Ventas Realty Limited Partnership v. City of Dover

NOTICE: This speech-to-text record was generated from automated speech recognition, is likely to contain errors or inaccuracies, and should be verified against the recording provided by the Supreme Court at https://www.courts.nh.gov/our-courts/supreme-court/oral-argument/live-stream/2019.

My name is Kevin Rossio and I represent Ventus Realty Trust. Uh, I reserve two minutes rebuttal. Uh, it seems like these days you can't read the newspaper or listen to the radio or the news on the TE television, not hear a story about corporate greed situation where corporations are putting profits ahead of people, especially in a medical field. You can't hear a story. Big pharma putting profits over over patient care or health insurance companies putting profits over patient care, their insureds care. This is not that case. In fact, it's the opposite. What's being asked here by the city of Dover is that Ventus, as managed by National Healthcare, put patient care after tax revenue. What they, what they, the basis of their appraisal, the basis of their, of their opinion of value was cut significantly. Nursing expenses, ancillary expenses, and social services expenses without any justification. As a matter of fact, their own appraiser agreed that you shouldn't do this. For example, Can I just, sorry, can I just ask you whether it was wrong for the trial court to reference the transfer tax Yes. Issue? Yes. Yes. And why? Well, because both appraisers agreed this wasn't fair market value. This was not a, a market transfer. Uh, this was corporate restructuring. Ventus had, um, uh, transferred 355, uh, nursing homes nationwide into a new entity called CCP. Uh, there were no appraisals done. Uh, and given the, the breadth of the amount of transfers, it really wasn't practical for ventus to do an appraisal for each of the 355 nursing homes. So now they're faced with what do we do? Do we put the value we think it's worth, and then somehow get penalties and, and, and, and, and, and interest, uh, by the state when they come back and look at it and say, you undervalued. So they, they did, I guess the easier or more practical way and, and didn't, and didn't, um, and just paid the full amount. But that, I don't think that that's, that was a year and a half after the date of Val. I don't think that's an, an opinion of Val and both appraisals agreed to that. Uh, So how did these cuts impact your client's evaluation? Well, so when you look at, I know the judge had, had made some reference that, that our appraiser, uh, didn't look at, uh, only used one year of data. That wasn't the testimony. The testimony was he looked at three years. He looked at 2012, 13 and 14. 2014 wasn't appropriate 'cause, or at least nine months of it wasn't appropriate. 'cause it was after the date of evaluation, 2012 was the, uh, prior, so in May 1st, 2013, national healthcare took over management of the nursing home. The prior administrator didn't do a great job in many areas, including keeping financial records. So he felt that that data was unreliable, but it did show they spent more, they spent more in expenses in 2012 than 2013. The real difference, the crux of the difference in the valuation was, was deducting expenses and, and what the nursing home, uh, sorry, what the, what the city of Dover had done that they went through and just cut the vital sources of this company. They didn't cut director's salaries. They didn't cut compensation benefits for officers and directors. So they Attributed because of that, a greater profit than actually existed. Exactly. But, but, but they're, the appraisal process isn't confined to actual historical numbers because if somebody buys an underperforming asset, if it's just managed poorly, that shouldn't drive down. That doesn't drive down the value of the property. Absolutely, your honor, this isn't that case. This isn't Coliseum victory, which my beloved mentor argued, uh, before this court many years ago, where, where this court said, well, you entered into bad debt property or bad leases. Uh, long-term leases that were, are no longer profitable. That's your bond. This is not this case. What they're saying is, and as a matter of fact, contradictory, they're saying in one instance, you know, we can't tell the acuity levels between you and the competitors, and so therefore it's unreliable data, but we're gonna do it anyways. Um, they're gonna, they're gonna look at a fact that when National Healthcare took over this business in May, May 1st, 2013, they inherited a hot mess. They inherited a building that was purely, it had significant fi uh, physical and, and economic obsolescence. It was deteriorated. And they learned very quickly after taking over on Thanksgiving that the prior, the prior, uh, management company had to generator insufficient to heat the hold the building on the loss of power on Thanksgiving. They lost power. They couldn't heat the building. They had to move patients onto other areas of the building. They got approval from the state, which is very difficult for $2.9 million for improvements that started right around the time they took over. Well, why isn't this, I mean, I get all your arguments, and they presumably were made eloquently to the trial court. Uh, Maybe not. We're here. We have a 19 page opinion from Judge Howard that, uh, it seems to me this is a classic case of competing experts. And Judge Howard went, spent a lot of time analyzing all these arguments about costs and underperforming assets. And while this is what the industry standard is, how can we get behind that? Because the judge, um, overlook some critical other evidence. Your Honor, as we pointed out in our briefs, for example, ancillary expenses, which are a big component of, of the reduction, the, the appraiser, the city's appraiser says, uh, very, very test. Well, she, this, she said in her brief, she says, because ancillary expenses very greatly depending upon Medicaid utilization and accu acuity levels, PARITAL data provides limited analytical ability. Now, ancillary expenses are speech therapy, physical therapy therapy, respiratory therapy, which we are known for. So we can't cut that, uh, uh, and occupational therapy, drugs and certain devices she went through the gross data was unjust un uncontroverted. Both parties agreed that in 2013, that this facility spent $1,890,000 on ancillary expenses. Her projections, even though she says limited data, limited data, you can't look at the other competitors and make this determination. She cut it to $1,674,000 without any evidence. That's $216,000. We are known for respiratory therapy. She didn't even know that the other competitors did not have a full-time respiratory therapist as we did. Does that exact differential play out into a finite percentage, if you will, of the ultimate appraisal value? The, the, the difference in the expenses are about 800,000. That was just one. That's 200 at eight hundreds. Then there's about another, another percentage for social services, which is, which is, uh, employees they need to admit and discharge. So when you're discharging a, a patient who just went through a critical illness and he has to go home, you have to make sure the home is safe. We do, the nearest competitor did 400 less than us a year. That's roughly eight a week. Okay. We needed more employees. The biggest is on nursing now. It's like five or $600,000 difference in nursing expenses, which includes RNs, registered nurses, licensed practical nurses, and CNAs, as well as, as well as other drugs. So If you're staffing more than competitors, is that something the appraiser has to accept? Well, that wasn't the evidence of the trial. If that was the evidence of the trial, I would say So when they took over, in addition to the building needing $2.9 million, what needed more than that? But the putting 2.19 million in when they inherited the state, determines what they call A CMI index for various categories. The category that, that, uh, involved nursing, uh, the state looks at the Payson shots, which that's the only group in this equation that has the appraisers can't. And they determined that this facility at the time they took it over the time of appraisal, was at a two out of five, which both Mr. Prisco and Mr. Gilmar, Mr. Gun Martin says, I'm the financial bean counter. I push back when I can. But the ultimate decision on nursing goes to the director of nursing. That's where this belongs. That's, and so the evidence at trial was they didn't have enough staffing, and yet they wanted them to cut it, and yet they wanted them to cut it even further. Where, where that either jeopardizes patient care or as, as, uh, Mr. Dehe testified the Gold Center in Lexington did this a number of years ago, and they closed their doors. We should not be 60% of our patient days. This is not revenue. 60% of our patient days is Medicaid. Some of the most financially and medically at risk people in our society in the Dover area. They deserve the same level of dignity as everybody else, as, as the expert testified. Um, we're in a situation where, where, because one of the things that the court pointed out was said incorrectly resubmit that we didn't prove that the need for future nursing care will, will continue in future years. That's not true. Ms. Ms Ms, uh, KOIT, the, the city's expert, testified that medical expenses are gonna continue to increase. The acuity levels are gonna continue to increase because people can afford to avoid nursing homes due. Okay? So they go to assisted living facilities and, and they go and they have own at home services. The people who are going into nursing homes are the most at risk. Now, 60% of the patient days were Medicaid, but only about one third of it was the revenue. That was it. So 60%, but one third of the revenue is, is from Medicaid. And so all the evidence that this case that we, we submit at this trial suggest you can't cut it. Now, she testified in another, in another, multiple places, at least three spots. In her, in her appraisal, confidential appraisal, on page, um, 2 33 of, of the confidential appendix, she talked about low accu acuity levels, um, resulting in sicker patients at, at nursing homes. On, uh, on page 1 93 of the transcript, she testifies to the same thing. On page, uh, 2 63, she talks about, um, the imbalance between, uh, medical expenses, uh, sorry, the imbalance between Medicaid and, uh, Medicare, meaning Medicaid's not paying enough and it's gonna get worse. And so all these things were testified to. She also testified very eloquently. 'cause we, I know they talked about our appraiser only, only using the trailing 11 months. Her own report on page, uh, 2 63 on the confidential appendix, um, said very aptly industry participants, which is market value. Look at the trailing 12 to 24 months. We only could use the last 11 months 'cause that was the most reliable data. She ended up doing the same thing except just started making cuts. So when it looks at, when you look at what was said, what was presented, we proved not only through our expert, but we proved through their expert that you should not be cutting these expenses. You should not be cutting, uh, the expenses of nursing, social services and inci and ancillary, uh, medical expenses without being able to review the patient data. She, at, at one point in her testimony, she says, she admitted that it was just purely guesswork. Her projections were just guesswork. It's too important to guess on patient care. This is not a situation where we're saying that the, the administrator of the, of the, of this facility was earning a million dollar salary and we should cut it. 'cause everyone else, that's not what she's doing. One of the other things that she cut very small, but it goes to her mindset, is the management fee. She says it should be between three and 5%. She did no, uh, calculation as to what it's done in New Hampshire. She just said 3%. We were at four point a half. She decreased. It was a small decrease, but it was a decrease. Our ex, our management fee was, was lower than the other competitors, but she still cut it anyways, at just put a straight 4%. When I asked her, why did you cut it? I just picked the middle one. That's how they drafted this appraisal. They just picked the middle one. So when you, and when you look at the actual medical expenses and whether they're market or not, she supports that they are, she had said that nursing expenses usually go between 30% and 45% of gross revenue by her. We, our, our appraiser came up at 35%, 34.7%. Her, her, uh, calculation of gross interest expenses went 42.5%. Your light's on. You have your two minutes. Thank you. Thank you. Good morning. May I please the court? My name is Laura Specter. Morgan and I, along with City Council Joshua Wyatt, represent the city of Dover. This court should affirm the decision of the trial court denying the tax abatement in this case, because as the trial court properly found, the taxpayer simply didn't meet its burden. In this case, this isn't a case where the city of Dover questions the quality of care or is asking anyone to cut any nursing services. This is a very, But in effect, isn't the city asking them to operate the facility at a lower level in order to, I guess, meet this lower value, if you will, on the income based approach? It is. Is that the net effect? It, It is not, your Honor, because what the, what the city's appraiser here did, and I think it's interesting we're talking so much about the city's appraiser when the trial court's decision was based entirely on the taxpayer's appraisal, and we'll get to that. But what the city's appraiser did was she looked at the actual expenses, and then she went out to the market and she looked at the market expenses, and she said, when you compare the market expenses and the actual expenses, the actual expenses are high. That's exactly what the, Was this market providing identical services? It's interesting because although you heard a lot today about respiratory care and discharges, the taxpayer's appraisal doesn't mention any of that. The taxpayer's appraisal says our value is lower because of the worn condition of the interior finishes, which is what the certificate of need was granted for. Simply aesthetic changes. And because of our lack of private rooms. So they were increasing the number of private rooms. So they both appraisers appraised it as a nursing home, this respiratory specialty. But Under the income approach, the special services respiratory services are part of the income generating model, if you will. They are, your Honor. So this was not, it might've been easier for all of us if it were just a property appraisal, bricks and mortar. Right. But somehow we're here with this income approach. So isn't it important to focus on the actual operations? Not a vague comparison with an operation that might be materially different? I don't think it was vague, your Honor. The city's appraiser has a degree in nursing home administration. She has experience in nursing home administration. She used the exact same comparable facilities that taxpayer's appraiser used. Now, he didn't use them to determine what the market value was. He looked at them and said, well, we're sort of in the ballpark, so our expenses are reasonable. That's not what he was required to do. He was required to determine whether or not they were within the market, and he did not do that. Well, the one thing that concerns me here is, uh, I think the use of the data after the date of appraisal. Sure. Why, why is that appropriate? And your honor, I think the trial court held two things. First, he, the trial court held that the city's appraiser's use of the actual data from, um, after April 1st, right? 2019 wasn't appropriate. But then he held, but her appraisal doesn't rest on that. There's many other aspects that support her appraisal as for the Transfer. So is he right about that? He's absolutely right about that. Yeah. As for the transfer, um, tax amount, um, yes, this was a large transaction and they didn't have an appraisal done. And there were a lot of nursing homes at issue here. But it's important to look at the timing of this transfer. This transfer was an August of 2015. That is around the same time that you have to file your tax abatement appeal. Ventus obviously knew it was going to appeal this, it obviously knew this was going to come up and it didn't have to do 335 appraisals. It had to do one. If it had done an appraisal of this property at that time and it showed a lower value, they would've had a lower transfer tax stamp. They didn't do that. And both the statute RSA 78 B ten two, and BTLA case law says what you put down as the transfer stack transfer tax amount is prima fascia evidence of the value of the property. The Trial court didn't go there, though. The trial court did not go there. The trial court said, I, it's one of the many things I'm considering when I am looking at the value of this property. And the other important thing about the post April 1st, 2014 information, your Honor, is that it demonstrates exactly what was predicted here. It demonstrates that during 2014, the new operator reduced costs by over $300,000. But should we be able to consider that? That seems like we shouldn't be able to think about that. But both, both appraisers said, when a new operator takes over, you expect them to tighten up the ship and start reducing expenses. I mean, They're buying it presumably because it's an undervalued a I mean, they can buy it and make it run better and then make money. This was not that kind of transfer. As I understand it, this was sort of a corporate reorganization. It wasn't someone coming in and buying them to make money and make them better. This was simply a corporate reorganization. But nonetheless, both appraisers said that when a new operator comes in, expenses go down. And the fact that they did go down simply supports what both appraisers said, But not to the degree that the city's appraiser projected. Not at that point, your Honor. Correct. Right. And the initial purchase was a new operator coming in. This corporate transfer was internal, but there had been an acquisition prior there too. No, your Honor, what there had been was there was a lease of the property by one operator. They didn't renew their lease. And a new operator came in with a new lease. Okay. But there was a new sheriff in town. There was starting, there was, uh, like 2000, what, 12 or 13 or something? 2013, Right? Yes. And isn't that a relevant consideration in terms of, uh, valuation of the property? Absolutely. And, and the city's appraiser did consider that she looked at many years of data. She adjusted them for the market, and she made a projection into 2015. She used the 2014 data to help her do that, but that's not solely what her appraisal was based on. Um, So from your perspective, is this just two competing experts in the trial court, heard all the testimony and came down basically endorsing the view of one expert? Yes, to a degree, except that what the trial court here did was the trial court didn't adopt the city's appraiser. The trial court said the taxpayer failed to meet its burden. And while the trial court went through the analysis of the city's appraisal, there's a footnote in there that says, I don't even have to do this. Because regardless of what her appraisal is, the taxpayer didn't meet its burden. And this court has held as recently as 2017 in the PSNH case, that when the taxpayer doesn't meet its burden, simply trying to pick apart the city's appraiser is not sufficient to meet that burden And, and the determination that the burden hasn't been met. Uh, what deference do we owe the trial court as to that determination? It's an unsustainable exercise of discretion decision. Your Honor, if the court has no other questions, I will simply ask. Thank that you affirm the trial court. Thank you. Thank you, Mr. Rossio, your two Minutes. Thank you very much, your Honor. Uh, so to follow up on that point, your Honor, we can prove our case not only by our expert, but by the city's expert as well in the city's evidence. That's Brickman and de Moes the UL court. In the decision that made there, even though they said the BT A was correct in, in not buying the petitioner's expert, they sent it back to determine what did the ev e evidence support, um, denying the abatement. So that's why we're spending so much time talking about the city's appraisal here. It's not because we think it's great, 'cause we don't. That's the whole point that the city, our expert, even though the courts incorrectly said we didn't stabilize expenses, we did, we did. He looked at those the other expenses and said they weren't comparable. And, and he said, I'm not gonna cut them based on that. I can't make that decision. The city's appraiser took the fundamentally flawed, and I would once again say grossly missed fees in step of, of saying, let's deduct nursing expenses without any support for that. And the court bought that. So the court, our expert, did look at the valuation, did look at the expenses, and said, how can we judge the cut? They're more expensive, especially in a situation as Mr. Prisco. And Mr. Montin testified they had two, two a, a two rating. If you look at page two twelve, two hundred and twenty two of the confidential appendix, that's the city's appraiser. She goes through and compares the gross data for 2012 and 2013, 2014, we actually increased national healthcare when he took over on May 1st increased nursing expenses from 2012 and 2013, they went up. There was a slight decrease in 2014, which we shouldn't have looked at, but it was under $50,000 in nursing expenses. Well, that was a quick two minutes. Uh, um, it was that, yeah, that really was a quick two minutes. You, and you were going fast too. I was going, I brought my inner Boston note. So Thank you Mr. Racio. Thank you, counsel. Thank you. Case submitted. Court's adjourned.