CATHOLIC HEALTHCARE WEST v. SEBELIUS
Filing
25
MEMORANDUM OPINION to the Order denying Plaintiff's Motion for Summary Judgment and granting Defendant's Motion for Summary Judgment. Signed by Judge Gladys Kessler on 1/29/13. (CL, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________
CATHOLIC HEALTHCARE WEST,
:
:
:
:
: Civil Action 11-459 (GK)
:
:
:
:
:
:
Plaintiff,
v.
KATHLEEN SEBELIUS, in her
official capacity as Secretary
of Health and Human Services,
Defendant.
__________________________________
MEMORANDUM OPINION
Plaintiff,
action
against
Catholic
Healthcare
Defendant
Kathleen
West
(“CHW”),
Sebelius,
brings
Secretary
of
this
the
U.S. Department of Health and Human Services (respectively, the
“Secretary” and “HHS”), pursuant to Title XVII of the Social
Security Act, 42 U.S.C. §§ 1395 et seq. (“the Medicare Act”).
CHW seeks judicial review of a final agency decision denying
Marian Medical Center’s (“Marian”) reimbursement claim arising
from
the
merger
of
Marian,
Mercy
Healthcare
Ventura
County
(“Mercy”), and CHW. 1
This matter is before the Court on Plaintiff’s Motion for
Summary
Judgment
[Dkt.
No.
14]
Summary
Judgment
[Dkt.
No.
15].
cross-motions,
the
administrative
parties’
1
and
Defendant’s
Upon
Motion
consideration
CHW is the successor in interest to Marian.
record,
for
of
the
and
the
entire
record
Plaintiff’s
herein,
Motion
and
for
for
the
Summary
reasons
Judgment
stated
is
below,
denied
and
Agreement
of
Defendant’s Motion for Summary Judgment is granted.
I.
BACKGROUND
On
March
15
1997,
Marian
entered
into
an
Merger with Mercy, a two-hospital system whose sole corporate
member was CHW. Administrative Record (“A.R.”) 20, 409. CHW is a
Catholic
healthcare
women’s
religious
system
orders.
co-sponsored
Id.
at
by
20.
several
CHW
Catholic
oversees
and
coordinates the activities of a healthcare system consisting of
over 30 acute care hospitals in California, Arizona, and Nevada.
Id. Marian was a general acute care hospital located in Santa
Maria,
California.
Id.
Marian
was
owned
and
operated
by
the
Sisters of St. Francis of Penance and Christian Charity, St.
Francis
Province
(“Sisters
of
St.
Francis”).
Id.
The
merger
between Marian, Mercy and CHW became effective April 24, 1997.
Id. at 20, 411, 413-14, 493-95. Mercy, renamed CHW-CC, remained
as the surviving corporation. Id. at 20, 411, 413-14.
A.
Statutory and Regulatory Framework
Congress created the Medicare program in 1965 to pay for
certain specified, or “covered,” medical services provided to
eligible elderly and disabled persons. See 42 U.S.C. §§ 1395 et
seq. Under the program, health care providers are reimbursed for
a
portion
of
the
costs
that
they
- 2 -
incur
treating
Medicare
beneficiaries pursuant to an extremely “complex statutory and
regulatory regime.” Good Samaritan Hosp. v. Shalala, 508 U.S.
402, 404 (1993). That regime is administered by the Centers for
Medicare & Medicaid Services (“CMS”), under the supervision of
the
Secretary.
intermediaries
CMS
to
contracts
review
and
with
a
process
network
Medicare
of
claims
fiscal
in
the
first instance.
The
Medicare
“reasonable
Act
cost
provides
of
for
[Medicare]
reimbursement
services.”
42
of
U.S.C.
the
§
1395f(b)(1). “Reasonable” costs are those “actually incurred . .
. [as] determined in accordance with regulations.” 42 U.S.C. §
1395x(v)(1)(A). Under the Secretary's regulations in effect at
the
time
of
the
transaction
at
issue,
“[a]n
appropriate
allowance for depreciation on buildings and equipment used in
the
provision
of
patient
care
[was]
an
allowable
cost.”
42
C.F.R. § 413.134(a)(1997). 2 The costs are calculated by dividing
the asset's purchase price by its “estimated useful life” and
then prorating this amount by the percentage of the asset's use
dedicated
(b)(1).
to
Medicare
Medicare
services.
reimburses
42
C.F.R.
providers
for
§§
413.134(a)(3),
these
depreciation
costs on an annual basis.
2
Since the merger at issue took effect on April 24, 1997, the
Court, like the parties, will refer to the regulations as
designated in the 1997 C.F.R., unless otherwise stated.
- 3 -
The
Secretary
determined
that
certain
disposals
of
depreciable assets may give rise to recognition of a “gain” or
“loss.”
That
figure
effectively
adjusts
the
annual
Medicare
depreciation payments to more accurately reflect the actual cost
of
providing
Entities
covered
that
were
services
Medicare
to
Medicare
providers
prior
beneficiaries.
to
statutorily
merging with an unrelated party are able to recoup gains and
losses
from
the
merger
subject
to
42
C.F.R.
§
413.134(f).
Subsection (f) allows providers to request reimbursement for the
difference between the “net book value” 3 and the compensation
actually received in exchange for assets disposed of prior to
December 1, 1997. 4 42 C.F.R. § 413.134(f)(1). Subsection (f)(2)
permits the inclusion of “gains and losses realized from the
bona fide sale ... of depreciable assets” in the determination
of allowable cost. 42 C.F.R. § 413.134(f)(2). 5
3
“Net book value” is the remaining value of an asset after
depreciation costs are deducted. 42 C.F.R. § 413.134(b)(9).
4
In 1997, Congress amended the Medicare Act to eliminate
depreciation adjustments for assets after December 1, 1997.
Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4404, 111
Stat. 251, 400 (1997).
5
In addition to the gain or loss regulation at 42 C.F.R. §
413.134(f), the Secretary’s regulations address “[t]ransactions
involving
a
provider’s
capital
stock.
See
42
C.F.R.
§
413.134(l)(1997)(now substantively modified and recodified at 42
C.F.R. § 413.134(k)). The capital stock regulation, also
referred to as the statutory merger regulation, specifies that
providers that transfer assets pursuant to a statutory merger
are “subject to the provision of paragraph[] . . . (f) of [42
- 4 -
The
Secretary
issued
Program
Memorandum
(“PM”
or
“Memorandum”) A-00-76 in order to clarify the application of 42
C.F.R. § 413.134(l), the statutory merger regulation, to nonprofit providers. PM A-00-76 (Oct. 19, 2000) (A.R. 1676-79). The
Memorandum describes the “related organizations” and “bona fide
sale”
standards
under
which
mergers
between
non-profit
organizations should be analyzed. Id.
As
to
“related
organizations,”
PM
A-00-76
notes
that
consideration should be given to continuity of control, or the
degree to which the pre-merged entities continue to exercise
control over the post-merger entity. Id. As to “bona fide sale,”
the Memorandum defines that term as an arm’s length transaction
for reasonable consideration. Id. PM A-00-76 explains that “a
large disparity between the sales price (consideration) and the
fair market value of the assets sold indicates the lack of a
bona fide sale.” Id. The Memorandum recommends reviewing “the
allocation of the sales price among the assets sold” to help
determine whether a bona fide sale took place. Id.
PM
A-00-76
explains
that
its
effective
date
is
not
of
consequence because it clarified, rather than changed, existing
policy. Accordingly, the Memorandum concludes by stating that it
should be applied to “all cost reports for which a final notice
C.F.R. § 413.134] concerning . . . the realization of gains and
losses.” 42 C.F.R. § 413.134(l)(2)(i).
- 5 -
of program reimbursement has not been issued and to all settled
cost reports that are subject to reopening . . . .” Id.
B.
Procedural Background
Marian claimed a loss on the disposal of assets on its
final Medicare cost report for the hospital’s fiscal year ending
April
24,
1997.
A.R.
65.
On
August
12,
1999,
the
fiscal
intermediary engaged by the Secretary to administer the Medicare
program denied Marian’s claim for reimbursement. Id. at 1723-27,
1861-64.
Marian appealed the fiscal intermediary’s determination to
HHS’ Provider Reimbursement Review Board (“PRRB”). On November
3, 2010, the PRRB affirmed the intermediary’s denial of Marian’s
claim. Id. at 33-46. The PRRB concluded that the large disparity
between the consideration received and the fair market value of
the assets acquired indicated a lack of reasonable consideration
and, therefore, the lack of a bona fide sale. Id. at 46. Having
determined that there was no bona fide sale, the PRRB held that
payment
for
the
claimed
loss
on
disposal
of
assets
was
not
allowable. Id. The PRRB also concluded that the parties were not
related. Id. 39, 43.
The CMS Administrator, who has the discretion to review any
final decision of the PRRB, chose to review the PRRB’s denial of
Marian’s
claim.
Id.
at
2-25.
On
January
4,
2011,
the
CMS
Administrator issued her decision and determined that, based on
- 6 -
the
cost
appraisal
approach,
Marian
transferred
cash,
cash
equivalent assets, plant, and equipment worth approximately $67
million
(comprised
approximately
of
$15.9
cash
and
million
cash
and
equivalent
plant
and
assets
worth
equipment
worth
approximately $51.1 million) in exchange for the assumption of
liabilities worth approximately $32.7 million. Id. at 22. Based
on
these
figures,
the
CMS
Administrator
concluded
that
the
merger did not qualify as a bona fide sale because Marian never
sought
and
did
not
receive
reasonable
consideration
for
the
transfer of its depreciable assets. Id. at 21-22. Like the PRRB,
the
CMS
Administrator
held
that
Marian
was
“not
entitled
to
reimbursement for a loss on disposal of assets . . . .” Id. at
22.
The
CMS
Administrator
also
disallowed
the
loss-on-sale
claim for a second, independent reason, i.e., that the merger
was
a
related-party
Administrator
explained
transaction.
that
the
Id.
PRRB
at
22-24.
“incorrectly
The
CMS
concluded
that the related party concept only applied to the entities[’]
relationship
that
existed
prior
to
the
merger”
and
that
the
principle in fact “applied to the parties’ relationship pre and
post merger.” Id. at 22. Although the CMS Administrator noted
that “the record is lightly developed with respect to whether
[Marian] was related to the merged entity through a continuity
of
control
and
ownership,”
the
- 7 -
Administrator
nonetheless
concluded that there was sufficient evidence demonstrating that
the parties were related. Id. 23-24. The CMS Administrator’s
decision constitutes the final decision of the Secretary and is
now before this Court for review.
II.
STANDARD OF REVIEW
The Medicare Act provides for judicial review of a final
decision made by the Secretary. 42 U.S.C. § 1395 oo(f)(1). The
Medicare
Act
provisions
of
instructs
the
the
reviewing
Administrative
court
Procedures
to
Act
apply
the
(“APA”).
Id.
Under the APA, the agency decision can be set aside only if it
is “arbitrary, capricious, an abuse of discretion, or otherwise
not
in
accordance
with
law”
or
“unsupported
by
substantial
evidence.” 5 U.S.C. §§ 702(2)(A), (2)(E).
“The arbitrary and capricious standard [of the APA] is a
narrow standard of review.” Citizens to Preserve Overton Park,
Inc. v. Volpe, 401 U.S. 402, 416 (1971). It is well established
in our Circuit that “[t]his court's review is . . . highly
deferential” and that “we are ‘not to substitute [our] judgment
for that of the agency’ but must ‘consider whether the decision
was based on a consideration of the relevant factors and whether
there has been a clear error of judgment.’” Bloch v. Powell, 348
F.3d 1060, 1070 (D.C. Cir. 2003) (citations omitted). Thus, even
if this Court were to find “that other policies might better
further
the
Secretary’s
stated
- 8 -
objectives,
[the
Court
is]
compelled
to
accept
the
policies
and
rules
adopted
by
the
Secretary so long as they have a rational basis, are reasonably
interpreted, and are consistent with the underlying statute.”
Sentara Hampton Gen. Hosp. v. Sullivan, 980 F.2d 749, 755 (D.C.
Cir. 1992).
The substantial evidence standard is satisfied if the final
agency decision is supported by “such relevant evidence as a
reasonable
mind
might
accept
as
adequate
to
support
a
conclusion.” Consolo v. Fed. Maritime Comm’n, 383 U.S. 607, 61920 (1966) (citation and internal quotation marks omitted); City
of S. Bend, Ind. v. Surface Transp. Bd., 566 F.3d 1166, 1170
(D.C. Cir. 2009). Substantial evidence is “something less than
the weight of the evidence, and the possibility of drawing two
inconsistent conclusions from the evidence does not prevent an
administrative
substantial
agency’s
evidence.”
findings
Consolo,
from
383
being
U.S.
at
supported
620
by
(citation
omitted); S.E.C. v. Fed. Labor Relations Auth., 568 F.3d 990,
995 (D.C. Cir. 2009). Under this standard, a court may reverse
the agency’s findings “only when the record is so compelling
that
no
reasonable
factfinder
could
fail
to
find
to
the
contrary.” Orion Reserves Ltd. P’ship v. Salazar, 553 F.3d 697,
704 (D.C. Cir. 2009).
When an agency interprets its own rule or regulation, the
interpretation “is entitled to the utmost deference.” St. Luke’s
- 9 -
Hosp. v. Sebelius, 662 F. Supp. 2d 99, 102 (D.D.C. 2009); see
Ballard
v.
C.I.R.,
interpretation
of
544
its
controlling
weight
inconsistent
with
U.S.
own
rule
unless
the
40,
70
or
it
(2005)
regulation
is
regulation”)
(“An
is
plainly
(internal
agency’s
entitled
erroneous
quotation
to
or
marks
omitted). In the case of Medicare regulations, “[t]his broad
deference is all the more warranted” because “the regulation[s]
concern[] a ‘a complex and highly technical regulatory program,’
in
which
the
identification
and
classification
of
relevant
‘criteria necessarily require significant expertise and entail
the exercise of judgment grounded in policy concerns.’” Thomas
Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quoting
Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991)).
Therefore, courts must defer to the Secretary’s interpretation
unless an alternative reading is “compelled by the regulation’s
plain
language”
indications
of
or
the
if
the
language
Secretary’s
is
intent
ambiguous,
at
the
by
time
“other
of
the
regulation’s promulgation.” Thomas Jefferson, 512 U.S. at 512.
The task of the reviewing court is to set aside only those
agency
interpretations
that
are
affirmatively
“inconsistent” with the regulation itself. Id.
- 10 -
and
plainly
III. ANALYSIS
A.
The Secretary’s Interpretation of “Bona Fide Sale” in
PMA-00-76 Is Reasonable and Not Inconsistent with 42
C.F.R. § 413.134
Plaintiff argues that the Secretary incorrectly relied on
PM A-00-76’s definitions of “related organizations” and “bona
fide
sale,”
because
those
definitions
are
contrary
to
the
regulations.
As noted, supra, PM A-00-76 defines a “bona fide sale,” as
an arm’s length transaction for reasonable consideration. A.R.
1676-79. The Memorandum explains that the absence of reasonable
consideration indicates the lack of a bona fide sale. Id. PM A00-76 elaborates on what constitutes reasonable consideration,
stating that “[n]on-monetary consideration, such as a seller’s
concession from a buyer that the buyer must continue to provide
care
to
the
indigent,
may
not
be
taken
into
account
in
evaluating the reasonableness of the overall consideration (even
where such elements may be quantified in dollar terms). These
factors are more akin to goodwill than to consideration.” Id.
PM A-00-76 further clarifies that when valuing assets, “the
cost approach is the only methodology that produces a discrete
indication of the value for individual assets . . . .” Id. By
contrast, “[b]oth the market approach and the income approach
produce
a
valuation
without
regard
to
of
the
the
business
individual
- 11 -
enterprise
fair
market
as
a
values
whole,
of
the
constituent assets. As a result, both the market approach and
the income approach could produce an entity evaluation that is
less than the market value of the current assets.” 6 Id. The
Memorandum
concludes
that
“the
cost
approach
is
the
most
appropriate methodology” for the bona fide sale analysis in the
non-profit context. Id.
Plaintiff
considering
reasonableness
argues
that
non-monetary
of
PM
A-00-76’s
factors
consideration
is
in
prohibition
against
evaluating
inconsistent
with
the
Medicare
regulations. 7 Plaintiff further argues that PM A-00-76’s focus on
6
The Secretary recognizes that, in other circumstances,
including some cases interpreting the Internal Revenue Code and
other types of commercial cases, the market and income
approaches may be appropriate appraisal methodologies. See A.R.
17; Pl.’s Rep. at 8, 14-15 (citing cases and tax regulations).
However, the Secretary is correct that “Medicare rules may
diverge from IRS rule and Medicare policy is not bound by IRS
policy[.]” A.R. 17.
7
Plaintiff contends that, relying on PM A-00-76, the Secretary
“erred in holding that the desire to maintain the religious
mission of the hospital cannot be considered in determining
whether the merger was for fair market value.” Pl.’s Mot. for
Summ. J. at 10. Plaintiff argues that under the Secretary’s
interpretation, “Marian could never have been sold for fair
market value, because Marian’s trustees were required by law to
select a merger partner on the basis of adherence to the
Catholic principles under which Marian was organized.” Id. at
13.
However, as Defendant correctly points out “Plaintiff is
mistaken that the Secretary’s final decision held that Marian
was incapable of entering into an arm’s length transaction
because of its religious affiliation” and that “non-profit
providers, like for-profit providers, may engage in arm’s length
transactions
even
while
prioritizing
non-economic
- 12 -
the cost approach as the most appropriate methodology to be used
in establishing the fair market value of assets is at odds with
42 C.F.R. § 413.134’s definition of fair market value. 8 Pl.’s
Mot. for Summ. J. at 13.
Plaintiff’s arguments are not persuasive. The D.C. Circuit
has unambiguously upheld the Secretary’s interpretation of “bona
fide sale” as memorialized in PM A-00-76. See St. Luke’s Hosp.
v. Sebelius, 611 F.3d 900, 906 (D.C. Cir. 2010) (“[W]e uphold
the Secretary’s interpretation of 42 C.F.R. § 413.134(f) and
(l),
memorialized
in
PM
A-00-76,
because
it
is
not
‘plainly
erroneous or inconsistent with the regulation’”); see Forsyth
Mem.
Hosp.
v.
Sebelius,
639
F.3d
534,
537
(D.C.
Cir.
2011)
(summarily rejecting “a host of arguments that the [Secretary]
should not have applied PM A-00-76[]” because the D.C. Circuit
had “previously upheld PM A-00-76 insofar as [was] relevant”).
considerations, so long as they bargain to receive reasonable
economic consideration for the transfer of their assets and meet
the other statutory and regulatory criteria.” Def.’s Rep. at 11
[Dkt. No. 19].
8
Plaintiff contends that fair market value, as defined by 42
C.F.R. § 413.134(b)(2)(1997), “is established if the following
factors are present: (a) bona fide bargaining; and (b) well
informed buyers and sellers.” Pl.’s Mot. for Summ. J. at 13.
Plaintiff further contends that “[p]rior cases interpreting the
‘bona fide sale’ provision at 42 C.F.R. § 413.134 have
emphasized the centrality of arm’s length bargaining in
determining whether a bona fide sale occurred.” Id. at 17.
However, Plaintiff has failed to cite any Medicare cases where
the Secretary applied a valuation methodology other than the
cost approach.
- 13 -
Accordingly, the Secretary’s interpretation of “bona fide
sale,” as memorialized in PM A-00-76, is reasonable, not plainly
erroneous, and not inconsistent with prior agency statements.
B.
The Secretary Appropriately Applied PM A-00-76 to the
Merger at Issue
Plaintiff argues that the Secretary “erred in implementing
PM A-00-76 because it failed to publish timely notice of the
same
in
the
federal
register
as
required
by
42
U.S.C.
§
1395hh(C)(1).” Pl.’s Mot. for Summ. J. at 30. Under the APA,
however, notice and comment is not required for “interpretive
rules”
or
“general
statements
of
policy.”
5
U.S.C.
§
553(b)(3)(A). As PM A-00-76 is “an interpretation of an existing
regulation [] [it] does not require notice and comment.” Forsyth
Mem. Hosp. v. Sebelius, 667 F. Supp. 2d 143, 150 (D.D.C. 2009);
see also St. Luke’s, 662 F. Supp. 2d at 104 (rejecting the
argument that PM A-00-76 was subject to notice and comment and
holding that “[n]or can there be any doubt that [PM A-00-76] is
properly an informal interpretation”).
Plaintiff
impermissibly
additionally
retroactive.
argues
Pl.’s
Rep.
that
at
PM
39
A-00-76
[Dkt.
No.
was
18].
Plaintiff’s retroactivity argument has been soundly rejected by
the D.C. Circuit. See St. Luke’s, 611 F.3d at 906-907 (finding
“no impermissible retroactivity” with respect to the Secretary’s
application of PM A-00-76 to a merger effective as of January 1,
- 14 -
1997
and
holding
completely
that
subsumed
“any
in
the
potential
permissible
retroactive
effect
retroactivity
of
was
the
agency adjudication”) (internal quotation marks omitted).
Accordingly,
application
of
the
PM
Court
A-00-76
concludes
to
the
that
the
merger
Secretary’s
at
issue
was
appropriate. 9
C.
The Secretary’s Finding that the Merger Was Not a Bona
Fide Sale Was Supported by Substantial Evidence
Given the validity of the interpretation relied upon by the
Secretary,
the
only
question
remaining
is
whether
the
Secretary’s finding that the merger between Marian, Mercy and
CHW
was
not
a
bona
fide
sale
was
supported
by
substantial
evidence.
The Secretary based her decision, in part, on the large
discrepancy
between
the
consideration
received
for
Marian’s
assets and the value of those assets. Plaintiff takes issue with
the Secretary’s use of Plaintiff’s own cost approach appraisal 10
9
In any event, even in the absence of PM A-00-76, the Secretary
would have had the authority to interpret her own regulations in
the context of a case-specific adjudication such as that which
preceded this action. See St. Luke’s Hosp. v. Sebelius, 611 F.3d
900, 907 (D.C. Cir. 2010) (“[The] Secretary generally may
lawfully interpret a regulation . . . [w]ithin the context of an
agency adjudication”).
10
The appraisal relied upon by the Secretary was commissioned by
Marian itself and conducted by Valuation Counselors Group, Inc.
(“VCG”). See A.R. 729. The appraisal estimated the market value
of Marian’s assets using three approaches: cost, market and
income. The cost approach valued Marian’s assets at $51.1
- 15 -
to determine that reasonable consideration was not exchanged.
Pl.’s Mot. for Summ. J. at 16-21; see A.R. 20-22.
The
relied
Secretary
upon
the
explained
her
approach.
cost
in
A.R.
final
22.
decision
Her
why
explanation
she
is
consistent with PM A-00-76, which, as discussed supra, has been
upheld
by
the
D.C.
Circuit.
Using
the
cost
approach,
the
Secretary determined that $32.7 million, the approximate worth
of Marian’s liabilities, was not reasonable consideration for
$67 million in assets. 11 That determination is not unreasonable
and
certainly
does
not
reflect
“a
clear
error
of
judgment.”
million, the market approach at $38.5 million, and the income
approach at $28.5 million. Id. at 729-833.
11
For the first time in its Reply, Plaintiff insists that the
Secretary
should
evaluate
the
reasonableness
of
the
consideration exchanged based on a valuation of Marian’s assets
at $35.28 million. The $35.28 million figure appears to be a
blending of the VCG appraisal report’s market and income
approaches, though no clear explanation is given in the report
as to how the appraiser calculated that figure. See Pl.’s Rep.
at 9-10; see also A.R. 832. As PM A-00-76 explains, “the cost
approach is the most appropriate methodology,” for the bona fide
sale analysis in the non-profit context.
Moreover, Plaintiff has failed to submit evidence that the
cost approach does not accurately reflect the fair market value
of the assets in question. Nor has Plaintiff adduced evidence as
to how the alleged impairments in Marian’s value (i.e., the
alleged constructive trust and alleged need for seismic safety
upgrades, see Pl.’s Mot. for Summ. J. at 10, 18-21) should be
reflected in a downward adjustment to the assets’ cost approach
appraised value. Instead, Plaintiff simply insists that the
Secretary should have used its preferred methodology. In any
event, “absent extraordinary circumstances (not present here)
[courts] do not entertain an argument raised for the first time
in a reply brief.” U.S. v. Whren, 111 F.3d 956, 958 (D.C. Cir.
1997).
- 16 -
Bloch, 348 F.3d at 1070; see St. Luke’s, 611 F.3d at 905 (“It is
logical [] to infer . . . that a ‘large disparity’ between the
assets’ purchase price and their fair market value indicates
that the underlying transaction is not in fact bona fide”).
Additional
arm’s
length,
Secretary’s
evidence
that
the
parties
self-interested
finding
as
well.
did
not
bargaining
For
instance,
engage
supports
Marian
in
the
appeared
uninterested in maximizing the amount of consideration it would
receive from the sale of its assets. This is evidenced by the
fact Marian did not seek appraisal of its assets prior to the
merger. 12 See A.R. 729-833 (The VCG appraisal report, the only
appraisal in the Administrative Record, was not completed until
February 22, 1999, nearly two years after the merger).
Marian also declined to place its assets for sale on the
open market. See Id. at 84-85 (Marian’s then-CEO and the Sisters
of St. Francis explained, “[o]ne of the principal reasons we
have focused on CHW is our firm belief that, with this group, we
have
the
sponsorship
best
of
assurance
the
that
Sisters
the
of
St.
mission,
Francis
presence,
can
effectively preserved and enhanced.”); id. at 214-15.
be
and
most
Instead,
Marian was motivated by its desire to maintain the religious
12
At the time of the merger, the only available information
about Marian’s fair market value with which the parties were
working was a one-page attachment to the parties’ Purchase Price
Allocation Agreement that was based upon a February 28, 1997
unaudited financial statement “to be adjusted.” See A.R. 301.
- 17 -
mission of the hospital. See Pl.’s Mot. for Summ. J. at 10-15.
Although Marian’s desire to maintain the religious mission of
the hospital may be an important and worthwhile goal, such nonmonetary considerations are “not indicative of parties engaged
in
self-interested
bargaining
with
a
focus
on
maximizing
financial compensation.” Forsyth, 667 F. Supp. 2d at 151. Thus,
“[a party’s] non-monetary motivations may not form the basis of
a bona fide sale.” Id.
The sizable gap between the “purchase price” and the value
of
Marian’s
surrounding
assets,
the
as
merger,
well
as
the
constitute
other
circumstances
substantial
evidence
that
supports the Secretary’s finding that reasonable consideration
was not exchanged, and that therefore, the merger was not a bona
fide sale.
Because
Marian,
the
Mercy
independent
Secretary’s
and
and
CHW
was
adequate
finding
that
the
not
bona
fide
basis
a
for
merger
sale
denying
between
was
an
Plaintiff’s
reimbursement claim, the Court need not address the Secretary’s
determination that the merger parties were related. See Forsyth,
639 F.3d at 539 (limiting its analysis to the bona fide sale
issue “because it was an independent and sufficient ground for
refusing appellants their requested reimbursement” and therefore
declining
to
address
the
related
parties
issue);
Robert
F.
Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557, 563 (9th Cir. 2008)
- 18 -
(finding
that
because
the
“[‘bona
fide
sale’]
issue
is
dispositive in this case, we do not reach the ‘related parties’
issue”).
IV.
CONCLUSION
For all of the reasons stated herein, Plaintiff’s Motion
for
Summary
Judgment
is
denied
and
Defendant’s
Motion
for
Summary Judgment is granted.
January 29, 2013
/s/________________________
Gladys Kessler
United States District Judge
Copies to: attorneys on record via ECF
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