Omega Healthcare Investors, Inc. v. Res-Care, Inc.
| Decision Date | 22 January 2007 |
| Docket Number | No. 06-1157.,06-1157. |
| Citation | 475 F.3d 853 |
| Parties | OMEGA HEALTHCARE INVESTORS, INC., Plaintiff-Appellant, v. RES-CARE, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
James R. Fisher (argued), Miller & Fisher, Indianapolis, IN, for Plaintiff-Appellant.
David Tachau (argued), Tachau, Maddox, Hovious, & Dickens, Louisville, KY, for Defendant-Appellee.
Before RIPPLE, KANNE, and WOOD, Circuit Judges.
This diversity case concerns the lease and administration of a residential healthcare facility in Lexington, Kentucky.1 The appellant, Omega Healthcare Investors, brought suit against Res-Care alleging, among other things, breach of contract. The parties filed cross-motions for summary judgment, and the district court granted summary judgment in favor of Res-Care. Omega appeals. For the reasons set forth below, we reverse the judgment of the district court and remand for further proceedings.
In 1989, Omega's predecessor in interest entered into a ten-year lease with Robert E. Petrie for certain property, referred to in the lease as the "Lexington Campus" but referred to by the parties during this litigation as the Excepticon Facility (Excepticon).2 The property was a healthcare facility designed to house and care for patients with developmental disabilities. In the accepted language of the time, this was referred to as an Intermediate Care Facility for the Mentally Retarded (ICF/MR).
Because Omega, a real estate investment trust, could not operate a medical facility, the lease envisioned that Omega would rent the facility to Petrie and that Petrie would acquire the necessary licenses to run the facility. However the actual day-to-day management of Excepticon was to be performed by a third party—Res-Care. To that end, Petrie and Res-Care simultaneously entered a second contract, referred to as the Management Agreement. The Lease (between Omega and Petrie) and the Management Agreement (between Petrie and Res-Care) each make reference to the other document.
For about eight years, the three parties happily coexisted, Omega as the lessor of the property, Petrie as the lessee of the property, and Res-Care managing the property. But in 1998 the environment began to change when Res-Care purchased all of the Petrie rights and obligations under the Management Agreement and the Lease from the Petrie estate. At this point there were only two parties—Omega owned the property and leased it to Res-Care, who became both the lessee and also the day-to-day manager of operations in the facility.
Over the course of 1998 and 1999, Res-Care began a process of working with the Commonwealth of Kentucky to move the patients out of the Excepticon Facility and into non-institutional community-based care. However, Kentucky would not be able to pay Res-Care to manage the community-based treatment for the former residents of Excepticon as long as Excepticon was still open and certified to provide care for the developmentally disabled patients. By shutting the doors to Excepticon, Kentucky would be able to apply for federal funding for the residents to move into community care under a program called a conversion waiver, a waiver that would not be available if Excepticon was still operating.
Res-Care then did the following three things: it sought and received an order from the district court to prevent Omega from reclaiming possession of the property at the natural termination of the Petrie lease; it helped the residents of Excepticon move into community-based care arranged by Res-Care; and (once the patients were removed) it closed the ICF/MR. With those preconditions met, Kentucky was able to rescind its certificate of need for an ICF/MR, and federal funding for community-based care was approved. When Omega regained possession of Excepticon from Res-Care, it had no patients, no employees, and was no longer certified for use as an ICF/MR in Kentucky.
Omega brought suit. Over Res-Care's objection, the district court gave Omega leave to file a Third Amended Complaint on July 31, 2002. This complaint contained five counts. During the Spring and Summer of 2003, the parties filed cross-motions for summary judgment. Omega moved for summary judgment on Counts I and V. Res-Care moved for summary judgment on Counts I, II, IV, and V. On December 4, 2003, the district court entered judgment granting Res-Care's motion for summary judgment on Count V and denying Omega's motion for the same.3
For two more years, the parties argued about the remaining four counts. By December 27, 2005, the parties had reached a settlement agreement on those four counts, and the district court entered an order dismissing all remaining claims and making the 2003 judgment on Count V a final and appealable order. Omega appeals the order granting summary judgment to Res-Care on Count V.
There is no disagreement that Excepticon was very nearly fully-staffed and fully-occupied when Res-Care assumed the obligations of the lessee in 1998. By the time Res-Care returned the premises to Omega at the end of 1999, the facility was empty. At the heart of this dispute is a disagreement about whether Res-Care owed any duty to run Excepticon in a particular manner during the years 1998 and 1999, and if so whether it breached those obligations. Because the complaint and Omega's motion for summary judgment alleged that Res-Care's behavior violated both the Lease agreement and the Management Agreement, we will consider them separately. At some points the consideration of one necessarily implies consideration of the other.
We review an appeal of summary judgment de novo. Lee v. Keith, 463 F.3d 763, 767 (7th Cir.2006). On summary judgment, a party is entitled to judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c). We view all facts and draw all inferences in the light most favorable to the non-moving party. Tanner v. Jupiter Realty Corp., 433 F.3d 913, 915 (7th Cir. 2006).
In its motion for summary judgment, Omega clarified exactly how it believes that Res-Care breached its two contracts. It alleged that many of the acts that Res-Care took in conjunction with the Commonwealth of Kentucky in 1998 and 1999 constituted breaches of the Management Agreement that was originally signed by Res-Care and Petrie. Omega also alleged that those same actions violated paragraph 23 of the Lease. It further alleged that Res-Care had breached paragraphs 9 and 36 of the Lease, independent of any breach of the Management Agreement. Finally, Omega noted that under the Lease, if the court believed that the Management Agreement had been terminated that such termination was a further violation of Lease paragraph 25.
For reasons that are unclear, Res-Care has contended for several years now that the Third Amended Complaint only alleged a breach of the Management Agreement, and said nothing about the Lease. There is simply no way that this argument can be squared with the plain language of the complaint. For example, paragraph 105 of the complaint reads, in its entirety: "Res-Care refused to surrender control and operation of the Lexington facility at the termination of the Lease, and continued to operate the facility in violation of the lease surrender provisions from the termination of the Lease through December 31, 1999." Likewise, paragraph 106 reads: "Defendant's conduct in refusing to surrender the leased facility at the termination of the Petrie Lease Agreement constituted a breach of that written contract." Paragraph 107 reads: "Defendant's conduct ... constituted multiple breaches of the Petrie Lease and the Defendant's Guaranteed Management Agreement." How it could be possible to read these three paragraphs as dealing exclusively with the Management Agreement defies explanation.
A federal complaint requires only a short and plain statement of the claim. FED.R.CIV.P. 8(a). A plaintiff in federal court "need do no more than narrate a grievance simply and directly, so that the defendant knows what he has been accused of." Doe v. Smith, 429 F.3d 706, 708 (7th Cir.2005). This defendant was on notice that Count V pleaded not only a breach of the Management Agreement but also of the Lease agreement. Repeatedly denying this fact does not change reality. Res-Care is entitled to take issue with questions of fact and law as presented by Omega in its motion, but Res-Care is not entitled to pretend, ipse dixit, that entire portions of the complaint and entire pages of the plaintiff's memorandum supporting its motion for summary judgment simply do not exist. We will consider each alleged breach of the two contracts in turn.
The terms of the Management Agreement that Omega believes were breached can be summarized as follows: the contract required that the manager of the property would "maintain and operate the facility in compliance with the standards for state licensure . . . sufficient to maintain a license as an ICF/MR facility" and "not do or permit to be done any act or thing which ... is incompatible with its operation as an ICF/MR facility." Management Agreement § II(d), § II(h). Additionally, it was a "goal" that the manager "seek to maintain appropriate and adequate relationships with referral sources sufficient to maintain 99% occupancy." Before considering the evidence to support these allegations, we must (as did the district court) consider Res-Care's legal argument that the Management Agreement had ceased to exist when Res-Care bought out Petrie and became both the lessee and the manager. We agree that the Management Agreement ceased to exist on January 1, 1998.
The Management Agreement on its face is a contract between...
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