Farmers Bank & Trust Company v. Ameris of Arkansas LLC et al

Filing 72

ORDER granting 49 the County's Motion for Partial Summary Judgment. Although First Tennessee has a valid security interest in Ameris's accounts, that interest does not attach until CMS audits & finalizes payments after each fiscal year. Signed by Judge Brian S. Miller on 6/1/2011. (jct)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF ARKANSAS
JONESBORO DIVISION

MISSISSIPPI COUNTY
d/b/a MISSISSIPPI COUNTY HOSPITAL SYSTEM;
AMERIS OF ARKANSAS, LLC; AND
AMERIS OF OSCEOLA, LLC
v.

PLAINTIFFS

CASE NO. 3:10CV00173 BSM

FIRST TENNESSEE BANK
NATIONAL ASSOCIATION

DEFENDANT

FIRST TENNESSEE BANK
NATIONAL ASSOCIATION

COUNTERCLAIMANT

v.
MISSISSIPPI COUNTY
d/b/a MISSISSIPPI COUNTY HOSPITAL SYSTEM

FIRST TENNESSEE BANK
NATIONAL ASSOCIATION
v.
MIKE HUFFMAN,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
ROGERS FORD,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
BOBBIE J. HAMPTON,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
JOHN LOGAN,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;

COUNTERDEFENDANT

THIRD-PARTY PLAINTIFF

SYLVIA PREWITT,
In Her Official Capacity as Board of Governors
of the Mississippi County Hospital System;
VAN PARKER,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
EARL SMITH,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
WARRANT WHITIS,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System; AND
PHIL NORRIS,
Individually and in His Official Capacity as
Chief Financial Officer
of the Mississippi County Hospital System

MIKE HUFFMAN,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
ROGERS FORD,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
BOBBIE J. HAMPTON,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
JOHN LOGAN,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
SYLVIA PREWITT,
In Her Official Capacity as Board of Governors
of the Mississippi County Hospital System;
VAN PARKER,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;
EARL SMITH,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;

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THIRD-PARTY DEFENDANTS

WARRANT WHITIS,
In His Official Capacity as Board of Governors
of the Mississippi County Hospital System;

COUNTERCLAIMANTS

v.
FIRST TENNESSEE BANK
NATIONAL ASSOCIATION

COUNTERDEFENDANT
ORDER

Mississippi County d/b/a Mississippi County Hospital System; Mike Huffman,
Rogers Ford, Bobbie J. Hampton, John Logan, Sylvia Prewitt, Van Parker, Earl Smith,
Warrant Whitis, in their official capacities as the Board of Governors of the Mississippi
County Hospital System; and Phil Norris, individually and in his official capacity as Chief
Financial Officer of the Mississippi County Hospital System (collectively, “the County”)
move for partial summary judgment. [Doc. No. 49]. Defendant First Tennessee National
Bank (“First Tennessee”) has filed a response in opposition, [Doc. No. 53] and the County
has replied. [Doc. No. 59]. For the reasons set forth below, partial summary judgment is
granted.
I. BACKGROUND
Viewed in the light most favorable to First Tennessee, the nonmoving party, the
uncontroverted facts are as follows. From December 1, 2005, until March 12, 2009, the
County leased two hospitals to two corporate operators, which for the purposes of this
motion shall be referred to collectively as Ameris. During the lease, Ameris provided
medical services to Medicare and Medicaid patients. As such, Ameris received interim
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periodic payments which were subject to reconciliation and adjustment at the end of each
fiscal year.
In January 2005, Ameris borrowed money from First Tennessee and gave it a security
interest in its accounts. When the leases terminated, Ameris and the County agreed that all
monies received post-termination should be deposited into a designated account and that
Ameris was entitled to retain all receivables arising from services rendered up to the
termination date. On April 30, 2009, the parties executed a “memorandum of understanding”
which established an escrow account to hold receivables during the transition period. Under
the terms of that agreement, First Tennessee, as Ameris’s secured creditor, was entitled to
receivables attributable to services rendered before termination while the County would take
all receivables attributable to services rendered after termination.
On July 1, 2010, Centers for Medicare and Medicaid Services (CMS) issued a Notice
of Amount of Medicare Program Reimbursement (NPR) to the County, demanding prompt
remittance of overpayments made during 2008. That year, Ameris received interim payments
that exceeded the amount to which it was actually entitled by $1,064,084. Because the
overpayments were made pre-termination, the County’s position is that CMS should be paid
out of pre-termination receivables. First Tennessee vigorously objects, arguing that such a
transfer would violate its perfected security interest in those funds.
The County moves for an order determining whether CMS’s interest in the escrowed
funds is superior to any interest claimed by First Tennessee. The facts germane to this

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question are not in dispute, and a brief analysis is set forth below.
II. DISCUSSION
First Tennessee’s security interest in Ameris’s accounts arose in connection with
loans made in 2005. Therefore, it is understandable that First Tennessee could believe that
its security interest is senior to CMS’s 2010 claim for overpayments made in fiscal year
2008. The unique character of Medicare provider reimbursement, however, mandates the
opposite result.
Periodic interim payments made to providers that treat Medicare beneficiaries are
subject to audit and adjustment. 42 U.S.C. § 1395g. Numerous courts have held that the
scheme of estimation, interim payment, audit, and reconciliation are indicative of one
ongoing, integrated transaction. See In re Holyoke Nursing Home, Inc., 372 F.3d 1, 4 (1st
Cir. 2004). Further, because this statutory right of recoupment or setoff existed prior to First
Tennessee’s interest in Ameris’s accounts, it must be considered senior in priority. See In
re Metropolitan Hosp., 131 B.R. 283, 291 (E.D. Pa. 1991).
This outcome makes sense because First Tennessee cannot take more than what
Ameris gave it. As noted by the court in In re Alliance Health of Fort Worth, Inc., an
assignee cannot take more than what the assignor would be entitled to had it not assigned
the claim. 240 B.R. 699, 704 (N.D. Texas 1999). This is why the parties’ memorandum of
understanding provides that First Tennessee is entitled to net pre-termination receivables;
the agreement itself recognizes that accounts receivable were not fixed in value until after

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CMS performed its audit and made necessary adjustments. Given its valid security interest,
First Tennessee stands in the shoes of Ameris. Indeed, had CMS determined that Ameris was
underpaid during fiscal year 2008, First Tennessee would have been entitled to those extra
funds. Unfortunately for First Tennessee, the opposite holds true as well.
Accordingly, the County’s motion for partial summary judgment is granted. Although
First Tennessee has a valid security interest in Ameris’s accounts, that interest does not
attach until CMS audits and finalizes payments after each fiscal year. See In re Metropolitan,
131 B.R. at 291.
Dated this 1st day of June 2011.

________________________________
UNITED STATES DISTRICT JUDGE

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