Scottsdale's 'dueling hospitals' draw legal swords

May 6—The name of its healthcare rival does not appear in a Dec. 22 letter sent by HonorHealth attorney Brett Johnson to Erin Perreault, the City of Scottsdale's zoning administrator.

But, in a request for Perreault to "interpret the Zoning Ordinance" regarding where a hospital can be built, as well as a subsequent appeal to what it called Perreault's "arbitrary, capricious and/or an abuse of discretion" response, it is clear who HonorHealth was targeting: Banner Health.

Indeed, the epic battle of two healthcare heavyweights in North Scottsdale is heating up — with a legal spin, as HonorHealth's lawyers have been taking nasty jabs at Banner.

For its part, Banner seems content to duck and dodge with defensive counters as it attempts to push its plans forward.

The Banner vs. HonorHealth match is taking place in the most crowded ring in Scottsdale.

The hotbed of Hayden Road and the Loop 101 has seen Cavasson putting up offices, restaurants and a hotel, Axon attempting an extraordinary live-work facility and ASM ready to build a software chip facility with hundreds of high-tech jobs.

The under-construction, $1 billion Optima McDowell Mountain Village — putting up the first of 1,300 apartments — that fronts Scottsdale Road caps this row of former desert land being flipped for commerce.

In the midst of a potential traffic jam of construction trucks and cranes, two hospitals are digging deep legal trenches for a potential battle.

The two healthcare giants are facing off at Hayden Road, with the freeway as the dividing line.

According to a Banner press release, it plans a $400 million, multifaceted project on the south side of the Loop 101.

HonorHealth, which has not announced plans for a huge chunk of land on the north side of the freeway, first launched a public relations campaign in the wake of Banner purchasing land across the 101 from land HonorHealth bought a year earlier.

Contending that another hospital is not needed — seconded by scores who emailed City Council — and could damage the labor pool, HonorHealth launched a legal skirmish, arguing the land Banner purchased is not zoned for a medical center.

With rezoning a hot issue, Banner has altered its original plan, which was to build a hospital first, followed by medical offices and other healthcare facilities.

In a presentation to Stonebrook neighbors, Banner said its first phase of construction will be Banner Scottsdale Health Center Plus, an outpatient medical office building. Plans were submitted to the Development Review Board in early March, with an estimated 18 months for construction.

"The Health Center Plus is happening first because it doesn't require a zoning change," David Leibowitz, a Banner spokesman, said. "Our hope would be to have it built by the end of 2025. At full build out, it will employ about 220 people."

According to Leibowitz, Banner Health Center Plus will include "a one-stop-shop for outpatient needs," with a surgery center, a pharmacy, imaging center and primary and specialty physician services.

The facility will also house a Banner MD Anderson Cancer Center. "Many Scottsdale area Banner patients must travel across the Valley to get this highly specialized care," Leibowitz said.

"This new center will make life easier for those facing serious health challenges, and it will deliver new cancer treatments and research to Scottsdale."

The first stage of construction also will feature a Banner Urgent Care, for non-life-threatening illnesses and injuries such as cold and flu; ear, eye and throat infections; fevers; skin rashes; and sprains, strains and lacerations.

Banner Scottsdale Medical Center, the second phase, is expected to be presented to the Scottsdale Planning Commission and City Council this summer or fall, according to the Stonebrook presentation.

But, according to Leibowitz, "There is no hard timeline for that phase at the present moment."

At a city meeting last week, it was confirmed that Banner has applied for a "special campus" (SC) rezoning that would allow a hospital.

Meanwhile, what HonorHealth will do across the freeway remains a mystery.

Asked about its own plans for the Hayden/101 corridor, an HonorHealth representative stated, "there is no update."

Timeline

After months of increasingly-heated letters, HonorHealth took its case to the Scottsdale Board of Adjustment, which heard its request for an appeal Wednesday, May 1.

The staff report of the meeting provides a timeline:

—June 21, 2023: Banner Health, filed to rezone to SC district.

—Dec. 22, 2023: HonorHealth's representative sent a request for interpretation to the city's zoning administrator, "seeking an interpretation involving the utilization of the Zoning Ordinance definition of 'office' to circumvent the Zoning Ordinance definition of the term 'hospital'."

—Jan. 30: The zoning administrator provided a response to the HonorHealth request.

—Feb. 23: HonorHealth filed an appeal of the zoning administrator's response.

As the Board of Adjustment staff report describes it, HonorHealth "requested an interpretation concerning Zoning Ordinance definitions applicable to the proposed development by Banner Health on their recently acquired property" across the Loop 101 from HonorHealth's property.

It's all about proper zoning enforcement, as HonorHealth tells it.

According to the Scottsdale-based health giant, it has the proper zoning for a hospital — and Banner does not.

HonorHealth's attorney asked the city "to confirm that a facility for the general and emergency treatment of human ailments with bed care, including related clinic care, is not permitted in any zoning district except the CO (requiring a use permit with public hearings) and SC districts."

According to its narrative, "HonorHealth acquired property at the northeast corner of State Route 101 Freeway and Hayden Road as part of its commitment to expanding alongside Scottsdale's growing population.

"Given this substantial investment into the property, and to support HonorHealth's long-term facility planning efforts, HonorHealth seeks to clarify the application of the city of Scottsdale's Zoning Ordinances to this newly acquired property so it may ensure compliance with any use restrictions or regulations."

With a nod in the direction of Banner, again without naming its rival, one of Johnson's letters stated HonorHealth "requests confirmation that (1) a "hospital," for which inpatient medical care will be provided, may only be built on land use zoned Commercial Office ('CO') or Special Campus ('SC'), and (2) that an 'office' use that may be built on other land use zones, such as Central Business (C2) and Industrial Park (I1), may only be utilized for medical office or clinical medical care and not inpatient care that exceeds accessory support for limited medical practitioners (i.e. not to a 'hospital' level of service with primary focus on inpatient care)."

According to the city's staff report summarizing Johnson's letter, "because an 'office' can include medical services and limited inpatient care normally allowed accessory to a clinic or rehabilitation facility, the distinction between the two development types is somewhat unclear, according to HonorHealth, compelling them to seek an interpretation for its development master planning efforts."

City response

Perreault, the city's zoning administrator, responded to HonorHealth's request for interpretation with two letters, both dated Jan. 30.

According to the staff summary, Perreault "stated in the response that the Zoning Ordinance provides the potential for hybrid and analogous uses that are not specifically named in the request."

The zoning administrator noted traditional views of "hospital" are changing, as "the healthcare industry is continuously evolving."

The response letter concludes that specific distinctions requested cannot be provided "absent a development proposal and sufficient details relating to the proposed use of the HonorHealth property."

Perreault's response apparently sent Johnson through the roof.

According to the attorney's Feb. 23 letter, "HonorHealth is appealing the interpretation as it is arbitrary, capricious, and/or an abuse of discretion, and is not supported by the city's Zoning Ordinances."

The city's interpretation, according to the appeal letter, "leaves in place an ambiguity between the definition of a 'hospital' and an 'office' for medical purposes ... this ambiguity to go unaddressed renders the implementation and enforcement of the Code wasteful, time-consuming, and ineffective."

Clarifying land use distinctions, the attorney demanded, "is in the interest of HonorHealth, the city and every resident and business that will be impacted by having a full-scale hospital built in a nonconforming zone."

Failing to get a response it was looking for from Perreault, HonorHealth filed an appeal.

Board of Adjustment

But before having its appeal heard, HonorHealth had to convince the city's Board of Adjustment that the board has jurisdiction over the matter — and that HonorHealth satisfies the legal requirement of "proper standing" of being "aggrieved or adversely impacted."

According to the staff report, HonorHealth misses on both swings.

There is really nothing to appeal, the staff report states.

It said, "each of the Zoning Administrator-issued responses did not provide an interpretation, due to lack of sufficient details relating to the proposed HonorHealth property and due to a hypothetical scenario suggested by the applicant that could not be supported by the Banner Health application contents on file with the city."

And, the staff report notes, "it is unclear if anyone would be considered aggrieved or adversely impacted by the Zoning Administrator response outcomes, in which case standing to appeal would not exist."

A March 11 letter to the Board of Adjustment from Susan Demmitt, an attorney representing Banner, echoed the staff position, adding "Banner and its proposed development are the true and express target of the (HonorHealth) requests."

Demmit stressed "the zoning administrator's Jan. 30 letters are not subject to appeal and should not be scheduled for review by the Board of Adjustment."

Not so, HonorHealth attorney Johnson argued vehemently in an 11-page letter dated April 15.

"HonorHealth has shown that the Board has jurisdiction, that the issues are ripe, and that HonorHealth has standing to bring the appeal," Johnson wrote in the concluding page.

He commanded the Board of Adjustment to exercise "the jurisdictional obligation ... to clarify the land use definition of a 'hospital.'"

Attorneys from the healthcare giants went toe-to-toe at the May 1 Board of Adjustment meeting.

After going into executive session "for legal advice," the seven-member board (board member David Pierce recused himself) heard from zoning administrator Perreault and city planner Jeff Barnes, who summarized the key parts of the letter exchange and the city's position.

"Banner and HonorHealth have similar properties and may have similar plans," Johnson told the Board of Adjustment.

The HonorHealth attorney said the zoning administrator failed to do her job correctly — and that her not making a ruling was indeed a decision that could be appealed.

Johnson insisted that definitions such as "hospital" that HonorHealth requested should have been easy to provide and cited several cases in which the Board of Adjustment took on appeals from the zoning administrator's decisions, including a wireless tower.

Representing Banner, attorney Cameron Artigue mocked HonorHealth's "sudden paralysis" of not understanding zoning and definitions — after building hospitals and medical facilities for decades.

And Artigue (who works with Demmitt's firm) stressed the baffling, hypothetical nature of HonorHealth's complaint.

"They've got no development proposal on the table, they've got nothing," he said.

The Banner attorney — with confirmation from city staff members — said Banner, in contrast to HonorHealth, submitted a rezoning request to allow for a hospital months ago.

Artigue concluded by bringing up the legally significant "P word:" precedent.

"You don't want to create a precedent for the zoning administrator to become a button to be pushed," Artigue argued.

After the presentations, board Chair Gary Donahoe, a former longtime Maricopa Superior Court judge, criticized Johnson's assertions and agreeing with Artigue.

"I don't think HonorHealth's been aggrieved — they have no plan for their land," Donahoe said.

"HonorHealth's knocking on the wrong door," he added, agreeing with the Banner attorney that any HonorHealth grievance about the zoning administrator's decision (or non-decision) should be filed in Maricopa County Superior Court.

"The Board of Adjustment," the former judge concluded, "should not be weaponized."

An overwhelming majority of his colleagues agreed with him, as the Board of Adjustment voted 5-1 to reject HonorHealth's requests to appeal the zoning administrator's response to interpretations.

As board member Michael Gonzalez put it, "No harm no foul.

"Honor has the zoning, they can build a hospital if they want ... We have no standing and no jurisdiction in this."

Asked by the Progress about a potential HonorHealth appeal, Johnson said, "We do not agree with the decision and are considering all additional legal options, including seeking judicial review."