Attorney General v. M.C.K., Inc.
2000 Mass. LEXIS 619, 736 N.E.2d 373, 432 Mass. 546 (2000)
Rule of Law:
A receiver appointed under the Patient Protector Receivership Act may be authorized to sell the real estate and tangible property of a nursing home, even if held by a separate corporate entity, when the licensed entity and the property owner are found to be alter egos, and this power is not terminated by the temporary transfer of residents if the facility can be reopened to protect resident welfare.
Facts:
- In 1993, Michael Konig purchased five nursing homes in Massachusetts, establishing separate corporations for each home: one to hold title to the real estate and assets (e.g., Reifer, Inc. for Union Square) and another to hold the operating license (e.g., M.C.K., Inc. (MCK) for Union Square); Konig was the sole shareholder of both Reifer and MCK.
- In 1995, the Department of Public Health (department) found conditions constituting an immediate and serious threat to residents' health and safety (jeopardy) at two other Konig-controlled nursing homes, leading to concerns about all five homes and potential license revocations.
- The department and defendants (MCK, Reifer, and Konig) entered a settlement agreement concerning Union Square, where MCK and Reifer agreed to execute a purchase and sale agreement with a prospective buyer or MCK would submit notice of intent to close Union Square.
- Konig subsequently failed to sell or close Union Square, and on June 12, 1997, MCK, through Konig, disclaimed responsibility for the facility, placing Union Square residents in imminent danger.
- Union Square served a unique and vulnerable population, including residents with significantly higher psychiatric diagnoses and cognitive impairment, a longer average length of stay, and a substantial Chinese-speaking population, making them particularly susceptible to adverse effects from relocation.
Procedural Posture:
- The Commonwealth (Department of Public Health and Attorney General) filed a complaint in the Superior Court against MCK, Reifer, and Konig, seeking the appointment of a receiver under G. L. c. 111, § 72M, and injunctive relief and civil penalties under G. L. c. 93A.
- A Superior Court judge appointed a temporary receiver for "M.C.K., Inc. d/b/a Union Square" and ordered a lien for receivership costs on the property.
- On March 18, 1999, the Commonwealth moved, under G. L. c. 111, § 72R, to terminate the receivership by a court-ordered sale of the nursing home, including its equipment, building, and real estate.
- A Superior Court judge determined that while G. L. c. 111, § 72R, authorized the sale of a "facility," it did not authorize the sale of separately owned real estate without first "piercing the corporate veil" of Reifer, Inc.; the judge denied the motion to sell without prejudice, severed the receivership action from the G. L. c. 93A claims, and ordered an expedited trial for a factual determination on corporate disregard.
- After that trial, the judge found that MCK and Reifer were the alter egos of Konig and ordered the sale of Union Square, then reported the propriety of her order to the appeals court.
- Thereafter, the receiver filed an unopposed motion for authority to close the nursing home, which another Superior Court judge allowed.
- The defendants (Konig, MCK, and Reifer) subsequently filed a motion to vacate the judge’s order for the sale of Union Square, which was denied.
- The Supreme Judicial Court granted direct appellate review.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
1. Does a Superior Court receiver appointed under G. L. c. 111, § 72R, have the authority to order the sale of real estate and tangible property used in the operation of a nursing home, when those assets are legally owned by a separate corporate entity from the licensed operator, but both entities are alter egos of the same individual? 2. Is the receiver's power to sell a nursing home terminated if its residents have been temporarily transferred to other facilities?
Opinions:
Majority - Greaney, J.
Yes, a Superior Court receiver appointed under G. L. c. 111, § 72R, has the authority to order the sale of real estate and tangible property of a nursing home, even if held by a separate corporate entity, when the licensed entity and the property owner are found to be alter egos, and this power is not automatically terminated by the temporary transfer of residents, especially if the facility can be reopened. The court acknowledged that the term “facility” in G. L. c. 111, § 72R, does not inherently include the real estate regardless of ownership. However, when the licensed corporate entity owns nothing but the license and the property is held by an alter ego corporation of the same individual, the statutory authority to sell the “facility” must extend to the property necessary to operate it. Otherwise, the power to sell a mere corporate shell would be meaningless, thereby frustrating the legislative intent of the Patient Protector Receivership Act to safeguard residents and prevent abrupt transfers. The court affirmed the judge’s application of the corporate disregard doctrine, finding sufficient evidence of Konig's pervasive control over MCK and Reifer, confused intermingling of assets, siphoning of funds, thin capitalization, and non-observance of corporate formalities. This equitable tool is appropriate to carry out legislative intent and prevent statutory evasion, even without a showing of fraud, when corporate formalities are used to frustrate a public policy. Furthermore, the court held that the receiver's power to sell is not terminated by the temporary transfer of residents. The Act authorizes closure or sale, but the power to sell remains as long as a permanent closure has not been ordered and an opportunity exists to reopen the facility under new ownership. This interpretation aligns with the Act’s primary purpose of protecting residents from the trauma of abrupt transfers and ensuring the availability of suitable care, particularly for vulnerable populations like those served by Union Square. Therefore, the order directing sale was proper, but the case is remanded for further proceedings to determine whether the home should be sold or closed.
Analysis:
This case significantly expands the reach of statutory receivership powers under G. L. c. 111, § 72R, by clarifying that the term 'facility' can encompass the underlying real estate and assets, even if separately incorporated, through the application of the corporate disregard doctrine. It provides a crucial precedent for preventing individuals from using corporate structures to evade statutory obligations designed to protect vulnerable populations, particularly in regulated industries like healthcare. The ruling also ensures that the receiver's authority to sell is not prematurely extinguished by temporary resident transfers, allowing for flexibility to preserve facilities deemed vital for resident welfare. This has implications for how nursing home operators structure their businesses and highlights the courts' willingness to pierce the corporate veil to uphold public policy.
