FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: RAINTREE HEALTHCARE 

CORP.,

Debtor.

No. 03-17195

SUNCREST HEALTHCARE CENTER D.C. No. LLC,  CV-03-00238-ROS Appellee,

OPINION

v.

OMEGA HEALTHCARE INVESTORS,

INC.,

Appellant. 

Appeal from the United States District Court

for the District of Arizona

Roslyn O. Silver, District Judge, Presiding

Argued and Submitted

September 12, 2005—San Francisco, California

Filed December 14, 2005

Before: Betty B. Fletcher, John R. Gibson,* and

Marsha S. Berzon, Circuit Judges.

Opinion by Judge Gibson

*The Honorable John R. Gibson, Senior Circuit Judge, United States

Court of Appeals for the Eighth Circuit, sitting by designation. 

16349
COUNSEL

Jared G. Parker, John C. Hendricks, and Sarah L. Barnes,

Stinson Morrison Hecker L.L.P., Phoenix, Arizona, for the

appellant. 

Scott F. Gibson, Gibson, Ferrin, & Riggs, PLC, Mesa, Arizona, for the appellee.

OPINION

GIBSON, Senior Circuit Judge:

Omega Healthcare Investors appeals the district court’s

judgment in favor of Suncrest Healthcare Center. The district

court reversed the bankruptcy court’s entry of summary judgment in an adversary proceeding brought by Omega to

recover Medicare overpayments for cost reimbursements. The

district court erred as a matter of law in its interpretation of

a written agreement between the principals, and we reverse.

I.

Before February 29, 2000, RainTree Healthcare Corporation leased and operated a nursing home in Phoenix. On February 28, RainTree entered into a Transfer Agreement with

Suncrest to transfer operation of the facility and Suncrest

began leasing the premises that same day.1 RainTree filed for

1The parties and the courts below provide different chronologies as to

the lease, Transfer Agreement, and bankruptcy filing. The governing documents are undisputed and their language is clear. Suncrest signed its lease

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bankruptcy on February 29. Eight months later, Omega

became the owner of the property in RainTree’s bankruptcy

estate pursuant to a settlement approved by the bankruptcy

court. Thus, while Omega is now the real party-in-interest

seeking to recover the funds, RainTree is the debtor whose

rights and liabilities are at issue. 

A nursing home facility must enter into a provider agreement and obtain a Medicare provider number in order to be

reimbursed for care given to Medicare patients. RainTree held

provider number 03-5205 for the facility at issue. When RainTree transferred operation of the nursing home facility to Suncrest, Suncrest accepted the automatic assignment of that

provider number by operation of law. See 42 C.F.R.

§ 489.18(a)(4), (c) (2000). If Suncrest instead had chosen to

apply for a new number, the nursing home could not have participated in the Medicare program while its application was

pending. At the time of the transfer in late February, RainTree

had outstanding requests for Medicare cost reimbursements.

On or around August 24, 2000, the federal government

deposited $184,515.89 in Suncrest’s account as the owner of

Medicare provider number 03-5205. The deposit represented

reimbursement for Medicare payments owed for services rendered in 1998. Although Suncrest held the provider number

at the time of the deposit, RainTree had provided the services

and was the holder in 1998 of the provider number as the

operator of the facility. When Omega became the owner of

RainTree’s bankruptcy estate, it filed this adversary proceedfor the premises on February 27, but the term of the lease began on February 28. RainTree (through its subsidiary SunQuest SPC, Inc.) and Suncrest

(through its sole corporate member American Healthcare Associates, Inc.)

agreed to transfer the nursing home facility operations at 11:59 p.m. Central Standard Time on February 28 and RainTree was to terminate its lease

simultaneously with the execution of the Transfer Agreement (which was

signed on February 29). RainTree filed its bankruptcy petition on February

29 at 7:20 p.m. 

IN RE: RAINTREE HEALTHCARE CORP. 16353
ing in bankruptcy court demanding that Suncrest turn over the

funds. On June 24, 2002, the bankruptcy court heard argument and issued an oral ruling in favor of Omega on its

motion for summary judgment. Suncrest appealed the ruling

to the district court and, on October 15, 2003, the district

court reversed the judgment and remanded for entry of judgment for Suncrest. Omega appeals the judgment. 

II.

We review de novo the district court’s judgment in the

appeal from the bankruptcy court, and apply the same de novo

standard of review the district court used to review the bankruptcy court’s summary judgment. Neilson v. United States

(In re Olshan), 356 F.3d 1078, 1083 (9th Cir. 2004). Summary judgment is to be granted if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, show that there is no genuine issue as to a

material fact and the moving party is entitled to judgment as

a matter of law. FED. R. CIV. P. 56(c). 

This case involves a single issue. The question is whether

RainTree or Suncrest was entitled to the Medicare reimbursement funds on February 29, 2000, the day RainTree filed for

bankruptcy. See Taylor v. Freeland & Kronz, 503 U.S. 638,

642 (1992) (“When a debtor files a bankruptcy petition, all of

his property becomes property of a bankruptcy estate.”). The

answer is dependent upon this Court’s interpretation of the

relevant Medicare statute and of the intent of the parties as

reflected in the Transfer Agreement. Although this is a case

arising in bankruptcy, the only relevant Bankruptcy Code provision is not dispositive. 

[1] Omega claimed that RainTree’s bankruptcy estate was

entitled to the Medicare payment under 11 U.S.C. § 541(a)

(2000),2 which describes what comprises property of the

2The 2005 amendments to the Bankruptcy Code are not applicable to

this case. 

16354 IN RE: RAINTREE HEALTHCARE CORP.
bankruptcy estate. As the bankruptcy court stated, “Under

§ 541(a) . . . , when a debtor files [for] bankruptcy[,] all its

property becomes property of a bankruptcy estate. . . . The

scope of the [section] is broad and includes all tangible or

intangible property. . . . [C]ontingent interests are even property of the estate.” However, the statute “merely defines what

interests of the debtor are transferred to the estate. It does not

address the threshold questions of the existence and scope of

the debtor’s interest in a given asset. . . . [W]e resolve these

questions by reference to nonbankruptcy law.” California v.

Farmers Markets, Inc., 792 F.2d 1400, 1402 (9th Cir. 1986).

In this case, questions as to the existence and scope of RainTree’s interest in the Medicare payment are resolved by federal Medicare and state contract law. 

Both the bankruptcy and district courts relied on a Fifth

Circuit case in reaching opposite legal conclusions regarding

the impact of federal Medicare law. In United States v. Vernon Home Health, Inc., 21 F.3d 693 (5th Cir. 1994), the government brought an action against the purchaser of a

Medicare provider’s assets seeking repayment of overpaid

Medicare cost reimbursements. The company, Vernon II, had

purchased the assets of its predecessor (Vernon I), which had

received the Medicare overpayments. However, because Vernon II had assumed the Medicare provider number from Vernon I when the former took over operations of the home

health care agency, the district court entered judgment finding

Vernon II jointly and severally liable with Vernon I for overpayments. Id. at 694. 

On appeal, Vernon II argued that it could not be held liable

for the overpayments because it assumed no liabilities under

the terms of the purchase agreement with Vernon I and Texas

state law therefore shielded it from liability. The Fifth Circuit

affirmed, holding that the rights of the United States arising

under the Medicare program were determined by federal law,

which preempted state corporate law. Id. at 696. In reaching

that conclusion, the court relied on the same regulatory and

IN RE: RAINTREE HEALTHCARE CORP. 16355
statutory provisions at issue in this case. The controlling regulation is 42 C.F.R. § 489.18 (2000). It provides: “The lease of

all or part of a provider facility constitutes change of ownership of the leased portion.” § 489.18(a)(4). 

“When there is a change of ownership as specified in paragraph (a) of this section, the existing provider agreement will

automatically be assigned to the new owner.” § 489.18(c). 

“An assigned agreement is subject to all applicable statutes

and regulations and to the terms and conditions under which

it was originally issued. . . .” § 489.18(d). 

[2] The cumulative effect of these subsections is that Suncrest’s lease of the nursing home facility and assumption of

the Medicare provider agreement made Suncrest subject to the

same statutory and regulatory conditions as RainTree had

been. These conditions include provisions for adjustments for

over- and underpayments. 42 U.S.C. § 1395g(a) (2000). The

relevant language states: 

The Secretary shall periodically determine the

amount which should be paid under this part to each

provider of services with respect to the services furnished by it, and the provider of services shall be

paid . . . the amounts so determined, with necessary

adjustments on account of previously made overpayments or underpayments . . . . 

In Vernon, the government interpreted the regulation and

statute to mean that the assignee of a provider agreement is

responsible to satisfy overpayments the government had made

to the assignor. The Fifth Circuit described the government’s

interpretation as “eminently reasonable,” 21 F.3d at 696, and

concluded that Vernon II could have avoided liability had it

applied for its own provider number instead of assuming the

one held by Vernon I. Taking over the number allowed Vernon II to provide continuous service to and be reimbursed for

16356 IN RE: RAINTREE HEALTHCARE CORP.
Medicare patients without waiting for approval of its application. Id.

The district court in the present case concluded that entitlement to reimbursement for underpayments automatically

transfers with the provider number just as liabilities for overpayments transferred in Vernon. The district court rejected

RainTree’s argument that Vernon is limited to cases where the

government is bringing an action for reimbursement and held

that the government “need not be a party to the action for the

liability to exist.” The district court provided no case citation

or explanation for its conclusion. 

The facts in the instant case are distinct from those in Vernon in significant ways. This case represents a dispute

between private parties over entitlement to money that the

government paid because it had previously underpaid a provider. The government is not a party to this case and thus

takes no position. In contrast, Vernon involved a direct dispute between the government and Vernon II, where Vernon

II had assumed the Medicare provider number in an assetonly purchase in which Vernon II took on no liabilities. The

government advanced a policy argument that suggested a quid

pro quo for Vernon II’s assumption of the Medicare provider

number. Vernon II was able to receive Medicare payments

immediately upon starting its operations because it assumed

an already-approved provider number, but in return it bore the

risk that it would have to share in the liability for overpayments.3

3A very good description of the statutory and regulatory framework of

Medicare reimbursements is contained in Sims v. United States Department of Health & Human Services (In re TLC Hospitals, Inc.), 224 F.3d

1008 (9th Cir. 2000). The following passage provides some context for

this case: 

The Medicare statute specifies an accelerated payment system to

ensure that providers are paid promptly. Under this system, a

Medicare provider . . . receives periodic payments for its services

on an estimated basis prior to an audit which determines the precise amount of reimbursement due to the provider. 42 U.S.C.

§ 1395g; . . . Consequently, underpayments and overpayments

are an expected and inevitable result of this payment system. 

Id. at 1011-12 (citation omitted). 

IN RE: RAINTREE HEALTHCARE CORP. 16357
[3] Although not mentioned by the bankruptcy or district

courts or by either party, the district court order in Vernon (as

affirmed by the Fifth Circuit) held Vernon I and Vernon II

jointly and severally liable for the overpayment. Id. at 694.

The case’s noteworthy holding is that Vernon II, the successor

entity that did not provide the home health care services for

which Medicare overpaid, was liable for the overpayment.

However, Vernon I, the entity that provided the services and

received the overpayment was also held to be liable for repayment. If we apply that analysis to this case, it follows that

both RainTree and Suncrest would be entitled to the Medicare

funds. Viewed in that light, it is clear that Medicare laws do

not define the scope and existence of RainTree’s contractual

interest, if any, in the Medicare payment. Instead, state contract law must provide the substantive answer. 

[4] Under 42 C.F.R. § 489.18, Suncrest automatically

became the holder of RainTree’s Medicare provider number

when it began leasing the nursing home facility. Omega

argues that the fact of the assignment is not critical because

RainTree’s right to the Medicare funds is not dependent upon

ownership of the provider number. Instead, Omega asserts

that RainTree’s interest in the unpaid Medicare funds was

transferred to the bankruptcy estate because the funds were

owed to the estate upon its creation. The bankruptcy statute

supports Omega’s argument. “[P]ost-petition revenues belong

to the estate to the extent they are based on pre-petition services or agreements.” Cusano v. Klein, 264 F.3d 936, 945 (9th

Cir. 2001) (interpreting 11 U.S.C. § 541(a)(1), (6)). The Medicare payment at issue is for services RainTree rendered in

1998, well before its 2000 bankruptcy filing. 

The bankruptcy court held that the Medicare regulations

and statutes are not controlling and looked to Arizona contract

law to determine the existence and scope of RainTree’s interest in the Medicare funds as set forth in the Transfer Agreement. The district court, after holding that federal law entitles

Suncrest to the funds, concluded that the Transfer Agreement

16358 IN RE: RAINTREE HEALTHCARE CORP.
does not explicitly transfer those assets back to RainTree. The

district court agreed that the parties could have contracted to

transfer any Medicare reimbursement funds from Suncrest to

RainTree, but the court did not read the Transfer Agreement

to contain such a provision. 

[5] We conclude that the bankruptcy court correctly interpreted the written agreement. The Transfer Agreement provides:

Subsequent to the Effective Date, [Suncrest] shall

allow [RainTree] and its agents and representatives

to have reasonable access to (upon reasonable prior

notice and during normal business hours), and to

make copies of, the books and records and supporting material of the Facility relating to the period

prior to and including the Effective Date, to the

extent reasonably necessary to enable [RainTree] to

. . . verify accounts receivable collections due [RainTree] and for reimbursement purposes for the cost

reporting periods prior to and including the Effective

Date. 

RainTree also retained liability “for any and all debts owed to

any third person or entity arising from the operations at the

Facility prior to the Transfer Date.” Applying Arizona law (as

the Transfer Agreement designates as controlling), the bankruptcy court correctly determined that it was obligated to

enforce the contract in accordance with the parties’ intent.

Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134,

1138 (Ariz. 1993) (en banc). The Arizona Supreme Court has

held that intent is not limited to words in the contract but is

also to be gleaned from the surrounding circumstances, such

as “negotiation, prior understandings, subsequent conduct and

the like.” Darner Motor Sales, Inc. v. Universal Underwriters

Ins. Co., 682 P.2d 388, 398 (Ariz. 1984) (en banc). Courts are

to determine what the parties’ intentions were at the time they

entered into the agreement, taking into account any agreedIN RE: RAINTREE HEALTHCARE CORP. 16359
upon special meaning the parties may have given to particular

words in the contract. Taylor, 854 P.2d at 1139. 

The bankruptcy court concluded that the parties’ intent was

sufficiently expressed in the terms of the Transfer Agreement.

The bankruptcy court stated: 

[Omega’s] analysis appears supported by the agreement, where the parties specified which assets and

record[s] would be turned over to the transferee.

There’s no indication [RainTree] intended transfer of

entitlements to underpayments incurred prior to the

effective date. Further, the fact that [RainTree] was

entitled under the agreement to subsequently access

records to file or defend cost reports, to verify

accounts receivable collections, and for reimbursement purposes of cost [reporting] periods prior to

and including the effective date, leads to only one

reasonable interpretation, I believe. That is that the

right to collect underpayments was retained by the

selling party. Since [Suncrest] offered nothing to

contradict this understanding, I believe that [RainTree is] entitled to summary judgment. 

The bankruptcy court also noted that its conclusion that

RainTree was entitled to the payment “is buttressed by the

fact that the agreement provided [RainTree] will remain liable

for all debts to any third person or entity arising from the

operations of the facility prior to the termination date.” 

[6] The bankruptcy court put into context the reason for the

access to records provision and pointed out its symmetry with

the liability provision. In other words, it is reasonable for the

parties to have agreed that RainTree would be entitled to

Medicare reimbursements for payments dating back to its

operation of the facility because RainTree was obligated by

the Transfer Agreement to satisfy any shortfall that Medicare

16360 IN RE: RAINTREE HEALTHCARE CORP.
may have assessed related to that time.4

 Moreover, Suncrest’s

ability to assume the ongoing operation of an established

nursing home facility with a Medicare provider agreement in

place was certainly adequate consideration for an agreement

that RainTree would be entitled to any potential Medicare

cost reimbursements dating back to RainTree’s operation of

the facility. 

As counsel agreed at oral argument, the phrase “cost reporting period” is peculiar to the Medicare reimbursement system.

See, e.g., 42 C.F.R. § 413.24(f)(1) (2000) (“A provider that

. . . experiences a change of ownership must file a cost report

for that period under the program beginning with the first day

not included in a previous cost reporting period and ending

with the effective date of termination of its provider agreement or change of ownership.”). The Transfer Agreement

guaranteed RainTree access to records “for reimbursement

purposes for the cost reporting periods prior to and including

the [date of the transfer].” The bankruptcy court’s conclusion

is thus further supported by the parties’ use of the phrase

“cost reporting period,” which is probative of their intention

with respect to Medicare over- and underpayments. 

[7] As in the bankruptcy court, Suncrest has offered no

contrary contract interpretation on appeal. It advances no

argument to suggest that further evidence is necessary and

appropriate as to the intention of the parties or that additional

documents comprise the agreement between the parties.

Rather, Suncrest simply denies that the quoted provisions of

the Transfer Agreement mean what the bankruptcy court said

they mean. The bankruptcy court correctly interpreted the

contract and relied upon that interpretation to determine that

4At oral argument, Suncrest’s counsel was asked about the hypothetical

situation in which Medicare had overpaid RainTree and collected that

overpayment from Suncrest. Counsel conceded that, had RainTree not

filed for bankruptcy, Suncrest would have tried to collect that amount

from RainTree as an obligation under the Transfer Agreement. 

IN RE: RAINTREE HEALTHCARE CORP. 16361
RainTree retained full interest in the Medicare reimbursement

funds, and the funds therefore are property of the bankruptcy

estate. 

[8] We reverse the district court judgment and direct that

the bankruptcy court order be reinstated, and we remand the

case to the district court for its ruling on Omega’s motions for

attorneys’ fees and prejudgment interest. 

Judgment REVERSED and REMANDED. 

16362 IN RE: RAINTREE HEALTHCARE CORP.