On Cross Motions For Summary Judgment, Court Grants Summary Judgment In Favor Of Debtor In Dispute Over Reconciliation Of Accounts
FSQ, Inc. v. Integrated Health Servs., Inc. (In re Integrated Health Servs., Inc.), 358 B.R. 637 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)
FSQ sued the Debtors to recover $1,268,762 in payments allegedly due to FSQ by the Debtors’ estates with respect to a reconciliation of claims during a period in which FSQ managed the Debtors’ health-care facilities. The parties filed cross motions for summary judgment. The Court denied FSQ’s motion, and granted the Debtors’ motion for summary judgment, find that the claims asserted by FSQ had been released pursuant to agreements between the parties that settled all claims arising during the time that FSQ managed the Debtors’ facilities, and prior to FSQ being granted licenses to operate the facilities themselves.
Following the bankruptcy petition of Integrated Health Services, Inc. and its co-debtors, the Debtors filed a motion for approval of a settlement agreement with Senior Housing Properties Trust, the predecessor to FSQ (“the FSQ Settlement”). The FSQ Settlement provided for the transfer of leasehold and security interests in certain health care facilities from the Debtors to FSQ and its licensees.An objection by the United States was resolved through a stipulation that provided for a transfer of the Debtors’ Medicare provider agreements to FSQ, once it obtained licenses. FSQ agreed to pay the United States $10,000 per facility to cure all the Debtors’ existing financial defaults. The United States waived any other claims it had against the Debtors with respect to the facilities subject to the FSQ Settlement, except claims under the False Claims Act. The FSQ Settlement was approved and the transaction closed effective July 1, 2000.
Pursuant to the FSQ Settlement, the Debtors entered into a management agreement with FSQ dated July 10, 2000. Under the Management Agreement, FSQ agreed to manage the facilities and the Debtors agreed to bill for those services under the Debtors’ provider agreements and to pay FSQ all receipts for the facilities’ operations during the transition period between the transaction closing date and the time FSQ obtained licenses to operate the facilities. The management agreement specifically provided that any monies received by the Debtors for Medicare-covered services performed at the transfer facilities during the transition period would be forwarded by the Debtors to FSQ.
FSQ obtained licenses at the Transfer Facilities at various times between October 1, 2000, and April 2, 2001. On October 10, 2001, FSQ and the Debtors executed a letter agreement regarding the final reconciliation of various claims between FSQ and the Debtors arising under the FSQ Settlement. At that time, the parties agreed that the Debtors owed FSQ $1.45 million, plus any amounts due for reconciliation of the periodic interim payments made by the United States.
In connection with their disclosure statement, the Debtors’ outlined an additional proposed settlement (“the U.S. Agreement”) resolving disputes between the Debtors and the United States relating to many of the Debtors' facilities and relating in part to claims for alleged violations of Medicare regulations and the False Claims Act. Under the U.S. Agreement, the United States was to receive a payment of $19.1 million for claims arising under the False Claims Act, a portion of which ($17.1 million) was to be set off against underpayments due by the United States to the Debtors for various facilities. The U.S. Agreement was approved pursuant to the Order confirming the Debtors’ plan.
FSQ thereafter filed a Complaint against the Debtors and the U.S. contending that the Debtors owed FSQ for services rendered at the transfer facilities during the transition period. FSQ asserted that the United States refused to make the periodic interim payments because they were offset against the False Claims pursuant to the U.S. Agreement. FSQ sought enforcement of their purported right to payment under the settlement agreement, management agreement and the letter agreement, and sought $1,268,762. The Court granted the U.S.’s motion to dismiss under the Federal Tort Claims Act, and under the doctrine of sovereign immunity.
The Debtors’ motion to dismiss was denied because the Court concluded that there were material issues of disputed fact regarding whether the letter agreement precluded FSQ from asserting a claim against the Debtors for the periodic interim payments.
FSQ and the Debtors thereafter filed cross-motions for summary judgment.
FSQ first asserted that the doctrine of the law of the case, and specifically the disposition of the motions to dismiss, required that the Court grant summary judgment. However, the Court held that because motions to dismiss and motions for summary judgment are decided under different standards, the doctrine of the law of the case was inapplicable.
Then, after reviewing the settlement agreement, letter agreement and stipulation between the parties, the Court concluded that the Debtor and FSQ had agreed that after FSQ obtained a license for the facilities, the parties would release all claims against each other. Because FSQ was seeking payment for the periodic interim payments receivables, which accrued during the transition period before the licenses were in place, such claims had been released. Moreover, the Debtors were only required to pay the periodic interim payments receivables to FSQ if they received such payments from the United States. In fact, they had not. Accordingly, nothing was due from the Debtors’ estates to FSQ, and summary judgment in favor of the Debtors, and against FSQ, was warranted.
