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Healthcare Services Group, Inc. v. Royal Healthcare of Middlesex

August 14, 2003


The opinion of the court was delivered by: Walls, District Judge


Plaintiff Healthcare Service Group, Inc. ("HCSG" or "Plaintiff") moves for summary judgment in its breach of contract claim against defendant Middlesex County Improvement Authority ("MCIA"). Also, third-party defendant Greenwich Insurance Company ("Greenwich") moves for summary judgment against third-party plaintiff MCIA, which seeks indemnification under a performance bond issued by Greenwich. MCIA's request to submit a sur-reply brief is denied. Plaintiff's motion for summary judgment is granted; the motion of Greenwich is denied. MCIA's motion to amend the pretrial scheduling order is dismissed as moot.


The Roosevelt Care Center (the "Center") is a 530-bed long-term healthcare facility located in Edison, New Jersey. MCIA owns and holds a license to operate the Center. On March 13, 2000, MCIA entered into an Agreement for Interim Management and Administration (the "Management Agreement") of the Center with Royal Healthcare of Middlesex, LLC ("Royal"). Surbhi Tarkas ("Tarkas") and Amjad Chowdry ("Chowdry") were the principals of Royal. At various times, Tarkas and Chowdry also owned, operated or managed other long-term care facilities in New Jersey. Pursuant to the Management Agreement, Royal managed, administered, operated and maintained the Center, and MCIA paid Royal operating expenses in the monthly amount of $2.3 million. Third-party defendant Greenwich issued a performance bond (the "Bond") required under the Management Agreement in the penal sum of $1 million with MCIA as obligee and Royal as principal.

On April 1, 2000, Royal entered into a Service Agreement and a Food Service Agreement (the "Service Agreements") at the Center with Plaintiff. The MCIA consented to Royal's retention of HCSG as a subcontractor. From April 1, 2000 through September 30, 2000, Plaintiff managed the housekeeping and laundry departments at the Center, and provided food services. Royal was to pay Plaintiff $114,632 per month for these services. Plaintiff also provided similar services to other long-term care facilities owned, operated or managed by Tarkas and Chowdry - Progressive Nursing Center; Meadowview Nursing Center; Royal Healthgate Nursing and Rehabilitation; Cliffside Health Care Center; Freehold Rehabilitation & Nursing Center; and Regal Manor Health Care Center. At the time Plaintiff negotiated the Agreements at the Center with Tarkas and Chowdry, the accounts at the other long-term care facilities were delinquent. When the Service Agreements terminated on September 30, 2000, Plaintiff requested a copy of the Management Agreement.

Plaintiff alleges that Royal failed to pay all of the invoices due under the Service Agreements at the Center. On January 9, 2001, Royal executed a promissory note (the "Note") for $342,311.52 - the amount due to Plaintiff under the two agreements. The Note required payments on January 25, February 25, March 25, April 25, May 25 and June 25, 2001, with a specified interest rate of 8 percent per year, and provides for reimbursement to Plaintiff of all costs, expenses and reasonable attorneys' fees. Royal failed to make any payments under the Note and, on July 11, 2001, Plaintiff filed its complaint against Royal and MCIA seeking $342,311.52, attorneys' fees, and costs. On March 12, 2002, default judgment was entered against Royal, ordering Royal to pay Plaintiff $342,311.52, plus interest at the rate of 8 percent, along with costs, expenses, and reasonable attorneys' fees. Plaintiff now moves for summary judgment against Defendant MCIA.

On August 3, 2001, MCIA filed a cross-complaint against co-Defendant Royal, and a third-party complaint against Tarkas, Chowdry and Greenwich. Royal, Tarkas and Chowdry failed to plead or otherwise defend the third-party complaint, and default was entered against them on November 15, 2001. MCIA claims that it is entitled to recover from Greenwich under the performance bond (the "Bond") issued under the Management Agreement in the event Plaintiff obtains a judgment against MCIA. Because MCIA failed to obtain regulatory review and approval of its Management Agreement with Royal from the New Jersey Department of Health and Senior Services ("DHSS"), Greenwich argues that MCIA is not entitled to recover under the Bond. Greenwich contends that the Management Agreement effectuated a de facto transfer of the Center's license from the MCIA to Royal without the review and approval of DHSS. Because DHSS approval did not occur, Greenwich argues that the Management Agreement was void as against public policy and unenforceable. Thus, Greenwich's obligation under the Bond did not attach, and MCIA cannot recover as a matter of law.


Summary judgment is appropriate where the moving party establishes that "there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant and it is material if, under the substantive law, it would affect the outcome of the suit. Id. at 248, 106 S. Ct. at 2510. The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. See Sound Ship Building Co. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir. 1976), cert. denied, 429 U.S. 860 (1976). At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249, 106 S. Ct. at 2510. In doing so, the court must construe the facts and inferences in the light most favorable to the non-moving party. See Wahl v. Rexnord, Inc. 624 F.2d 1169, 1181 (3d Cir. 1980).


A. Plaintiff's Motion for Summary Judgment

HCSG managed the housekeeping and laundry departments at the Center, and provided food services. In exchange, Royal paid Plaintiff $114,632 per month. Because MCIA authorized Royal to manage, administer, operate and maintain the Center, and permitted Royal to retain subcontractors to perform these duties, HCSG insists that Royal acted with MCIA's authority when Royal hired HCSG. Both parties agree that MCIA owns the Center and holds the Certificate of Need, the license necessary to operate the Center. Consequently, MCIA is legally responsible for the Center's management and operation. MCIA reserved the right to control and direct Royal's activities at the Center, and could terminate Royal for any failure to comply with the Management Agreement. Section 2.2 of the Management Agreement reads:

The MCIA, as the holder of the Certificate of Need, is responsible for the overall conduct of Roosevelt Care Center and compliance with all Applicable Laws. By executing this Agreement, the MCIA has engaged Royal, and Royal has accepted such engagement, to manage, administer, operate and maintain Roosevelt Care Center as the MCIA's agent, on the MCIA's behalf and for the MCIA's account.

Management Agreement, at § 2.2 (emphasis added). Section 9.5 further addresses the relationship of the parties:

Except as otherwise explicitly provided herein, or by Applicable Laws, no party to this Agreement shall have any responsibility whatsoever with respect to services which are to be provided or contractual obligations that are to be assumed by any other party and nothing in this Agreement shall be deemed to constitute any party a partner, joint venture participant, agent or legal ...

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