United States District Court, E.D. Michigan, Southern Division
OPINION AND ORDER DENYING MICHIGAN DEPARTMENT OF
HEALTH AND HUMAN SERVICES' MOTION FOR SURCHARGE (DOC.
CARAM STEEH, UNITED STATES DISTRICT JUDGE
the court is the Michigan Department of Health and Human
Services' motion to declare that (1) the Receiver assumed
the Defendants' Medicaid provider agreements; (2)
Medicaid overpayments are administrative expenses of the
Receivership estate, and (3) to surcharge to the Plaintiff,
Abraham Shaulson, and the Receiver's bond. The court
received extensive briefing, including supplemental briefs as
requested. In that regard, MDHHS moved to strike MICHA's
reply brief. For the reasons explained below, the motions are
MW Capital Funding, Inc. (“MW Capital”), filed a
complaint against several nursing homes -- Magnum Health and
Rehab of Monroe, Saginaw, Adrian, and Hastings - for breach
of a loan agreement. Plaintiff had a security interest in the
accounts and other assets of the nursing homes. On January 4,
2017, Plaintiff obtained a consent order appointing a
Receiver (Trigild, Inc.) to operate the nursing facilities.
The Receiver employed Benchmark Healthcare Consultants, LLC,
as operational manager for each facility. A consent judgment
was entered in favor of Plaintiff on February 3, 2017, in the
amount of $3, 527, 625.50. The judgment provided that
“Plaintiff shall not execute on the Judgment pending
further order of this Court in furtherance of and consistent
with the Receiver Order.” Doc. 10.
Receiver, in consultation with Plaintiff, closed the Saginaw
facility because of its deteriorating financial condition.
The Receiver continued operating the remaining facilities and
marketed them for sale. It received a bid (“Stalking
Horse Bid”) in the amount of $3, 375, 000 for the
assets of the Adrian, Hastings, and Monroe facilities (not
including the real estate, which was owned by different
entities). On May 9, 2017, the Receiver filed a motion
seeking entry of an order setting certain sale procedures for
a proposed auction. MI Rosdev, a member of the entities which
owned the real estate, objected to the sale order. The court
held a hearing on October 11, 2017. Ultimately, the Stalking
Horse Bid was withdrawn, and the Receiver withdrew its motion
on October 31, 2017.
and MI Rosdev entered into negotiations regarding a sale of
the facilities and the real estate together. They represented
to the Receiver at the October 11, 2017 hearing that a
“deal was imminent.” Doc. 39 at ¶ 8.
However, as negotiations continued, the facilities had
critical cash flow deficiencies. The Receiver filed a motion
to immediately wind down operations and close the remaining
facilities on March 13, 2018. Doc. 39. The Receiver reported
that he “has made numerous requests to Plaintiff to
provide funding to keep operations running and to ensure that
payroll is met. These requests have gone unfulfilled.”
Michigan Department of Health and Human Services
(“MDHHS”) responded to the Receiver's motion,
outlining its concerns about the facilities' inability to
provide proper patient care during the wind-down process and
the failure to provide sufficient notice of the closure. Doc.
April 27, 2018, the Receiver withdrew the motion to close the
facilities, because it “obtained temporary interim
funding, ” apparently from Plaintiff or the proposed
buyer in anticipation of a deal. Doc. 46. On May 15, 2018,
MDHHS filed an emergency motion for a status conference,
outlining numerous serious concerns, including that vendors
were not being paid at the facilities, the employees'
health care policies were cancelled for nonpayment, and that
the financial crisis was affecting patient care. Doc. 47. In
response, Plaintiff agreed that the facilities should be
closed and should not be permitted to operate further without
funding. Doc. 55.
25, 2018, the Receiver filed a motion for an expedited sale
of the receivership assets to Plaintiff through a credit bid.
Doc. 59. The court heard argument, including the objections
of MDHHS and others, and took the matter under advisement.
The matter was set for a hearing/settlement conference before
Judge Friedman on June 13, 2018. At the conference, the
parties agreed to a sale order (except for MDHHS, which did
not have a person with authority present, contrary to the
court's order). Docs. 81, 117.
13, 2018, the court entered an “Order Authorizing and
Approving the Expedited Sale of the Operating Receivership
Assets Free and Clear of All Liens, Claims, Interests and
Encumbrances” (“Sale Order”). Doc. 81.
Around the same time, MW Capital assigned its debt to MICHA
US, LLC. In the Sale Order, the court granted MICHA
“the exclusive right to acquire the Operating
Receivership Assets, ” subject to certain liabilities,
including the expenses incurred by the Receivership.
Id. at ¶ 1. The Sale Order provides, however,
that MICHA does not have “any financial liability
whatsoever for amounts due or alleged to be due to the
Michigan Department of Health and Human Services”
arising from the operation of the nursing homes during the
receivership. Doc. 81 at ¶ 11 (“Medicaid
Sale Order provided for the closing of the sale of the
Operating Receivership Assets after certain regulatory
approvals (“Pre-Closing Approvals”) were
obtained. Id. at ¶ 6. The closing occurred on
October 1, 2018. The facilities are now owned by Monroe MI
SNF Management LLC; Adrian MI SNF Management LLC; and
Hastings MI SNF Management LLC (“the Purchaser
Opcos”), which are affiliates of MICHA (which is an
affiliate of MI Rosdev). Although the facilities are now
operated by the Purchaser Opcos, the Receiver continues to
manage the Receivership Estate pending discharge.
alleges that the Receivership Estate owes the state
approximately $1.5 million for Medicaid overpayments made
between January 4, 2017, and September 30, 2018. The Medicaid
overpayments sought are the difference between the Medicaid
reimbursements received by the nursing homes during the
period of the Receivership and the amount MDHHS subsequently
determined they should have received after an audit.
of its acquisition of the Operating Receivership Assets,
MICHA agreed to pay the expenses of the Receivership Estate,
as well as certain quality assurance assessments due to
MDHHS. MICHA expressly declined to take responsibility for
the Medicaid overpayments at issue here. Doc. 81 at ¶
11. MDHHS seeks to hold MW Capital, as the party who sought
the receivership, liable for the Medicaid overpayments.
contends that the Medicaid overpayments are administrative
expenses of the estate that should be charged to MW Capital
and its president, Abraham Shaulson, because Plaintiff
improperly sought the receivership. In supplemental briefing
requested by the court, MDHHS further argues that the court
should surcharge the proceeds from MW Capital's security
interest in the amount of the overpayments because the
plaintiff benefited from the overpayments and because MW
Capital consented to the receivership. MDHHS also seeks to
surcharge the Receiver's bond.
presiding over an equity receivership, a district court has
“broad powers and wide discretion.” SEC v.
Basic Energy & Affiliated Res., Inc., 273 F.3d 657,
668 (6th Cir. 2001) (quoting SEC v. Elliott, 953
F.2d 1560, 1566 (11th Cir. 1992)). “Receivership is an
equitable remedy, and the district court may, in its
discretion, determine who shall be charged with the costs of
the receivership.” Gaskill v. Gordon, 27 F.3d
248, 251 (7th Cir. 1994); see also Elliott, 953 F.2d