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New Jersey Citizen Action, Inc. v. County of Bergen

April 9, 2007

NEW JERSEY CITIZEN ACTION, INC., A NEW JERSEY CORPORATION, REGINA O'NEILL, JULIE OTTO, AND MARY ANN MILLIGAN, PLAINTIFFS-APPELLANTS,
v.
COUNTY OF BERGEN, BERGEN COUNTY IMPROVEMENT AUTHORITY, SOLOMON HEALTH MANAGEMENT, LLC, A LIMITED LIABILITY COMPANY OF THE STATE OF COLORADO, INDIVIDUALLY AND D/B/A SOLOMON HEALTH SERVICES, LLC AND D/B/A SOLOMON HEALTH GROUP, LLC; V. ROBERT SALAZAR; HERSCH KRAUSZ; DAVID SEBBAG; SOLOMON HEALTHCARE GROUP, LLC, A LIMITED LIABILITY COMPANY OF THE STATE OF NEW JERSEY; BERGEN REGIONAL MEDICAL CENTER, LP, A LIMITED PARTNERSHIP OF THE STATE OF NEW JERSEY; GLOBAL TPA, INC., FORMERLY KNOWN AS GLOBAL MANAGEMENT SERVICES, INC., A CORPORATION OF THE STATE OF COLORADO; GLOBAL ADVISORS, LLC, D/B/A GLOBAL MANAGEMENT SERVICES, INC., A LIMITED LIABILITY COMPANY OF THE STATE OF COLORADO; AND ICARE MANAGEMENT LLC, A LIMITED LIABILITY COMPANY OF THE STATE OF CONNECTICUT, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-60902-05.

The opinion of the court was delivered by: Coburn, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued March 13, 2007

Before Judge Coburn, R.B. Coleman and Gilroy.

Plaintiffs filed a declaratory judgment action in the Law Division challenging the validity of two loans made by defendant Bergen County Improvement Authority ("BCIA") to a private entity, defendant Solomon Health Group, LLC ("Solomon"). Plaintiffs' complaint alleges that the loans lacked consideration, or lacked adequate consideration, and were in any case not confined to the execution of any public purpose, thereby violating Article VIII, Section III, Paragraphs 2 and 3 of the New Jersey Constitution.

Defendants filed motions to dismiss the complaint for failure to state a cause of action, R. 4:6-2(e). The trial court granted the motions, and plaintiffs appeal. Although we express no view respecting the ultimate merits of plaintiffs' claim, we are satisfied that the complaint, viewed in the context of the contracts and other documents to which the complaint refers, states a cause of action for which relief can be granted. Therefore, we reverse and remand for further proceedings.

I.

In 1997, Bergen County decided that the public would be better served if the Bergen Pines County Hospital, which it had owned and operated for about eighty years, was managed by a private entity. The hospital, a 1185-bed facility, is located in Paramus, and is now called the Bergen Regional Medical Center.

After seeking proposals from private, for-profit entities, the County decided to lease the hospital to defendant Solomon. Accordingly, on December 17, 1997, the County signed a written nineteen-year lease transferring the property and the license to operate the hospital to the BCIA, which, on the same date, signed a written lease, referred to by the parties as the LOA, transferring operation of the hospital to Solomon for nineteen years.

The LOA states that the term of the nineteen-year lease would begin on March 1, 1998, or on such other date as mutually agreed to by the parties. The BCIA is obligated to pay Solomon $9 million per month for management services, and Solomon is obligated to pay rent of $5.2 million per year to the BCIA. Generally speaking, Solomon is entitled to keep all profits generated by its management of the hospital, while being exposed to any losses if the expenses exceed the income generated by the management fee and receipts for services provided to patients.

The LOA recognizes that the County retains ownership of accounts receivable for services provided before the lease begins, and that Solomon is responsible for collecting those accounts receivable and turning them over to the BCIA for transfer to the County. Section 5.3 of the LOA allows Solomon to pledge the hospital's accounts receivable for "any line or letter of credit or other financing," while expressly stating that this right only extends to "amounts to be paid or received to the Manager with respect to Management Services provided by . . . the Manager subsequent to the Lease Term Commencement Date." Section 5.1(f) of the LOA implies that Solomon will be permitted to retain and use all or some of the previously earned accounts receivable that it collects for the County for some unstated time by these words:

The amount (i) of Fixed Annual Rent payable to the BCIA by the Manager in any month . . . and (ii) payments that are required to be made during such month to provide for repayment by the Manager of moneys received from accounts receivable existing as of the day preceding the Lease Term Commencement Date, in accordance with the terms of a promissory note to be executed by the Manager setting forth, among other things, the amounts to be repaid and the date of repayment . . . shall be deducted from the Management fee payable hereunder on or prior to the twentieth (20th) day of such month. [Emphasis added.]

The complaint alleges that in its proposal Solomon warranted that it would be able to meet all of its financial obligations under the LOA from its own funds and further warranted in that regard that its owners had a combined personal net worth of over $50 million. Section 4.3 of the LOA provides further security, requiring Solomon to obtain a $10 million operating line of credit, on terms and from ...


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