- June 10, 2024
- Alerts
NY AG Faces Major Setback in Fight for Control Over Nursing Home
On June 4, 2024, the New York State Supreme Court, Orleans County held that courts cannot appoint independent health care and financial monitors to make binding “recommendations” – the centerpiece of the New York State Attorney General’s (AG) campaign against for-profit nursing homes – as that is not one of the remedies available under New York Executive Law § 63(12). The AG requested interim monitors as part of a preliminary injunction application in its sweeping Section 63(12) fraud case against the operator and real estate owners of The Villages of Orleans Health and Rehabilitation Center (The Villages) in Albion, New York. The court denied the AG’s application, holding, among other things, that the text of the statute “does not imply that the Court is authorized to appoint monitors or others who would effectively control a business, issuing obligatory advice on its operational and financial strategies.”
The special proceeding against The Villages is one of four filed by the AG since 2022 targeting New York nursing homes on substantially similar grounds. In this case, the AG alleges that Telegraph Realty LLC (Telegraph), the owner of the real property leased by The Villages, charged purportedly excessive rent to the nursing home’s operator, leaving insufficient resources for resident care. According to the AG, the distributions that Telegraph made to its members from that rent were unlawful “up-front profits,” which were fraudulently obtained from Medicare and Medicaid funds paid to the home. The Petition seeks broad relief, including permanent monitors and approximately $18.6 million in disgorgement and restitution paid to the State.
In denying the preliminary injunction motion, the Orleans County Supreme Court also cast doubt on the merits of the AG’s case. Most notably, the court rejected the AG’s claim that the rent payments made by The Villages were fraudulent. The court found that the terms of the lease were fully disclosed to the New York State Department of Health (DOH) – which has primary regulatory authority over New York nursing homes – when the current operator applied for a Certificate of Need to purchase the home, and that any increases in rent were listed on annual cost reports that the operator filed with the DOH.
In this regard, the Orleans County Supreme Court’s ruling echoes the March 15, 2024 decision of the Nassau County Supreme Court, which similarly rejected the AG’s argument that the operators of Cold Spring Hills Center for Nursing & Rehabilitation (Cold Spring Hills) engaged in fraud simply by paying allegedly high rent to the realty entity. In that case, the terms of the lease were also disclosed to the DOH during the Certificate of Need process.
The Orleans County Supreme Court’s decision is a significant victory for Garfunkel Wild, P.C., which represents four individual members of Telegraph in the ongoing case against The Villages and also represented the operating company in the Cold Spring Hills proceeding.
Should you have any questions regarding the above, please contact the authors or the Garfunkel Wild attorney with whom you regularly work, or email us at info@garfunkelwild.com.
The special proceeding against The Villages is one of four filed by the AG since 2022 targeting New York nursing homes on substantially similar grounds. In this case, the AG alleges that Telegraph Realty LLC (Telegraph), the owner of the real property leased by The Villages, charged purportedly excessive rent to the nursing home’s operator, leaving insufficient resources for resident care. According to the AG, the distributions that Telegraph made to its members from that rent were unlawful “up-front profits,” which were fraudulently obtained from Medicare and Medicaid funds paid to the home. The Petition seeks broad relief, including permanent monitors and approximately $18.6 million in disgorgement and restitution paid to the State.
In denying the preliminary injunction motion, the Orleans County Supreme Court also cast doubt on the merits of the AG’s case. Most notably, the court rejected the AG’s claim that the rent payments made by The Villages were fraudulent. The court found that the terms of the lease were fully disclosed to the New York State Department of Health (DOH) – which has primary regulatory authority over New York nursing homes – when the current operator applied for a Certificate of Need to purchase the home, and that any increases in rent were listed on annual cost reports that the operator filed with the DOH.
In this regard, the Orleans County Supreme Court’s ruling echoes the March 15, 2024 decision of the Nassau County Supreme Court, which similarly rejected the AG’s argument that the operators of Cold Spring Hills Center for Nursing & Rehabilitation (Cold Spring Hills) engaged in fraud simply by paying allegedly high rent to the realty entity. In that case, the terms of the lease were also disclosed to the DOH during the Certificate of Need process.
The Orleans County Supreme Court’s decision is a significant victory for Garfunkel Wild, P.C., which represents four individual members of Telegraph in the ongoing case against The Villages and also represented the operating company in the Cold Spring Hills proceeding.
Should you have any questions regarding the above, please contact the authors or the Garfunkel Wild attorney with whom you regularly work, or email us at info@garfunkelwild.com.