On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-6092-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Fuentes, Ashrafi and Newman.
Plaintiffs appeal from orders dated December 1, 2009, granting summary judgment to the several defendants. We affirm.
In 2005, plaintiffs filed a declaratory judgment action challenging the validity of two loans made in 1998 by defendant Bergen County Improvement Authority ("the Improvement Authority") to a private entity, Solomon Health Group, LLC ("Solomon"). The loans were made in connection with the County's transfer to Solomon of management and operation of a County-owned hospital. In a previous appeal, we reversed the trial court's order dismissing plaintiffs' complaint for failure to state a claim upon which relief can be granted. N.J. Citizen Action, Inc. v. County of Bergen, 391 N.J. Super. 596 (App. Div.), certif. denied, 192 N.J. 597 (2007).
On remand, the parties conducted discovery and then filed cross-motions for summary judgment. By written opinion and the December 1, 2009 orders, the trial court denied plaintiffs' motion and granted defendants' joint motion for summary judgment, dismissing plaintiffs' complaint on the grounds of res judicata and the entire controversy doctrine. Plaintiffs filed this appeal, contending the court should have ruled in their favor on the merits of their claims.
Our standard of review is plenary from the trial court's orders. In reviewing a grant of summary judgment, we apply the same standard under Rule 4:46-2(c) and Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). In this case, the facts relevant to the court's decision are not genuinely disputed. The issue is a legal one concerning whether plaintiffs can challenge the two 1998 loans seven years after the loans were publicly approved by governmental authorities and after prior litigation in which the challenge could arguably have been raised.
Private Management of the County Hospital
For approximately eighty years, the County of Bergen owned and operated Bergen Pines County Hospital in Paramus, now called Bergen Regional Medical Center. In 1997, the County adopted a so-called Repositioning Plan, selected a proposal from Solomon, and transferred management and operation of the hospital through a series of contractual transactions. Pursuant to a nineteen-year lease and operating agreement dated December 17, 1997, the County transferred its license to operate the hospital and possession of the hospital property to the Improvement Authority. By another lease and operating agreement ("LOA") also dated December 17, 1997, the Improvement Authority transferred management and operation of the hospital to Solomon for nineteen years beginning on March 1, 1998.
In addition to payment of the hospital's operating expenses, Solomon was to pay fixed annual rent of $5.2 million to the Improvement Authority after the initial year. Revenues of the hospital were to be deposited into an account of the Improvement Authority and then distributed according to terms of the LOA. The Improvement Authority was to pay Solomon $9 million per month for management services, payable in equal halves by the tenth and twentieth day of each month. Solomon would also be paid and retain all profits generated from its management of the hospital beyond the $9 million fee, but it was also responsible for any losses if expenses exceeded the hospital's income.
By resolution dated December 17, 1997, the County Board of Chosen Freeholders approved the Repositioning Plan. By resolution dated December 19, 1997, the Improvement Authority approved the execution of its LOA with Solomon. On March 15, 1998, Solomon assigned its rights and obligations under the LOA to defendant Bergen Regional Medical Center, LP ("Bergen Regional"), which was the entity that actually managed and operated the hospital.
With respect to accounts receivable for services provided to patients before private management and operation began, the LOA provided that Solomon or its designee would collect the receivables but the County would retain ownership of that asset. Section 5.3 of the LOA permitted Solomon to pledge the hospital's accounts receivable "for any line or letter of credit or other financing." Section 5.1(f) of the LOA made reference as follows to a promissory note to secure Solomon's payment of the pre-LOA accounts receivable to the Improvement Authority:
(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, . . .
On March 13, 1998, Solomon executed a promissory note for the pre-LOA accounts receivable, which at that time were estimated at about $15 million. They were actually a greater amount, and audited records later established the value of the pre-LOA accounts receivable debt from Solomon to the Improvement Authority at about $27 million. By the terms of the promissory note, the due date of the loan is March 14, 2020. It is a non-interest bearing loan for the first sixteen years, until March 14, 2014, and, for the final six years, annual interest is one-half the Consumer Price Index. The promissory note also provided that "[t]he Accounts Receivable Loan shall be utilized by Solomon in its sole discretion for or with respect to the provision of Management Services at Bergen Regional Medical Center."
Thus, at the time the promissory note was executed, there were no actual County funds transferred to Solomon as part of the accounts receivable loan. The loan agreement permitted Solomon to delay for a number of years payment of the pre-LOA accounts receivable it collected to the Improvement Authority and to use the funds instead in operating the hospital.
Unlike the accounts receivable loan, $6 million in County funds were transferred to Solomon by check dated March 26, 1998, as a separate working capital loan. The same promissory note as for the accounts receivable loan also obligated Solomon to the Improvement Authority for the working capital loan. That loan was also to be "utilized by Solomon in its sole discretion for or with respect to the provision of Management Services . . . at Bergen Regional Medical Center." The loan was "non-interest bearing" until March 14, 2006. From that date until March 14, 2012, when the remaining balance of the principal was to be paid in full, the outstanding principal bears interest at an annual rate of half the Consumer Price Index.
As previously quoted, Section 5.1(f) of the LOA referenced an accounts receivable loan, but it made no reference to a working capital loan, and that loan was not otherwise mentioned in the LOA. Attorney Gary Herschman, counsel for Solomon, testified in deposition that he was involved in negotiating the working capital loan in March 1998 with Eric Wisler, counsel for the County and the Improvement Authority.*fn1 Herschman recalled that the working capital loan was the result of a change in the timing of the proposed management fee payments by the Improvement Authority to Solomon. A first supplement to the LOA, dated March 13, 1998, modified the time of the management fee payments from two payments on the tenth and twentieth of each month to one payment at the end of the month. It also ...