Engstrom Erica ventilator with his interpretation of the claims described in the Quinn reports and concludes that any patent claims described by Mr. Quinn are not patentable. Plaintiffs’ brief in opposition to the motion for summary judgment relies on Mr. Quinn’s discussion of the manner in which the claims described in his report were not anticipated or rendered obvious by the Gedeon patent and the Engstrom Erica ventilator.

It would appear that the major dispute is over whether plaintiffs’ invention altered existing technology by creating, for the first time, a continuous-flow ventilator that reduces the work of breathing required of a patient on a ventilator (i.e., a ventilator that for the first time combines a constant respirable gas source for spontaneous breathing by the patient and assisted ventilation) or whether this combination (albeit through a different design) was anticipated or rendered obvious by the existing art, including the Gedeon patent and the Engstrom Erica ventilator.

After spending a considerable part of a day reviewing the briefs and other materials submitted in support of and in opposition to the motion for summary judgment, I recognized that I had no understanding of the merits of the parties’ positions, and that I was not going to gain a better grasp of the issues by continuing to review what the parties had submitted. I also concluded that a jury would not be able to understand and evaluate this highly technical evidence in a jury trial presided over by a judge who was not in a position to frame the issues or to understand the evidence sufficiently to make rulings that might narrow or clarify the issues. Consequently, I entered a court order which (1) denied the motion for summary judgment, (2) stated that I would appoint an expert witness to provide testimony as to whether plaintiffs would have obtained a patent for the invention described by Mr. Quinn, assuming that an appropriate patent application had been timely filed, and (3) set up a conference to discuss the selection of the expert witness.

At the conference, plaintiffs’ counsel sought reconsideration of the portion of the court order stating that I would appoint an expert witness. Plaintiffs’ counsel questioned whether I had the authority to do so and subsequently submitted a brief in support of this position. Defendants favor the appointment of an expert and submitted a brief in support of the position that I have the authority to appoint an expert.

For the reasons set forth in part I of this opinion, initially I am not appointing an expert to offer testimony as a witness because I no longer believe that this, in and of itself, will necessarily produce a fair trial. I now believe that the parties cannot receive a fair trial unless I can develop a better understanding as to what is involved in connection with the issuance of a patent, the manner in which inventions are described, and the technical and engineering concepts involved in this case. Consequently, I will be appointing an expert whose initial responsibilities will be to serve as a judicial tutor. For the reasons set forth in part II of this opinion, I conclude that I have the authority to appoint an expert to serve initially as a judicial tutor and also, if necessary, as a witness to testify at a trial.

I.

This case involves issues that are not normally involved in patent litigation. It involves more complicated case management issues that I cannot competently address without a better understanding of the underlying concepts of patent law and the technology relevant to this case. On the basis of the expert reports that the parties have submitted, their characterizations of the other party’s expert reports, and their descriptions of what the case entails, I am convinced that I will not develop sufficient sophistication without the assistance of a competent and unbiased expert.

On December 21, 1987, defendants filed the initial patent application. Most of the claims that were submitted through the initial application and subsequent filings with the patent office were rejected (according to plaintiffs) because of an October 1986 sales brochure of Puritan-Bennett which allegedly utilized the device that plaintiffs sought to patent. Plaintiffs allege that if a properly prepared patent application had been filed by September 1986, a patent would have issued that would have covered the Puritan-Bennett device and numerous other devices presently on the market. They allege that defendants were negligent for not filing a patent application covering plaintiffs’ device by September 30, 1986.

Defendants defend this claim on the grounds that (1) plaintiffs — rather than defendants — were responsible for the delay in the filing of the application, (2) plaintiffs failed to notify defendants of the Puritan-Bennett brochure, and (3) even if a patent application had been filed by September 30, 1986, the patent would not have issued because the device that plaintiffs sought to patent was anticipated or rendered obvious by prior art and was, therefore, not patentable. Defendants refer to a 1983 patent (Gedeon patent) and a prior state of the art respirator sold in the United States in 1984 (Engstrom Erica ventilator).

If this case involved only a claim that plaintiffs were damaged because of defendants’ failure to file prior to October 1986 the patent application that it actually filed, the case would involve only the following issues: (1) did defendants fail to exercise reasonable care because of the failure to file the patent application on or before September 30, 1986; (2) would the patent described in the application have issued {i.e., whether or not the device that plaintiffs sought to patent was barred by the prior state of the art which defendants describe); and (3) if a patent for the device that plaintiffs sought to patent had been issued, what would have been the value of this patent?

However, the case is far more complicated because of plaintiffs’ second major negligence allegation. Plaintiffs state that a patent covering plaintiffs’ invention would not have been issued on the basis of the patent application that defendants filed because the patent claims described in the application were so broad that they included prior art, and because the application failed to cover the primary inventive features of plaintiffs’ device. Plaintiffs, in other words, contend that defendants never understood the invention to be patented as described by plaintiffs to defendants.

Thus, this case involves a hypothetical patent application and a hypothetical patent covering an invention that plaintiffs contend they invented. In his initial expert report, Mr. Quinn describes 17 claims for which patent protection should have been obtained. In their supplement to expert report, plaintiffs attach claims identified as “A” and “B” which they describe as follows: “amended versions of claims 1 and 7 as set forth in the expert report, broadly claiming the core concept invented by Drs. Warren and Fromm. These claims are exemplary of broad claims which should have been included in or added to any patent application which should have been filed in a timely manner for Drs. Warren and Fromm, from which a patent of comparable scope would have issued.” Claims A and B are attached to this opinion as attachment 1.

Defendants contend that Mr. Quinn’s descriptions of the hypothetical application and hypothetical patent are so general that I should not permit the case to proceed because these descriptions do not come close to meeting the specificity required of a patent application. Defendants contend that I should strike Mr. Quinn’s supplemental expert report because it raises new claims rather than describing in more detail claims 1 and 7 of his initial expert report. Defendants also contend that throughout the litigation, they will be presented with a “removing target” as to plaintiffs’ invention; the testimony that will be offered will never be sufficiently specific for a fair resolution of what patent, if any, would have issued.

There are two other issues that may arise. Issue 1: Plaintiffs do not describe the patent application that should have been filed. Thus, assuming that the jury finds defendants should have filed by September 30,1986 an application different from the application that they actually filed, it is unclear how to have the jury describe the specific application that, according to the jury, should have been filed. I do not know how the parties can address the issue of what patent, if any, would have issued without knowledge of the jury’s finding as to the specific application that should have been filed.

Issue 2: Plaintiffs do not describe the patent that should have been obtained. Thus, assuming that the jury finds that a broader patent would have issued if a proper application had been filed, it is unclear how to have the jury describe the specific patent that, according to the jury, would have issued.1 do not know how the parties can address the issue of the value of this patent without knowing the specific patent that would have issued.

While I can describe certain issues that may be involved in this case, I cannot competently perform my responsibilities as a trial judge unless I am assisted by a neutral and competent expert. I have been a trial judge in complicated cases in which all counsel framed the factual and legal issues in the same fashion. Consequently, with this assistance from counsel, it was easy to identify and understand the matters for which rulings were needed. In this case, however, counsel’s views of the evidence, the issues, and the law are very divergent. There is no agreed upon framework that provides a structure to this dispute. I have not been able, on my own, to develop a framework. Thus, I am not in a position to address adequately the requests and arguments of counsel.

II.

The next issue that I address is whether I have the inherent power to appoint an expert witness in a civil case in which a jury trial is sought. There are no Pennsylvania Rules of Civil Procedure or Rules of Evidence that address this issue. Pennsylvania case law provides almost no direction.

Pa.R.E. 706 governs court-appointed experts. It reads as follows:

“Rule 706. Court-appointed experts
“Where the court has appointed an expert witness, the witness appointed shall advise the parties of the witness’ findings, if any. The witness may be called to testify by the court or any party. The witness shall be subject to cross-examination by each party, including a party calling the witness. In civil cases, the witness’ deposition may be taken by any party.
“Comment — 1998
“Pa.R.E. 706 differs from Fed.R.E. 706. Unlike the federal rule, Pa.R.E. 706 does not affect the scope of the trial court’s power to appoint experts. Pa.R.E. 706 provides only the procedures for obtaining the testimony of experts after the court has appointed them.
“Pennsylvania law provides for the appointment of experts in some instances. See 23 Pa.C.S. §5104 (disputed paternity proceeding); Pa.R.C.P. 1515 and 1530(e) (in equity proceedings, court may appoint accountants and auditors as experts). In Commonwealth v. Correa, 437 Pa. Super. 1, 648 A.2d 1199 (1994), the Superior Court held that the trial court had inherent power to appoint an expert.
“See also, Pa.R.E. 614 (Calling and interrogation of witnesses by court).”

As the comment to Pa.R.E. 706 states, Federal Rule of Evidence 706 permits a court to appoint an expert. This rule reads as follows:

“Rule 706. Court-appointed experts
“(a) Appointment. The court may on its own motion or on the motion of any party enter an order to show cause why expert witnesses should not be appointed, and may request the parties to submit nominations. The court may appoint any expert witnesses agreed upon by the parties, and may appoint expert witnesses of its own selection. An expert witness shall not be appointed by the court unless the witness consents to act. A witness so appointed shall be informed of the witness’ duties by the court in writing, a copy of which shall be filed with the clerk, or at a conference in which the parties shall have opportunity to participate. A witness so appointed shall advise the parties of the witness’ findings, if any; the witness’ deposition may be taken by any party; and the witness may be called to testify by the court or any party. The witness shall be subject to cross-examination by each party, including a party calling the witness.
“(b) Compensation. Expert witnesses so appointed are entitled to reasonable compensation in whatever sum the court may allow. The compensation thus fixed is payable from funds which may be provided by law in criminal cases and civil actions and proceedings involving just compensation under the Fifth Amendment. In other civil actions and proceedings the compensation shall be paid by the parties in such proportion and at such time as the court directs, and thereafter charged in like manner as other costs.
“(c) Disclosure of appointment. In the exercise of its discretion, the court may authorize disclosure to the jury of the fact that the court appointed the expert witness.
“(d) Parties’ experts of own selection. Nothing in this rule limits the parties in calling expert witnesses of their own selection.”

Prior to the adoption of Federal Rule 706, federal case law had recognized the inherent power of a court to appoint an expert. See 4 Weinstein’s Federal Evidence §706 App. 100 (Joseph M. McLaughlin ed., 2d ed. 1998) (“The court’s right to appoint expert witnesses is an inherent power that it would have even in the absence of Rule 706.”). Also see id. at section 706 App. 01 [2]: v. Spanjer Bros. Inc., 298 F.2d 928 (2d Cir. 1962); Danville Tobacco Associates v. Bryant-Buckner Associates Inc., 333 F.2d 202 (4th Cir. 1964); Sink, The Unused Power of a Federal Judge to Call His Own Expert Witnesses, 29 S. Cal.L.Rev. 195 (1956); 2 Wigmore §563, 9 id. §2484; Annot., 95 A.L.R.2d 383. Hence the problem becomes largely one of detail.”

“The inherent power of a trial judge to appoint an expert of his own choosing is virtually unquestioned. Scott

See Christopher B. Mueller & Laird C. Kirkpatrick, 3 Federal Evidence §367 (2d ed. 1994) (footnote omitted) (“Commentators and decisional authority generally agree that courts have inherent authority to appoint expert witnesses and Fed.R.E. 706 codifies this authority, prescribing in some detail the procedure to be followed and limits to be observed.”).

See annotation, Trial court’s appointment, in civil case, of expert witness, 95 A.L.R.2d 383, 392 (1964) (“No case has been discovered in which it was held that a court does not have the power and right to select an impartial expert witness, and to appoint him, either on the court’s motion or that of one of the parties; in two instances, it was indicated that a trial judge may sometimes have the duty to make such an appointment.”).

Federal Rule 706 covers only court-appointed witnesses. The rule does not embrace expert advisors or consultants. A trial judge has the inherent authority to appoint technical advisors with specialized skills to assist the trial judge in performing his or her responsibilities. Reilly v. United States, 863 F.2d 149, 158 (1st Cir. 1988) (“[T]he advisor’s role is to act as a sounding board for the judge- — helping the jurist to educate himself in the jargon and theory disclosed by the testimony and to think through the critical technical problems.”).

The issue of the appointment of technical advisors to aid the court was addressed in note, Improving Judicial Gatekeeping: Technical Advisors and Scientific Evidence, 110 Harvard L.Rev. 941 (1997). The writer of the note recognized that Rule 706 refers only to the appointment of expert witnesses and that the court’s inherent authority is not so limited — courts have the authority to appoint experts to the more informal role of “technical advisor” to the court. The appointed advisor is only an advisor if he or she does not contribute to the evidence. The note states:

“However, because many courts have sought to use Rule 706 experts in a flexible manner, the distinction between a witness appointed under Rule 706 and a technical advisor appointed under the court’s inherent authority is not always clear. Judges who appoint Rule 706 experts to help resolve complicated scientific and technical questions may interact with and assign duties to these experts in ways that are inconsistent with traditional notions of a witness. Rule 706 experts have, in practice, performed a variety of tasks ranging from aiding in the resolution of an isolated, discrete factual question that requires scientific expertise to critiquing the existing legal framework in an area of law and ultimately persuading the court to adopt a new approach. Moreover, some courts that have appointed experts under Rule 706 have not strictly enforced the procedural protections enumerated in the rule when the protections seemed inconsistent with the expert’s actual role.” Id. at 948. (footnotes omitted)

The American Bar Association’s section of litigation, Civil Trial Practice Standards, Standard 11 (February 1998) (Attachment 2) addresses the subject of court-appointed experts. The comment to Standard 11 recognizes that:

“Trial judges have inherent authority to appoint experts as technical advisors to assist the court. See e.g., Reilly v. United States, 863 F.2d 149, 156-57 (1st Cir. 1988); note, Improving Judicial Gatekeeping: Technical Advisors and Scientific Evidence, 110 Harvard L.Rev. 941, 949-51 (1997). They may also appoint expert witnesses for testimonial purposes under Federal Rule of Evidence 706(c) and similar provisions in force in most states. 2 Joseph & Saltzburg, Evidence in America: The Federal Rules in the States §§55.2, 55.3 (Supp. 1994). This standard applies to experts appointed in either capacity.”

Standard 11 suggests that a court should, where feasible, limit the role of the court-appointed expert to serving as a judicial tutor:

“(11) Court-appointed experts. The court may appoint an expert to serve as a judicial tutor as to esoteric subject matter or, in exceptional cases, as a witness to testify at a trial. The same expert may serve in both capacities.”

Also, the comment to this standard recognizes that a court-appointed expert who will testify may be only providing the jury with background information or may be offering an opinion on disputed technical issues. There would appear to be other roles for a court-appointed expert such as offering testimony that describes where the testimony of the expert witnesses of the parties can be reconciled and where the testimony differs, with a summary of the differences (i.e., assisting the jury in analyzing complicated expert testimony).

III.

For the reasons set forth in part I of this opinion, I will appoint an expert to serve as a judicial tutor and, possibly, as a witness to testify at trial. I will generally follow Standard 11 of the Civil Trial Practice Standards governing court-appointed experts. The parties will assist me in identifying the expert whom I will appoint, and in initially defining the expert’s duties with the understanding that the expert will assist in modifying the scope of these duties throughout the litigation.

I wish to emphasize that the expert is not being appointed for the purpose of assuming any of my responsibilities as the trial judge. To the contrary, he or she is being appointed in order that I can better fulfill my obligations as a trial judge.

ORDER

On April 25,2000, a status conference will be held on May 11, 2000 at 1:30 p.m. o’clock to discuss the appointment of a court-appointed expert.

EXHIBIT A

Attachment 1

(A) A method for ventilating a patient comprising:

(1) providing a supply of respirable gas at pressure at least equal to atmospheric;

(2) providing a conduit connection between an airway of said patient and said respirable gas supply thereby permitting said patient to inhale said respirable gas when desired; and -

(3) augmenting respirable gas in said conduit responsively to sensed flow of gas within said conduit resulting from patient inspiratory effort.

(B) Apparatus for ventilating a patient comprising:

(1) means for supplying respirable gas at pressure at least equal to atmospheric;

(2) a conduit connection between an airway of said patient and said respirable gas supply means permitting said patient to inhale said respirable gas when desired; and

(3) means for augmenting respirable gas in said conduit responsively to sensed flow of gas within said conduit resulting from patient inspiratory effort.

Attachment 2

Civil Trial Practice Standards

(11) Court-appointed experts. The court may appoint an expert to serve as a judicial tutor as to esoteric subject matter or, in exceptional cases, as a witness to testify at a trial. The same expert may serve in both capacities.

(a) Selection.

(i) The court should invite the parties to recommend jointly an expert to be appointed by the court.

(ii) If the parties cannot agree, the court should invite them to submit names of a specified number of experts with a summary of their qualifications and an explanation of the manner in which those qualifications “fit” the issues in the case.

(iii) The court may choose one or more experts recommended by each party; it may choose one or more experts from those recommended by any of the parties; or it may reject the experts recommended by the parties and select an expert unilaterally.

(iv) Before selecting an expert, the court should:

(A) Consider seeking recommendations from a relevant professional organization or entity that is responsible for setting standards or evaluating qualifications of persons who have expertise in the relevant area, or from the academic community, and

(B) Afford the parties an opportunity to object to the appointee on the basis of bias, qualifications or experience.

(b) Scope of expert’s duties. The court should afford the parties the opportunity to participate in defining the scope of the expert’s duties.

(c) Communications between court and expert. The court should ensure that the parties are aware of all communications pertaining to the merits between the court and a court-appointed expert by:

(i) Permitting the parties to be present when the court meets or speaks with the expert;

(ii) Providing that all communications between court and expert will be in writing with copies to the parties; or

(iii) Recording oral communications between court and expert and making a transcript or copy of the recording available to the parties.

(d) Communications between parties and expert. The court should ensure that every party is:

(i) Informed of, and afforded the opportunity to explore, in advance of trial, the findings and opinions of any court-appointed expert; and

(ii) Aware of all communications between any party and a court appointed expert by:

(A) Permitting all parties to be present when any party meets or speaks with the expert, or

(B) Providing that all communications between any party and the expert will be in writing with copies to all parties.

(e) Testimony at trial. If an expert witness appointed by the court testifies at trial:

(i) Questioning. The court ordinarily should not call and question the witness. The witness should be examined by counsel in an order determined by the court.

(ii) No identification as court appointee. The witness should not ordinarily be identified as one appointed by the court.

(iii) If identified as court appointee. If the court determines that, in the circumstances, it is appropriate to identify the witness as a court appointee, the court should instruct the jury that:

(A) It is not to give greater weight to the testimony of a court-appointed expert than any other witness simply because the court chose the expert;

(B) The jury may consider the fact that the witness is not retained by either party in evaluating the witness’s opinion; and

(C) The jury should carefully assess the nature of, and basis for, each witness’s opinion.

Comment

Trial judges have inherent authority to appoint experts as technical advisors to assist the court. See e.g., Reilly v. United States, 863 F.2d 149, 156-57 (1st Cir. 1988); note, Improving Judicial Gatekeeping: Technical Advisors and Scientific Evidence, 110 Harvard L.Rev. 941, 949-51 (1997). They may also appoint expert witnesses for testimonial purposes under Federal Rule of Evidence 706(c) and similar provisions in force in most states. 2 Joseph & Saltzburg, Evidence in America: The Federal Rules in the States §§55.2,55.3 (Supp. 1994). This standard applies to experts appointed in either capacity.

Courts should be reluctant to have court-appointed experts testify in jury trials. Identification of an expert with the court may artificially enhance that expert’s status and confer a false aura of authority and credibility. It may be difficult for a jury to understand why a court-appointed expert was retained and how the expert is being compensated. The process through which a court-appointed expert arrives at an opinion is often one from which counsel have been excluded. The result may be that neither counsel is comfortable with the approach the expert has taken.

A court-appointed expert may aid both in decision-making and in settlement. Among the myriad services such an expert may provide are: to advise the court on technical issues, to provide the jury with background information, or to offer an opinion on disputed technical issues. The appointment of experts by the court is rare, among other reasons, because of: (1) the cost involved; (2) the difficulty of finding truly neutral experts; (3) the concern that testimony from a court-appointed expert— if the fact of court appointment is disclosed to the jury— may be perceived as the court taking sides in the controversy; (4) the potential delay involved; and (5) the recurring problem that, by the time the need is known, the appointment may entail significant delay in the proceedings. See generally, Federal Judicial Center Manual for Complex Litigation 3d §21.51 (1995); Cecil & Willging, Court-Appointed Experts: Defining the Role of Experts Appointed Under Federal Rule of Evidence 706 (Federal Judicial Center 1993) (“Cecil & Willging, Court-Appointed Experts”).

The court is not free to engage in substantive ex parte discussion with court-appointed experts on the merits of the case. Canon 3A(4) of the Code of Conduct for United States Judges, for example, provides: “A judge should . . . except as authorized by law, neither initiate nor consider ex parte communications on the merits, or procedures affecting the merits, of a pending or impending proceeding.” Subdivision (c) of this standard is designed to afford the court the latitude it needs to communicate with the court-appointed expert while preserving the parties’ rights to be fully apprised of discussions between judge and expert pertaining to the merits.

The procedures suggested in this standard are drawn from a variety of sources, including the Reilly case; the Federal Judicial Center’s Manual for Complex Litigation 3d §21.51; Cecil & Willging, Court-Appointed Experts; and Cecil & Willging, Court-Appointed Experts, in Federal Judicial Center, Reference Manual on Scientific Evidence 525-71 (1994); American Bar Association Section of Litigation, National Center for State Courts & State Justice Institute, Jury Trial Innovations §IV-4 (Munsterman et al. eds. 1997). See also, note, Improving Judicial Gatekeeping: Technical Advisors and Scientific Evidence, 110 Harvard L.Rev. 941, 954-58 (1997).

Most evidence codes permit the trial court, in its discretion, to disclose the fact of the appointment of the expert witness by the court. See e.g., Fed.R.E. 706(c); Cal. Evid. Code §722(a); and the numerous state evidence codes modeled on the federal rules. Joseph & Saltzburg, Evidence in America: The Federal Rules in the States at sections 55.2, 55.3. However, this standard reflects the view — borne out by Federal Judicial Center research — that, if the expert’s court-appointed status is disclosed, “concern about undue influence [on the jury] seems reasonable.” Cecil & Willging, Court-Appointed Experts at 51.

The court may prohibit ex parte communications between the parties and a court-appointed expert. This may be impractical where, for example, the expert needs to contact one or more parties for specimens to examine. Subdivision (d)(ii) is operative only if the court has not prohibited such contact. Subdivision (d)(i) contemplates that if the court-appointed expert is to testify at trial, the expert will be subject to the same type and degree of discovery (e.g., deposition, disclosure, interrogatories) as a party-proffered expert.

      . In my prior meetings with counsel, we had never discussed the possibility of a court-appointed expert. Thus, counsel never had any opportunity to address this issue prior to this conference.

      . Normally, patent cases involve issues of patent construction, validity, and alleged infringement.

      . Plaintiffs state that the dissemination of the October 1986 brochure precluded the issuance of patents for foreign markets. However, according to plaintiffs, a patent would have issued for the USA market if a proper application had been filed within one year of the October 1986 dissemination of the Puritan-Bennett brochure.

      . In this case, apparently plaintiffs could have obtained a patent for aspects of plaintiffs’ invention that, according to plaintiffs, have no commercial value.

      . This description is not intended to be a criticism of counsel. The role of an attorney is to frame the factual and legal issues in a manner that is most favorable to that attorney’s client.

      . Initially, each party will deposit funds to pay for one-half of the expert’s fees. I will request the parties to brief the issue of whether these expenses are taxable as costs or whether they should be paid in some other fashion.
      Since this case involves a $12,000,000 claim, I need not decide whether an expert may be appointed where the expert fees will be substantial in relationship to the amount of the claim.

      . Standard 11(c) states that the court will ensure that every party is aware of all communications pertaining to the merits between the court and a court-appointed expert. This procedure should prevent a trial judge from turning over control of the case to the court-appointed expert. While I will follow Standard 11(c), I am not suggesting that the law requires a trial judge to do so for communications that do not involve testimony that the expert will offer at trial.

      . In European countries in which judges decide civil cases to the exclusion of juries, court-appointed experts are not uncommon and, according to a noted comparative law scholar, “[t]he fear is spreading that courts are covertly delegating decision-making powers to an outsider without political legitimacy. . . . Regularly subjected to dueling experts, adjudicators need not surrender to the authority of science as blindly as those confronted with a single opinion of their chosen expert: they can decide whom to believe by engaging their ordinary judgments of witness [es] ’ credibility.” Damaska, Evidence Law Adrift 151-52 (1997).

      . It need not be, under Fed.R.E. 706(c) and analogous state provisions.