Court Opinion

ID: 7246779
Source: CourtListenerOpinion
Date Created: 2022-07-25 05:23:58.773921+00
Date Added: 2024-06-11T14:03:14.979571
License: Public Domain

Defendants generally dispute the severity of the financial deficiencies alleged by plaintiff. According to defendants, they are "consistently" making payments "without any issue" on the outstanding Massachusetts bed taxes and the management fees *23owed to Next Step. Docket # 22 at 7. Though they concede that the outstanding bed taxes amount to $1,166,953.75 across the four facilities, defendants say they are "making monthly payments in response to these charges on a consistent and continuing basis" and note that the Commonwealth has not yet initiated procedures to revoke their licenses.4 Docket 22-1 ¶ 5. With respect to the AR Loan itself, defendants argue that the balance is being "automatically paid down whenever Synergy collects on accounts receivables," including payments as recent as February 8, 2018. Docket # 22 at 7.
II. Legal Standard
"This Court has inherent equitable power to appoint a receiver to manage or preserve property pending judgment." U.S. Bank Nat'l Ass'n v. Pendleton Westbrook SPE, LLC, No. 2:16-CV-00411, 2016 WL 6808141, at *3 (D. Me. Nov. 17, 2016) (citing United States v. Quintana-Aguayo, 235 F.3d 682, 686 & n.8 (1st Cir. 2000) ). Receivership is an extraordinary remedy, justified only when a clear showing is made that an "emergency exists, in order to protect the interests of the plaintiff in the property." Commodity Futures Trading Comm. v. Comvest Trading Corp., 481 F.Supp. 438, 441 (D. Mass. 1979). To warrant the appointment of a receiver to manage and operate a business, "there must be at the least a 'sufficient showing' of something more than the inadequacy of the security and the doubtful financial standing of the debtor." Chase Manhattan Bank, N. A. v. Turabo Shopping Ctr., Inc., 683 F.2d 25, 26 (1st Cir. 1982) (quoting Garden Homes. Inc. v. United States, 200 F.2d 299, 301 (1st Cir. 1952) ). In determining the presence vel non of "something more," courts look to factors such as "fraudulent conduct on the part of the defendant; imminent danger that property would be lost, concealed, injured, diminished in value, or squandered; the inadequacy of the available legal remedies; the probability that harm to plaintiff by denial of the appointment would be greater than the injury to the parties opposing appointment; and the plaintiff's probable success in the action and the possibility of irreparable injury to his interests in the property." Id. at 26-27. Ultimately, "the decision to appoint a receiver clearly lies within the discretion of the court." Consol. Rail Corp. v. Fore River Ry. Co., 861 F.2d 322, 326 (1st Cir. 1988).
III. Discussion
Plaintiff argues that a receiver is necessary because "[d]efendants' careless and negligent behavior has not only jeopardized the Agent's Collateral, but it has put the residents at their nursing facilities at risk." Docket # 17 at 2. In addition to being in default on their loan obligations, plaintiff contends that defendants are unable to keep up with payments to vendors such that there exists a real and alarming threat that the facilities will falter and all revenues will cease. Plaintiff also suggests that a receivership is in the public interest, given the threat to patients if the nursing homes fail. Finally, plaintiff notes that a separate Massachusetts nursing facility affiliated with Synergy is already in receivership.
Defendants counter that although they are in default on their obligations to plaintiff and do have certain outstanding balances with vendors, appointment of a receiver is unnecessary because "Plaintiffs present no allegations or evidence to demonstrate *24that the Defendants are insolvent and provide the Court with no showing whatsoever that the Properties provide inadequate security to satisfy the total debt owed." Docket # 22 at 6. They argue that their financial position is not as grim as plaintiff claims and that, in any event, plaintiff has failed to show the requisite "something more" which would justify receivership.
Contrary to defendants' arguments, I am persuaded that receivership is fully warranted. This conclusion is based on the complaint; the parties' briefs, affidavits, and related papers; the loan agreements; and supplemental financial information regarding defendants' accounts receivable and payable; as well as the parties' arguments at the hearing on plaintiff's motion.5
To begin, "plaintiff's probable success in the action" is considerable. See Turabo, 683 F.2d at 27. Breach of the loan and forbearance agreements is not seriously in dispute, nor is the fact that the entire AR Loan balance is presently due and owing. That defendants "continue to perform on and pay the loans" is immaterial because, as they admit, the alleged breaches concern "certain reporting requirements, covenants and agreements" which they failed to satisfy. Docket # 22 at 6, 7.
Turning to the "possibility of irreparable injury to [plaintiff's] interest in the property," it is clear that the viability of defendants' operations is seriously threatened because their current income stream is insufficient to cover their operating expenses and outstanding debts. For example, defendants' 2017 revenue was $39,028,687 and their operating expenses were $43,439,228. Docket ## 32-1 ¶ 6; 32-2 at 1. Consistent with this pattern of negative net income, over half of defendants' current accounts payable are 90 days past due. Docket ## 32-1 ¶ 8; 32-4 at 1. Because vendors are likely to cease providing services if these debts are not paid, and because the Commonwealth may revoke defendants' licenses if the bed tax debt isn't remedied, the continued operation of the nursing facilities is at risk.
While defendants present financial data purporting to show that "the existing receivables ... are sufficient to cover all vendor payables," Docket # 33 at 2, their proffer is highly misleading for several reasons. First, the data excludes several large debts, including the outstanding Massachusetts bed taxes and large (though disputed) fees owed to Woodmark Pharmacy. When those debts are included, the conclusion that defendants are insolvent becomes inescapable.6 Second, defendants provide no information on the certainty of collecting the purported receivables, which is doubtful because (i) Massachusetts has threatened to withhold a portion of MassHealth payments to offset the overdue bed taxes; and (ii), in any event, the AR Loan agreement requires that all of defendants' collections be paid to a lock box and used to repay the outstanding loan debt before any other payables. Defendants acknowledge that the AR Loan is "automatically paid down whenever Synergy collects on accounts receivables," Docket # 22 at 7, but fail to address how this situation impacts their ability to pay vendors. Notably, plaintiffs are not prepared to forbear exercising this right or to lend additional funds (though they would extend credit to a receiver) and defendants have not identified any other source of *25funding. Defendants' contention that "[a]ny threat of the nonpayment of vendors is extinguished by the uncontroverted fact that upon receipt of each facility's receivables, all vendors will be adequately and satisfactorily paid" is therefore disingenuous and irreconcilable with the evidence. Docket # 33 at 3.
Finally, while the Operator Defendants are separate legal entities from the Owner Defendants, the latters' recent bankruptcies further underscore the gravity of defendants' financial problems given that both sets of companies are owned and managed by Synergy. The bankruptcies and surrounding facts also lend credence to plaintiff's allegations of gridlock and disarray within Synergy's management. For instance, defendants submitted an affidavit of Zisha Lipschutz dated February 9, 2018 in which he described himself as "Manager for Synergy Health Centers." Docket # 22-1 at 2. That same day, however, plaintiff was informed that Mr. Lipschutz no longer has decision-making authority for the organization. Furthermore, while defendants cited the Lipschutz affidavit on February 12, 2018 and contended that "Synergy...will continue [to] make payments without any issue" on the mortgage loan, Docket # 22 at 7, the Owner Defendants filed for bankruptcy just two days later. Bankruptcy filings and a new affidavit in this case list one Y.C. Rubin as defendants' "Chief Restructuring Officer" and do not mention Mr. Lipschutz. Such management disarray further supports appointment of a receiver to operate the nursing homes.
In sum, defendants' financial situation is "something more" than "doubtful"-it is dire. See Turabo, 683 F.2d at 26. I am persuaded that there is an "imminent danger" that the relevant property, i.e. the accounts and other assets securing plaintiff's loan, will be "lost" or "diminished in value." See id. at 26-27. These circumstances, when considered alongside plaintiff's probable success in the underlying action as well as Synergy's management turmoil and the bankruptcy of the Owner Defendants, justify a receivership. Moreover, the court is mindful that defendants operate skilled nursing homes with hundreds of patients. Operational mishaps, service interruptions, and license revocations may well affect the health and safety of patient-residents. That fundamentally distinguishes this case from those involving, for instance, commercial office buildings, see U.S. Bank Nat. Assoc. v. DePietri, Sr., No. 10-cv-10920, 2010 WL 3259979 (D. Mass. Aug. 18, 2010), or media businesses, see Alta Subordinated Debt Partners II, L.P. v. Tele-Media Co. of the Carolinas, No. 95-cv-11105, 1995 WL 464925 (D. Mass. July 26, 1995).
IV. Conclusion
Plaintiff Capital Finance, LLC's Emergency Motion for Appointment of Receiver is ALLOWED as to Waban Health Center, LLC, Merrimack Valley Health Center, LLC, Watertown Health Center, LLC, and Worcester Health Center, LLC.
The parties shall confer and, within seven days from the date of this Memorandum of Decision, submit to the court a Joint Proposed Order Appointing Receiver that is specific to this case and these defendants.

Mr. Moylan's affidavit and the supporting documents filed therewith estimate the total outstanding bed taxes to be $2,418,101 inclusive of interest. Docket ## 32-1 ¶ 11; 32-6 at 1.

Because equity justifies a receivership here, the court need not consider any separate contractual grounds.

It is also unclear whether defendants' data accounts for any fees or interest being charged by vendors due to the various delinquencies.