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DOCKET NO. HHD CV19-6119528
STATE OF CONNECTICUT : SUPERIOR COURT
COMMISSIONER OF SOCIAL SERVICES, :
PLAINTIFF : JUDICIAL DISTRICT OF
: HARTFORD
v. :
:
WATERBURY GARDENS NURSING AND :
REHAB, LLC OF WATERBURY, CT :
d/b/a WATERBURY GARDENS NURSING :
AND REHAB :
DEFENDANT : MARCH 20, 2024
MOTION FOR FINAL ORDER IN RECEIVERSHIP PERIOD CLAIMS
ADJUDICATION PROCEDURE
Katharine B. Sacks, duly appointed Receiver ("the Receiver") of Waterbury
Gardens Nursing and Rehab, LLC ("the Facility" or “the Receivership”), hereby moves
the Court to issue an order terminating the claims adjudication procedure for the full
Receivership period, free and clear of any and all administrative claims against the estate
arising during the time period in which the Receiver operated the subject skilled nursing
facility through the Bar Date of March 15, 2024, in anticipation of the near term
termination of the Receivership. She further requests that the Court bar any such claims
in perpetuity.
Pursuant to Court order, the Receiver provided fair notice to all known potential
claimants, including residents, employees and vendors of and to the Receivership facility
by mailing of this Court’s Receivership period claims procedure notice and order to all
potential claimants on January 6, 2024, and by publishing the notice and order in the
Waterbury Republican American on January 4, 2024. As noted, the Bar Date for the
submission of claims was March 15, 2024. Notice of the date of the scheduled hearing
for the Receivership period claims procedure on April 17, 2024 at 10 a.m. was also
provided to all claimants through these direct mailings.
The Receiver has provided a table at Exhibit A, attached hereto, explaining her
analysis and actions relative to the ten claims she received by the Bar Date. At Exhibit B,
she has also provided a copy of her email and memorandum to address responsibility for
the Internal Revenue Service’s claim. The Receiver respectfully requests the Court’s
endorsement of her actions in this matter and entry of the attached proposed order.
Please note that the proposed order exempts Receivership contractors who
provided services after the Bar Date, and in some instances, continue to do so, including
the Receiver's accountant, bookkeeper and cost report consultant. The Receiver shall
tender a report in her final Receivership report that she has satisfied her obligations in full
to these contractors, to be filed no later than May 15, 2024.
KATHARINE B. SACKS, RECEIVER
BY:
416737
Katharine B. Sacks
Katharine B. Sacks, Attorney at Law, LLC
165 Bishop Street
New Haven, Connecticut 06511-3717
Tel.: (203)776-9700
Fax: (203)776-1717
Juris No. 416737
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DOCKET NO. HHD CV19-6119528
STATE OF CONNECTICUT : SUPERIOR COURT
COMMISSIONER OF SOCIAL SERVICES, :
PLAINTIFF : JUDICIAL DISTRICT OF
: HARTFORD
v. :
:
WATERBURY GARDENS NURSING AND :
REHAB, LLC OF WATERBURY, CT :
d/b/a WATERBURY GARDENS NURSING :
AND REHAB :
DEFENDANT : APRIL ___, 2024
ORDER
On November 5, 2019, (the "Petition Date"), the Superior Court for the Judicial
District of Hartford (the "Court") entered an order appointing a receiver (the "Receiver")
of Waterbury Gardens Nursing and Rehab, LLC dba Waterbury Gardens Nursing and
Rehab (“the Receivership”, “the Facility” or “the Defendant”), a skilled nursing facility
located in Waterbury, Connecticut.
The Receiver closed this Facility on November 30, 2023 pursuant to this Court’s
order. The bar date for the filing of claims against the Receiver in a Receivership period
claims procedure, entered as on order of this Court on January 2, 2024, was March 15,
2024 (“the Bar Date).
A. Claims Received
1. The Receiver received ten timely claims for the time period
commencing November 5, 2019 to the Bar Date, and one untimely claim.
2. Three timely received unsecured claims were based upon pre-
Receivership obligations incurred by the Defendant in whole or in part. These three
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claimants were Integra Scripts LLC; Marcie Petrucci; and Blossom Pryce. The Receiver
wrote to or telephoned these claimants explaining why she could not make payment on
these claims; to wit, pre-Receivership claims were fully addressed by this Court in its
order entered on February 25, 2020 at Docket No. 124.86, and were specifically excluded
from consideration in the Receivership period claims procedure. None of these claimants
provided the information required in the Court’s Order and Notice to All Potential
Claimants Against Receivership Assets Arising Between November 5, 2019 and March
15, 2024 (“the Order”), issued January 2, 2024 at Docket No. 273.87. Therefore, these
three claims are disallowed.
3. One claimant, David DeLucia, M.D., withdrew his timely
unsecured claim after the Receiver informed him that he had billed for medical director
services for the month following the delicensure and closure of the Facility.
Accordingly, this claim is disallowed.
4. Another claimant, David Montambault, filed aa timely unsecured
claim on behalf of William A. Vysocka , a former resident, seeking conveyance of
personal funds he believed that the Facility still held for the former resident. The
Receiver sent an email to the claimant on January 24, 2024 with the resident trust close
out entry and a copy of the check for the balance of the personal funds sent to Laurel
Ridge, the accepting facility, on August 1, 2023, demonstrating that the resident had been
made whole. This claim has been satisfied and is disallowed.
5. The Quadient Finance USA and Ecopier Solutions Inc. invoices
are not claims filed in a fashion that meets the requirements of the Order by providing
full documentation of the alleged claims, and do not appear to be claims filed in this
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procedure at all. The Ecopier Solutions invoice was emailed to the Receiver and not
submitted to the post office box established to accept claims. The Quadient Finance USA
monthly invoices have been both mailed and emailed but do not provide the
documentation substantiating claims as required by the Order. These are both unsecured
imperfected claims. Hence these two claims are disallowed.
6. The Receiver received an unlitigated contingent and unsecured
claim aubmitted by Jonathan A. Kocienda, Esq. of CT Trial Firm, PLLC on behalf of the
Estate of Viola Quick, a former resident who allegedly died on October 19, 2022, some
months after leaving the Facility and returning home. The Receiver immediately
reported this tort claim to Starstone, the general and professional liability insurer for the
nursing home on March 9, 2024. However, it is an open question as to whether the
insurer will accept this claim to provide coverage, as the claim was filed more than thirty
days after the policy terminated at the end of the day on November 30, 2023, the date that
the nursing home was delicensed and closed. The insurer’s claims handler has requested
certain information which will take some time and effort to provide, as it is in the
possession of the Custodian of Records.
This contingent claim is not ripe for the Court’s consideration in this proceeding
as it has not been litigated. The Court directs Attorney Kocienda to paragraph B of the
aforementioned January 2, 2024 Order and Notice to All Potential Claimants Against
Receivership Assets Arising Between November 5, 2019 and March 15. The Court notes
that Plaintiff’s counsel was informed of the requirement to seek this Court’s prior
authorization before commencing any action, both judicial and non-judicial, against the
Receiver by copy of this Order mailed in early January 2024 and he failed to file a
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motion to pursue this action against the Receiver before the Bar Date. The demands
Plaintiff’s counsel made in his claim violate the terms of the referenced order, as he failed
to seek and obtain this Court’s advance authorization. Hence, this claim is disallowed,
and the Receiver is directed not to expend any further time in pursuit of records requested
by the insurer’s claims handler.
7. The Internal Revenue Service also filed an unexpected claim for
unpaid taxes, interest and penalties for a three-year period running from 2020 through
2022, based upon an apparent misunderstanding of the nature of state Medicaid advances
to support a nursing home receivership. The claimant asserts statutory priorities and
indicates that the claim is otherwise unsecured. The Receiver’s explanation in the
memorandum attached at Exhibit B makes it clear that this dispute is between the Internal
Revenue Service and Waterbury Gardens Nursing and Rehab LLC, rather than with this
receivership estate or with the Receiver. The Court hereby redirects the Internal Revenue
Service to seek recourse from Waterbury Gardens Nursing and Rehab LLC if it so
chooses, and to refrain immediately from pursuing the Receiver and the Receivership
estate in this matter. The Internal Revenue Service’s claim is disallowed with respect to
the Receiver and the Receivership estate.
8. Marco Terni, Jr., a former employee, filed a contingent unsecured
claim for lost wages based upon an unlitigated wrongful discharge claim. The Receiver
has reviewed this former employee’s file and has resubstantiated the basis of this
personnel action. This claim is not ripe for consideration in this procedure in any event.
The Court notes that this claimant was informed of the requirement to seek this Court’s
prior authorization before commencing any action, both judicial and non-judicial, against
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the Receiver by copy of this Order in early January 2024 and failed to file a motion to
pursue this action against the Receiver before the Bar Date. While the claimant has not
filed any action, it is now too late to do so. Hence, this claim is disallowed.
9. In addition, the Receiver received an eleventh claim untimely on
March 16, 2024, the day following the Bar Date. This unsecured claim, filed by the Law
Offices of Patrick J. Filan, P.C. on behalf of Virginia Santos, Executrix of the Estate of
Leo Santos, and Virginia Santos personally, was conveyed by United States Postal
Service (“U.S.P.S.”) Priority Mail Express and delivery was recorded by U.S.P.S. on
March 16, 2024.
Plaintiff’s counsel had previously filed a Motion to Intervene, For Relief from
Injunction, and for Disclosure of Insurance on January 13, 2023 at Docket No. 224.00.
On January 31, 2023, the Court entered an order granting the motion to intervene and
denying other relief requested at Docket No. 224.86.
Plaintiff’s counsel’s claim in this procedure was composed of a copy of a civil
complaint and summons filed on September 13, 2022 in Connecticut Superior Court,
Waterbury District at Docket No. UWY-CV22-6067547-S. It is not clear what action
Plaintiff’s counsel intends to request by submission of this documentation.
Because this claim was not submitted by the Bar Date, it is disallowed. Plaintiff’s
counsel may continue to prosecute this case, consistent with this Court’s order on January
31, 2023, so long as this occurs without any involvement whatsoever on the part of the
Receiver or the receivership estate in any form or fashion. Plaintiff’s counsel should take
note that Waterbury Gardens Nursing and Rehab, LLC is the Custodian of Records for
the Facility, which closed on November 30, 2023.
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This Court endorses the Receiver's actions and recommendations relative to each
of these claims, as described in Exhibit A, attached hereto.
B. Permanent Enjoinment of Legal Actions Against the Receiver
By this Order, the Court forever restrains and enjoins the commencement, prosecution, or
continuance of the prosecution, of any action, suit, arbitration proceeding, hearing, or any
foreclosure, reclamation, or repossession proceeding, both judicial and non-judicial, or
any other proceeding, in law, or in equity, or under any statute, or otherwise, against the
Receiver or any of the assets or property in the custody and or control of the Receiver, in
any Court, agency, tribunal, or elsewhere, or before any arbitrator, or otherwise, by any
creditor, stockholder, corporation, partnership or other person for the Receivership
period, running from November 5, 2019 to today.
The levy of any attachment, execution or other process upon or against any
property in the custody or control of the Receiver, or the taking or attempting to take into
possession of any property in the possession, custody or control of the Receiver, or of
which the Receiver has the right to possession is also forever barred, and shall be deemed
to be invalid, void and without effect.
C. The Receiver's contractors utilized after the March 15, 2024 Bar Date are
expressly exempted from this Order. The Receiver shall report to the Court that all
remaining Receivership accounts are paid in full in her final Receivership report, which
she shall file before May 15, 2024.
ENTERED as an Order of this Court this ____ day of April 2024.
________________________
Judge of the Superior Court
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EXHIBIT A: RECEIVERSHIP PERIOD CLAIMS RECEIVED
RECEIVERSHIP PERIOD CLAIM RECEIVED BY THE BAR DATE
Claimant Claim Description Incurred Prior to Receiver's Actions
11/5/2019? ---------
Court’s Order
DeLucia, David J., Invoice for Medical No. Texted claimant on 1/23/2024 to explain
M.D. Director Fees for that the invoice post-dated facility closure.
134 Grandview Ave. 12/1/2023, after He indicated that billing was submitted in
Suite 202 closure. error and withdrew the claim.
Waterbury, CT Unsecured. ---------
06708 Claim disallowed.
Ecopier Solutions Claim for rental of Yes, in part, with Does not appear to be a claim in this
Inc copiers. No detail or no detail provided claims adjudication procedure, as it was an
100 Park Ave. 16th documentation distinguishing claim emailed invoice. The receiver has
Floor provided. for receivership previously sent multiple emails to this
New York, NY Unsecured. period only. company seeking to terminate this lease
10017 and return the leased equipment and
received no response beyond automatic
billing. This vendor has not responded to
the notice of the claims order.
---------
Claim disallowed.
Integra Scripts LLC Six invoices for pre- Yes. Called Sarala Skaist, accountant to
160 Airport Road receivership claimant, on 1/17/2024 to explain that
Lakewood, NJ consulting services. invoices are ineligible for this process as
08701 Unsecured. they pre-date 11/5/2019. She withdrew
them.
---------
Claim disallowed.
Internal Revenue Claim for partnership No. Sent email to claimant on 3/16/2024 and
Service income tax 3/19/2024 explaining why these claims are
2 Metrotech Center payments, interest the responsibility of Waterbury Gardens
Brooklyn, NY 11201 and penalties for tax Nursing and Rehab LLC and not the
Attn: Stanley years 2020, 2021 receiver. See attached email and
Cheung, Bankruptcy and 2022. The memorandum at Exhibit B.
Specialist claimant asserts ---------
statutory priorities Claim disallowed with respect to the
and indicates that Receiver and the Receivership estate.
the claim is
otherwise
unsecured.
Montambault, David Conservator seeking No. Sent email to claimant on 1/24/2024 with
on behalf of William refund of unused resident trust close out entry and copy of
A. Vysocka personal funds held the check for the balance of the personal
211 Dunn Rd. by facility. funds sent to Laurel Ridge, the accepting
Honesdale, PA Unsecured. facility, on 8/1/2023, demonstrating that the
18431 resident had been made whole.
---------
Claim disallowed.
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Petrucci, Marcie Former employee Yes, in part, with Email sent on 3/16/2024 explaining that
131 Cheryl Drive claim for paid time no detail provided only claims incurred from 11/5/2019 can be
Waterbury, CT off accrued between distinguishing claim considered, pursuant to the court order,
06708 2017 and 2020, for receivership and that pre-receivership claims have
seeking payment of period only. already been addressed by the Court.
personal time. ---------
Unsecured. Claim disallowed.
Pryce, Blossom Former employee Yes, in part, with Letter sent on 3/16/2024 explaining that
222 View St. claim for paid time no detail provided only claims incurred from 11/5/2019 can be
New Haven, CT off accrued between distinguishing claim considered, pursuant to the court order,
06511 2017 and 2020, for receivership and that pre-receivership claims have
seeking payment. period only. already been addressed by the Court.
Unsecured. ---------
Claim disallowed.
Quadient Finance Claim for rental of Unknown due to This is not a claim in this claims
USA Inc. postage meter. No the absence of adjudication procedure. The receiver has
PO Box 6813 detail or documentation. sent multiple emails to this company
Carol Stream, IL documentation seeking to terminate this lease and
60197-6813 provided. received no response beyond automatic
Unsecured. billing. This vendor has not responded to
the notice of the claims order.
---------
Claim disallowed.
Quick, Viola, Estate Wrongful death claim No. Referred to Starstone, insurer to the
c/o Jonathan A. allegedly related to facility, on 3/9/2024. Unclear if Starstone
Kocienda, Esq. resident’s stay in will cover this contingent claim, reported
CT Trial Firm, PLLC 2022. more than 30 days after the policy
437 Naubuc Ave. Unsecured. terminated. The receiver is providing
Suite 105 requested information to the claim handler.
Glastonbury, CT Counsel failed to seek the Court’s advance
06033 authorization to pursue this claim.
---------
Claim disallowed.
Terni, Marco, Jr. Claim for wrongful No. Reviewed and resubstantiated basis for
112 Manor Ave. termination, loss of personnel action. This is a contingent
Waterbury, CT compensation and claim based on the claimant’s unlitigated
06706 reduction in allegation of wrongful termination.
compensation from ---------
subsequent job. Claim disallowed.
Unsecured.
RECEIVERSHIP PERIOD CLAIM RECEIVED AFTER THE BAR DATE
Virginia Santos, Copy of summons No. Reviewed docket for history of this
Executrix, Estate of and tort complaint claimant’s Motion to Intervene filed on
Leo Santos, and filed in Connecticut 1/13/2023 and the Court’s order on
Virginia Santos Superior Court, 1/31/2023. Reviewed Waterbury docket for
personally Waterbury District, actions in this case since its filing. Confirm
c/o Law Offices of on 9/13/22. untimely delivery date of the submission in
Patrick J. Filan, P.C. Unsecured this claims procedure with the United
One Eliot Pl. States Postal Service.
Fairfield, CT 06824 ---------
Claim disallowed.
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EXHIBIT B
3/19/2024 Memorandum to Plaintiff’s Counsel,
Copied to the Internal Revenue Service
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WATERBURY GARDENS NURSING AND REHAB RECEIVERSHIP
MEMORANDUM
To: Daniel Shapiro, DAG, Daniel.shapiro@ct.gov
Elizabeth Bannon, AAG, Elizabeth.bannon@ct.gov
Counsel to the Connecticut Department of Social Services
Heather O. Berchem, Counsel to Waterbury Gardens Nursing and Rehab, LLC,
hberchem@murthalaw.com
David E. Gordon, Counsel to Waterbury Gardens Nursing and Rehab LLC,
Polsinelli, 1201 West Peachtree Street NW, Suite 1100, Atlanta, GA 30309,
dgordon@polsinelli.com
Melvin Simon, Counsel to Waterbury Gardens Nursing and Rehab LLC,
MSimon@cbshealaw.com
Stanley Cheung, Bankruptcy Specialist, IRS, stanley.s.cheung@irs.gov
Internal Revenue Service, 2 Metrotech Center. Brooklyn, NY 11202
From: Katharine B. Sacks, Receiver, kbsacks@earthlink.net
Fred Dalicandro, Financial Consultant to Receiver,
hermanfromhartford@gmail.com
Date: Revised 3/19/2024
Re: Waterbury Gardens Nursing and Rehab LLC IRS Proof of Claim Received
3/12/2024
________________________________________________________________________
The IRS filed a timely proof of claim in the Waterbury Gardens Nursing and Rehab LLC
receivership period claims adjudication procedure for tax periods 12/31/2020,
12/31/2021, 12/31/2022 for $15,587,505.33. This included $12,012,633.60 of tax due,
penalties due of $1,931,840.16 and Interest due of $1,643,031.57. The IRS indicated in
its proof of claim, attached, that “[e]xcept for the statutory liens…, the United States does
not hold, to the deponent’s knowledge or belief, any security for this debt.” It does assert
a statutory priority under 31 U.S.C. Section 3713(a) and informs of potential personal
liability for any person who fails to pay the claims of the United States in accordance
with its priority pursuant to 31 U.S.C. Section 3713(b).1
1
(a)
(1) A claim of the United States Government shall be paid first when—
(A) a person indebted to the Government is insolvent and—
(i) the debtor without enough property to pay all debts makes a voluntary
assignment of property;
(ii) property of the debtor, if absent, is attached; or
(iii) an act of bankruptcy is committed; or
(B) the estate of a deceased debtor, in the custody of the executor or administrator, is not
enough to pay all debts of the debtor.
(2) This subsection does not apply to a case under title 11.
(b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a
debt of the person or estate before paying a claim of the Government is liable to the extent of the payment
for unpaid claims of the Government.
12
The IRS had reportedly been auditing the 12/31/2020 tax return for Waterbury Gardens
Nursing and Rehab LLC (“Waterbury Gardens” or “LLC”) as a result of one of the
members of the LLC being under audit. This was not a direct selection of Waterbury
Gardens for an audit.
The IRS contacted the previous receiver, Timothy Coburn, about the audit. Mr. Coburn
had signed the filed tax return for the year ending 12/31/2020 as a representative of the
LLC. (It is not clear why he felt it necessary to become a representative of the extant
LLC.) He then gave permission through a power of attorney to Marcum, his accounting
firm, to communicate with the IRS auditor about the Waterbury Gardens portion of the
audit.
As prepared by Marcum, Waterbury Gardens’ tax return for 12/31/2020 was filed
showing a net loss without properly recognizing income from Medicaid advances to the
extent of the expenses for the tax year ending 12/31/2020. In receiverships, the tax return
should be prepared with the recognition of income from Medicaid advances used as
revenue to the extent they cover operating expenses. Any advances received to be spent
on future expenses should be properly reflected as a liability back to the Connecticut
Department of Social Services Medicaid program (“DSS”) on the Balance Sheet of the
tax return.
Receivership accounting for Medicaid advances must be handled in this way to avoid
triggering tax liability for Medicaid advances as unpaid loans. Because this wasn’t done
on this tax return, the IRS appears to have disallowed the losses for the year ending
12/31/2020. There clearly has been a lack of communication with the IRS as to how the
Medicaid loan advances should be classified for book accounting and tax purposes.
It seems the IRS simply multiplied that loan advance (Medicaid advances from DSS) on
the balance sheet at 12/31/2020 by 37% and assessed a tax of $2,353,433; then assessed a
tax for 12/31/2021 and 12/31/2022 in the amount of $4,829,600.30.
Note that the sole purpose of the Medicaid advances is to cover operating expenses that
the facility cannot bill to other payor sources. The money is paid in advance in order to
meet the upcoming expenses for resident care over the next month or so. At the end of the
receivership, any remaining Medicaid funds not spent must be returned to DSS.
During the receivership, DSS will also recoup money from revenue the facility in
receivership bills to the Medicaid program. There must be a reconciliation between
Medicaid monies advanced and recouped so that booked income or revenue does not
overstate actual taxable revenue (i.e. it does not reflect income that was recouped but
does reflect Medicaid advances to the extent of expenses paid by the receivership). In a
receivership, the income statement should show revenue and expenses that equal to have
(Pub. L. 97–258, Sept. 13, 1982, 96 Stat. 972.)
13
a net taxable income of zero, unless there is some level of tax depreciation which may
result in a small tax loss.
The original IRS auditor worked with Marcum on the audit for a period of time, and then
a second IRS auditor was assigned. These two IRS auditors failed to agree as to the
treatment of how the loss should be applied against advances for the calendar year 2020.
As stated above, the issue that triggered this claim appears to be the loan money
advanced to Waterbury Gardens as of 12/31/2020 not being recorded as income.
There was a great deal of confusion over who should be speaking to the IRS auditor in
the late fall/early winter of 2023. Katharine B Sacks, Receiver declined to become a
representative of the LLC as Mr. Coburn had done, and thus could not communicate with
the IRS about this matter. She also revoked the authority of the power of attorney she
provided to Marcum to speak to the IRS in December 2023, as Marcum lacked a client-
principal to represent in the capacity of representative of the LLC. Atty. Sacks reasoned
that she had been appointed as receiver of a facility under Conn. Gen. Stat. §19a-545, and
should not step into the shoes of the LLC except as necessary to operate the facility to
“remedy the conditions that constituted grounds for the imposition of the receivership…”
Furthermore, as the LLC had continued to exist, it could easily have responded to the IRS
with a plan to file amended returns as necessary to address the issues.
Had Atty. Sacks filed to become the LLC’s successor representative, she would have
assumed responsibilities far in excess of those contemplated by Connecticut statute and
her Order of Appointment and she would still be the LLC’s representative to this day,
now several months after the facility’s closure and delicensure. Indeed, both the IRS and
the LLC appear to have continued to seek Mr. Coburn’s intercession, although they were
aware that he had stepped down as receiver as of April 26, 2023 and retired. Very sadly,
recent notice to them of Mr. Coburn’s death on February 6, 2024 may have interrupted
their continued efforts.
The IRS sought to speak to the LLC’s representative and to Marcum in an attempt to get
its questions answered. On Atty. Sacks’ behalf in November and December 2023, Mr.
Dalicandro reached out to David Gordon of Polsinelli, counsel to Waterbury Gardens
Holdings, LLC (“Holdiongs”), the landlord to Waterbury Gardens Nursing and Rehab, to
explain why it was important and time sensitive for the LLC members to respond to the
IRS. Mr. Dalicandro did this, and also engaged with Holdings’ accountant and one of its
members, because they had connected with him regarding Waterbury Gardens Nursing
and Rehab, LLC’s tax reporting issues in the recent past. There were several email
exchanges discussing who should become the representative to interface with the IRS.
We do not know what decisions were made or what ensued, except that there has been no
evidence of engagement on this matter with the IRS by either related entity.
The IRS claim should not be the obligation of the nursing home receiver as it can be
resolved by a timely engagement between the Internal Revenue Service and the LLC over
how income should be recognized. Furthermore, the Receivership Court’s order to return
the facility to its licensee pursuant to Conn. Gen. Stat. §19a-549 contemplated the LLC’s
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resumption of responsibility for tax matters arising on and after December 20, 2023. See
Docket No. 261.86 issued on November 27, 2023.
Potential Steps to Resolve the Assessment of the Tax Filed as a Receivership Claim:
The LLC should consider filing an amended 12/31/2020 LLC tax return to reflect the
reduction of the loss as previously reported to zero for 12/31/2020. The IRS and LLC
members can discuss this and make a decision on how to proceed.
Both the IRS and the LLC members must clearly understand the Medicaid advances and
recoupments made during 2020 and future periods so that income is not overstated during
the period of the receivership. The net income or loss for 12/31/2020, 12/31/2021 and
12/31/2022 should be zero or very close to that figure.
In order to resolve this issue, the LLC must obtain the breakdown of the IRS assessment
and understand what factors were used to arrive at the tax. In concert with their
understanding of the Medicaid advances and how they are or are not recognized as
income for tax purposes, the LLC should be able to effectively address the IRS’ claim.
In sum, the receiver does not have a role to play in the resolution of this matter with the
IRS. This is LLC business. The Connecticut Superior Court, Hartford District, has a
hearing calendared to consider claims filed in the receivership period claims adjudication
procedure on April 17, 2024 at 10 a.m. Atty. Sacks proposes to present this matter to the
Court for its consideration consistent with the explanation in this memorandum.
Please take note that the receiver is an agent of the Connecticut Superior Court,
Hartford District, which is the only entity that can determine the payment of claims.
Also please take note that DSS is not compelled to guarantee all expenses for the
receivership time period and has extensive defenses against any such assumption.
All interested parties should consider attending the hearing on April 17, 2024 at 10
a.m. to discuss this matter.
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CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing was efiled to each of the following on
March 20, 2024:
Daniel R. Shapiro, DAG Patrick J. Filan, Esq.
Office of the Attorney General The Law Offices of Patrick J. Filan, P.C.
165 Capitol Avenue 1248 Post Road
Hartford, CT 06106 Fairfield, CT 06824
daniel.shapiro@ct.gov pfilan@filan-law.com
pjfilan@gmail.com
Elizabeth Hope Bannon, AAG
Office of the Attorney General Michael C. McMinn, Esq.
AG-Health and Education The McMinn Employment Law Firm,
165 Capitol Avenue, 4th Floor LLC
Hartford, CT 06106 1000 Lafayette Blvd., Suite 1100
Elizabeth.bannon@ct.gov Bridgeport, CT 06604
michael@mcminnemploymentlaw.com
Thomas A. Gugliotti, Esq.
Updike, Kelly & Spellacy, P.C. Jon Newton, Esq.
Goodwin Square Reid and Riege, P.C.
225 Asylum Street, 20th Floor One Financial Plaza, 21st Floor
Hartford, CT 06103 Hartford, CT 06103
tgugliotti@uks.com jnewton@rrlawpc.com
Melvin A. Simon, Esq.
Cohn Birnbaum & Shea P.C.
City Place II, 15th Floor
185 Asylum Street
Hartford, CT 06103
msimon@cbshealaw.com
Kevin A. Creane, Esq.
Law Firm of John M. Creane
92 Cherry Street, P.O. Box 170 BY: 416737
Milford, CT 06460 Katharine B. Sacks
kacreane@aol.com Katharine B. Sacks, Attorney at Law,
LLC
Heather O. Berchem, Esq. 165 Bishop Street
Murtha Cullina LLP New Haven, Connecticut 06511-3717
265 Church Street Tel.: (203)314-7780
New Haven, CT 06510 Fax: (203)776-1717
hberchem@murthalaw.com Juris No. 416737
16
I hereby certify that a copy of the foregoing was mailed via the U.S. Postal
Service on March 20, 2024 to the following claimants:
DeLucia, David J., M.D. Pryce, Blossom
134 Grandview Ave. Suite 202 222 View St.
Waterbury, CT 06708 New Haven, CT 06511
Integra Scripts LLC Quadient Finance USA Inc.
160 Airport Road PO Box 6813
Lakewood, NJ 08701 Carol Stream, IL 60197-6813
Internal Revenue Service Quick, Viola, Estate of
2 Metrotech Center c/o Jonathan A. Kocienda, Esq.
Brooklyn, NY 11201 CT Trial Firm, PLLC
Attn: Stanley Cheung, 437 Naubuc Ave.
Bankruptcy Specialist Suite 105
Glastonbury, CT 06033
Montambault, David on behalf of
William A. Vysocka Terni, Marco, Jr.
211 Dunn Rd. 112 Manor Ave.
Honesdale, PA 18431 Waterbury, CT 06706
Petrucci, Marcie Waterbury Gardens Nursing and Rehab, LLC
131 Cheryl Drive c/o David E. Gordon, Esq.
Waterbury, CT 06708 Polsinelli
1201 West Peachtree St. NW Suite 1100
Atlanta, GA 30309
BY: 416737
Katharine B. Sacks
Katharine B. Sacks, Attorney at Law,
LLC
165 Bishop Street
New Haven, Connecticut 06511-3717
Tel.: (203)776-9700
Fax: (203)776-1717
Juris No. 416737
Preview
DOCKET NO. HHD CV19-6119528 STATE OF CONNECTICUT : SUPERIOR COURT COMMISSIONER OF SOCIAL SERVICES, : PLAINTIFF : JUDICIAL DISTRICT OF : HARTFORD v. : : WATERBURY GARDENS NURSING AND : REHAB, LLC OF WATERBURY, CT : d/b/a WATERBURY GARDENS NURSING : AND REHAB : DEFENDANT : MARCH 20, 2024 MOTION FOR FINAL ORDER IN RECEIVERSHIP PERIOD CLAIMS ADJUDICATION PROCEDURE Katharine B. Sacks, duly appointed Receiver ("the Receiver") of Waterbury Gardens Nursing and Rehab, LLC ("the Facility" or “the Receivership”), hereby moves the Court to issue an order terminating the claims adjudication procedure for the full Receivership period, free and clear of any and all administrative claims against the estate arising during the time period in which the Receiver operated the subject skilled nursing facility through the Bar Date of March 15, 2024, in anticipation of the near term termination of the Receivership. She further requests that the Court bar any such claims in perpetuity. Pursuant to Court order, the Receiver provided fair notice to all known potential claimants, including residents, employees and vendors of and to the Receivership facility by mailing of this Court’s Receivership period claims procedure notice and order to all potential claimants on January 6, 2024, and by publishing the notice and order in the Waterbury Republican American on January 4, 2024. As noted, the Bar Date for the submission of claims was March 15, 2024. Notice of the date of the scheduled hearing for the Receivership period claims procedure on April 17, 2024 at 10 a.m. was also provided to all claimants through these direct mailings. The Receiver has provided a table at Exhibit A, attached hereto, explaining her analysis and actions relative to the ten claims she received by the Bar Date. At Exhibit B, she has also provided a copy of her email and memorandum to address responsibility for the Internal Revenue Service’s claim. The Receiver respectfully requests the Court’s endorsement of her actions in this matter and entry of the attached proposed order. Please note that the proposed order exempts Receivership contractors who provided services after the Bar Date, and in some instances, continue to do so, including the Receiver's accountant, bookkeeper and cost report consultant. The Receiver shall tender a report in her final Receivership report that she has satisfied her obligations in full to these contractors, to be filed no later than May 15, 2024. KATHARINE B. SACKS, RECEIVER BY: 416737 Katharine B. Sacks Katharine B. Sacks, Attorney at Law, LLC 165 Bishop Street New Haven, Connecticut 06511-3717 Tel.: (203)776-9700 Fax: (203)776-1717 Juris No. 416737 2 DOCKET NO. HHD CV19-6119528 STATE OF CONNECTICUT : SUPERIOR COURT COMMISSIONER OF SOCIAL SERVICES, : PLAINTIFF : JUDICIAL DISTRICT OF : HARTFORD v. : : WATERBURY GARDENS NURSING AND : REHAB, LLC OF WATERBURY, CT : d/b/a WATERBURY GARDENS NURSING : AND REHAB : DEFENDANT : APRIL ___, 2024 ORDER On November 5, 2019, (the "Petition Date"), the Superior Court for the Judicial District of Hartford (the "Court") entered an order appointing a receiver (the "Receiver") of Waterbury Gardens Nursing and Rehab, LLC dba Waterbury Gardens Nursing and Rehab (“the Receivership”, “the Facility” or “the Defendant”), a skilled nursing facility located in Waterbury, Connecticut. The Receiver closed this Facility on November 30, 2023 pursuant to this Court’s order. The bar date for the filing of claims against the Receiver in a Receivership period claims procedure, entered as on order of this Court on January 2, 2024, was March 15, 2024 (“the Bar Date). A. Claims Received 1. The Receiver received ten timely claims for the time period commencing November 5, 2019 to the Bar Date, and one untimely claim. 2. Three timely received unsecured claims were based upon pre- Receivership obligations incurred by the Defendant in whole or in part. These three 3 claimants were Integra Scripts LLC; Marcie Petrucci; and Blossom Pryce. The Receiver wrote to or telephoned these claimants explaining why she could not make payment on these claims; to wit, pre-Receivership claims were fully addressed by this Court in its order entered on February 25, 2020 at Docket No. 124.86, and were specifically excluded from consideration in the Receivership period claims procedure. None of these claimants provided the information required in the Court’s Order and Notice to All Potential Claimants Against Receivership Assets Arising Between November 5, 2019 and March 15, 2024 (“the Order”), issued January 2, 2024 at Docket No. 273.87. Therefore, these three claims are disallowed. 3. One claimant, David DeLucia, M.D., withdrew his timely unsecured claim after the Receiver informed him that he had billed for medical director services for the month following the delicensure and closure of the Facility. Accordingly, this claim is disallowed. 4. Another claimant, David Montambault, filed aa timely unsecured claim on behalf of William A. Vysocka , a former resident, seeking conveyance of personal funds he believed that the Facility still held for the former resident. The Receiver sent an email to the claimant on January 24, 2024 with the resident trust close out entry and a copy of the check for the balance of the personal funds sent to Laurel Ridge, the accepting facility, on August 1, 2023, demonstrating that the resident had been made whole. This claim has been satisfied and is disallowed. 5. The Quadient Finance USA and Ecopier Solutions Inc. invoices are not claims filed in a fashion that meets the requirements of the Order by providing full documentation of the alleged claims, and do not appear to be claims filed in this 4 procedure at all. The Ecopier Solutions invoice was emailed to the Receiver and not submitted to the post office box established to accept claims. The Quadient Finance USA monthly invoices have been both mailed and emailed but do not provide the documentation substantiating claims as required by the Order. These are both unsecured imperfected claims. Hence these two claims are disallowed. 6. The Receiver received an unlitigated contingent and unsecured claim aubmitted by Jonathan A. Kocienda, Esq. of CT Trial Firm, PLLC on behalf of the Estate of Viola Quick, a former resident who allegedly died on October 19, 2022, some months after leaving the Facility and returning home. The Receiver immediately reported this tort claim to Starstone, the general and professional liability insurer for the nursing home on March 9, 2024. However, it is an open question as to whether the insurer will accept this claim to provide coverage, as the claim was filed more than thirty days after the policy terminated at the end of the day on November 30, 2023, the date that the nursing home was delicensed and closed. The insurer’s claims handler has requested certain information which will take some time and effort to provide, as it is in the possession of the Custodian of Records. This contingent claim is not ripe for the Court’s consideration in this proceeding as it has not been litigated. The Court directs Attorney Kocienda to paragraph B of the aforementioned January 2, 2024 Order and Notice to All Potential Claimants Against Receivership Assets Arising Between November 5, 2019 and March 15. The Court notes that Plaintiff’s counsel was informed of the requirement to seek this Court’s prior authorization before commencing any action, both judicial and non-judicial, against the Receiver by copy of this Order mailed in early January 2024 and he failed to file a 5 motion to pursue this action against the Receiver before the Bar Date. The demands Plaintiff’s counsel made in his claim violate the terms of the referenced order, as he failed to seek and obtain this Court’s advance authorization. Hence, this claim is disallowed, and the Receiver is directed not to expend any further time in pursuit of records requested by the insurer’s claims handler. 7. The Internal Revenue Service also filed an unexpected claim for unpaid taxes, interest and penalties for a three-year period running from 2020 through 2022, based upon an apparent misunderstanding of the nature of state Medicaid advances to support a nursing home receivership. The claimant asserts statutory priorities and indicates that the claim is otherwise unsecured. The Receiver’s explanation in the memorandum attached at Exhibit B makes it clear that this dispute is between the Internal Revenue Service and Waterbury Gardens Nursing and Rehab LLC, rather than with this receivership estate or with the Receiver. The Court hereby redirects the Internal Revenue Service to seek recourse from Waterbury Gardens Nursing and Rehab LLC if it so chooses, and to refrain immediately from pursuing the Receiver and the Receivership estate in this matter. The Internal Revenue Service’s claim is disallowed with respect to the Receiver and the Receivership estate. 8. Marco Terni, Jr., a former employee, filed a contingent unsecured claim for lost wages based upon an unlitigated wrongful discharge claim. The Receiver has reviewed this former employee’s file and has resubstantiated the basis of this personnel action. This claim is not ripe for consideration in this procedure in any event. The Court notes that this claimant was informed of the requirement to seek this Court’s prior authorization before commencing any action, both judicial and non-judicial, against 6 the Receiver by copy of this Order in early January 2024 and failed to file a motion to pursue this action against the Receiver before the Bar Date. While the claimant has not filed any action, it is now too late to do so. Hence, this claim is disallowed. 9. In addition, the Receiver received an eleventh claim untimely on March 16, 2024, the day following the Bar Date. This unsecured claim, filed by the Law Offices of Patrick J. Filan, P.C. on behalf of Virginia Santos, Executrix of the Estate of Leo Santos, and Virginia Santos personally, was conveyed by United States Postal Service (“U.S.P.S.”) Priority Mail Express and delivery was recorded by U.S.P.S. on March 16, 2024. Plaintiff’s counsel had previously filed a Motion to Intervene, For Relief from Injunction, and for Disclosure of Insurance on January 13, 2023 at Docket No. 224.00. On January 31, 2023, the Court entered an order granting the motion to intervene and denying other relief requested at Docket No. 224.86. Plaintiff’s counsel’s claim in this procedure was composed of a copy of a civil complaint and summons filed on September 13, 2022 in Connecticut Superior Court, Waterbury District at Docket No. UWY-CV22-6067547-S. It is not clear what action Plaintiff’s counsel intends to request by submission of this documentation. Because this claim was not submitted by the Bar Date, it is disallowed. Plaintiff’s counsel may continue to prosecute this case, consistent with this Court’s order on January 31, 2023, so long as this occurs without any involvement whatsoever on the part of the Receiver or the receivership estate in any form or fashion. Plaintiff’s counsel should take note that Waterbury Gardens Nursing and Rehab, LLC is the Custodian of Records for the Facility, which closed on November 30, 2023. 7 This Court endorses the Receiver's actions and recommendations relative to each of these claims, as described in Exhibit A, attached hereto. B. Permanent Enjoinment of Legal Actions Against the Receiver By this Order, the Court forever restrains and enjoins the commencement, prosecution, or continuance of the prosecution, of any action, suit, arbitration proceeding, hearing, or any foreclosure, reclamation, or repossession proceeding, both judicial and non-judicial, or any other proceeding, in law, or in equity, or under any statute, or otherwise, against the Receiver or any of the assets or property in the custody and or control of the Receiver, in any Court, agency, tribunal, or elsewhere, or before any arbitrator, or otherwise, by any creditor, stockholder, corporation, partnership or other person for the Receivership period, running from November 5, 2019 to today. The levy of any attachment, execution or other process upon or against any property in the custody or control of the Receiver, or the taking or attempting to take into possession of any property in the possession, custody or control of the Receiver, or of which the Receiver has the right to possession is also forever barred, and shall be deemed to be invalid, void and without effect. C. The Receiver's contractors utilized after the March 15, 2024 Bar Date are expressly exempted from this Order. The Receiver shall report to the Court that all remaining Receivership accounts are paid in full in her final Receivership report, which she shall file before May 15, 2024. ENTERED as an Order of this Court this ____ day of April 2024. ________________________ Judge of the Superior Court 8 EXHIBIT A: RECEIVERSHIP PERIOD CLAIMS RECEIVED RECEIVERSHIP PERIOD CLAIM RECEIVED BY THE BAR DATE Claimant Claim Description Incurred Prior to Receiver's Actions 11/5/2019? --------- Court’s Order DeLucia, David J., Invoice for Medical No. Texted claimant on 1/23/2024 to explain M.D. Director Fees for that the invoice post-dated facility closure. 134 Grandview Ave. 12/1/2023, after He indicated that billing was submitted in Suite 202 closure. error and withdrew the claim. Waterbury, CT Unsecured. --------- 06708 Claim disallowed. Ecopier Solutions Claim for rental of Yes, in part, with Does not appear to be a claim in this Inc copiers. No detail or no detail provided claims adjudication procedure, as it was an 100 Park Ave. 16th documentation distinguishing claim emailed invoice. The receiver has Floor provided. for receivership previously sent multiple emails to this New York, NY Unsecured. period only. company seeking to terminate this lease 10017 and return the leased equipment and received no response beyond automatic billing. This vendor has not responded to the notice of the claims order. --------- Claim disallowed. Integra Scripts LLC Six invoices for pre- Yes. Called Sarala Skaist, accountant to 160 Airport Road receivership claimant, on 1/17/2024 to explain that Lakewood, NJ consulting services. invoices are ineligible for this process as 08701 Unsecured. they pre-date 11/5/2019. She withdrew them. --------- Claim disallowed. Internal Revenue Claim for partnership No. Sent email to claimant on 3/16/2024 and Service income tax 3/19/2024 explaining why these claims are 2 Metrotech Center payments, interest the responsibility of Waterbury Gardens Brooklyn, NY 11201 and penalties for tax Nursing and Rehab LLC and not the Attn: Stanley years 2020, 2021 receiver. See attached email and Cheung, Bankruptcy and 2022. The memorandum at Exhibit B. Specialist claimant asserts --------- statutory priorities Claim disallowed with respect to the and indicates that Receiver and the Receivership estate. the claim is otherwise unsecured. Montambault, David Conservator seeking No. Sent email to claimant on 1/24/2024 with on behalf of William refund of unused resident trust close out entry and copy of A. Vysocka personal funds held the check for the balance of the personal 211 Dunn Rd. by facility. funds sent to Laurel Ridge, the accepting Honesdale, PA Unsecured. facility, on 8/1/2023, demonstrating that the 18431 resident had been made whole. --------- Claim disallowed. 9 Petrucci, Marcie Former employee Yes, in part, with Email sent on 3/16/2024 explaining that 131 Cheryl Drive claim for paid time no detail provided only claims incurred from 11/5/2019 can be Waterbury, CT off accrued between distinguishing claim considered, pursuant to the court order, 06708 2017 and 2020, for receivership and that pre-receivership claims have seeking payment of period only. already been addressed by the Court. personal time. --------- Unsecured. Claim disallowed. Pryce, Blossom Former employee Yes, in part, with Letter sent on 3/16/2024 explaining that 222 View St. claim for paid time no detail provided only claims incurred from 11/5/2019 can be New Haven, CT off accrued between distinguishing claim considered, pursuant to the court order, 06511 2017 and 2020, for receivership and that pre-receivership claims have seeking payment. period only. already been addressed by the Court. Unsecured. --------- Claim disallowed. Quadient Finance Claim for rental of Unknown due to This is not a claim in this claims USA Inc. postage meter. No the absence of adjudication procedure. The receiver has PO Box 6813 detail or documentation. sent multiple emails to this company Carol Stream, IL documentation seeking to terminate this lease and 60197-6813 provided. received no response beyond automatic Unsecured. billing. This vendor has not responded to the notice of the claims order. --------- Claim disallowed. Quick, Viola, Estate Wrongful death claim No. Referred to Starstone, insurer to the c/o Jonathan A. allegedly related to facility, on 3/9/2024. Unclear if Starstone Kocienda, Esq. resident’s stay in will cover this contingent claim, reported CT Trial Firm, PLLC 2022. more than 30 days after the policy 437 Naubuc Ave. Unsecured. terminated. The receiver is providing Suite 105 requested information to the claim handler. Glastonbury, CT Counsel failed to seek the Court’s advance 06033 authorization to pursue this claim. --------- Claim disallowed. Terni, Marco, Jr. Claim for wrongful No. Reviewed and resubstantiated basis for 112 Manor Ave. termination, loss of personnel action. This is a contingent Waterbury, CT compensation and claim based on the claimant’s unlitigated 06706 reduction in allegation of wrongful termination. compensation from --------- subsequent job. Claim disallowed. Unsecured. RECEIVERSHIP PERIOD CLAIM RECEIVED AFTER THE BAR DATE Virginia Santos, Copy of summons No. Reviewed docket for history of this Executrix, Estate of and tort complaint claimant’s Motion to Intervene filed on Leo Santos, and filed in Connecticut 1/13/2023 and the Court’s order on Virginia Santos Superior Court, 1/31/2023. Reviewed Waterbury docket for personally Waterbury District, actions in this case since its filing. Confirm c/o Law Offices of on 9/13/22. untimely delivery date of the submission in Patrick J. Filan, P.C. Unsecured this claims procedure with the United One Eliot Pl. States Postal Service. Fairfield, CT 06824 --------- Claim disallowed. 10 EXHIBIT B 3/19/2024 Memorandum to Plaintiff’s Counsel, Copied to the Internal Revenue Service 11 WATERBURY GARDENS NURSING AND REHAB RECEIVERSHIP MEMORANDUM To: Daniel Shapiro, DAG, Daniel.shapiro@ct.gov Elizabeth Bannon, AAG, Elizabeth.bannon@ct.gov Counsel to the Connecticut Department of Social Services Heather O. Berchem, Counsel to Waterbury Gardens Nursing and Rehab, LLC, hberchem@murthalaw.com David E. Gordon, Counsel to Waterbury Gardens Nursing and Rehab LLC, Polsinelli, 1201 West Peachtree Street NW, Suite 1100, Atlanta, GA 30309, dgordon@polsinelli.com Melvin Simon, Counsel to Waterbury Gardens Nursing and Rehab LLC, MSimon@cbshealaw.com Stanley Cheung, Bankruptcy Specialist, IRS, stanley.s.cheung@irs.gov Internal Revenue Service, 2 Metrotech Center. Brooklyn, NY 11202 From: Katharine B. Sacks, Receiver, kbsacks@earthlink.net Fred Dalicandro, Financial Consultant to Receiver, hermanfromhartford@gmail.com Date: Revised 3/19/2024 Re: Waterbury Gardens Nursing and Rehab LLC IRS Proof of Claim Received 3/12/2024 ________________________________________________________________________ The IRS filed a timely proof of claim in the Waterbury Gardens Nursing and Rehab LLC receivership period claims adjudication procedure for tax periods 12/31/2020, 12/31/2021, 12/31/2022 for $15,587,505.33. This included $12,012,633.60 of tax due, penalties due of $1,931,840.16 and Interest due of $1,643,031.57. The IRS indicated in its proof of claim, attached, that “[e]xcept for the statutory liens…, the United States does not hold, to the deponent’s knowledge or belief, any security for this debt.” It does assert a statutory priority under 31 U.S.C. Section 3713(a) and informs of potential personal liability for any person who fails to pay the claims of the United States in accordance with its priority pursuant to 31 U.S.C. Section 3713(b).1 1 (a) (1) A claim of the United States Government shall be paid first when— (A) a person indebted to the Government is insolvent and— (i) the debtor without enough property to pay all debts makes a voluntary assignment of property; (ii) property of the debtor, if absent, is attached; or (iii) an act of bankruptcy is committed; or (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor. (2) This subsection does not apply to a case under title 11. (b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government. 12 The IRS had reportedly been auditing the 12/31/2020 tax return for Waterbury Gardens Nursing and Rehab LLC (“Waterbury Gardens” or “LLC”) as a result of one of the members of the LLC being under audit. This was not a direct selection of Waterbury Gardens for an audit. The IRS contacted the previous receiver, Timothy Coburn, about the audit. Mr. Coburn had signed the filed tax return for the year ending 12/31/2020 as a representative of the LLC. (It is not clear why he felt it necessary to become a representative of the extant LLC.) He then gave permission through a power of attorney to Marcum, his accounting firm, to communicate with the IRS auditor about the Waterbury Gardens portion of the audit. As prepared by Marcum, Waterbury Gardens’ tax return for 12/31/2020 was filed showing a net loss without properly recognizing income from Medicaid advances to the extent of the expenses for the tax year ending 12/31/2020. In receiverships, the tax return should be prepared with the recognition of income from Medicaid advances used as revenue to the extent they cover operating expenses. Any advances received to be spent on future expenses should be properly reflected as a liability back to the Connecticut Department of Social Services Medicaid program (“DSS”) on the Balance Sheet of the tax return. Receivership accounting for Medicaid advances must be handled in this way to avoid triggering tax liability for Medicaid advances as unpaid loans. Because this wasn’t done on this tax return, the IRS appears to have disallowed the losses for the year ending 12/31/2020. There clearly has been a lack of communication with the IRS as to how the Medicaid loan advances should be classified for book accounting and tax purposes. It seems the IRS simply multiplied that loan advance (Medicaid advances from DSS) on the balance sheet at 12/31/2020 by 37% and assessed a tax of $2,353,433; then assessed a tax for 12/31/2021 and 12/31/2022 in the amount of $4,829,600.30. Note that the sole purpose of the Medicaid advances is to cover operating expenses that the facility cannot bill to other payor sources. The money is paid in advance in order to meet the upcoming expenses for resident care over the next month or so. At the end of the receivership, any remaining Medicaid funds not spent must be returned to DSS. During the receivership, DSS will also recoup money from revenue the facility in receivership bills to the Medicaid program. There must be a reconciliation between Medicaid monies advanced and recouped so that booked income or revenue does not overstate actual taxable revenue (i.e. it does not reflect income that was recouped but does reflect Medicaid advances to the extent of expenses paid by the receivership). In a receivership, the income statement should show revenue and expenses that equal to have (Pub. L. 97–258, Sept. 13, 1982, 96 Stat. 972.) 13 a net taxable income of zero, unless there is some level of tax depreciation which may result in a small tax loss. The original IRS auditor worked with Marcum on the audit for a period of time, and then a second IRS auditor was assigned. These two IRS auditors failed to agree as to the treatment of how the loss should be applied against advances for the calendar year 2020. As stated above, the issue that triggered this claim appears to be the loan money advanced to Waterbury Gardens as of 12/31/2020 not being recorded as income. There was a great deal of confusion over who should be speaking to the IRS auditor in the late fall/early winter of 2023. Katharine B Sacks, Receiver declined to become a representative of the LLC as Mr. Coburn had done, and thus could not communicate with the IRS about this matter. She also revoked the authority of the power of attorney she provided to Marcum to speak to the IRS in December 2023, as Marcum lacked a client- principal to represent in the capacity of representative of the LLC. Atty. Sacks reasoned that she had been appointed as receiver of a facility under Conn. Gen. Stat. §19a-545, and should not step into the shoes of the LLC except as necessary to operate the facility to “remedy the conditions that constituted grounds for the imposition of the receivership…” Furthermore, as the LLC had continued to exist, it could easily have responded to the IRS with a plan to file amended returns as necessary to address the issues. Had Atty. Sacks filed to become the LLC’s successor representative, she would have assumed responsibilities far in excess of those contemplated by Connecticut statute and her Order of Appointment and she would still be the LLC’s representative to this day, now several months after the facility’s closure and delicensure. Indeed, both the IRS and the LLC appear to have continued to seek Mr. Coburn’s intercession, although they were aware that he had stepped down as receiver as of April 26, 2023 and retired. Very sadly, recent notice to them of Mr. Coburn’s death on February 6, 2024 may have interrupted their continued efforts. The IRS sought to speak to the LLC’s representative and to Marcum in an attempt to get its questions answered. On Atty. Sacks’ behalf in November and December 2023, Mr. Dalicandro reached out to David Gordon of Polsinelli, counsel to Waterbury Gardens Holdings, LLC (“Holdiongs”), the landlord to Waterbury Gardens Nursing and Rehab, to explain why it was important and time sensitive for the LLC members to respond to the IRS. Mr. Dalicandro did this, and also engaged with Holdings’ accountant and one of its members, because they had connected with him regarding Waterbury Gardens Nursing and Rehab, LLC’s tax reporting issues in the recent past. There were several email exchanges discussing who should become the representative to interface with the IRS. We do not know what decisions were made or what ensued, except that there has been no evidence of engagement on this matter with the IRS by either related entity. The IRS claim should not be the obligation of the nursing home receiver as it can be resolved by a timely engagement between the Internal Revenue Service and the LLC over how income should be recognized. Furthermore, the Receivership Court’s order to return the facility to its licensee pursuant to Conn. Gen. Stat. §19a-549 contemplated the LLC’s 14 resumption of responsibility for tax matters arising on and after December 20, 2023. See Docket No. 261.86 issued on November 27, 2023. Potential Steps to Resolve the Assessment of the Tax Filed as a Receivership Claim: The LLC should consider filing an amended 12/31/2020 LLC tax return to reflect the reduction of the loss as previously reported to zero for 12/31/2020. The IRS and LLC members can discuss this and make a decision on how to proceed. Both the IRS and the LLC members must clearly understand the Medicaid advances and recoupments made during 2020 and future periods so that income is not overstated during the period of the receivership. The net income or loss for 12/31/2020, 12/31/2021 and 12/31/2022 should be zero or very close to that figure. In order to resolve this issue, the LLC must obtain the breakdown of the IRS assessment and understand what factors were used to arrive at the tax. In concert with their understanding of the Medicaid advances and how they are or are not recognized as income for tax purposes, the LLC should be able to effectively address the IRS’ claim. In sum, the receiver does not have a role to play in the resolution of this matter with the IRS. This is LLC business. The Connecticut Superior Court, Hartford District, has a hearing calendared to consider claims filed in the receivership period claims adjudication procedure on April 17, 2024 at 10 a.m. Atty. Sacks proposes to present this matter to the Court for its consideration consistent with the explanation in this memorandum. Please take note that the receiver is an agent of the Connecticut Superior Court, Hartford District, which is the only entity that can determine the payment of claims. Also please take note that DSS is not compelled to guarantee all expenses for the receivership time period and has extensive defenses against any such assumption. All interested parties should consider attending the hearing on April 17, 2024 at 10 a.m. to discuss this matter. 15 CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was efiled to each of the following on March 20, 2024: Daniel R. Shapiro, DAG Patrick J. Filan, Esq. Office of the Attorney General The Law Offices of Patrick J. Filan, P.C. 165 Capitol Avenue 1248 Post Road Hartford, CT 06106 Fairfield, CT 06824 daniel.shapiro@ct.gov pfilan@filan-law.com pjfilan@gmail.com Elizabeth Hope Bannon, AAG Office of the Attorney General Michael C. McMinn, Esq. AG-Health and Education The McMinn Employment Law Firm, 165 Capitol Avenue, 4th Floor LLC Hartford, CT 06106 1000 Lafayette Blvd., Suite 1100 Elizabeth.bannon@ct.gov Bridgeport, CT 06604 michael@mcminnemploymentlaw.com Thomas A. Gugliotti, Esq. Updike, Kelly & Spellacy, P.C. Jon Newton, Esq. Goodwin Square Reid and Riege, P.C. 225 Asylum Street, 20th Floor One Financial Plaza, 21st Floor Hartford, CT 06103 Hartford, CT 06103 tgugliotti@uks.com jnewton@rrlawpc.com Melvin A. Simon, Esq. Cohn Birnbaum & Shea P.C. City Place II, 15th Floor 185 Asylum Street Hartford, CT 06103 msimon@cbshealaw.com Kevin A. Creane, Esq. Law Firm of John M. Creane 92 Cherry Street, P.O. Box 170 BY: 416737 Milford, CT 06460 Katharine B. Sacks kacreane@aol.com Katharine B. Sacks, Attorney at Law, LLC Heather O. Berchem, Esq. 165 Bishop Street Murtha Cullina LLP New Haven, Connecticut 06511-3717 265 Church Street Tel.: (203)314-7780 New Haven, CT 06510 Fax: (203)776-1717 hberchem@murthalaw.com Juris No. 416737 16 I hereby certify that a copy of the foregoing was mailed via the U.S. Postal Service on March 20, 2024 to the following claimants: DeLucia, David J., M.D. Pryce, Blossom 134 Grandview Ave. Suite 202 222 View St. Waterbury, CT 06708 New Haven, CT 06511 Integra Scripts LLC Quadient Finance USA Inc. 160 Airport Road PO Box 6813 Lakewood, NJ 08701 Carol Stream, IL 60197-6813 Internal Revenue Service Quick, Viola, Estate of 2 Metrotech Center c/o Jonathan A. Kocienda, Esq. Brooklyn, NY 11201 CT Trial Firm, PLLC Attn: Stanley Cheung, 437 Naubuc Ave. Bankruptcy Specialist Suite 105 Glastonbury, CT 06033 Montambault, David on behalf of William A. Vysocka Terni, Marco, Jr. 211 Dunn Rd. 112 Manor Ave. Honesdale, PA 18431 Waterbury, CT 06706 Petrucci, Marcie Waterbury Gardens Nursing and Rehab, LLC 131 Cheryl Drive c/o David E. Gordon, Esq. Waterbury, CT 06708 Polsinelli 1201 West Peachtree St. NW Suite 1100 Atlanta, GA 30309 BY: 416737 Katharine B. Sacks Katharine B. Sacks, Attorney at Law, LLC 165 Bishop Street New Haven, Connecticut 06511-3717 Tel.: (203)776-9700 Fax: (203)776-1717 Juris No. 416737