Free Letter - District Court of Delaware - Delaware

Case 1 :04-cv-00910-GIVIS Document 187 Filed 07/28/2006 Page 1 of 4
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I-Ion. Gregory M. Sleet, U.S.D.J.
United States District Court ,,mE,—,\,.[gE
J. Caleb Boggs Federal Building
844 N. King Street — Room 4324
Wilmington, DE 19801
RE: Integrated Health v. THCI C0.: 04-910 gGMS[
Dear Judge Sieet;
We are the attorneys for plaintiffs and additional counterclaim defendant Abe Briarwood
Corporation (collectively, “Piaintiffs"). We write in response to the letter of the 27th from
Collins J. Seitz, Esq., and to remove from contention an issue defendant has raised, in Mr. Seit2’s
most recent letter and elsewhere, to divert attention from the lack of merit in its position inthe
tawsuit, as is documented in the numerous motions presently under advisement.
We respond to the question posed by Mr. Seitz, as to our ciients’ continued operation of
the properties, in the hope that our response will not only shed light on the issue, but will help
frame the matter in dispute, and the matter of process to facilitate the ultimate resolution thereof
The matter in dispute originated as a local landiord—tenant issue in State Court, after
Judge Walrath decreed that the controversy did not belong in Bankruptcy Court. It was
nonetheless brought before this Court by defendant landlord, on the ground that there was then
an appeal pending from the Bankruptcy Court to this Court, as to whether there was a master
lease in existence between the parties. The Bankruptcy Court had determined that there was
such a master lease, and this Court eventually affirmed. Now that this has been determined, the
matter reverts once again to being a landlord-tenant matter. in this regard, we note that our
clients have done an excellent job of running the facilities —- the regulatory record is excellent,
and indeed, we are happy to report that there are no outstanding violations. However, the net
income from the properties is not sufficient to pay the rent charged by the landlord.
DUANE MORRIS LLP
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Case 1 :04-cv-00910-GIVIS Document 187 Filed 07/28/2006 Page 2 of 4
| )uane |\/|orris
I-lon. Gregory M. Sleet, U.S.D..l.
July 28, 2006
Page 2
lt is landlords contention that the lease was in default from its very inception. However,
landlord did not object to Integrated Health Services’ Chapter ll Plan, or the transactions
contemplated thereby, which included the creation of lI·lS Long Term Care Services, Inc. ("Long
Term Care"), as the Debtor’s subsidiary, for the purpose of ownership ofthe other subsidiaries
operating nursing homes. Among these subsidiaries of Long Term Care were the nine entities
which are the first nine plaintiffs in the action removed to Federal Court. The Chapter ll Plan
also included, among other things, the sale of fee title to certain facilities to entities owned by a
holding company in which Mr. Rubin Schron is a controlling principal, subject to a net lease to
THI of Baltimore Inc. All of these transactions were worked out within the bankruptcy and were
an integral part ofthe transactions contemplated by the Plan, yet defendants did not object to the
Plan or the consummation thereof lt was only upon the eve of consummation of the Plan that
for the first time defendant sought to claim an enormous liability as a result ofthe asserted
default by the Debtor under the master lease pursuant to the Stipulation of Settlement. The
Bankruptcy Court dismissed det`endant’s claim, and no appeal was tiled.
Plaintiffs have made a motion here for summary judgment on defendant’s claims against
them on the ground that there is no basis in factor law to make such a claim. The only claim
that defendant has is under the master lease against the tenants. There is no guaranty in any
postpetition document, either directly or by adoption of any prepetition guaranty, nor can there
be any guaranty under the Statute of Frauds without such a signed writing. A postpetition
guaranty was just not part of the deal agreed to by the parties, and there is no document
suggesting that the parties even ever considered the issuance of any postpetition guaranty. lt is
obvious why. After all, the Debtor·in-Possession was a bankrupt company. Perforce any
guarantee issued by it would have been problematical, and would have caused liability that had
to be disclosed in the Plan and resolved in order for the Plan to be confirmed. In point of fact, no
such liability was scheduled. Defendant made no objection to the Plan to any "failure" to
schedule such a liability, because there was no such liability, inasmuch as there was no guaranty.
For defendant to create the spectre of such an issue at this point in time afler its claim was
dismissed bythe Bankruptcy Court, and then somehow to contrive to contend that, even though
the Debtor—in~Possession made no such guaranty, somehow parties who did not sign any
guaranty magically assumed a guaranty that was never granted in the first instance, is j ust
apocryphal.
Mr. Seitz questions the tenants? continued occupancy when rent is not being paid.
inasmuch as the premises do not, and are not projected to, yield sufficient income to pay the rent,
the tenants are willing to vacate the premises and return them to the landlord. The tenants are
also prepared to deliver the accounts receivable and cash in the bank account, in trust for the
payment of any outstanding payroll and trade payables. Nothing in this letter, however, should
be construed as an authorization for transfer of any regulatory licenses from any current
licensees.
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Case 1 :04-cv-00910-GIVIS Document 187 Filed 07/28/2006 Page 3 of 4
| )uane Morris
Hon. Gregory M. Sleet, U.S.D.].
}uly 28, 2006
Page 3
Currently, there is a built—in working capital surplus that can be applied on account of
accrued rent after the payments are made as required as described above. An estimated
consolidated balance sheet as of August 3t, 2006, accompanies this letter.
ln order to facilitate the foregoing, it is suggested that the tumover occur at the end ofthe
day on August 31. AH of the records reiating to the business are at the respective premises, and
the facilities are appropriately staffed, so that the landtord may take possession by agreeing to the
foregoing, without any interruption or threat to patient care. We sincerely hope that landlord wil}
accept this proposal in the spirit offered. It just makes no sense to argue about something as a
pretense while defendants and its counsel have averred that it is defendanfs intent to drag our
clients’ names through the mud.
It is our intent to resolve the outstanding issues in a businessiike manner on a reasonable
basis, and not to create issues that are not there. If, however, for whatever reason, defendant
landlord is no longer interested in taking back the premises as it has previousiy indicated, it is
j ust unfair under the circumstances to burden my clients with this responsibility. We therefore
request that if landlord does not accept this proposal, that this Court promptly grant our motion
for a remand, so that we may apply in State Court for appointment of one or more receivers to
accoinpiish the foregoing in any event. In this manner, this red herring issue can he resolved
once and for all.
While the above eliminates defendant’s argument, our rnotion to amend the scheduling
order, and our request to consider that motion also as one for a protective order, remain a
pressing concern. We reiterate our request for a conference, for the reasons set forth in my letter
of the 25*.
Respectfully yours,
/L./
Michael R. Lastowski
MRL/ata
Enclosure
cc (w/ Encl., via Email): Collins 1. Seitz, Esq.
David S. Sager, Esq.
Aurora Cassirer, Esq.
Daniel I. Deliranceschi, Esq.
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Case 1:04-cv-00910—G|\/IS Document 187 Filed 07/28/2006 Page 4 of 4
CONSOLIDATED PROIECTED
CURRENT ASSETS AS OF 8/3 I/06 (111 $000)
CASH $1,500
AfR 13,000
A/R ALLOWANCE (3,500)
NET A/R 9,500 { l [
CURRENT ASSETS
A/P $7,500
CURRENT ASSETS SURPLUS $_§_,jQ_Q
(1) Pharmcrica has a UCC Lien on all A/R
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