State v. Brookside Nursing Ctr.

• Decision Date: 26 June 2001
• Citation: 50 S.W.3d 273
• Parties: (Mo.App. S.D. 2001) 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, HCFP Funding, Inc., Appellant, and Terry C. Allen, Respondent. SC83273 0
• Court: Missouri Court of Appeals

50 S.W.3d 273 (Mo.App. S.D. 2001)

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, HCFP Funding, Inc., Appellant, and Terry C. Allen, Respondent.

SC83273

Supreme Court of Missouri

06/26/2001

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

Counsel for Appellant: Jon E. Beetem

Counsel for Respondent: Ronald S. Molteni and Terry C. Allen

Opinion Summary: Healthcare Financial Partners Funding, Inc. (HCFP), perfected a security interest in the accounts receivable of six nursing homes that were placed in receivership for two weeks in August 1998 for failure to pay wages to their workers. The Division of Aging then found successor operators for the facilities; these operators paid the back wages. When the receiver moved to reimburse the successor operators for those wages, HCFP objected. The court found that enforcing HCFP's security interest would be unconscionable within the meaning of section 198.115, RSMo 1994. The receiver was authorized to reimburse the successor operators and pay the remainder of the accounts receivable to HCFP, which appeals.

Court en banc holds: (1) When subdivisions 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 overruled.

(2) HCFP's security agreements with the nursing homes were not unconscionable under section 198.115. (3) Section 400.9-203 does not require the secured party, enforcing its security interest, to show the challenged payment is deleterious to its security agreement and interest. Colonial and Cedars, as well as State ex rel. Ashcroft v. St. Louis No. 2, Inc., 618 S.W.2d 686 (Mo. App. 1981), are overruled.

Opinion concurring in part and dissenting in part by Judge Wolff:

The writer agrees with the analysis of the Court but would reach a different result. This author argues that if it would have been reasonable for the receiver to pay back wages in August 1998, while the nursing homes still were in receivership, then the receiver should have been able to reimburse the successor operators for those wages in February 1999, after the receivership was terminated. This author also argues that because chapter 198 gives priority to the health and safety of nursing home residents, it is unconscionable to favor the secured creditor over the successor operators that advanced funds to keep the nursing homes operating for the benefit of the residents.

Price, C.J., Limbaugh, White, Holstein and Benton, JJ., concur; Wolff, J., concurs in part and dissents in part in separate opinion filed; Rahmeyer, Sp.J., concurs in opinion of Wolff, J. Stith, J., not participating.

PER CURIAM¹

Healthcare Financial Partners Funding, Inc. (HCFP), executed a loan and security agreement with the defendants.² It later perfected a security interest in the defendants' receivables. Defendants were ordered into receivership, which lasted from August 4, 1998, to August 17, 1998. The receiver collected $ 177,891.39 of receivables for services rendered by the defendants before the receivership. The division of aging found successor operators for the defendants' facilities, who promptly paid the facilities' employees for work completed before the receivership.

On January 12, 1999, the receiver moved to reimburse the successor operators, out of the collected receivables, for the amounts that the successors paid. Invoking its perfected security interests, HCFP objected to the reimbursement. Nearly six months after the receivership terminated, on February 2, 1999, the circuit court found that enforcing HCFP's security interest would be unconscionable within the meaning of section 198.115.³ The court authorized the receiver to reimburse the successor operators for advancing the missed payrolls. The remainder of the collected receivables would be paid to HCFP.

The trial court erroneously declared and applied the law as found in sections 198.112 and 198.115.1. The judgment is reversed, and the case is remanded.

I.

It is undisputed that HCFP had a perfected security interest in the collected receivables. HCFP's right to the receivables was superior to that of any other parties in this case, see section 400.9-301, unless other statutes authorize the receiver to dishonor HCFP's security interest.

Section 198.112 prescribes the powers of a receiver in a nursing home receivership under section 198.099. Section 198.112(8) provides that the receiver "[s]hall 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 become due during the receivership." By section 198.112(9), the receiver "[s]hall do 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(10) provides:

Except as hereinafter specified in section 198.115, [the receiver] 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, but only to the extent of payments which become due or are for the use of the property during the period of the receivership.

Under section 198.115.1:

A receiver may not be required to honor any lease, mortgage, secured transaction or other wholly or partially executory contract entered into by the facility's operator or administrator while acting in that capacity, if the agreement is unconscionable. Factors which shall be considered in determining the unconscionability include, but are not limited to, the following:

(1) The person seeking payment under the agreement was an affiliate of the operator or owner at the time the agreement was made;

(2) The rental, price, or rate of interest required to be paid under the agreement was substantially in excess of a reasonable rental, price or rate of interest at the time the agreement was entered into.

When construing statutes, this Court ascertains the intent of the legislature from the language used and gives effect to that intent. Gott v. Director of Revenue, 5 S.W.3d 155, 158 (Mo. banc 1999). The provisions of a legislative act are not read in isolation but construed together and read in harmony with the entire act. Id. at 159-60. The language of a statute is given its plain and ordinary meaning. Spradlin v. City of Fulton, 982 S.W.2d 255, 258 (Mo. banc 1998). Language is clear and unambiguous if plain and clear to one of ordinary intelligence. Wolff Shoe Co. v. Dir. of Revenue, 762 S.W.2d 29, 31 (Mo. banc 1988).

Reading the statutes together - and harmonizing them - the receiver shall receive and expend revenues in a reasonable manner. Section 198.112(8). It is reasonable to honor a secured transaction as provided in section 198.112(10). The receiver shall do "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). On the facts in this case, honoring HCFP's security interest as provided in section 198.112(10) - instead of reimbursing the successor operators - does not impair the property or the health, safety or care of the residents of the facility.

The court of appeals previously considered whether, under section 198.112, the receiver may dishonor HCFP's security interest in order to reimburse pre-receivership payrolls. State v. Colonial Healthcare Ctr., Inc., 3 S.W.3d 798, 800 (Mo. App. 1999); State v. Cedars Nursing Ctr., Inc., 3 S.W.3d 803, 805 (Mo. App. 1999). The court found no ambiguity in subdivisions 8 and 9 of section 198.112. However, the court held that section 198.112(10) - requiring the receiver to honor security interests - seemingly conflicted with subdivisions 8 and 9.

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 and the funds available to make such payroll were encumbered by a security interest.

Colonial, 3 S.W.3d at 801-02; Cedars, 3 S.W.3d at 806.

The Colonial and Cedars cases incorrectly hold that the subdivisions of section 198.112 conflict. When subdivisions 8, 9 and 10 are read in harmony with section 198.115, no conflict exists. To the extent the rationale of Colonial and Cedars is to the contrary, it is overruled.

Absent express definition, statutory language is given its plain and ordinary meaning, as typically found in the dictionary. Am. Healthcare Mgmt., Inc. v. Dir. of Revenue, 984 S.W.2d 496, 498 (Mo. banc 1999) (citation omitted). The dictionary defines "unconscionable" as "1 Not conscionable; unreasonable . . . .2 Not guided or controlled by conscience; unscrupulous . . . . 3 Outrageous; egregious." Webster's Third New International Dictionary 2763 (3d ed.1976).

A court also may consider other legislative or judicial meanings of a term. See Citizens Elec. Corp. v. Dir. of Revenue, 766 S.W.2d 450, 452 (Mo. banc 1989). "Unconscionable" - in section 153 of the Restatement (Second) of Contracts - is "an inequality so strong, gross, and manifest that it must be impossible to state it to one with common sense without producing an exclamation at the inequality of it." Peirick v. Peirick, 641 S.W.2d 195, 197 (Mo. App. 1982); Schlottach v. Schlottach, 873 S.W.2d 928, 932 (Mo. App. 1994)(separation agreements in dissolution cases). In the UCC, an agreement or contract is "substantively unconscionable if there is undue harshness in the terms of the contract." World...