Matter of Adirondack Tri-County Nursing & Rehabilitation Ctr. Inc.
Annotate this CaseDecided on December 26, 2017
Supreme Court, Warren County
In the Matter of the Application of Adirondack Tri-County Nursing and Rehabilitation Center, Inc., Petitioner, For an Order Approving the Sale of All or Substantially All Assets Pursuant to Sections 510 and 511 of the New York Not-for-Profit Corporation Law.
64771
Bond, Schoeneck & King, PLLC, Albany ( Mark A. Mainello and Thomas W. Simcoe of counsel), for petitioner.
Eric T. Schneiderman, Attorney General, Albany (Nathan M. Courtney of counsel), for respondent.
Robert J. Muller, J.
Petitioner Adirondack Tri-County Nursing and Rehabilitation Center, Inc. is a not-for-profit corporation which owns and operates a licensed 82-bed residential healthcare facility located at 112 Ski Bowl Road in North Creek, Warren County. The facility also offers adult day health care services, as well as physical, occupational, and speech therapy programs. Petitioner owns the facility, together with the 7.59-acre parcel of real property upon which it is situated.[FN1] Petitioner also owns a medical center adjacent to the facility, which center is leased to an unrelated physicians group. Presently before the Court is petitioner's application by Order to Show Cause to sell the facility and substantially all of its assets — including its real property — to Post Acute Partners Acquisition, LLC (hereinafter Post Acute) for the sum of $3,475,501 (see N-PCL 510, 511).
N-PCL 510 (a) (3) and 511 (b) require that this application be made on notice to the Attorney General. N-PCL 511 (b) further provides that the Attorney General shall be given "a minimum of fifteen days notice[,]" with the Court having the "authority to shorten [the] time for service . . . upon a showing of good cause." Petitioner requested that the Court exercise such authority here, stating as follows:
"[T]he majority of [p]etitioner's revenue is from Medicaid reimbursement. Petitioner's Medicaid reimbursement rate is inadequate to cover its operating expenses and, as a result, in the current year [p]etitioner has operated at a loss of $815,157 through October 31, 2017. These continue to date, and thus [p]etitioner is rapidly running out of cash to sustain its operations. Based on current budget forecasts, it is anticipated that this will occur before the end of December 2017. In that event, [p]etitioner will no longer have funds to continue the operation of its facility, which will likely result in significant harm to [p]etitioner and its mission, and hardship and disruption to its nursing home residents, staff and employees."Given these financial concerns, this Court found that petitioner demonstrated good cause and the Attorney General was given only nine days notice of the application. The Attorney General appeared in opposition, "object[ing] to the proposed sale because Post Acute is unwilling to commit to continued operation of the [f]acility for a minimum 5-year period after the sale". During oral argument additional documents, referenced hereinafter, were submitted by the Attorney General and, with petitioner's consent, were accepted and considered by the Court.
The procedure set forth in N-PCL 510 and 511 is "designed to preserve charitable assets to serve public purposes" (64th Assoc., L.L.C. v Manhattan Eye, Ear & Throat Hosp., 2 NY3d 585, 590 [2004] [internal quotation marks and citation omitted); see Rose Ocko Found. v Lebovits, 259 AD2d 685, 688 [1999], appeal dismissed and lv denied 93 NY2d 997 [1999]). The Attorney General is made a statutory party to applications under N-PCL 510 and 511 "to ensure that the interests of the ultimate beneficiaries of the corporation, the public, are adequately represented and protected from improvident transactions" (Matter of Manhattan Eye, Ear & Throat Hosp. v Spitzer, 186 Misc 2d 126, 151 [Sup Ct, NY County 1999]; see 64th Assoc., L.L.C. v Manhattan Eye, Ear & Throat Hosp., 2 NY3d at 590). In determining whether to grant an application under N-PCL 510 and 511, the Court "must assess whether 'the consideration and the terms of the transaction are fair and reasonable to the corporation and that the purposes of the corporation or the interests of the members will be promoted'" (64th Assoc., L.L.C. v Manhattan Eye, Ear & Throat Hosp., 2 NY3d at 590, quoting N-PCL 511 [d]; see Church of God of Prospect Plaza v Fourth Church of Christ, Scientist, of Brooklyn, 76 AD2d 712, 716 [1980], affd 54 NY2d 742 [1981]).
Here, petitioner contends that the consideration and the terms of the transaction are fair and reasonable. Petitioner had an appraisal done on April 25, 2016 which estimated the going concern value of its assets and operations to be $4,500,000. This appraisal "relied upon and assumed" the corporation's continued receipt of funding through a New York State Department of Health (DOH) Vital Access Provider (VAP) grant. According to petitioner, the grant expired earlier this year, thereby reducing its going concern value. Petitioner received offers from five potential purchasers, with most offers in the vicinity of $4,000,000. According to petitioner, its Board of Directors
"evaluated each of the offers in consideration of various criteria, including not only the proposed purchase price, but also the quality and culture of the potential purchasers' other long-term care facilities, the potential purchaser's apparent ability to preserve quality nursing home services in the North Creek area, the relative certainty of successfully [*2]completing the transaction, and the purchaser's overall ability to achieve [petitioner's] mission and economic objectives".Although Post Acute's offer of $3,475,501 was not the highest offer received, it was accepted based upon petitioner's "assessment of [Post Acute's] ability to maintain quality care in the North Creek region in light of the other facilities operated by [Post Acute] in the larger Adirondack region". To that end, Post Acute recently acquired or is in the process of acquiring — through its affiliates — the Adirondack Health-Uihlein Living Center in the Village of Lake Placid, Essex County (hereinafter Adirondack Health) and Heritage Commons Residential Health at Inter-Lakes in the Town of Ticonderoga, Essex County (hereinafter Heritage Commons). Petitioner further notes that it "had significant doubts about the ability of the cash offerors to consummate a transaction at the prices offered,[FN2] and it also had concerns about the ability of the other offerors that were not selected to structure the transaction so that all liabilities would in fact be adequately assumed".
Petitioner next contends that its purposes and the interests of its members will be promoted by the sale. Specifically, petitioner contends that Post Acute will continue to operate the facility as a nursing home, thus making the transition in ownership smooth for both patients, staff, and employees. Petitioner further contends that, if the sale is not approved, it will likely have to close the facility as a result of insufficient funds — which would obviously have a negative impact on all involved.
In opposition, the Attorney General contends that the consideration and the terms of the transaction are not fair and reasonable. Specifically, the Attorney General contends that Post Acute must agree to continue to operate the facility as a nursing home for five years from the date of the sale. The Attorney General requests this commitment to continuation of operations based upon its "recent experiences with CABS Nursing Home and Rivington House, two New York City-based not-for-profit nursing homes that were purchased by for-profits". The Attorney General describes these experiences as follows:
"Based on the expectation that the for-profits would continue to provide skilled nursing services on the sites, the Attorney General did not object to, and the Supreme Court approved the CABS and Rivington sales. Nonetheless, the for-profits each subsequently terminated the nursing home operations within one year of the purchase. In the case of Rivington House, the for-profit sold the underlying real estate to developers at a substantial profit".The Attorney General notes that petitioner's facility "is located a mere 430 feet from Ski Bowl Village at Gore Mountain, which currently has a townhouse listed for $745K". In view of this, the Attorney General is concerned that Post Acute may close the nursing home and sell the property to a developer for a profit. According to the Attorney General, "the ultimate beneficiaries are the nursing home residents who require 24-hour care". In this context, the Attorney General discusses the "very real risk of transfer trauma to [these residents] if they are forced to relocate from the facility where they have been living".
The Attorney General further contends that the purposes of petitioner and the interests of its members will not be promoted by the sale. Petitioner's mission, as set forth in its Certificate of Incorporation, is "[t]o serve aged, disabled and chronically impaired persons by establishing and operating a residential health care facility consisting of skilled nursing home beds pursuant to [a]rticle 28 of the Public Health Law of the State of New York". According to the Attorney General, this mission will not be fulfilled if Post Acute submits a closure plan to the DOH immediately after its purchase of the facility.
In reply, petitioner contends that the sale of its skilled nursing facility in North Creek cannot be compared to the sale of skilled nursing facilities on the lower east side of Manhattan. Petitioner further contends "that there is no indication whatsoever that [Post Acute] intends to acquire [p]etitioner's property for [the purpose of] flipping it". Insofar as the Ski Bowl Village at Gore Mountain is concerned, petitioner has submitted the affidavit of Hal Payne — its Administrator and Chief Executive Officer — which shared his observations that "it took approximately eight years for the Adirondack Park Agency to approve the Village project, which approval was separate from the Town of Johnsburg approval process, which was also very lengthy". Payne further states that "[o]ne or more townhouse properties [in the Village] has been on the market since 2012" and "no further efforts for development . . . are currently underway". Based upon this, petitioner suggests that it would be difficult in any event for its property to be developed for commercial purposes.
This Court concludes that the consideration and the terms of the sale are fair and reasonable and, further, that the sale will promote petitioner's purposes and the interests of its members. Petitioner has amply demonstrated its diligence in researching all of the potential purchasers before deciding to sell its facility to Post Acute. Further — and as noted by petitioner — there is no evidence whatsoever that Post Acute plans to flip the property. Rather, the record establishes that Post Acute is a Delaware limited liability company in the business of owning and operating long-term care facilities. In addition to Adirondack Health and Heritage Commons, it operates 10 nursing homes in the Buffalo area as well as several others out-of-state.[FN3] Finally, while the Attorney General expresses concern regarding the risk of transfer trauma if Post Acute purchases and then closes the facility, although given petitioner's financial status this risk may be more imminent if the facility is not sold.
Briefly, petitioner has submitted a December 13, 2017 appraisal of its real property in support of the application. This appraisal values the property at $1,540,000 because, inter alia, it is zoned for "Public and Semi-Public" uses, which excludes tourist accommodations. The Attorney General has requested that the record remain open until January 12, 2018 in order that he might retain his own expert to conduct a full real estate appraisal of the facility and provide "an affidavit regarding the 'reasonable likelihood' that a change in zoning for the [f]acility would [*3]happen".[FN4]
This final application is denied. Even if the Attorney General's appraiser finds that the real property is worth more than $1,540,000 and a zoning change is reasonably achievable, the record still contains nothing whatsoever to suggest that Post Acute will sell the property — or to use it for anything other than a skilled nursing facility.
Therefore, having considered the Verified Petition of Adirondack Tri-County Nursing and Rehabilitation Center, Inc. together with Exhibits "A" through "L", attached thereto, the supporting affirmation of Roderick S. McDonald, Esq., dated November 29, 2017, and the affirmation of Thomas W. Simcoe, Esq., dated December 13, 2017 submitted in support of the petition, the opposing affirmation of Nathan M. Courtney, Esq., dated December 19, 2017 together with Exhibits "1" through "5", the opposing affirmation of David M. Slutsky, Esq., dated December 21, 2017 together with Exhibits "A" though "G" and the single page petition on behalf the 1199 SEIU "members of the Adirondack Tri-County Nursing and Rehabilitation Center, Inc.," submitted in opposition to the petition, the reply affirmation of Thomas W. Simcoe, Esq., dated December 21, 2017 together with Exhibit "A", the supporting affidavit of Hal Payne sworn to December 20, 2017, and upon the extensive oral arguments of counsel on December 22, 2017, it is hereby
ORDERED that petitioner Adirondack Tri-County Nursing and Rehabilitation Center, Inc. be and hereby is authorized to transfer title to Post Acute Partners Acquisition, LLC all assets and properties as described in the petition herein, and upon the conditions of sale set forth therein, and it is further;
ORDERED that any relief not specifically addressed has nonetheless been considered and is hereby expressly denied.
The above constitutes the Decision and Order of this Court.
The original of this Decision and Order has been filed by the Court together with the submissions enumerated above and the Order to Show Cause. Counsel for petitioner is hereby directed to promptly obtain a filed copy of the Decision and Order for service with notice of entry in accordance with CPLR 5513.
Dated: December 26, 2017
Lake George, New York
ENTER:
____________________________________
ROBERT J. MULLER, J.S.C. Footnotes
Footnote 1: This real property is subject to a mortgage in the amount of approximately $2,100,000.
Footnote 2: One potential purchaser offered $5,000,000 in cash.
Footnote 3: Interestingly, the Attorney General recently challenged Post Acute's acquisition of Odd Fellow and Rebekah Rehabilitation and Health Care Center, Inc. (hereinafter Odd Fellow) in the Town of Lockport, Niagara County — again, because it would not commit to continued operation of the facility as a nursing home for at least five years. The Supreme Court of Niagara County (Caruso, J.) held oral argument in that case on December 19, 2017 and approved the proposed sale.
Footnote 4: The Attorney General indicates he was not able obtain this appraisal prior to submitting opposition because of the expedited notice of the application.
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