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Cortland Laundry, Inc. v. Lakeside Nursing Home, Inc.

Other Lower Courts

June 21, 2001

Cortland Laundry, Inc., Doing Business as Ames Linen Service, Plaintiff,
Lakeside Nursing Home, Inc., Defendant.

Page 485


Byrne, Costello & Pickard, P. C., Syracuse (Terry R. Pickard of counsel), for Peregrine Health Management Company, intervenor. Riehlman, Shafer & Shafer, Tully (Louise M. Thurlow of counsel), for plaintiff.


Phillip R. Rumsey, J.

This seemingly straightforward action, brought by a linen rental and laundry service against a nursing home to recover over $135,000 allegedly due and unpaid for services rendered, is complicated by the fact that the home has recently turned its operation and its assets over to a temporary receiver, pursuant to a contract entered into by the home, the receiver Peregrine Health Management Company (hereinafter Peregrine), and the Department of Health. Peregrine seeks permission to intervene in the action and to serve an answer on behalf of Lakeside (which has defaulted in appearing), and for a stay of all proceedings pending the termination of the receivership. Plaintiff opposes all aspects of Peregrine's motion, and cross-moves for a default judgment against defendant Lakeside Nursing Home, Inc. (hereinafter Lakeside) for the portion of the debt that was assertedly incurred prior to the commencement of the receivership, and severance of the remainder of its claim (which arises from services rendered after the receivership began).

The receivership contract contains several provisions dealing with Lakeside's prereceivership debts. It expressly provides that Lakeside shall remain liable for such liabilities, and that " [n]othing [therein] shall be construed to diminish any rights that any [third party] may have to proceed against [Lakeside] with respect to financial obligations arising out of transactions occurring prior to the date [of the contract]" (affidavit of Louise

Page 486

M. Thurlow, Esq., dated Mar. 8, 2001, exhibit D [receiver agreement], ¶¶ 3.9, 3.10; cf., ¶ 2.5 [with respect to Lakeside's possible failure to satisfy outstanding obligations, the agreement shall not be construed " in a manner inconsistent with appli-cable law governing receiverships"]). And, while the receiver is authorized to negotiate and/or settle any of Lakeside's outstanding liabilities or obligations, Lakeside has also expressly reserved its right to contest or dispute any asserted liability.

The agreement also addresses the potential encumbrance of Lakeside's property during the term of the receivership, by requiring, inter alia, that Lakeside promptly take whatever action is necessary to remove any such encumbrance resulting from an " execution or attachment" upon such property that arises from a prereceivership obligation " unrelated to the operation of the facility" (id., ¶ 3.3). No such requirement is imposed with respect to liens or encumbrances arising from debts, such as those at issue here, that are related to the operation of the facility.

The mere fact that some or all of a debtor's assets have been placed into receivership does not necessarily preclude the commencement of suit against the debtor directly. A mortgagor may be sued to judgment by other creditors, despite the fact that his or her only asset may be the mortgaged property that has been placed under the control of a receiver. The existence of the receivership affects only the extent to which the resulting judgment may be enforced against the receivership estate itself; it does not preclude a suit against the debtor to recover upon debts that preexisted the receivership.

In determining whether it is appropriate to allow the receiver to intervene in such an action, it is necessary to consider the nature of the receivership, the interests intended to be protected thereby, and the impact that a judgment in plaintiff's favor might have upon those interests. It is apparent from the terms of Lakeside's receivership agreement itself, as well as from the overall thrust of the statute sanctioning such an arrangement (see, Public Health Law § 2810 [1]), that the receiver's chief concerns are protecting the welfare of the facility's patients and, in connection therewith, ensuring the facility's continued existence through a smooth transfer of operations to a new operator. The new operator would either purchase or lease, from the current owners, the real property and equipment necessary to run the facility. Thus, while those assets may actually be owned by Lakeside, and any encumbrance

Page 487

thereon would not, without more, [1] affect the receiver's right to possession as established by the agreement, the receiver nevertheless has a legitimate interest in protecting Lakeside's assets from the imposition of liens and other encumbrances, which may decrease the likelihood of attracting a potential purchaser and thereby affect the patients' welfare.

Consequently, inasmuch as any judgment that might be obtained in this action could arguably affect the value or marketability of property within the receiver's possession and control, and thereby indirectly impinge upon the receiver's ability to carry out its mandate (even if such judgment or any resulting lien could not be enforced against said property during the receivership), the Court finds that the receiver should be permitted to intervene in ...

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