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Sundance Rehabilitation Corporation v. New Vision Care Associates II, Inc.

Doc. 129

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI SOUTHERN DIVISION
SUNDANCE REHABILITATION, CORPORATION, ) ) ) Plaintiff, ) ) v. ) ) NEW VISION CARE ASSOCIATES II, INC. ) and C.P. CARE ASSOCIATES, LLC., ) ) Defendants. )

Case No. 04-3571-CV-S-FJG

ORDER
Currently pending before the Court is plaintiff's Motion for Summary Judgment (Doc. # 46) and defendant's Motion for Summary Judgment (Doc. # 77). I. BACKGROUND SunDance provided therapy services for the residents and patients at Rocky Ridge nursing home. The services were provided in 2001 and 2002. Rocky Ridge then sought Medicare reimbursement for these services. SunDance argues that Rocky Ridge failed to pay SunDance the amounts that it was reimbursed from Medicare. On January 21, 2004, SunDance filed suit against Rocky Ridge and New Vision alleging breach of contract, quantum meruit and suit on account for failure to pay for the therapy services provided. This lawsuit will be referred to as "SunDance I." The parties entered into a settlement. SunDance agreed to dismiss New Vision because Rocky Ridge represented that New Vision had no involvement in the operation of the nursing home and rather New Vision's only connection was through its ownership and lease of the land and building. Based on these representations, SunDance agreed

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to dismiss New Vision. The parties filed a Stipulation of Dismissal and a Joint Motion for Consent Judgment on June18, 2004. On July 21, 2004, the Court entered a Clerk's Order of Dismissal and dismissed New Vision with prejudice. On July 22, 2004, the Court entered a Consent Judgment in favor of SunDance and against defendant Rocky Ridge. On August 2, 2004, Rocky Ridge requested that SunDance forebear enforcing its judgment for ninety days so that Rocky Ridge could restructure its debt and operations. SunDance agreed to forebear collecting on its debt only if Rocky Ridge made monthly payments of $2,500.00 for three months and Rocky Ridge would enter into good faith discussions to establish a payment plan after ninety days had expired. Rocky Ridge made three payments, however after three months had passed, Rocky Ridge announced that it had shut down its operations and would not make any more payments or engage in any payment plan discussions. SunDance alleges that after Rocky Ridge shut down, its assets and value as an ongoing business operation were fraudulently transferred to New Vision without consideration. SunDance argues that New Vision siphoned off Rocky Ridge's assets and business operations without paying any consideration and left Rocky Ridge without any assets to pay its obligations. SunDance alleges that New Vision took over the business operations, operates the nursing home in the same location and uses the same business name. On December 22, 2004, after attempts to resolve the dispute failed, SunDance filed suit against New Vision alleging that New Vision was liable under the corporate continuation doctrine for operating the exact same business. SunDance also alleges that New Vision fraudulently transferred assets. This suit will be referred to as "SunDance II." SunDance alleges that in 2

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furtherance of the scheme, New Vision and C.P. Care Associates, LLC ("C.P."), through their common owner, Cheryl Parsons, fraudulently transferred the same assets and business operations previously owned by Rocky Ridge and New Vision to C.P. after the SunDance II lawsuit was filed. SunDance alleges that pursuant to the Corporate Continuation doctrine and the Fraudulent Transfers Doctrine, it is entitled to invalidate the fraudulent transfer of assets and/or enforce the Consent Judgment against New Vision and C.P. II. STANDARD A moving party is entitled to summary judgment on a claim only if there is a showing that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "[T]he substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the moving party meets this requirement, the burden shifts to the non-moving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. 242, 248 (1986). In Matsushita Electric Industrial Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), the Court emphasized that the party opposing summary judgment "must do more than simply show that there is some metaphysical doubt as to the material facts" in order to establish a genuine issue of fact sufficient to warrant trial. In reviewing a motion for summary judgment, the court must view the evidence in the light most favorable to the non-moving party, giving that party the benefit of all inferences that may be reasonably drawn from the evidence. Matsushia, 475 U.S. 574, 588; Tyler 3

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v. Harper, 744 F.2d 653, 655 (8th Cir. 1984), cert. denied, 470 U.S. 1057 (1985). III. DISCUSSION Corporate Continuation Doctrine "The general rule in Missouri is that when all of the assets of a corporation are sold or transferred the transferee is not liable for the transferor's debts and liabilities." Chemical Design, Inc. v. Am. Standard, Inc., 847 S.W.2d 488, 491 (Mo.Ct.App. 1993). A successor corporation may be liable, however: (1) where the purchaser expressly or impliedly agrees to assume the debts or liabilities of the transferor; (2) where the transaction amounts to a merger or consolidation; (3) where the purchasing corporation is merely a continuation of the selling corporation; or (4) where the transaction is entered into fraudulently for the purpose of escaping liability for the debts and liabilities of the transferor. ARE Sikeston Ltd. P'ship v. Weslock Nat'l, Inc., 120 F.3d 820, 828 (8th Cir. 1997)(citing Chemical Design, 847 S.W.2d at 491); Brockmann v. O'Neill, 565 S.W.2d 796, 798 (Mo.Ct.App. 1978). Medicine Shoppe Intern. Inc., 336 F.3d 801, 803 (8th Cir. 2003). Plaintiff argues that the facts demonstrate that New Vision merely served as the corporate continuation of Rocky Ridge and should be held liable for the debts and obligations owed by its predecessor corporation. In Medicine Shoppe the Court noted that there are five factors which courts consider when determining whether a purchasing corporation is a continuation of the selling corporation, none of which are determinative: (1) whether there is common identity of officers, directors and stockholders; (2) whether the incorporators of the successor also incorporated the predecessor; (3) whether the business operations are identical; (4) whether the transferee uses the same trucks, equipment, labor force, supervisors and the name of the transferor[;] and (5) whether notice has been given of the transfer to employees or customers. . . . Roper Elec. Co. v. Quality Castings Inc., 60 S.W.3d 708, 711-13 (Mo.Ct.App. 2001), see also, Flotte v. United Claims Inc., 657 S.W.2d 387, 388-89 (Mo.Ct.App. 1983). Id. at 804.

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In the instant case, plaintiff argues that Rocky Ridge and New Vision shared identical officers, directors and stockholders. Cheryl Parsons served as president and secretary of both New Vision and Rocky Ridge and George Mathes served as vicepresident and treasurer for both entities. Rocky Ridge and New Vision operated the same business, using the same business name and retained the identical work force, supervisor, Administrator, equipment, property and building that Rocky Ridge had previously used. Cheryl Parsons, as the President of Rocky Ridge and New Vision sent a notice to employees and residents of Rocky Ridge Manor, advising them that "[o]n September 1, 2004, you will be employed by New Vision Care Associates II, Inc. There will be no change in the name of the facility and you should experience no change in the general atmosphere or structure of the facility." However, no notice was provided to SunDance until SunDance initiated discussions regarding a payment plan. Additionally, plaintiff argues that the Court should also enforce the Consent Judgment against C.P. based on the Corporate Continuation Doctrine as well. SunDance argues that after the present lawsuit was filed, New Vision transferred the very same assets, which had previously been owned by Rocky Ridge to a third related entity, C.P. SunDance argues that the same factors identified above, also apply to this transfer. C.P. and New Vision shared a common identity of officers, directors and stockholders in Cheryl Parsons. Rocky Ridge, New Vision and C.P. all operated the same business and C.P. also used the same work force, supervisors, Administrator, equipment, property and building as did New Vision. SunDance argues that C.P. is merely the corporate continuation of New Vision and Rocky Ridge and it is entitled to enforcement of the Consent Judgment. 5

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Defendants argue that initially Rocky Ridge was the operator of the nursing home, while New Vision was the owner of the building and equipment and that the relationship was that of a landlord and tenant. However, from September 1, 2004 until December 31, 2004, New Vision operated the nursing home because under a settlement with the IRS, Rocky Ridge was required to discontinue operations. On January 1, 2005, C.P. became the new Operator of the nursing home via a written lease agreement. New Vision leased the nursing home facility and equipment to CP for a term of ten years. New Vision and C.P. notified the staff, patients and current supply vendors of the change in operator. Defendants argue that New Vision did not transfer any of its assets to C.P. Defendants argue that the corporate continuation doctrine does not apply because New Vision did not acquire Rocky Ridge's assets nor did C.P. acquire the assets of New Vision. Cheryl Parsons states that at the time Rocky Ridge discontinued operations on August 31, 2004, the inventory had a book value of only $6,075.84. She notes that there was no value to the business of Rocky Ridge since the liabilities exceeded the assets as of August 2004. As of August 31, 2004, Ms. Parsons alleges that the value of Rocky Ridge's good will was negative. Any good will of Rocky Ridge was secured by the UCC Financing Statement. She further notes that at all times material to these proceedings, New Vision was the owner of the real property and most of the equipment used in the nursing home. (Parsons Affidavit

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