State of Mo., Dept., of Social Svcs., v. Brookside Nursing Center, Inc.

Decision Date21 November 2000
Docket Number56885
PartiesThis slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. State of Missouri, Missouri Department of Social Services, Division of Aging, Respondent, v. Brookside Nursing Center, Inc., d/b/a Brookside Nursing Center, et al., Defendants, Healthcare Financial Partners Funding, Inc., Appellant, and Terry C. Allen, Respondent. Case Number: WD56885 consolidated with WD56886, WD56887, WD56888, WD56889 and WD56890 Missouri Court of Appeals Western District Handdown Date:
CourtMissouri Court of Appeals

Appeal From: Circuit Court of Cole County, Hon. Thomas J. Brown, III

Counsel for Appellant: Jon E. Beetem

Counsel for Respondent: Ronald Molteni and Mark E. Long

Opinion Summary:

Healthcare Financial Partners Funding, Inc. (HCFP), appeals the judgment authorizing, pursuant to section 198.112, RSMo 1994, Terry C. Allen, the Receiver for six defendant nursing home facilities, to reimburse the successor operators of the facilities from the pre-receivership receivables collected by him for monies advanced by them in payment of the facilities' missed payrolls, despite the perfected security interest of HCFP in the receivables.

REVERSED AND REMANDED.

Court holds:

In both Points I and IV, HCFP asserts that the trial court erred in interpreting the implicated provisions of the Missouri Omnibus Nursing Home Act of 1979 (the Act), sections 198.003-.186, specifically section 198.112, as authorizing the Receiver to reimburse, from the pre-receivership receivables collected, the successor operators of the facilities the monies advanced by them in payment of the facilities' missed payrolls, in violation of its perfected security interest in the receivables. In Point I, HCFP further claims that the trial court erred in authorizing the challenged expenditure based on its finding that to enforce its security agreement would be unconscionable such that, pursuant to section 198.115, the Receiver was free to dishonor it, because the agreement was not unconscionable within the meaning of the statute. Because the dispositions of Points I and IV are interdependent, the court addresses them together.

Giving the language of each of the implicated subsections of the statute its plain and ordinary meaning, the Court finds no ambiguity as to what the legislature intended as to each. The subsections are clear that, in receiving and expending revenues in a reasonable manner, section 198.112(8), and doing "all acts necessary or appropriate to conserve the property and promote the health, safety or care of the residents of the facility," section 198.112(9), a receiver is to honor, inter alia, a secured transaction, unless the exception of section 198.115 applies. The implicated subsections of section 198.112 are not in conflict. Rather, the statutory scheme requires a receiver to honor, inter alia, security agreements, unless they are found to be unconscionable, as provided in section 198.115.1, such that to honor them would defeat the overriding purpose of the Act.

For purposes of section 198.115.1, an agreement would be deemed unconscionable and subject to being dishonored by the receiver if, pursuant to its terms, it is found to be grossly and manifestly unfair, unjust, inequitable or harsh in that to enforce it would result in an abuse in the operation of a facility that was sought to be prevented by the Act. The court interprets sections 198.112(10) and 198.115.1 as providing that, if a security agreement is found, by its terms, to threaten the health, safety and welfare of nursing home residents, their personal privacy and autonomy, the protection of their funds and property, or the solvency of the home's operator, it is unconscionable and subject to being dishonored by the receiver.

The respondent contends that the agreements in question here were unconscionable and subject to being dishonored by the Receiver in that to enforce them would have jeopardized the continuing operation of the six defendant facilities. The Receiver was not requesting that he be authorized to expend pre-receivership receivables to pay the missed payrolls of the facilities, but to reimburse the successor operators for the advancements they had made in making the payrolls. It could not be asserted that an expenditure was an emergency and necessary to keep the employees of the facilities working in order to prevent their closings and the residents being displaced. The fact is that the payrolls had already been paid by the successor operators. Thus, contrary to the intent of the legislature, what actually occurred here was not the protection of the facilities' residents, a recognized purpose of the Act, but the successor operators being given a priority over the perfected security interest of HCFP, in direct contravention of the UCC, specifically section 400.9-301, RSMo Supp. 1997. As such, the trial court misapplied the law and erred in authorizing the challenged expenditure by the Receiver.

In addition to their contention that the enforcement of HCFP's security interest in the receivables was unconscionable subject to being dishonored by the Receiver, under section 198.115.1, the respondents contend that the trial court did not err in authorizing the Receiver's expenditure of the receivables because HCFP did not "carry its burden of 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 (Mo. App. 1999), and State ex rel. Ashcroft v. St. Louis No. 2, Inc., 618 S.W.2d 686, 689 (Mo. App. 1981).

In Colonial and Cedars, the court decided against the necessity of honoring HCFP's security interest in the receivables in question on the basis that it did not show that the allowed expenditures by the receiver were deleterious to its interests, citing Ashcroft. There is no authority for the Ashcroft court's summary conclusion that the secured party, to enforce its security interest, had the burden of showing that the payment in question was deleterious to its interest. Section 400.9-203, RSMo Supp. 1997, of the UCC, which governs the attachment and enforceability of a security interest and sets forth the requirements for the same, makes no mention of a burden being placed on the secured party in enforcing its security interest to show that the challenged payment was deleterious to its interest. Thus, such a requirement is contrary to controlling law such that the court cannot follow Ashcroft as to this issue and necessarily must overrule Colonial and Cedars in that they rely on the same.

Given the resolution of Points I and IV, the court does not address HCFP's remaining points.

Opinion Author: Edwin H. Smith, Judge

Opinion Vote: REVERSED AND REMANDED. Spinden, C.J., and Lowenstein, Ulrich, Smart, Ellis, Stith, Howard and Newton, JJ., concur. Holliger, J., dissents in separate opinion. Breckenridge, J., dissents in separate opinion.

Opinion:

Healthcare Financial Partners Funding, Inc. (HCFP), appeals from the judgment of the Circuit Court of Cole County, authorizing, pursuant to section 198.112,1 the respondent, Terry C. Allen (Receiver), the receiver for six defendant nursing home facilities, to reimburse the successor operators of the facilities from the pre-receivership receivables collected by him for monies advanced by them in payment of the facilities' missed payrolls, despite the perfected security interest of HCFP in the receivables.

The appellant raises four points on appeal. In all four points, it claims that the trial court erred in authorizing the Receiver to expend the pre-receivership receivables, while dishonoring HCFP's perfected security interest in the same. In Point I, it claims that the trial court's ruling was in error because it was contrary to section 198.112(10), which requires the receiver to honor all secured transactions entered into by the facility's operator, and section 198.115, which authorizes a receiver to dishonor a secured transaction only if the security agreement is unconscionable. In Point II, it claims that the trial court erred because the authorized expenditure of the receivables constituted a taking of property without due process of law. In Point III, HCFP claims that the trial court erred in authorizing the expenditure by the Receiver based on a finding that he had an equitable priority claim superior to HCFP's perfected security interest because equity generally is not available to a party with an adequate remedy at law, and section 198.132 allows a receiver to seek a priority judgment against a defendant for any deficiency resulting from the operation of a receivership. In Point IV, HCFP claims the trial court erred in approving the expenditure by the Receiver of the receivables because the applicable and controlling statutes should be interpreted as requiring that such an expenditure was subject to and in violation of the security agreement of HCFP.

We reverse and remand.

Facts

On February 11, 1998, a loan and security agreement was executed between HCFP and thirty-five nursing homes, including, inter alia, the six defendant facilities: Brookside Nursing Center, Inc. (Brookside); Lincoln Manor Nursing Center, Inc. (Lincoln Manor); Carrollton Nursing Center, Inc. (Carrollton); Glenwood Healthcare, Inc. (Glenwood); Silex Management Company, Inc. (Silex); and Fayette Nursing Center, Inc. (Fayette). The agreement provided that HCFP would provide each of the facilities with a revolving line of credit in exchange for a security interest in, inter alia, their current and after-acquired "accounts, accounts receivable and other rights to payment of every kind and description." The agreement authorized HCFP, in the event of a borrower's default, including a failure to make any payment due or a judgment of insolvency, to immediately terminate the loan,...

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