Attorney General v. MCK, INC

• Decision Date: 07 September 2000
• Citation: 432 Mass. 546,736 NE 2d 373
• Parties: ATTORNEY GENERAL & another v. M.C.K., INC., & others.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

432 Mass. 546

736 NE 2d 373

ATTORNEY GENERAL & another¹ v. M.C.K., INC., & others.²

Supreme Judicial Court of Massachusetts, Suffolk.

September 7, 2000.

October 13, 2000.

Present: MARSHALL, C.J., ABRAMS, GREANEY, IRELAND, SPINA, COWIN, & SOSMAN, JJ.

Alvin S. Nathanson for the defendants.

Marianne Meacham, Assistant Attorney General, for the plaintiffs.

GREANEY, J.

This case concerns the authority of a receiver appointed by the Superior Court under G. L. c. 111, § 72R (the so-called Patient Protector Receivership Act [Act]), to sell a nursing home which has been placed under court supervision, because financial responsibility for the home was disclaimed by the owner, and the home's residents were endangered. A judge in the Superior Court entered an order directing that the home be sold and reported the propriety of her order. Another judge in the Superior Court entered a subsequent order that the home be closed. We granted the plaintiffs' application for direct appellate review because this is the first case that requires an interpretation of a receiver's authority to deal with a facility under the provisions of the Act. We conclude that the order directing sale was proper, but that there must be further proceedings to decide whether the home should be sold or closed.

1. The following background provides an understanding of the issues in the case. In 1993, the defendant Michael Konig (Konig) purchased five nursing homes in Massachusetts. In each instance, Konig established a corporation to hold title to the real estate on which each home was located, and he created a separate corporation which applied for, and held, the license to operate each home. The Union Square Nursing Center (Union Square), a 150-bed long-term care facility in the Brighton-Allston section of Boston, was one of these nursing homes. In the case of Union Square, Konig established Reifer, Inc. (Reifer), to hold title to the real estate and tangible assets used in the operation of the home, and M.C.K., Inc. (MCK), to apply for, and to hold, the home's license. Konig was the sole shareholder of both MCK and Reifer.

In 1995, the Department of Public Health (department) conducted its annual inspection survey of Valley View Nursing Home (Valley View) in Lenox, one of the five nursing homes purchased by Konig.³ The survey disclosed conditions constituting an immediate and serious threat to the health and safety of the residents, resulting in a finding by the department of "jeopardy."⁴ When jeopardy conditions had not been corrected by the time of the department's follow-up survey, the department terminated Valley View's certification. Shortly thereafter, the department found jeopardy in another Konig-controlled home, the Crescent Hill Nursing Center in Springfield. The fact that jeopardy had been found at two Konig-controlled homes within a two-month period raised immediate concerns about the health and safety of residents at each of the five Konig-controlled homes. As a result, the department informed Konig that it might commence proceedings to revoke his licenses to operate the five nursing homes.⁵

The department, and the defendants involved here, entered into a settlement agreement. In the agreement, MCK and Reifer agreed, that, as to Union Square, unless both had executed a purchase and sale agreement with a prospective buyer that had submitted a notice of intent to acquire a license for Union Square, MCK would submit to the department a notice of intent to close Union Square. MCK and Reifer also agreed to continue to retain a management company, which had been acting as temporary manager of each of the five nursing homes, until Union Square was either sold or closed. In exchange, the department agreed not to take further regulatory action against Konig, or his nursing homes, based on the prior documented violations. Konig signed the agreement in his capacity as president of all the multiple corporations involved in ownership of the nursing homes, including MCK and Reifer.⁶

After passage of considerable time, Konig had neither closed nor sold Union Square. In a letter to the department dated June 12, 1997, and signed by Konig as president, MCK "disclaim[ed] responsibility and or liability with respect to ... closure and any operations of this facility [Union Square]." By this communication, MCK and Konig sought to abandon Union Square. Their conduct placed Union Square residents in imminent danger of death or serious physical harm.

The department and the Attorney General (Commonwealth) promptly filed a complaint in the Superior Court against MCK, Reifer, and Konig, seeking the appointment of a receiver under the provisions of G. L. c. 111, § 72M, and seeking injunctive relief and civil penalties under the provisions of G. L. c. 93A, §§ 2 and 4.⁷ A judge of the Superior Court appointed a temporary receiver of "M.C.K., Inc. d/b/a Union Square (referred to as `The Facility')." The judge also ordered that, under G. L. c. 111, § 72Q, a lien for the costs of the receivership be imposed on the property on which Union Square is located.

On March 18, 1999, the Commonwealth moved, under G. L. c. 111, § 72R, to terminate the receivership of Union Square by a court-ordered sale of the nursing home, including its equipment, and the building and the real estate upon which the nursing home is located. A judge in the Superior Court determined that, while G. L. c. 111, § 72R, clearly authorized a sale under court supervision of Union Square, the Act did not authorize a court-ordered sale of the separately owned real estate upon which the nursing home is located. The judge observed, however, that the language of § 72M might, in appropriate circumstances, justify disregard of a separate corporate entity, and so concluded that a lawful order to sell the real estate of Union Square, which is owned by Reifer, would require that the court first "pierce the corporate veil of Reifer, Inc." The judge denied the Commonwealth's motion to sell without prejudice; severed the receivership action from the Commonwealth's separate claims under G. L. c. 93A; and ordered an expedited trial for a factual determination whether circumstances warranted treatment in law of MCK and Reifer as essentially one and the same.⁸

After that trial, the judge, based on her finding and ruling that, "MCK and Reifer are in fact the alter egos of Konig and disregard of their separate corporate forms is warranted," ordered the sale of Union Square. The judge then reported the propriety of her order.⁹ We granted direct appellate review. Thereafter, the receiver of Union Square filed an unopposed motion for authority to close the nursing home.¹⁰ After a hearing, another judge in the Superior Court allowed the motion.¹¹

2. We next summarize the relevant features of the Act. The Act authorizes the Superior Court, on a complaint by the Attorney General, the department, or other interested parties, to "appoint a receiver for any institution subject to licensing under section seventy-one, hereinafter called a facility,"¹² when the court finds that an emergency exists¹³; when the facility is operating without a license; or in situations when the licensing status of the institution is otherwise uncertain, and the lives, health, safety, or welfare of the residents cannot be adequately assured pending the court's decision. G. L. c. 111, § 72M. The purpose of a receivership under the Act is to "safeguard the health, safety and continuity of care to residents and to protect them from the adverse health effects and increased risk of death caused by abrupt or unsuitable transfer." G. L. c. 111, § 72N.

A receiver, with court approval, is authorized to "remedy violations of federal and state law and regulations governing the operation of the facility; to hire, direct, manage and discharge any consultant or employees, including the administrator of the facility; to receive and expend in a reasonable and prudent manner the revenues of the facility; to continue the business of the facility and the care of the residents; to perform those acts necessary or desirable to accomplish the purpose of the receivership; to perform regular accountings and make periodic reports to the court; and to exercise such additional powers and perform such additional duties, as the court may deem appropriate." G. L. c. 111, § 72O. The Act contemplates that the receiver may also make major repairs to the real or personal property of the facility, to the extent necessary to prevent or remove jeopardy to the health, safety, or welfare of the residents, or to minimally qualify the facility for continuing participation in Medicare or Medicaid programs.¹⁴Id. The purpose of this provision is to "protect residents and to prevent the closure of facilities which, given proper management, are likely to be viable operations." Id.

The Act further provides that the Commonwealth shall have a lien for any expenditure under the above provisions, on the building or the land upon which the facility is located, or on any fixtures, equipment, or goods used in the operation of the facility. G. L. c. 111, § 72Q. As an additional remedy for recovering Commonwealth expenditures, the licensee, persons responsible for the affairs of the licensee, or the owner "may be held liable for such expenditures to the extent that any of these persons benefits financially from the expenditure." Id. Recovery of expenses incurred by the Commonwealth is also available against any person who, prior to the appointment of the receiver, violated a legal responsibility to assure appropriate maintenance of the facility, if any such violation necessitated the expenditure by the Commonwealth, and against any person who was responsible for the abandonment of the facility. Id.

Finally, the Act sets forth conditions whereby the court may terminate a receivership, and provides that, if the receivership has not been terminated within twelve months of the appointment of...