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Lutheran Homes, Inc. v. Lock Realty Corporation Ix

United States District Court, N.D. Indiana, Fort Wayne Division

March 2, 2015

LUTHERAN HOMES, INC., d/b/a/ Lutheran Life Villages, Plaintiff,


JON E. DEGUILIO, District Judge.

This is a contract dispute over the transfer of Medicaid certification rights between two Indiana nursing facilities. The State of Indiana requires a bed to be certified in its Medicaid program in order to fully reimburse a facility for services provided to the bed's occupant. At the time the parties entered the agreement at issue, the State had a statutory moratorium on granting new certifications, but it permitted facilities to transfer their existing certification rights amongst themselves. The plaintiff, Lutheran Homes, Inc., which had a surplus of certified beds, agreed to sell the certification rights for 35 of its beds to the defendant, Lock Realty Corporation IX, for the price of $350, 000. However, the moratorium contained a sunset provision, and between the time the contract was entered and when the closing was set to take place, it became apparent that the legislature would not act to extend the moratorium. Lock Realty thus refused to pay for and accept Lutheran Homes' certification rights, deciding to instead wait and seek them from the State at no cost. In response, Lutheran Homes filed this action to enforce the contract, and has now moved for summary judgment. For the following reasons, the motion for summary judgment is GRANTED.


Plaintiff Lutheran Homes owns a nursing facility in Fort Wayne, Indiana, known as Lutheran Life Villages. The Defendant Lock Realty Corporation IX owns a nursing facility in Goshen, Indiana, known as Courtyard Healthcare Center. Both facilities are licensed by the Indiana Department of Health to operate a certain number of comprehensive care beds, or nursing home beds, which allows them to receive reimbursement through Indiana's Medicaid program for services provided to the occupants of those beds. As of January 2014, Lutheran Life Villages contained 224 comprehensive care beds, all of which were certified to participate in Medicaid, while Courtyard Healthcare Center contained a total of 188 comprehensive care beds, of which 138 were certified to participate in Medicaid.

Since 2006, Indiana had imposed a statutory moratorium on certifying additional nursing home beds for its Medicaid program. The moratorium was amended on several occasions, and the version in place as of January 2014 was enacted in 2011. 2011 Ind. Legis. Serv. Pub. L. 229-2011, § 163 (codified at Ind. Code § 16-28-16-1 et seq. ). Under that moratorium, the State was prohibited from certifying any new comprehensive care beds for participation in the Medicaid program except in limited circumstances. Id. (Ind. Code § 16-28-16-4(a)). However, facilities remained free to transfer the Medicaid certification rights amongst themselves, so a facility seeking to add Medicaid-eligible comprehensive care beds to its facility could purchase the rights to certifications for those beds from another facility. Id. (Ind. Code § 16-28-16-4(b)). The 2011 legislation also included an expiration date of June 30, 2014 for the moratorium, meaning the moratorium would sunset at that time absent further legislative action. Id. (Ind. Code § 16-28-16-7).

In January 2014, Lock Realty sought to acquire certification rights for more of its comprehensive care beds, so it contacted Lutheran Homes, which was not using all of the certified beds at its facility. After some negotiation, the parties reached an agreement by which Lutheran Homes would sell Lock Realty the Medicaid certification rights for 35 beds in exchange for $350, 000. The Medicaid Certification Rights Transfer Agreement, which the parties executed in late January 2014, called for closing to take place within five business days of the State's approval of the transfer. The transfer of the certification rights would be effective as of April 1, 2014.

Around this same time, legislation was introduced in the Indiana legislature to extend the moratorium. On January 8, 2014, Senate Bill 173, entitled Nursing Facility Moratorium, was introduced in the Indiana Senate. As initially drafted, the bill called for a five-year extension of the moratorium, and also called for a ban on transfers of certification rights. The bill underwent several minor amendments, and was passed by the Indiana Senate on January 23, 2014, at which point it was sent to the Indiana House of Representatives for consideration. It was widely expected that the legislature would extend the moratorium in at least some form, and the prospect of a ban on the transfer of certification rights created an urgency to complete any such transactions, so it was at this point that Lutheran Homes and Lock Realty executed their Agreement.

The Indiana House then considered the bill for the first time on February 18, 2014. The bill eventually passed through the House on March 3, 2014, but not before undergoing several amendments, the most significant of which reduced the moratorium from five years to one. Therefore, the bill entered the conference committee process for the two houses to reconcile their versions of the bill. In addition, a similar version of the moratorium was inserted into a different bill that had originated in the House, and that bill went to a conference committee as well. However, the conference committee on the Senate bill never took up the bill, and the conference committee on the House bill removed the Medicaid moratorium, so the bill was enacted without an extension of the moratorium. Thus, when the legislative session ended on March 13, 2014, the legislature had not passed any bill extending the moratorium, meaning that, to the surprise of many in the industry, the moratorium would be allowed to expire on June 30, 2014.

Meanwhile, the State approved the parties' transfer of the certification rights, and the parties received notice of the approval on March 13 or 14, 2014. Since the Agreement called for the closing to occur within five days of the approval, Lutheran Homes sent Lock Realty a signed bill of sale along with wire transfer instructions on March 17, 2014. However, realizing that it could now receive the Medicaid certifications from the State at no cost once the moratorium expired on June 30, 2014, Lock Realty refused to close the transaction and pay the purchase price. Lutheran Homes responded by filing this suit against Lock Realty for breach of contract. In its Answer, Lock Realty admits that it entered the Agreement and that it has not paid the purchase price, but it asserts four affirmative defenses: (1) failure of consideration; (2) impracticability of performance; (3) mutual mistake of fact; and (4) failure to mitigate damages. [DE 15]. Lutheran Homes immediately moved for summary judgment on its claim for breach of contract and as to each of Lock Realty's affirmative defenses except for failure to mitigate damages. After a limited discovery period, that motion is now fully briefed.


On summary judgment, the moving party bears the burden of demonstrating that there "is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A "material" fact is one identified by the substantive law as affecting the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" exists with respect to any material fact when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. Where a factual record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial, and summary judgment should be granted. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing Bank of Ariz. v. Cities Servs. Co., 391 U.S. 253, 289 (1968)).

In determining whether a genuine issue of material fact exists, this Court must construe all facts in the light most favorable to the non-moving party and draw all reasonable and justifiable inferences in that party's favor. Kerri v. Bd. of Trustees of Purdue Univ., 458 F.3d 620, 628 (7th Cir. 2006); King v. Preferred Technical Grp., 166 F.3d 887, 890 (7th Cir. 1999). However, the non-moving party cannot simply rest on the allegations or denials contained in its pleadings, but must present sufficient evidence to show the existence of each element of its case on which it will bear the burden at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Robin v. Espo Eng'g Corp., 200 F.3d 1081, 1088 (7th Cir. 2000).


The substantive law of Indiana governs the resolution of this breach of contract action, as specified in the parties' Agreement. The elements of a breach of contract action in Indiana are the existence of a contract, the defendant's breach of the contract, and damages. Fowler v. Campbell, 612 N.E.2d 596, 600 (Ind.Ct.App. 1993). Lock Realty does not dispute the existence of a contract or that it has not paid the purchase price, but offers three affirmative defenses to breach and one affirmative ...

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