The New Jersey-based healthcare chain that sought to step in as the operator of Cedar Haven, the bankrupt former county home, wants to back out of the agreement, accusing the current operator of preventing access to the facility for pre-transfer inspections and employee meetings.
The current operator is Cedar Haven Acquisition LLC. (“CHA”), which ended up owning the assets and day-to-day business operation of Cedar Haven after the Lebanon County commissioners sold it in 2014.
CHA filed for Chapter 11 bankruptcy in August, 2019, citing millions of dollars in debt. It has been operating the facility since then under bankruptcy court supervision, and resident care has continued.
A separate company, 590 South 5th Avenue LLC,, which is not part of the bankruptcy, ended up owning the building and real estate and has been leasing it to CHA.
Hopes for Cedar Haven’s financial stability swelled when Allaire Health Services, owner of several personal care homes in New Jersey and Pennsylvania, sought to step in as Cedar Haven’s operator by agreeing to buy CHA’s assets for $1,000,000 and to assume responsibility for some of CHA’s liabilities. The bankruptcy court approved the deal, including an asset purchase agreement, in January.
Now, the deal is in doubt.
Papers filed in court by CHA on June 29 revealed that “on June 3, 2020, [CHA] received a letter from Allaire purporting to provide Notice of Termination . . . of the Asset Purchase Agreement . . . between Allaire and [CHA]” and “on June 8, 2020, [CHA] sent a response to purported Notice of Termination . . . outlining why Allaire’s attempted termination was invalid and that Allaire is in breach of the [asset purchase agreement].”
Allaire’s reasons for wanting to back out of the agreement became clear in a demand for return of its down payment, filed in bankruptcy court on July 1.
Allaire contends, “it was [CHA’s] refusal . . . to provide [Allaire] with access to the Facility (notwithstanding repeated requests) – that made [completing the sale] an impossibility and forced the termination of the [asset purchase agreement].”
Allaire says that it offered to modify on-site inspections and meetings with Cedar Haven employees to include COVID-19 safety precautions, and to “even obtain a document from the PA DOH authorizing their entry into the Facility,” but that CHA still refused to allow Allaire access.
In its filing, Allaire told the court that it “remains interested in pursuing the acquisition of substantially all of the CHA’s assets” at Cedar Haven, but that “a new operator cannot simply walk into the Facility on the closing date without devoting significant time and detail pre-closing to . . . operational/transitional details. Many of these transitional issues need to be addressed on-site at the Facility or patient care may be jeopardized.”
In addition to voiding the asset purchase agreement, Allaire is asking the court to order CHA to return its down payment and to pay its attorneys’ fees.
CHA has not filed a response to the allegations, but Allaire’s filing hints at what CHA’s position may be.
“The Court is going to hear a lot . . . about the perceived delay in obtaining the License Approvals (from the PA DOH and HUD),” Allaire told the bankruptcy court. But Allaire said it “stands by its good faith efforts to obtain License Approval,” and that it “had obtained the necessary License Approvals as of May 27, 2020 and was prepared to close the transaction (and still is), provided that it first be granted the necessary on-site access to address transitional issues.”
Calls and emails to CHA’s Chas Blalack, Allaire CEO Benjamin Kurland, and Cedar Haven executive director Steven Zablocki had not been returned by publication time.
Reached by telephone, CHA’s bankruptcy attorney, William Chipman, said he was not authorized to comment.
What could happen now?
CHA has been ordered to file an answer to Allaire’s claims by July 14. A hearing to decide the dispute will be held before a Delaware bankruptcy judge on July 21.
If the bankruptcy judge agrees with Allaire and lets it pull out of the agreement to operate Cedar Haven, there are several possibilities going forward.
Another buyer / operator could come forward. Allaire was located after CHA received court permission to hire a broker to search for a buyer. That process could be repeated.
CHA’s “Chapter 11” bankruptcy allows it to file a reorganization plan that could restructure its debt and allow it to continue operating Cedar Haven.
What about the absolute worst case scenario, in which CHA goes out of business and no one wants to run Cedar Haven?
When Cedar Haven first went into bankruptcy, some suggested that the county buy it back. While there appears to be no legal obstacle to doing that, the county would be under no obligation to do so.
Pennsylvania law makes counties ultimately responsible for the care of their “dependent” residents. However, the variety of federal and state benefits available to indigent residents nowadays, such as Medicare, assures that no one is put on the street if a facility such as Cedar Haven closes its doors. Residents would likely be placed in other facilities.
UPDATE: This story was updated at 8:25 a.m. on July 2 to clarify what could happen if Cedar Haven closed.
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