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Moshannon Valley Citizens, Inc. v. Rosewood Real Estate

July 30, 2008

MOSHANNON VALLEY CITIZENS, INC. T/A PHILIPSBURG AREA HOSPITAL, APPELLEE,
v.
ROSEWOOD REAL ESTATE, INC., LAWRENCE G. ADAMS, M.D., PHILIPSBURG REGIONAL MEDICAL CENTER, JOHN DOE ENTITIES 1-100, APPELLANTS.



The opinion of the court was delivered by: James F. McClure, Jr. United States District Judge

(Judge McClure)

Bankruptcy No. 06-00095 MDF

ORDER

BACKGROUND

On January 25, 2006, appellee Moshannon Valley Citizens, Inc. ("Moshannon") filed a voluntary petition for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Middle District of Pennsylvania. On April 18, 2008, during the course of the bankruptcy proceedings, the bankruptcy court granted Moshannon's request for a permanent injunction enjoining Rosewood Real Estate, Inc., Lawrence Adams, M.D., Philipsburg Regional Medical Center, and John Doe Entities 1-100 (collectively "Rosewood") from occupying a hospital facility located at 210 Loch Lomand Road, Philipsburg, Pennsylvania ("the Hospital Facility").

On May 29, 2008, Rosewood filed an appeal to this court of the bankruptcy court's decision granting the permanent injunction. An opposing brief has been filed and the time for filing a reply has since passed. For the following reasons, we will deny the appeal as moot.

STATEMENT OF FACTS

In March of 1992, Moshannon leased the Hospital Facility from the Commonwealth of Pennsylvania. The lease agreement provided that "[Moshannon] will, from the date of this agreement, without interruption lease the hereinafter described premises for use as a general hospital." (Tr. of Jan. 24, 2008, Rec. Doc. No. 4, Ex. M-8, at 1.) The lease also provided that if Moshannon "should fail to comply with any of the covenants, terms or conditions of this lease . . . [the state] may, after giving [Moshannon] thirty (30) days prior written notice of termination, subsequent to ninety (90) days prior written notice of the breach and an opportunity to cure, terminate this lease for failure to comply." (Id. at 19.) The lease was for a term of five years, at the end of which the lease would continue unless either party terminated the lease by providing 180 days written notice. (Id. at 5.) Unless terminated, the lease could continue for three additional terms of five years each, but could not continue for more than twenty total years. (Id.)

On January 25, 2006, Moshannon filed a petition for relief under Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Middle District of Pennsylvania. On April 12, 2006, Moshannon ceased use of the Hospital Facility as a hospital. The Commonwealth, evidently recognizing the need for the area to have a hospital, permitted Moshannon to attempt to sell its assets, including the lease and the leasehold interest. (Tr. of Jan. 31, 2008, Rec. Doc. No. 5, at 31.)

On October 17, 2006, Moshannon and Rosewood entered into an agreement in which Moshannon agreed to sell its assets and assign its lease of the Hospital Facility to Rosewood. (Tr. of Jan. 24, 2008, Rec. Doc. No. 4, Ex. M-2.) Subsection (j) of paragraph 12.11 stated that the "the failure of [Rosewood] to begin operations at the medical center within six (6) months of the closing date" would be a default. Similarly, subsection (a) of paragraph 12.11 stated that the "failure of [Rosewood], after commencement of operations, to operate the medical care center continually for a period of thirty (30) continuous days, for any reason other than fire, flood, natural disaster, strike or other circumstances beyond [Rosewood's] control" would be a default as well.

Following the execution of the agreement and before the closing, some water pipes at the Hospital Facility froze and broke, causing flooding in a portion of the facility. Based on this occurrence, the deadline for commencement of operations was increased from six months to nine months after the closing date. (Tr. of Jan. 24, 2008, Rec. Doc. No. 4, Ex. M-3, at 4.)

On May 1, 2007, Moshannon and Rosewood closed on the sale. (Tr. of Jan. 31, 2008, Rec. Doc. No. 5, at 279.) On December 21, 2007, following a site visit, the Commonwealth mailed a "Notice of Default" to counsel for Rosewood. (Rec. Doc. No. 3-26, at 3) This notice contained numerous alleged instances of breach of the lease. (Id.) Specifically, the Commonwealth informed Rosewood that:

[The] site visit confirmed earlier suspicions by DPW that there is no permanent heat being provided to the buildings, the gas and water meters have been removed and are shut off, there is trash and hazardous waste inside the buildings, there are no full time security guards, some portions of the buildings are in poor condition, and there is evidence of significant water damage with collapsed ceilings and damaged floors.

With no heat in the buildings and the water shut off, the buildings are deteriorating in the cold of winter, are more likely to sustain storm damage, they are a fire hazard and the hospital equipment . . . is freezing due to current ...


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