In re Woodstock Associates I, Inc.
| Decision Date | 24 October 1990 |
| Docket Number | Adv. No. 90 A 0145.,Bankruptcy No. 89 B 08919 to 89 B 08922 |
| Citation | 120 BR 436 |
| Parties | In re WOODSTOCK ASSOCIATES I, INC., an Illinois corporation, d/b/a Albany House, Woodstock Associates III, Inc., an Illinois corporation, d/b/a The Woodbury of Niles, Woodstock Associates II, Inc., an Illinois corporation, d/b/a The Saratoga of Evanston, Woodstock Associates IV, Inc., an Illinois corporation, d/b/a The Sherwood of Niles, Debtors. (Jointly Administered Cases) HOME SAVINGS ASSOCIATION OF KANSAS CITY, F.A., Plaintiff. v. WOODSTOCK ASSOCIATES I, INC., Woodstock Associates III, Inc., Woodstock Associates II, Inc., Woodstock Associates IV, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Norman Newman, Scott N. Schreiber, Much Shelist Freed Denenberg Ament & Eiger, P.C., Chicago, Ill., for debtors.
Neil L. Goulden, Katten, Muchin & Zavis, Chicago, Ill., for Caremor, Inc.
Ronald R. Peterson, Jay S. Geller, Jenner & Block, Chicago, Ill., for Home Sav. Ass'n of Kansas City, F.A.
David E. Cohen, Cohen & Krol, Chicago, Ill., for the Unsecured Creditors Committee.
This matter comes to be heard on the joint motion of the Debtors and the Committee for the Unsecured Creditors (the "Committee") for summary judgment pursuant to Federal Rule of Civil Procedure 56. In addition, Home Savings Association of Kansas City, F.A. ("Home Savings") filed a cross motion for partial summary judgment. For the reasons set forth herein, the Court having reviewed the pleadings, affidavits and the exhibits attached thereto, grants in part the motion of the Debtors and the Committee for summary judgment on Counts I, II and III and denies the motion as to Count IV. Moreover, the Court hereby denies the cross motion of Home Savings for summary judgment.
The Court has jurisdiction to entertain these motions pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. These matters constitute core proceedings under 28 U.S.C. § 157(b)(2)(A), (B), (K) and (0).
The matters in dispute arise from the Debtors' operation of four nursing homes. The relevant history and relationships among the parties follows. Ridgeview Pavilion Realty Partnership ("Ridgeview Pavilion") owned and operated a nursing home facility in Evanston, Illinois. On August 13, 1986, Ridgeview Pavilion transferred legal title to the nursing home facility to Amalgamated Trust & Savings Bank ("Amalgamated Bank") as Trustee under Trust No. 5188. Ridgeview House Realty Partnership ("Ridgeview House") owned and operated a nursing home facility in Evanston, Illinois. On September 12, 1986, Ridgeview House transferred legal title to the nursing home facility to Amalgamated Bank as Trustee under Trust No. 5195. Golf Mill Plaza I Realty Partnership ("Golf Mill I") owned and operated a nursing home facility in Niles, Illinois. On September 12, 1986, Golf Mill I transferred legal title to the nursing home facility to Amalgamated Bank as Trustee under Trust No. 5196. Golf Mill Plaza II Realty Partnership ("Golf Mill II") owned and operated a nursing home facility in Niles, Illinois. On September 12, 1986, Golf Mill II transferred legal title to the nursing home facility to Amalgamated Bank as Trustee under Trust No. 5197.
On September 25, 1986, Amalgamated Bank as Trustee under said Trusts executed two promissory notes in favor of Home Savings in the principal amounts of $5,000,000.00 and $19,500,000.00. In addition, Amalgamated Bank executed a Mortgage and Security Agreement (the "Mortgage") and a separate Assignment of Rents and Leases (the "Assignment") in favor of Home Savings to secure repayment of the notes. On January 19, 1988, Woodstock Associates, Ltd. ("Woodstock"), an Illinois corporation incorporated on December 31, 1987, as lessee, entered into a lease (the "Lease") with Golf Mill I, Golf Mill II, Ridgeview House and Ridgeview Pavilion, the sole beneficiaries under Amalgamated Bank Trust Nos. 5196, 5197, 5195 and 5188 as lessor to lease all four nursing home facilities and all the fixtures and equipment contained therein. The Lease was for a ten year period, subject to certain rights to terminate the Lease at an earlier time. Paragraph 24.1 of the Lease contained language granting a security interest in Woodstock's accounts receivable to secure the rent payable under the Lease. The Lease was never recorded with the Cook County Recorder of Deeds.
On January 19, 1988, Woodstock entered into four separate unrecorded Subleases (the "Subleases") with the Debtors. The Subleases were also for a term of ten years, subject to rights to terminate upon sixty days notice. Collectively, the Debtors are four separate Illinois corporations, incorporated on January 19, 1988. The Debtors and Woodstock have common officers and directors.
Thereafter, on June 7, 1988, the Debtors as subtenants, Woodstock as the tenant under the Lease, Home Savings as beneficiary, and Golf Mill I, Golf Mill II, Ridgeview Pavilion and Ridgeview House (hereinafter collectively referred to as either the "Trust Beneficiaries" or the "Lessor") entered into a Non-Disturbance, Attornment, Estoppel and Subordination Agreement (the "Attornment Agreement"). The Attornment Agreement provided that Home Savings would attorn to the Lessor's rights under the Lease upon certain terms and conditions. Pursuant to the Attornment Agreement, upon the Lessor's default under the existing Mortgage, Woodstock and the Debtors were required to pay the rentals reserved under the Lease and Subleases to Home Savings. The Attornment Agreement expressly incorporated the Lease and was recorded on September 2, 1988. By letter dated October 17, 1988, Jack Ehrenhaus, one of the Trust Beneficiaries' partners, directed Woodstock to make all future rent payments under the Lease to the order of Home Savings. In accordance with the letter, Home Savings thereafter received three rental payments in the aggregate amount of $390,000.00.
On January 27, 1989, Woodstock notified the Trust Beneficiaries and Home Savings' counsel, in writing, of its intent to terminate the Lease within ninety days pursuant to Article XXI, paragraph 21.8 thereof. The Debtors assert that they then received proper sixty day notices from Woodstock to terminate the Subleases, effective on April 27, 1989. Thereafter, on February 16, 1989, Home Savings filed a complaint in the Circuit Court of Cook County, Illinois (Case No. 88 CH 5219) to foreclose the Mortgage. Subsequently, on March 10, 1989, Home Savings filed a verified petition for appointment of a receiver to replace the Debtors as the operators of the nursing home facilities pursuant to the Illinois Mortgage Foreclosure Law, rather than under the Nursing Home Care Act.1 On April 26, 1989, Judge Arthur L. Dunne denied the petition. Judge Dunne stated that he was unwilling2 "to be adventurous and act in contravention of the plain language of the statute." However, he stated that he could consider the appointment of a receiver "at the behest of the State."
On April 27, 1989, the State of Illinois filed a petition in the Circuit Court of Cook County, Illinois, (Case No. 89 CH 3415) to place the four nursing home facilities under the control of a receiver pursuant to the Nursing Home Care Act. That day, Judge Robert L. Sklodowski appointed Caremor, Inc. ("Caremor") to act as receiver. On February 21, 1990, Judge Dunne entered an order in the foreclosure action confirming the foreclosure sale and the Uniform Commercial Code sale, conducted pursuant to the case, and entered a deficiency judgment in favor of Home Savings and against Amalgamated Bank as Trustee in the amount of $7,389,095.78.
Subsequent to April 27, 1989, both Caremor and the Debtors collected medicaid reimbursements from the State of Illinois. Those medicaid reimbursements collected by Caremor, however, were insufficient to fund the operating expenses of the nursing homes facilities during the period of Caremor's receivership. As a result, Home Savings subsequently advanced funds to Caremor and refrained from collecting rent, which resulted in a claim in excess of $3.4 million for rent and real estate tax payments. Home Savings asserts that it has advanced over $4.5 million to maintain the facilities.
On May 26, 1989, the Debtors filed voluntary Chapter 11 petitions. The Debtors formerly operated the four nursing home facilities, but their operations were supplanted pre-petition upon Caremor's appointment as receiver. The Debtors are currently acting as debtors-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108. The cases are being jointly administered. Substantially all of the assets available for distribution from the Debtors' estates in the approximate amount of $779,824.00 plus interest, constitute medicaid reimbursements from the State of Illinois for the care of the elderly and disabled residents of the nursing homes for the pre-receivership, pre-petition period ending April 26, 1989. These medicaid reimbursements are the subject of the instant dispute.3
The Debtors filed a joint liquidating plan of reorganization and a disclosure statement. The Court approved the Debtors' second amended disclosure statement and set a hearing on confirmation of the plan on March 26, 1990. On that date, the Court continued the hearing on confirmation generally, pending the outcome of the motions at bar. On March 7, 1990, Home Savings filed this adversary proceeding against the Debtors. The four count complaint is premised on the theory that Home Savings succeeded to the Lessor's interests by virtue of the Attornment Agreement. Count I seeks a declaration that Home Savings has a valid and perfected first priority lien on the Debtors' pre-petition medicaid reimbursements as part of their accounts receivable pursuant to the Attornment Agreement and the...
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