United States District Court, D. Utah, Central Division
ELIZABETH R. LOVERIDGE, Chapter 7 Trustee for the Bankruptcy Estates of East Lake Care Center, LLC; Castle Country Care Center, Inc.; and South Valley Health Care Center, LLC, Plaintiff,
JOHNSON LAND ENTERPRISES, LLC; SILVER LAKE HOLDINGS, LLC; RIVERVIEW HEALTHCARE, INC. PRICE HEALTHCARE, INC., JORDAN HEALTH ASSOCIATES, INC.; PATRICIAL JOHNSON; CRAIG JOHNSON; and BRUCE JOHNSON, Defendants. Bankr. Case Nos. 10-28754, 10-28751, 10-28752
ORDER AND MEMORANDUM DECISION
CAMPBELL U.S. District Court Judge
consolidated adversary proceeding, the Plaintiff, Elizabeth
Loveridge, is the Chapter 7 Trustee for three related
bankruptcy cases. The bankruptcy debtors, East Lake Care
Center, LLC (East Lake), Castle Country Care Center, Inc.
(Castle Country), and South Valley Health Care Center LLC
(South Valley), (Debtors) operate skilled nursing facilities.
The Defendants Patricia Johnson, Craig Johnson, and Bruce
Johnson own the Defendant Johnson Land Enterprises, LLC
(JLE). They also own East Lake, Castle Country, and South
center of the dispute is the sale of the Debtors by the
Defendants to a California business, the Ensign Group
(Ensign) and affiliates of Ensign. The Trustee contends that
the Defendants failed to give Debtors their share of the sale
proceeds. The Defendants respond that at the time of the
sale, Debtors had no interest in any assets that were sold
and so were not entitled to anything.
Trustee has filed a motion for partial summary judgment
asking the court to find that: (1) the Debtors owned the
intangible assets of the skilled nursing facilities
immediately before the sale to Ensign; (2) the Debtors were
insolvent immediately before and after the sale; (3) the
Debtors received nothing from the sale; and (4) the parties
intended that the twenty- three million dollar purchase price
was for all the assets of the Debtors, including the
the court finds that there are disputed issues of material
fact surrounding the questions of the ownership of the
intangible assets and the insolvency of Debtors before the
sale, the court denies the Trustee's motion on those
issues. But there is no genuine dispute that the Debtors were
insolvent after the sale, the Debtors received none of the
proceeds from the sale, and the intent of the parties was
that the twenty-three million dollars was for all of the
assets of the Debtors. Accordingly, the court grants the
Trustee's motion on those questions.
Defendants have filed a motion for summary judgment on all of
the Trustee's causes of action. Because resolution of
those causes of action depends upon whether Debtors owned the
intangible assets at the time of the sale, a question the
court cannot resolve at this time, the court denies the
judgment is appropriate “if the pleadings, the
discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as
a matter of law.” Fed.R.Civ.P. 56(c)(1)(B); see
also Justice v. Crown Cork & Seal Co., Inc., 527
F.3d 1080, 1085 (10th Cir. 2008). Examining that evidence,
the court must construe all facts and reasonable inferences
in the light most favorable to the nonmoving party.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986); Seegmiller v. LaVerkin
City, 528 F.3d 762, 766 (10th Cir. 2008).
Intention of the Parties to the PSA and OTAs
intention of the parties to the PSA, according to the
Trustee, was to sell every asset related to operating the
facilities and to deliver title free and clear of
encumbrances. (Trustee's Mot. for Partial Summ. J. 27,
ECF No. 113 (Trustee's Mot.).) The plain language of the
PSA also reflects that intent. (See PSA § 2.5,
ECF No. 113-13.) Additionally, according to Gregory K.
Stapley, Ensign's representative, Ensign not only entered
into the PSA but aslo simultaneously entered into Operations
Transfer Agreements (OTAs) in order to achieve this goal.
(Dep. of Gregory K. Stapley 95, ECF No. 114-1.) In his
deposition, he explains the redundancy of asset listings
between the PSA and the OTAs as a methodically prudent
strategy to ensure that Ensign purchased everything related
to the facilities.
We did those separate bills of sale [OTAs], again, as part of
sort of a belt-and- suspenders approach [the Debtors] signed
to neutralize the fact that we frequently dealt with small
operators who, while they were very good operators,
sophisticated on the operations side, were typically anything
but sophisticated when it came to their own corporate
structures and where and how their accounting was done. It
was just impossible to tell where things were.
(Id. at 88.)
With respect to the transfer provisions of the Operations
Transfer Agreement, it was merely a catchall to pick up
anything that we could get that might have been held or might
have been in question, because oftentimes we would find
questions about who owned what. . . . [I]t [the OTAs] simply
would refer to kind of very vagely whatever you [operator and
seller] have hold on, those kinds of things. . . . It's
just kind of a way to say the current operator doesn't
claim any of this stuff. . . . [T]hey [the operator and
seller] usually didn't know because they typically
didn't keep those things [assets] separate in their mind.
They were running things monolithically.
(Id. at 105-06.)
Johnson agrees with Mr. Stapley's interpretation of the
purpose of the OTAs. “The Operation Transfer Agreement,
in my opinion, was almost an overkill type of document that
would have covered anything we left out or that somehow got
omitted from the Purchase and Sale Agreement.” (Errata
App. to Trustee's Mem. in Opp'n to the Johnson
Parties' Mot. for Summ. J. 65, ECF No. 123 (citing Dep.
of Craig Johnson 28:3-7, ECF No. 113-3 (Johnson Dep.).)
Further, JLE and the Johnsons “acknowledge that the
purchase price of $23 million was intended to include all
assets belonging to Johnson Land, a party, ...