U.S. Chapter Choose Craig A. Gargotta rejected a debtor’s try to make use of CARES Act funds, which it didn’t really qualify for, to pay collectors in its chapter 11 case.
BR Healthcare Options (the “Debtor”) operated a nursing residence below the identify Karnes Metropolis Well being & Rehabilitation Heart close to San Antonio. However in January of 2020, the Debtor’s principal “determined to shut the nursing residence [] due a sustained interval of web working losses. By February 4, 2020, all the remaining sufferers have been transitioned out of the nursing residence to different suppliers.”[1] In March of 2020, the Debtor filed for chapter 11.
On April 6, 2020, the Heart for Medicare and Medicaid Companies (“CMS”) despatched the Debtor a letter stating that CMS “has been notified that your Expert Nursing Facility (SNF) voluntarily withdrew from the Medicare program on February 3, 2020. In consequence, the supplier quantity proven above has been canceled efficient February 3, 2020.”
Nonetheless, and regardless of CMS’s letter, in April and Might of 2020, the U.S. Division of Well being and Human Companies (“HHS”), of which CMS is part, deposited $238,445.41 in three installments into the Debtor’s debtor-in-possession checking account, of which $234,255.32 remained. The cash was distributed pursuant to the Coronavirus Help, Aid, and Financial Safety Act, often known as the CARES Act.
On April 30, 2020, the Debtor’s principal filed two attestations with HHS certifying compliance with the Phrases and Situations of the disbursements. These phrases included that “[t]he Recipient certifies that it supplies or supplied after January 31, 2020 diagnoses, testing, or care for people with potential or precise instances of COVID-19 [and] will not be presently terminated from participation in Medicare . . . .”
Agreeing with HHS, Choose Gargotta reasoned that as a result of “certifies” is a present-tense verb, on the time of the attestation, the Debtor couldn’t be eligible for the funds if it was “presently terminated.”[2] Whereas Choose Gargotta cited the much-debated Chevron doctrine of deference to administrative interpretations, he additionally discovered the plain which means of the textual content supported HHS’s place. As Choose Gargotta put it, “[a] plain studying of the HHS Phrases and Situations exhibits that [a] expert nursing facility corresponding to Debtor will need to have been enrolled within the Medicare program, which Debtor was by its personal admission not.” Accordingly, Choose Gargotta denied the Debtor’s movement to authorize the usage of CARES Act funds to pay its collectors, and ordered the Debtor to return the funds to HHS.
In a call approaching the problem from the other way, In re Roman Catholic Church of Archdiocese of Santa Fe,[3] U.S. Chapter Choose David T. Thuma discovered that the Small Enterprise Administration (“SBA”) exceeded its authority below the CARES Act in excluding chapter debtors from eligibility for loans, and that the SBA’s choice was arbitrary and capricious. Not like the Debtor mentioned above, nonetheless, the Roman Catholic Church of Santa Fe continued operations.
The various outcomes make equitable sense however do elevate extra questions. Specifically, what would have occurred to HHS’s cash had the Debtor merely ceased operations and never filed for chapter as a result of different excellent debt? Beneath HHS and the Court docket’s interpretation of the CARES Act, the Debtor was by no means entitled to the cash and was required to return it. However one has to surprise, would HHS have realized that it deposited greater than $200,000 within the Debtor’s accounts, though CMS had already canceled the Debtor’s supplier quantity, absent the chapter continuing?
