IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

VENTAS REALTY, LIMITED

PARTNERSHIP,

 Plaintiff,

 v.

ALC CVMA, LLC, et al,

 Defendants.

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No. 12 cv 3107

Judge Ronald A. Guzmán

ORDER

Defendants lease properties from Plaintiff for the operation of state-licensed and

highly regulated Alzheimer’s care facilities, assisted living facilities, and/or senior independent

living facilities in four different states. Each of the eight ALC Entities operates one such facility

pursuant to a single “Amended and Restated Master Lease Agreement” with Ventas (the

“MLA”). Collectively, the eight facilities have more than 600 beds for residents, all of whom are

in need of various levels of care and attention. Recently, Ventas received notices that indicate

several of the ALC Entities face state regulatory actions for violations of regulatory statutes or

regulations governing the facilities. The notices identify numerous deficiencies with the

respective ALC Entity’s operations which are jeopardizing the health, safety, and welfare of the

residents and which remain uncorrected despite previous citations from state health regulators.

These regulatory actions threaten permanent revocation of the required operating permits,

licenses, or other authorizations (the “Authorizations”), in which, pursuant to the MLA, Ventas

has been granted a first priority security interest by the ALC Entities. It appears that three of the

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eight facilities operated by the ALC Tenants, located in Georgia and Alabama, face state health

care regulatory actions seeking to revoke the operating licenses of such facilities on account of

violations of the applicable state’s regulations governing the facilities. Consequently, Plaintiff

seeks the expedited appointment of a receiver over the Ventas Portfolio “to prevent the loss of

the vital permits and licenses necessary to maintain operation of the facilities and alleviate the

threat to the health and safety of the residents posed by the ALC Tenants’ current management

of the facilities.” (Pl.’s Mem. at 2.)

Unfortunately, it does not appear that the expedited appointment of a receiver by this

Court will accomplish Plaintiff's stated aims. The Court's first consideration, of course, is the

welfare of the residents/patients in these facilities. The various state regulations, including the

licensing requirements, are obviously aimed at ensuring the welfare of the residents/patient's in

these facilities as well. It is not surprising, therefor, as Defendants point out, that the licenses

required to operate the three separate assisted living entities are in personam licenses, which may

not be transferred or assigned. (Def.’s Mem. at 3); Ga. Code Ann. § 31-2-4(d)(8); Ala. Code §

34-2A-2(a); Pl.’s Verified Compl. Declaratory Relief, Schedule 7.3. No doubt the state

regulatory agencies want to ensure only qualified individuals are in charge of the day-to-day

operation of these institutions. However, because the licenses cannot be transferred, appointing a

receiver on an expedited basis will not, as plaintiffs claim, prevent the loss of the permits and

licenses necessary to continue operating the facilities. In fact, just the opposite is likely to occur.

If Defendants are replaced by court order as administrators of the facilities, they may very well

lose their state licenses to operate the facilities. Moreover, any receiver appointed by the court to

replace Plaintiff would have to be licensed by the appropriate State regulatory agency. Plaintiff

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claims it has a qualified administrator waiting in the wings. But there can be no guaranty that the

state regulatory agency will actually issue a license to the individual which plaintiff wants this

Court to appoint on an emergency basis. Until licensed, any court appointed temporary receiver

would be managing the assisted living facilities in violation of state law. Such an appointment

would not be in the best interests of the residents/patients, nor would it achieve the Plaintiff's

first stated goal of preventing the loss of the vital permits and licenses necessary to maintain

operation of the facilities. Indeed, it appears that the only way to maintain such licenses is by

complying with the State statutory and regulatory schemes.

During oral arguments Plaintiff claimed that appointing a receiver now, before the

Defendants’ licenses are revoked by the State regulatory agencies, (which plaintiff posits may

occur as early as next week) would avoid the chaos and confusion that have occurred in other

cases where Defendants have had their licenses revoked. According to Plaintiff, in the order

appointing a temporary receiver, the Court can mandate that Defendants cooperate in the

transition from one administration to the other. But this could be accomplished with an order

after the State agencies revoke Defendants' licenses and an approved manager is appointed. The

Court is not convinced that the interests of the residents/patients or the preservation of plaintiffs'

contractual rights, for that matter, will be advanced by appointing a receiver to run Defendants'

businesses before the state regulatory agency has an opportunity to determine whether

revocation is the appropriate course of action, and if so, who is qualified to take over the

management of the facilities. An emergency receiver should be appointed only if there are no

lesser steps that would suffice to preserve the status quo. The Alabama code appears to provide

just such a lesser intrusion for accomplishing the same purpose. It provides that in the event an

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assisted living administrator has his or her license revoked, the State Board of Health may issue

an emergency permit to a person performing the functions of administrator in the assisted living

facility for a reasonable period of time from the date of the license revocation. This process

would have the advantage of taking place only after the state’s regulatory agency has held a

hearing and determined that Defendants' licenses should be revoked and after a determination of

the qualifications of any applicant for an emergency permit.1 It would also have the advantage

of avoiding undue interference by the federal courts with a state's statutory scheme for regulating

the administration of assisted living facilities in order to ensure the safety and well-being of its

residents. 

The determination of Plaintiff's likelihood of success on the merits in this case

necessarily involves an evaluation of Defendants' fitness to run the assisted living institutions in

the states of Georgia and Alabama. However, it is clear that the appropriate community health

departments in both of those states have either already finished, or are in the process of

finalizing, their own investigations of Defendants’ management of the facilities. The state

agencies’ examinations have likely been more thorough and comprehensive than what this Court

could accomplish within the limited confines of an emergency motion for temporary injunctive

relief. Since final determinations as well as appropriate remedial measures pursuant to those

investigations are imminent, it is not necessary to employ extraordinary injunctive relief at this

time. Nor would it be wise to take action that might disrupt or delay the finalization of these

investigations. Should it become clear that the State processes are somehow inadequate to

protect the health and safety of the resident/patient's and the Plaintiff’s contractual rights,

1 Neither counsel was able to describe to the Court what the corresponding procedure would be in the State of

Georgia.

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nothing prevents the Court from revisiting the issue.

In general, the appointment of a receiver should be for the purpose of preserving or

operating property pending a final disposition of the case; in other words, to preserve the status

quo. The effect of appointing a receiver in the case at bar would be just the opposite. Rather than

merely restraining Defendants from doing anything that would depreciate the property or waste

Plaintiff's assets, the Court would be wholly replacing Defendants as the licensed administrators

of the assisted living facilities. There is no guarantee that Defendants would be able to regain

this status should the Court's initial determination of likelihood of success on the merits turn out

to be wrong. Under state law it is likely the Defendants would have to be relicensed by the

appropriate state agency before resuming administration of the assisted living units. Thus, given

the particular facts of this case, the appointment of a temporary receiver on an emergency basis

would likely cause a material change in the status quo.

The closing of the facilities either temporarily or permanently as well as any costs of

transition from one administration to another are all easily compensable by an award of

monetary damages and, thus, are not a basis for preliminary injunctive relief. During oral

argument of its emergency motion Plaintiff contended however, without providing any proof,

that it owns the rights to the names of the facilities that are being threatened with disciplinary

action, and that the substantial prejudicial publicity associated with allegations of inadequate

care of the elderly and disabled has resulted in damage to the reputation of the facilities

involved. If so, Plaintiffs might be able to establish a likelihood of some irreparable harm.

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However, section 37.4 of the MLA, while giving Plaintiff some rights to continued use of any

names associated with the operation of a facility after termination of the lease or of tenant’s right

of possession, clearly states that the tenant, not the landlord, owns the names and that the

landlord may continue to use the same only as described in the lease. To say that plaintiff owns

the names of the various facilities is, therefore, a substantial exaggeration. 

Furthermore, in balancing the harm to both sides, it appears that neither side has an

advantage. The irreparable harm to Plaintiffs if damage to the reputation of the facilities’ names

is allowed to continue, is counterbalanced by the possible harm to Defendants’ reputations in the

industry if they are wrongfully removed from the management of several of their facilities

because of baseless allegations of mismanagement as well as the diminution of the value of their

interests as owners of the facility names. 

The public good is a serious consideration in this case. There are actual human beings in

need of care in these facilities. This is the Court's primary concern. Failure to remove an

administrator that is not adequately providing for their needs would constitute a grave public

harm. However, there are two state health agencies actively involved in investigating and, if

necessary, correcting or removing Defendants as administrators if they are indeed failing to

adequately provide for the needs of their patients. In fact, one of these agencies will be holding a

hearing to consider revoking the Defendant's license in just a few days. These agencies whose

investigators have expertise in this area, have gathered evidence, reviewed documents,

interviewed witnesses, and are on the ground at the actual facilities, are much better situated to

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make the determinations essential to ensure the health and safety of the residents/patients. 

It is unclear what effect this Court’s order, should it decide to grant Plaintiffs' motion,

would have on the states’ regulatory proceedings. But clearly the possibility for disrupting or

even derailing the entire process exists. Why would a state agency go forward with the hearing

to determine if a license should be revoked if this Court has effectively already removed the

licensee from the premises and thus barred him from exercising the rights granted by the license?

The Court is of the opinion that intrusion into the state processes which apparently are already

unfolding in a timely manner would not be in the best interests of the public.

For the reasons given above, Plaintiffs' emergency motion for expedited appointment of a

receiver is denied. 

Dated: May 9, 2012

SO ORDERED ENTER:

 ---------------------------------------------

 RONALD A. GUZMÁN

 District Judge

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