Dep't of Social Svc. v. Colonial Healthcare Center, Inc.
| Decision Date | 10 August 1999 |
| Citation | 3 S.W.3d 798 |
| Parties | (Mo.App. W.D. 1999) State of Missouri, Missouri Department of Social Services, Division of Aging, Respondent, v. Colonial Healthcare Center, Inc., Respondent, and Healthcare Financial Partners Funding, Inc., Intervenor-Appellant. WD56438 0 |
| Court | Missouri Court of Appeals |
Appeal From: Circuit Court of Cole County, Hon. Thomas J. Brown, III
Counsel for Appellant: Jon Beetem
Counsel for Respondent: Ronald Molteni, Harvey Tettlebaum and Edward Cody
Opinion Summary: When the Department of Social Services became aware that the licensed operator of Colonial Nursing Center, Inc., had not paid its payroll obligations for July 1998, it obtained an order from the circuit court placing Colonial in receivership. The receiver desired to use Colonial's accounts receivable to pay the missed payroll, but Colonial had pledged its accounts receivable as collateral for a loan from HealthCare Financial Partners Funding, Inc. (HCFP). The receiver asked the circuit court to authorize using the accounts receivable, including Medicaid and Medicare funds, to pay Colonial's employees. The circuit court granted HCFP leave to intervene in the lawsuit. The circuit court sustained the receiver's motion and, pursuant to Rule 74.01(b), designated the order as a final judgment so HCFP could appeal the judgment immediately.
Division holds: The receiver was obligated to do what was necessary to take care of the facility's residents. Paying the payroll was necessary for the facility's continued operation and its residents' protection. HCFP did not offer any facts that established that paying the payroll was deleterious to its security interest.
When the Department of Social Services became aware that the licensed operator of Colonial Nursing Center, Inc., had not paid its payroll obligations for July 1998, it obtained an order from the circuit court placing Colonial in receivership. On August 4, 1998, the circuit court appointed Colonial Healthcare Center, Inc., as receiver pursuant to the Omnibus Nursing Home Act, section 198.003 et seq., RSMo 1994. The receiver desired to use Colonial's accounts receivable to pay the missed payroll, but Colonial had pledged its accounts receivable as collateral for a loan from HealthCare Financial Partners Funding, Inc. (HCFP).1 The receiver asked the circuit court to authorize its using the accounts receivable, including Medicaid and Medicare funds, to pay Colonial's employees.2 The circuit court granted HCFP leave to intervene in the lawsuit. The circuit court sustained the receiver's motion and, pursuant to Rule 74.01(b), designated the order as a final judgment so HCFP could appeal the judgment immediately. We affirm the circuit court's judgment.
The issue in this case is whether the circuit court erred in authorizing the receiver to spend the accounts receivable for payroll and payroll related taxes before paying Colonial's secured creditors. In deciding this issue, we are mindful of the overriding purpose of the Omnibus Nursing Home Act:
The Act before us is an exercise of the police power of the state, directed to the protection of the health, safety, and welfare of a large and increasing nursing home population. It regulates private institutions designed to shelter, feed and care for sick, aged and infirm persons, and bears a reasonable relation to the health, safety, and welfare of the community. . . .
. . . .
The Act is addressed to the broad expanse of problems in the operation of nursing homes which have surfaced in substantial degree since the advent of Medicaid in the mid-1960's and the mushrooming of the nursing home business. From the health and safety of nursing home residents, to their personal privacy and autonomy, to the protection of their funds and property, to the solvency of nursing home operators, to prevention of Medicaid fraud, the Act is a major legislative effort towards remedying indigenous areas of abuse in the operation of nursing homes.
Stiffelman v. Abrams, 655 S.W.2d 522, 528-29 (Mo. banc 1983).
Section 198.099, et seq., governs nursing home receiverships. The General Assembly's intent in enacting the nursing home receivership statutes corresponds with the overriding purpose of the act to protect "the physical and mental well being of residents."3 Steve Vosmeyer and Diane Felix, The Missouri Omnibus Nursing Home Act of 1979: A Legislative History, 24 St. Louis U. L.J. 617, 660 (1981). The General Assembly intentionally made the language authorizing receiverships to be broad "to protect the helpless." Id. at 649. Section 198.099 authorizes the appointment of a receiver when:
(1) The operator is operating without a license;
(2) The department has revoked the license of an operator or refused to grant an application for a license to the operator;
(3) The department has initiated revocation procedures and has determined that the lives, health, safety, or welfare of the residents cannot be adequately assured pending a full hearing on license revocation;
(4) The facility is closing or intends to close and adequate arrangements for relocation of residents have not been made at least thirty days prior to closure;
(5) An emergency exists in the facility;
(6) The operator is insolvent; or
(7) An owner of the land or structure is insolvent and such insolvency substantially affects the operation of the facility.
These problems, which if not corrected by a receiver as authorized by the General Assembly, have the potential of seriously jeopardizing the physical and mental well being of nursing home residents.
Section 198.112, RSMo 1994, grants a nursing home receiver 16 specific powers. Sections 198.112(8) and (9) authorize a receiver to "receive and expend in a reasonable manner the revenues of the facility due on the date of the order of appointment as receiver" and to "do all acts necessary or appropriate to conserve the property and promote the health, safety or care of the residents of the facility." The accounts receivable in this case existed on the date of the receiver's appointment, and payroll is a "reasonable" expenditure. Retention of qualified employees to care for the residents is "necessary" to "promote the health, safety or care of the resident[s]." Qualified employees rarely work without pay.
The General Assembly's mandate that the receiver honor certain security interests seemingly conflicts with this authority. Section 198.112(10) says that a receiver, "[e]xcept as hereinafter specified in section 198.115,4 shall honor all leases, mortgages, secured transactions or other wholly or partially executory contracts entered into by the facility's operator or administrator while acting in that capacity[.]" HCFP asserts that section 198.112(10) prohibited the receiver from spending Colonial's accounts receivable because HCFP had a prior, perfected security interest in them. We disagree.
Two competing interests confronted the receiver in this case. On one hand, the receiver was obligated to do what was necessary to take care of the facility's residents. On the other hand, the receiver was obligated to honor the facility's valid security interests. These obligations conflicted because the receiver had to pay the missed payroll to protect the facility's residents of the facility and the funds available to make such payroll were encumbered by a security interest.
A similar situation arose in State of Missouri, ex rel. Ashcroft v. St. Louis No. 2, Inc., 618 S.W.2d 686 (Mo. App. 1981). In that case, a nursing home operator desired to close the nursing home, so the circuit court appointed a receiver. The receiver's final accounting showed that it had paid the facility's employees' wages for the week before appointment of the receiver, but the secured creditor objected. This court's Eastern District upheld the circuit court's approval of the payment and found that the circuit court's determination that payment of wages was required "for the continued...
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State of Mo., Dept., of Social Svcs., v. Brookside Nursing Center, Inc.
...showing that payment of the wages was deleterious to its security interest," citing State, Dep't of Soc. Servs., Div. of Aging v. Colonial Healthcare Ctr., Inc., 3 S.W.3d 798, 800 (Mo. App. 1999), State, Mo. Dep't of Soc. Servs., Div. of Aging v. Cedars Nursing Ctr., Inc., 3 S.W.3d 803, 805......
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State v. Brookside Nursing Ctr.
...8, 9 and 10 of section 198.112 are read in harmony with section 198.115, no conflict exists. The rationale in State v. Colonial Healthcare Ctr., Inc., 3 S.W.3d 798 (Mo. App. 1999), and State v. Cedars Nursing Ctr., Inc., 3 S.W.3d 803 (Mo. App. 1999), is (2) HCFP's security agreements with t......