In an administrative litigation case wherein a medical foundation that had previously served as a private entrusted operation institution filed a claim against a local government to revoke a disposition refusing re-entrustment, Kim & Chang represented the medical foundation (the “Plaintiff”) and won at the district court and appellate court levels.  The decision was affirmed by the Supreme Court of Korea.

Case Details

The Plaintiff entered into an agreement with the local government regarding entrusted operation of public nursing hospital, and has been performing the entrusted operation for five years.  Prior to the expiration of the entrustment period, the Plaintiff requested an extension of the entrustment period (re-entrustment) to the local government in accordance with the Dementia Management Act and the entrustment agreement.  However, the local government sent a “notice on expiration of the entrustment agreement period” (the “Notice”) stating that “the entrustment agreement will not be renewed as the nursing hospital will be converted to and operated by direct management” to the Plaintiff without presenting specific applicable laws and reasons for the refusal. 

In response, the Plaintiff claimed that the Notice constituted an unlawful disposition refusing re-entrustment and initiated litigation seeking revocation, raising issues with the dispositive nature of the Notice and illegality of disposition. 

First, as to the dispositive nature of the Notice, the Plaintiff claimed that “the Defendant’s appointment of (re-)entrusted operation institution refers to an act under the public law, and the Defendant’s act of not appointing the Plaintiff as the re-entrusted institution infringes upon the Plaintiff’s right to expect re-entrustment, thereby constituting an administrative disposition.”

Second, as to the illegality of disposition, the Plaintiff claimed that “in the process of agreeing the conversion to direct management between the Plaintiff and the Defendant, an agreement was not reached because the Defendant did not accept conditions, including the ‘employment succession of existing employees as regular employees,’ and the Notice is unlawful because it has a procedural defect of failing to present a justifiable reason for the disposition to refuse re-entrustment and a substantive defect of not having a reason for the disposition.”

The lower court (Seoul Administrative Court) accepted the Plaintiff’s position and ruled in favor of the Plaintiff (Seoul Administrative Court Decision No. 2019Guhap66590, March 20, 2020) based on the following reasons: 

• the substance of the entrusted operation of a public nursing hospital constitutes entrustment of administrative property management under the Public Property and Commodity Management Act, so the existing private entrusted institution has a legal right to request renewal or an extension of the period around the time of expiration in accordance with the Dementia Management Act, and accordingly the Notice constitutes an administrative disposition; 

• the agreement for conversion to direct management was not reached since the Defendant had not accepted the prerequisites proposed by the Plaintiff; and 

• as the Notice does not state any grounds and reasons for the disposition, it is unlawful because it violates the Administrative Procedures Act. 

The appellate court (Seoul High Court) also deemed that the Notice constitutes an administrative disposition for the same reasons as the lower court and then ruled that the Notice is unlawful since the Plaintiff and the Defendant did not reach an agreement on the conversion to direct management, which was the premise of the disposition (Seoul High Court Decision No. 2020Nu38715, January 15, 2021).  Thereafter, the Supreme Court dismissed the appeal without further deliberation, so the decision of the appellate court became final and conclusive (Supreme Court Decision No. 2021Du35230, June 3, 2021). 

Implications

In addition to the nursing hospital in this case, several public nursing hospitals scattered across the country are often involved in legal disputes between medical foundations and local governments regarding the extension of entrustment period of the existing private entrusted institution (re-entrustment). 

This decision is meaningful in that it (i) determined the legal nature of the relationship of entrusting operation of public nursing hospitals as the relationship of consigning management of administrative properties under the Public Property and Commodity Management Act, and (ii) stipulated that there is a legal right to request extension of the entrustment period under the recently established Dementia Management Act, thereby opening the possibility for private entrusted institutions to contest the illegality of disposition refusing re-entrustment in similar disputes that may arise in the future. 

Furthermore, the decision protected the private entrusted institution’s legal right to expect re-entrustment and restricted the exercise of authority to appoint re-entrusted institution from a superior position by ruling that no local government can refuse re-entrustment by its unilateral decision to convert to direct management without an agreement with the existing private entrusted institution. 

By winning this case, Kim & Chang ensured the legal status regarding re-entrustment for private entrusted institutions and facilitated the continuous operation of specialized private medical institutions, contributing to employment stability of hospital employees as well as to treatment of elderly patients and protection of their health.