Sunrest Props., LLC v Sunrest Nursing Home

[*1] Sunrest Props., LLC v Sunrest Nursing Home 2005 NY Slip Op 51324(U) Decided on August 15, 2005 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 15, 2005
Supreme Court, Nassau County

SUNREST PROPERTIES, LLC, Plaintiff,

against

SUNREST NURSING HOME, SUNREST HEALTH FACILITIES, INC. and ROBERT SCHERDEL, Defendants.



15240-04



COUNSEL FOR PLAINTIFF

Abrams, Fensterman, Fensterman, Flowers, Greenberg & Eisman, LLP

111 Marcus Avenue - Suite 107

Lake Success, New York 11042

COUNSEL FOR DEFENDANTS

Hamburger, Maxson, Yaffee, Wishod & Knauer, LLP

225 Broadhollow Road - Suite 301E

Melville, New York 11747

Leonard B. Austin, J.

BACKGROUND

By lease dated June 22, 1973, Plaintiff's predecessor-in-interest leased the [*2]premises located at 125 Oakland Avenue, Port Jefferson, New York to Defendant, Sunrest Nursing Home ("Nursing Home"). Nursing Home transferred its interest in the lease to Sunrest Health Facilities, Inc. The nursing home operated by Sunrest Health Facilities, Inc. at that location was known as Sunrest Manor ("Manor").

Defendant, Robert Scherdel ("Scherdel"), is a partner in Nursing Home and the president of Defendant, Sunrest Health Facilities, Inc. Between 1984 and 2004, Scherdel was the administrator and operator of Manor as well as another nursing home, Sunrest Nursing Home located on adjoining property, 70 North Country Road, Port Jefferson, New York.

The lease between Plaintiff's predecessor-in-interest and Nursing Home had an expiration date of February 5, 2005.

Manor was located in close proximity to Mather Memorial Hospital ("Mather") in Port Jefferson. Prior to 2001, approximately 60 to 80 percent of Manor's patients were individuals who had been discharged from Mather.

In 2001, Mather opened its own nursing home. As a result, the number of patients at Manor declined significantly. Since Manor had significantly fewer patients, its revenues decreased precipitously. Manor claims that, as a result, it had a rather significant operating loss.

Due to the decline in the number of patients and since the lease for Manor was due to expire in February 2005, Scherdel decided to move the patients at Manor into Nursing Home and close Manor. The transfer of patients from Manor to Nursing Home was accomplished pursuant to a closure plan approved by the New York State Department of Health ("DOH").

Once all of the patients of Manor had been transferred to Nursing Home, DOH regulations required Manor surrender its operating certificate.

By Notice of Intention to Terminate Lease dated August 25, 2004, Plaintiff, Sunrest Properties, LLC ("Sunrest"), advised Manor that, since the property had become "vacant, deserted and abandoned", Sunrest intended to terminate the lease unless such condition was remedied within 15 days. In response to this Notice, Manor advised Sunrest that it was surrendering possession of the premises effective August 31, 2004 and that it was relinquishing any possessory right or interest it had in the premises.

By letter dated September 8, 2004, counsel for Sunrest advised counsel for Manor that notwithstanding the surrender of possession, Sunrest intended to hold Manor liable for all obligations and liabilities pursuant to the terms of the lease through the expiration date of the lease. This action was commenced shortly thereafter.

The amended complaint alleges three cause of action. The first cause of action seeks to recover the amount due from Manor to Sunrest pursuant to the terms of the lease from the date upon which the premises were vacated and the end of the lease term. The second cause of action seeks to recover damages from Scherdel and Manor alleging that they have "hindered, obstructed and prevented" Sunrest from operating a nursing home at the premises by vacating, deserting and abandoning the premises. The third cause of action alleges a claim seeking damages against Manor and Scherdel [*3]

as a person controlling the residential health care facility for putting the welfare of the residents of Manor in jeopardy.

DISCUSSION

A. Motion Sequences 1 and 2 - Second Cause of Action

Defendants move to dismiss the second cause of action on the grounds that it fails to state a claim upon which relief can be granted (CPLR 3211[a][7]) or for summary judgment (CPLR 3212) dismissing this cause of action. Sunrest cross-moves for summary judgment on the issue of liability on this claim.

The allegations in the complaint regarding this cause of action are rather nebulous. This cause of action seeks to recover damages of no less than $3,500,000 asserting that Manor "hindered, obstructed and prevented" Sunrest from operating a nursing home at the premises. (Amended Complaint ¶¶ 44, 45).

Sunrest claims that the license to operate a nursing home at 125 Oakland Avenue, Port Jefferson was a valuable asset. Manor voluntarily surrendered that license when it closed the nursing home.

1.Statutory and Regulatory Scheme

Sunrest asserts that, pursuant to Public Health Law §2801-a(10)(b) and 10 NYCRR 401.2, the license issued to operate Manor was "site specific" meaning that the license issued for the operation of a nursing home at that location remained in effect until it is annulled, revoked or surrendered. 10 NYCRR 401.1(b). Sunrest asserts that at the expiration of the lease, the license would have reverted to it. Thus, had Defendants continued to operate the nursing home until the end of the lease term in February 2005, the license would have reverted to Sunrest.

Sunrest also asserts that paragraphs two, eleven, thirty-six and thirty eight of the lease when read together with the provisions of the Federal Housing Authority ("FHA")

Regulatory Agreement - Nursing Homes obligated Manor to operate a nursing home at the premises during the entire term of the lease. Before Manor could close the nursing home it was operating at the premises, it had to advise the landlord and provide the landlord with the opportunity to take over the operation of the nursing home. Sunrest asserts that Manor violated the lease by surrendering its operating license without offering Sunrest the opportunity to take over the operation of the nursing home.

Finally, Sunrest asserts that it should have been given notice of Manor's intent to close the nursing home and surrender its license so that Sunrest could have made an application for the appointment of a receiver for the nursing home. Sunrest could have been appointed receiver and then obtained an operating license from the DOH.

Public Health Law § 2810(1) permits the owner of a residential health care facility to request the DOH to take over the operation of the facility by the appointment of a [*4]

receiver.[FN1] The DOH "...may, if it deems such action desirable, enter into an agreement with any such owners on the appointment of a receiver to take charge of the facility under whatever conditions as shall be found acceptable by both parties." Public Health Law §2810(1).

The statute and regulations do not define the term "owner". The term owner is not synonymous with lessor or operator. See, Village Nursing Home, Inc. v. Axelrod, 146 AD2d 382 (1st Dept. 1989). Manor is not the owner of the nursing home. It was the lessor of the property and the operator of the home.

When interpreting a statute, the words of the statute are to be given their ordinary meaning. Mc Kinney's Statutes §§ 94 and 232. The Court may not legislate by adding terms to a statute. McKinney's Statutes §73. Public Health Law § 2810(1) does not permit a lessee or operator of a nursing home to request the DOH to take over the operation of a nursing home or seek the appointment of a receiver. This statute also

does not require a lessor or operator of a nursing home to notify the owner of the property that it is submitting a closure plan to the DOH.

Engrafting such a requirement on the statute would constitute judicial legislating. If the Legislature wanted to require the lessor/operator of a nursing home to provide notice of its intent to close the facility to the property owner, it could and should have included that as a provision of the statute. It did not. This Court will not engraft such a provision on to this statute.

Furthermore, the statute and regulations do not grant to the owner of a nursing home the right to oppose or contest a closure plan submitted by a lessor/operator.

Therefore, Sunrest's assertion that Manor was statutorily obligated to advise it that it was submitting a closure plan so that Sunrest could seek the appointment of a receiver is without merit.

CPLR Article 64, which permits the court to appoint a receiver does not provide support for Sunrest's position. The court may appoint a temporary receiver to take possession of real and personal property during the pendency of an action where there is a danger that the property will be removed from the state, lost, material injured or destroyed. CPLR 6401(a). By the time this action had been commenced, Sunrest was

in possession of the real property. Manor possesses no personal property of which a receiver could take possession. Even if Manor was in possession of personal property, [*5]

Sunrest has not made an application for the appointment of a temporary receiver in that regard. See, CPLR 6401(a); and Siegel, New York Practice 4th §333.

2.Lease Provisions

A lease, like any other contract, will be interpreted in accordance with the intent of the parties. George Backer Mgt., Corp. v. Acme Quilting Co., 46 NY2d 211 (1978); and Martin v. Glenzan Assoc., Inc., 75 AD2d 660 (3rd Dept. 1980).

An agreement whose terms are clear and unambiguous will be enforced in accordance with those terms. South Road Assocs., LLC v. International Business Machines Corp., 4 NY2d 272 (2005); Greenfield v. Philles Records, Inc., 98 NY2d 562 (2002); and W.W.W. Assocs. v. Giancontieri, 77 NY2d 157 (1990).

If the agreement is unambiguous, the court must determine the intent of the parties from the language of the agreement. Greenfield v. Philles Records, Inc., supra.; and Pecker Iron Works of New York, Inc. v. Traveler's Ins. Co., 290 AD2d 426 (2nd Dept. 2002).

Terms of an agreement are to be interpreted in accordance with their plain meaning. Computer Assocs. Internat'l, Inc. v. U.S. Balloon Mfg. Co., Inc., 10 AD2d 699 (2nd Dept. 2004); and Tikotszky v. New York City Transit Auth., 286 AD2d 493 (2nd Dept. 2001).

The court is to give "...practical interpretation to the language employed and the parties reasonable expectations." Slamow v. Del Col, 174 AD2d 725, 726 (2nd Dept. 1991), aff'd., 79 NY2d 1016 (1992). See also, AFBT-II, LLC v. Country Village on Mooney Pond, Inc., 305 AD2d 340 (2nd Dept. 2003); and Del Vecchio v. Cohen, 299 AD2d 426 (2nd Dept. 2001).

The court may not add or delete provisions of an agreement under the guise of interpretation or interpret the provisions of an agreement in a way that would be contrary to the intent of the parties. Petracca v. Petracca, 302 AD2d 576; and Tikotzky v. New York City Transit Auth., supra.

Paragraph Thirty-Eight of the lease granted Sunrest the right to re-enter the premises and operate the premises as a nursing home if Manor's tenancy was terminated pursuant to Paragraph Thirty-Five or Thirty-Six of the lease.[FN2] However, the language of Paragraph Thirty-Eight of the lease makes that right contingent upon the lease being terminated while there are still patients residing in the home. In this regard Paragraph Thirty-Eight specifically states:

"By reason of the nature of the use of the premises,... and because of the

circumstances that upon any expiration of this Lease pursuant to paragraph "THIRTY-FIFTH" or paragraph "THIRTY-SIXTH" above, there may well be numbers of elderly, infirm and/or convalescing patients in and on the premises whose removal from the premises upon such expiration and upon such surrender by Tenants and/or re-entry by Landlord may create problems of hardship and humanity, among the rights which Landlord shall have,...shall be the right of Landlord to enter upon the premises and operate the premises as a Nursing Home and/or Health Related Facility..."

The clear intent of the parties as evidenced by this language was to assure that those who were receiving care at the premises continued to receive required care if Manor's lease was terminated for any reason. However, in this case, all of the patients had already been transferred out of the nursing home pursuant to closure plan approved by the DOH before the lease was surrendered. Therefore, the condition precedent to Sunrest's re-entry to operate as a nursing home never occurred.

Additionally, none of the provisions of the lease or the FHA agreement required Manor to advise Sunrest of its intention to close the facility and surrender its lease.

Sunrest's position is further undermined by the fact that Sunrest has never made any attempt after possession was delivered to it to obtain a license to operate a nursing home at the premises. In fact, Manor asserts and Sunrest concedes that Sunrest is presently attempting to sell the property. Sunrest has also made

application to the Village of Port Jefferson to obtain permission to use the premises as a medical office building.

Since the terms of the lease are clear and unequivocal and since those provisions make clear that Sunrest did not have the right to re-enter the premises and operate it as a nursing home under the circumstances involved in this case, Manor should be granted summary judgment dismissing the second cause of action. See, Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851 (1985); and Zuckerman v. City of New York, 49 NY2d 557 (1980). Likewise, Plaintiff's motion for summary judgment as to the second cause of action must be denied.

B. Motion Sequence 1 - Third Cause of Action

The third cause of action asserts that Scherdel, as a person controlling Manor, is personally liable for damages sustained by Sunrest.

Public Health Law § 2808-a makes a "controlling person" personally liable for any damages sustained by any person for damages or the state for any civil fine, penalty, assessment or damages resulting from a violation of Article 28 of the Public Health Law. Scherdel concedes that he is a controlling person for the purpose of the statute.

Public Health Law §2808-a does not, however, create a separate or new cause of action. It makes the controlling person personally liable for damages sustained by a

person asserting a claim under one of the substantive provisions of Public Health Law Article 28.

The third cause of action alleges that Manor and Scherdel put the welfare of the residents in jeopardy by abandoning the facility and moving the residents to another facility (Amended Complaint ¶ 47). Scheredel asserts that Sunrest lacks standing to assert this claim on behalf of the patients. This Court agrees.

Public Health Law § 2801-d grants a cause of action to recover damages to any patient residing in a residential health care facility if that patient is deprived of any right or benefit provided by any state or federal statute, code, rule or regulation. Public Health Law §2801-d(2) provides for a minimum amount of compensatory damages. Public Health Law §2801(d)(6) permits the court to award the attorney for the Plaintiff legal fees.

The statute creates a cause of action in favor of the patient; not third parties. See, Doe v. Westfall Health Care Center, 303 AD2d 102 (4th Dept. 2002). See also, Jacobs v. Newton, 1 Misc 3d 171 (Civil Ct., Kings Co. 2003). Standing involves a policy that permits only persons who are affected by what the Defendant has done or is threatening to do to bring an action. See, Siegel, New York Practice 4th §136.

In this case, if any of Manor's former patients rights were violated, they, or their legal representative, have standing to bring such an action. However, nothing in Public

Health Law §2808-a or any other provision of Public Health Law Article 28 grants the landlord of a nursing home standing to bring an action on behalf of its patients.

Additionally, Sunrest has failed to allege which federal or state statute, code, rule or regulation creating a right or benefit on behalf of a patient that Manor violated.

Sunrest's reliance upon Ocean Side Institutional Industries, Inc. v. United Presbyterian Residence, 254 AD2d 337 (2nd Dept. 1998) is misplaced. In Ocean Side, the Court never had to reach the issue of whether a controlling person can be held personally liable for the business obligations of a nursing home. The Appellate Division dismissed Plaintiff's action on the grounds that the individual Defendant was not a controlling person as defined by Public Health Law §2808-a.

Since Sunrest lacks standing to bring this action, the third cause of action should be dismissed.

C. Motion Sequence 3 - Preliminary Order of Attachment [FN3] [*6]

CPLR 6201(3) permits the court to grant a pre-judgment order of attachment if the Defendant, with intent to defraud creditors or frustrate enforcement of a judgment

that might be rendered in favor of Plaintiff assigns, disposes of, encumbers or secretes property, removes it from the state or is about to do any of these acts.

In order to obtain a pre-judgment order of attachment, the Plaintiff must establish that the Defendant's actions were taken with intent to defraud creditors or frustrate the enforcement of the judgment. Societe Generale Alsacienne De Banque, Zurich v. Flemingdon Development Corp., 118 AD2d 769 (2nd Dept. 1986). See also, Benedict v. Browne, 289 AD2d 433 (2nd Dept. 2001). In addition, the Plaintiff must establish a probability of success on the merits. Arzu v. Arzu, 190 AD2d 87 (1st Dept. 1993).

Plaintiff must also establish that the Defendant had a fraudulent intent. Computer Strategies, Inc. v. Commodore Business Machines, Inc., 105 AD2d 167 (2nd Dept. 1984), rearg. and lv. app. den., 110 AD2d 743 (2nd Dept. 1985). See also, Rosenthal v. Rochester Button Co., Inc., 148 AD2d 375 (1st Dept. 1989).

The mere transfer of property out of New York or assignment or other disposition of property is insufficient to establish fraud. Computer Strategies, Inc. v. Commodore Business Machines, Inc., supra. See also, Bank of China, New York Branch v. NBM L.L.C., 192 F. Supp. 2d 183 (S.D.NY 2002).

Fraud must be established through evidentiary facts stated in the affidavits in support of the application for an attachment. (Benedict v. Browne, supra; and Eaton Factors Co., Inc. v. Double Eagle Corp., 17 AD2d 135 [1st Dept. 1962]); and may be

inferred when significant sums of money are transferred out of New York without explanation or where the Defendant engages in a complex scheme to transfer funds out of New York, especially where the transfer of funds will render it nearly impossible to recover those funds in the jurisdiction to which the funds are transferred. See, Arzu v. Arzu, supra; and Bank of China, New York Branch v. NBM L.L.C., supra.

Since the second and third causes of actions are being dismissed, Sunrest has failed to make a showing of likelihood of success on the merits as to those causes of action. Arzu v. Arzu, supra.

Plaintiff has also failed to make a showing of probability of success on the merits in connection with the first cause of action. In that claim, Sunrest seeks to recover the balance due on the lease from the date Manor vacated the premises through the end of the lease term. Manor has asserted counterclaims asserting that Sunrest is holding money in escrow pursuant to the terms of the lease in excess of the amount due on the lease. While Sunrest denies the allegations contained in the counterclaim, it certainly raises questions of fact regarding the amount due. A Plaintiff cannot obtain a pre-judgment attachment if the Defendant has interposed a valid counterclaim. See, Computer Strategies, Inc. v. Commodore Business Machine, Inc., supra.

[*7]Plaintiff has failed to make a prima facie showing of entitlement to a pre-judgment order of attachment. There is no evidence that the Defendants have assigned, disposed of, encumbered or secreted any property or removed it from the

state with intent to defraud creditors. See, Rothman v. Rogers, 221 AD2d 330 (2nd Dept. 1995).

Since the Plaintiff has failed to establish the grounds for the issuance of a pre-judgment order of attachment, the motion must be denied. Raze Contracting, Inc. v. Colombo, 16 AD3d 656 (2nd Dept. 2005).

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss the second and third causes of action is granted; and it is further,

ORDERED, that Plaintiff's motion for partial summary judgment on the second cause of action is denied; and it is further,

ORDERED, the Plaintiff's motion for a pre-judgment order of attachment is denied; and it is further,

ORDERED, that counsel for the parties shall appear for a status conference on October 6, 2005 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY _____________________________

August 15, 2005 Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1:Public Health Law § 2810(2)(a) requires the DOH to make an application for the appointment of a receiver to operate a nursing home when the DOH revokes the nursing home's operating certificate. This section is not applicable to this action since the DOH did not revoke Manor's operating certificate. The operating certificate was voluntarily surrendered by Manor when all of the patients had been moved out of the facility pursuant to a DOH approved closure plan.

Footnote 2:Paragraph 35 of the lease provides for termination of the lease upon the tenant's filing for bankruptcy, applying for appointment of a receiver, assignment for the benefit of creditors or seeking the benefit of any insolvency act. Paragraph 36 provides for the termination of the lease if tenant violates any provisions of the lease or permits the premises to become vacant or deserted or abandoned and the failure of tenant to cure the default on 15 days written notice to the tenant.

Footnote 3:CPLR 6201(1),(2),(4) and(5) are not relevant to this application. CPLR 6201(1) permits the court to issue a preliminary order of attachment if the defendant is a non-domiciliary residing without the state or a foreign corporation. Sunrest Health Facilities, Inc. is a domestic corporation. Scherdel resides and is domiciled in Suffolk County. CPLR 6201(2) permits the Court to issue a pre-judgment attachment if the defendant cannot be personally served despite diligent efforts. Defendants were personally served and have appeared before the court. CPLR 6201(4) relates to actions brought by crime victims. CPLR 6201(5) applies to judgments entered in the federal courts or in courts of other states.