Seeking restoration of real property tax exemption

By WORLDLawDirect  [September 5th, 2011]

New York Miscellaneous Reports

Unpublished

MIRIAM OSBORN MEM. HOME v. ASSESSOR OF CITY OF RYE, 17175/97 (12-30-2006) 2006 NY Slip Op 52461(U) Miriam Osborn Memorial Home Association, Petitioner, v. The Assessor of the City of Rye, The Board of Assessment Review of The City of Rye, and The City of Rye, Respondents,-and-The Rye City School District, Intervenor-Respondent. 17175/97. Supreme Court of the State of New York, Westchester County. Decided on December 30, 2006.

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] Peter Bergmann, Esq. Brian T. McGovern, Esq. Mathew S. Fenster, Esq. Cadwalader, Wickersham, & Taft Attorneys for Petitioner John E. Watkins, Esq. Liane V. Watkins, Esq. Watkins & Watkins, LLP Attorneys for Petitioner.

Robert A. Weiner, Esq. Lisa Linsky, Esq. McDermott Will & Emery LLP Attorneys for Respondents Daniel G. Vincelette, Esq. Daniel G. Vincelette, P.C. Attorney for Respondents.

THOMAS A. DICKERSON, J.

The trial of this Real Property Tax Law ["R.P.T.L.] Article 7 proceeding challenging the real property tax assessments for the years 1997-2003 imposed upon the Petitioner, The Miriam Osborn Memorial Home Association ["The Osborn"] by the Respondents, The City of Rye ["the City"] and its Assessor ["the Assessor"] and Board of Assessment Review ["BAR"], lasted seventy-four (74) days during which numerous witnesses testified on the exemption[fn1] and valuation[fn2] issues and numerous Decisions were rendered[fn3].

Seeking Restoration Of 100% Tax Exemption

First, the Osborn seeks the restoration of a 100% real property tax exemption pursuant to R.P.T.L. § 420(a)(1)(a)["RPTL § 420-a"]["Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in this section" [emphasis added] which it enjoyed from 1908 to 1996 when it was revoked by the Assessor and partially restored by the BAR.

Charitable Use & Hospital Use Exemptions

Specifically, the Osborn seeks the full restoration of a RPTL § 420-a "charitable use exemption" [See Matter of Miriam Osborn Memorial Home Association v. Assessor of the City of Rye, 275 AD2d 714, 713 NYS2d 186 (2d Dept. 2000)] and a RPTL § 420-a "hospital use exemption" [See Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, 6 Misc 3d 1035, 800 NYS2d 350 (2005)].

An Issue Of First Impression

The Osborn is a modern Continuing Care Retirement Community ["CCRC"] and the application of the charitable use exemption and/or the hospital use exemption pursuant to RPTL § 420-a to a CCRC is an issue of first impression in New York State. However, the nature of CCRCs[fn4] and other types of senior housing[fn5] has been examined by the Courts of many States not only within the context of whether and to what extent they should be exempt from the payment of real property taxes because of a charitable use and/or hospital use, but also whether they should be exempt from the payment of excise taxes on entrance and monthly service fees[fn6] and the payment of sales and use taxes[fn7]. The Courts have also resolved other disputes[fn8] including challenges to the assessments imposed upon CCRCs[fn9]. In addition, the Internal Revenue Service has issued Revenue Rulings 72-124[fn10], 72-209[fn11] , 79-18[fn12], Private Letter Rulings PLR 200250038[fn13] and PLR 200437036[fn14] and a General Counsel Memorandum[fn15], all of which discuss the charitable nature of senior housing including CCRCs.

The Burden Of Proof

Having revoked the Osborn's long standing real property tax exemptions the Respondents had the burden of proof to explain why the Osborn was no longer entitled to a charitable use exemption [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, No: 17175/97, Slip Op. February 3, 2005 at pp. 4-5 ("it would be efficient and fair to require the Respondents to go first and present their case on why the Osborn's real property is no longer entitled to [a tax] exemption, in whole or in part")] or a hospital use exemption [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, 6 Misc 3d 1035, 800 NYS2d 350 (2005)("since the City of Rye withdrew (the Osborn's) existing hospital exemption the burden is on the Respondents to prove that the Osborn is no longer entitled to the hospital use exemption under RPTL § 420-a")].

The Scope Of Respondents' Burden Of Proof

The Osborn seeks to limit the data upon which the Respondents may rely in carrying their burden of proof to "only those facts that the Assessor actually considered when she made her determination . . . Factors or information that the Assessor did not know or consider at the time of her determination were not part of her decision-making process and may not be cited at trial to justify her action"[fn16]. The Osborn relies upon Otrada, Inc. v. Assessor of Ramapo, 9 Misc 3d 1116 (Rockland Sup. 2005), mod'd 11 Misc 3d 1058 (Rockland Sup. 2006)("It is evident to this Court that Defendants did not provide sufficient evidence at trial to meet their burden of proving why the exemption on the subject property was reduced from 100% to 67% . . . The Court is not expected to make any assumptions as to why the Assessor chose to reduce Otrada's tax exemption.") and dicta[fn17] in Salvation & Praise Deliverance Center, Inc. v. Assessor of The Town of Poughkeepsie, 6 Misc 3d 1021 (Dutchess Sup. 2005).

The Brave New World Of CCRCs

To the extent the Osborn seeks to limit this Court's review and consideration of all of the evidence introduced at trial on the tax exemption and valuation issues its position is rejected as counterproductive. It is after all The Osborn that makes much of the brave new world of CCRCs [and its accreditation by the Continuing Care Accreditation Commission [CCAC][fn18]] and, notwithstanding a legion of out of state cases finding CCRCs[fn19] and similar senior care facilities[fn20] not tax exempt, urges this Court to ignore New York law on charitable use exemptions as it relates to adult homes[fn21] and nursing homes[fn22] which focuses upon the percentage of indigent seniors cared for[fn23] and take a fresh look and consider its evidence and its analytical framework[fn24] using thirty year old Internal Revenue Service Rulings[fn25] and more recent Private Letter Rulings[fn26].

The Paragon Of Charity Care

Indeed, it is The Osborn that asks this Court to look beyond its original charitable purpose of caring for" indigent" aged women [and not" hold(ing) [The Osborn] to its levels of support in years past"[fn27] ] and expand the definition of charitable use beyond" a Depression-era soup kitchen or orphanage . . . or alms giving"[fn28] to include the modern concept of a CCRC [of which" The Osborn (asserts that it) exceeds all others on every conceivable measure of charitable activities (and) emerges as the unassailable paragon of charity care[fn29] " ] which" is a setting in which [healthy and wealthy[fn30] ] elderly residents can transition along a continuum of care from independent living to assisted living or skill nursing care, allowing a resident to spend the rest of his or her life residing on one campus without the trauma and dislocation associated with transferring to another health care facility or residential location"[fn31].

Good Faith Investigation

A careful review of the trial testimony[fn32] of the Assessor, Ms. McCarthy, reveals that she acted in good faith based upon available information and a comprehensive investigation in revoking The Osborn's 100% real property tax exemption, i.e., that the use of The Osborn had dramatically changed from being a nursing home caring for indigent residents to a continuing care retirement community catering to the needs of wealthy and healthy seniors. Further, a careful review of the evidence presented by Respondents during the trial demonstrates that such proof is relevant to the reasons why the Assessor revoked The Osborn's 100% real property tax exemption.

Valuation

Second, and on the premise that the Osborn's 100% exemption from real property taxation would not be restored, in whole and or in part, the Osborn pursued its challenge to the assessments imposed upon its property for the tax years 1997 through 2003, seeking a reduction in assessed value and appropriate refunds of taxes paid [Miriam Osborn Memorial Home Association v. The Assessor of the City of Rye, No: 17175/97, Slip Op. February 3, 2005 at pp. 4-5 ("Were . . . the Osborn's 100% tax exempt status restored then there would be no further need for evidence on the issue of market value for assessment purposes. However, if such (is not found) then the trial will continue with the Petitioner presenting its case on the tax exemption issue after which the Petitioner shall present its case on the valuation issue followed by the Respondents' case")]. This Court's Decision on valuation appears in a separate Opinion.

No Longer The Nursing Home It Once Was

Stated, simply, and after careful consideration of the trial record and exhibits and the excellent post trial Memorandum of Law of the Osborn[fn33] and the Respondents[fn34] on the issue of tax exemption including their respective Proposed Findings of Fact[fn35], this Court finds that while it is true that" The Osborn is no longer the nursing home it once was" [fn36] it is still a" residential health care facility", a portion of which [i.e., The Pavilion] is licensed by the New York State Department of Health and, therefore, is entitled to a hospital use exemption [San Simeon By The Sound, Inc. v. Russell, 250 AD2d 689, 671 NYS2d 699 (2d Dept. 1998); Cobble Hill Nursing Home, Inc. v. Axelrod, 196 AD2d 564, 601 NYS2d 334 (2d Dept. 1993), lv. to appeal denied 83 NY2d 756 (1994); Miriam Osborn Memorial Home Association v. Assessor of the City of Rye, 6 Misc 3d 1035, 800 NYS2d 350 (West. Sup. 2006) (fn 10." Pursuant to New York State Public Health Law § 2801(1) a nursing home is included within the definition of the term hospital . See e.g., San Simeon, supra; Cobble Hill, supra] albeit a partial use exemption [Matter of Genesee Hospital v. Wagner, 47 AD2d 37, 364 NYS2d 934 (4th Dept. 1975), aff'd 39 NY2d 863, 352 NE2d 133, 386 NYS2d 216 (1976); Matter of Butterfield Memorial Hospital Association v. Town of Philipstown, 48 AD2d 289, 368 NYS2d 852 (2d Dept. 1975)] reflective of the reduced importance of the residential health care facility in the overall operation of the Osborn as measured by square footage[fn37] [Matter of Genesee Hospital, supra, at 47 AD2d 47; Matter of Butterfield Memorial Hospital Association, supra, at 48 AD2d 291].

Providing Care For The Indigent Elderly

Second, the Court finds that The Osborn is no longer entitled to a charitable use exemption notwithstanding the Petitioner's absurd declaration that" There has been no change in the use of the Osborn's property"[fn38]. Although The Osborn is organized for charitable purposes [American-Russian Aid Ass'n v. City of Glen Cove, 41 Misc 2d 622, 246 NYS2d 123 (Nassau Sup. 1964), aff'd 23 AD2d 988, 260 NYS2d 589 (2d Dept. 1965); Adult Home at Erie Station, Inc., v. City of Middletown, 8 Misc 3d 1010 (Orange Sup. 2005)] it is, clearly, not exclusively used for tax exempt purposes [Mohonk Trust v. Board of Assessors of the Town of Gardiner, 47 NY2d 476, 418 NYS2d 762 (1979); Matter of Symphony Space, Inc. v. Tishelman, 60 NY2d 33, 418 NYS2d 763 (1979); Ass'n of the Bar of the City of New York v. Lewisohn, 34 NY2d 143, 356 NYS2d 555 (1974); Belle Harbor Home of the Sages, Inc. V. Tishelman, 100 Misc 2d 911, 420 NYS2d 343 (Queens Sup. 1981), aff'd 81 AD2d 886, 441 NYS2d 413 (2d Dept. 1981) Adult Home at Erie Station, Inc., v. City of Middletown, 8 Misc 3d 1010 (Orange Sup. 2005); 10 ORPS Opinions of Counsel No. 100; 6 ORPS Opinions of Counsel No. 33], given the remarkably few indigent elderly The Osborn actually cares for[fn39].

Ceiling & Floor Analysis

We have found it useful in determining the true value of real property in tax certiorari[fn40] and eminent domain[fn41] proceedings to establish a valuation floor and/or ceiling below which and/or above which this Court may not go, based upon certain well accepted principals. This approach is equally useful in this tax exemption analysis.

Tax Exemption Revocation & Partial Restoration

In 1996 the Assessor revoked the Osborn's 100% tax exemption and raised the assessed value of the subject property from $2,045,100 to $2,584,000.[fn42] However, the Osborn protested and after a Public Hearing[fn43] the BAR[fn44] confirmed the increase in assessed value but exempted $538,050 from taxation amounting to an exemption of 20.8%. In 1998 the Assessor revoked the Osborn's partial tax exemption and raised the assessed value from $2,584,000 to $2,794,000[fn45]. Again, the Osborn protested and after a Public Hearing[fn46] the BAR[fn47] confirmed the increase in assessed value but exempted $581,700 from taxation amounting again to an exemption of 20.8%. In 2002 the Assessor increased the assessed value[fn48] of the subject property from $2,794,000 to $3,224,000 while continuing the BAR restored exempt portion of $581,700, thereby reducing the percentage of the partial exemption from 20.8% to 18.04[fn49].

The Tax Exemption Floor

Therefore, the tax exemption floor for each of the disputed tax years below which this Court may not go is as follows:

YearTax Exemption

1997 20.8%

1998 20.8%

1999 20.8%

2000 20.8%

2001 20.8%

2002 18.04%

2003 18.04%

The BAR's Partial Exemptions Are Of No Legal Significance

Although these percentages will serve as the floor below which this Court will not go in its tax exemption analysis, they will not be added to the partial exemptions granted to the Osborn herein since they were given by the BAR without explanation or reasoning and as such have no legal significance[fn50] notwithstanding the Osborn's[fn51] and the Respondents'[fn52] positions to the contrary.

R.P.T.L. Article 7 Petitions Filed

The Osborn filed R.P.T.L. Article 7 Petitions for each of the tax years 1997 through 2003 challenging the revocation of its 100% tax exemption and the amount of the assessed value of the subject property.

The Founding Of The Osborn

Miriam A. Osborn was born in 1840 and was married to Charles Osborn who died in 1885 at the age of 46 years[fn53]. According to The Osborn's historical documents, Mrs. Osborn:

. . . saw the tragedy of the destitute single woman and the widow in the 1880s when there were no pensions or organized support whatever except for the few voluntary homes for the aging. Mrs. Osborn knew the great fear gentlewomen had of untimely death or illness leaving them without support unless relatives or friends were able to provide a home[fn54].

Mrs. Osborn died in 1891.

The Last Will And Testament

The Osborn's genesis can be found in Mrs. Osborn's Last Will and Testament [the" Will" ] which was executed on June 2, 1888.

In Article Eighth of her Will, Mrs. Osborn stated:

I direct my Trustees to procure the incorporation by or under the authority of the Legislature of the State of New York, of an Association, under the corporate title of" The Miriam A. Osborn Memorial Home Association," or some similar name, with similar powers, privileges and franchises to those contained in the Charter of the said Association for the Relief of Respectable, Aged, Indigent Females, in the City of New York and with such other and additional powers as may be required by the terms of the devises[fn55].

In furtherance of her direction to create The Miriam A. Osborn Memorial Home Association [" Memorial Home" ], Mrs. Osborn bequeathed property and funds for the creation of a physical home on the property that she conveyed[fn56].

Providing Care For Indigent Women

Mrs. Osborn intended that the Memorial Home provide care for indigent women. This intent can be found by reference to other portions of Mrs. Osborn's Will as well as the Last Will and Testament of her friend and lawyer, John W. Sterling.

In Article Ninth of her Will, Mrs. Osborn directed that in the event that the Memorial Home was not incorporated, her residuary estate, both real and personal, was to be conveyed to the" Association for the Relief of Respectable, Aged, Indigent, Females in the City of New York" [" Association" ][fn57]. However, this bequest was conditioned on the Association erecting" a separate building, suitable and convenient for the occupation of respectable, aged, indigent females, under the care and charge of said Association . . . [emphasis added]"[fn58]. Article Ninth further provided that such building was to be known as" The Miriam A. Osborn Memorial Home for Aged Women"[fn59]. Finally, Article Ninth provided that in the event that the Association was unable to fulfill the Will's conditions," the said property shall be conveyed, transferred and paid over to the Peabody Home for Aged and Indigent Women . . . for the general uses and purposes of the said Institution [emphasis added]"[fn60].

In Article Fourteenth of her Will, Mrs. Osborn appointed her friend, John W. Sterling, and the Central Trust Company of New York as Trustees under the Will[fn61]. Thereafter, in his Last Will & Testament, Mr. Sterling bequeathed additional land and funds to the" Miriam Osborn Memorial Home Association" for the creation of" an additional Building, which will be suitable for the uses of the said Association" as a" Memorial" to certain designated Scottish women[fn62]. Mr. Sterling then went on to state that it was his" wish" :

" That in selecting aged, indigent gentlewomen as inmates of the said Memorial Building, some preference may be shown by the Trustees of the said Association to such as may have been born in Scotland or may have had Scottish ancestors"[fn63].

Plan "A" & Plan "B" Residents

Prior to 1990, The Osborn was admitting both Plan "B" Residents, who were residents fully supported by The Osborn, and fee-paying residents known as "A" Residents[fn64]. "A" Residents signed "A" contracts which contained language" to the effect that the Resident would not have to leave because of inability to pay"[fn65]. Thus, once an "A" Resident was admitted to The Osborn, The Osborn was contractually required to support that Resident for life even if the "A" Resident was unable to pay for her care[fn66].

The Pathway 2000 Plan

In 1988, Mark Zwerger ["Zwerger" ], who had just been hired by The Osborn to serve as its Chief Operating Executive, concluded that The Osborn was not financially viable in its then present condition[fn67]. In order to solve this problem, Zwerger devised "a basic plan to develop [The Osborn into] a continuing care retirement community and preserve the original facilities of The Osborn"[fn68]. The name that Zwerger gave to this plan was" Pathway 2000" [the "Pathway 2000 Plan" ][fn69]. As acknowledged by Zwerger, The Osborn's Pathway 2000 Plan was a plan designed to convert The Osborn into a continuing care retirement community ["CCRC" ] that would provide an array of services to senior citizens who could afford to pay for them[fn70].

What Is A CCRC?

A CCRC is" generally characterized as a campus setting in which residents come in essentially on the independent living level and transition through the continuum of care . . . and spend the rest of their life there"[fn71]. CCRCs[fn72] are distinguished from other types of senior housing[fn73] by the presence of three levels of care: independent living, assisted living and skilled nursing[fn74].

The Three Levels Of Care

The independent living level of care is comprised of senior citizens who are generally in good health, who are independent in the activities of daily living and who do not require assisted living or skilled nursing services[fn75]. Residents in the assisted living level of care are mobile with or without aids, need minimum assistance with activities of daily living, and do not require 24 hours of nursing care[fn76]. Residents in the skilled nursing level of care need 24 hour nursing care[fn77].

Market Research

In December 1989, The Osborn engaged a consulting firm, Van Scoyoc Associates Inc. ["Van Scoyoc"], to perform consumer research to help determine "the need and potential demand for a full service retirement community and provide insight to consumer preferences"[fn78]. Van Scoyoc sent questionnaires to "older adult households in the total service area"[fn79], created profiles of the total survey respondents and the respondent market[fn80] and used the responses as the basis of its recommendations regarding the financial and physical attributes of a new Osborn[fn81].

Senior Citizens : Income, Assets & Payment Plans

In gathering information, Van Scoyoc focused on the income and assets of the senior citizens surveyed. Among other things, Van Scoyoc wanted to know the preferences of these senior citizens regarding the desirability of amenities such as a putting green, a club/bar, fireplaces, and garage parking[fn82].

The Plan "B" Freeze

In 1989, at the time of Van Scoyoc's retention, The Osborn was supporting as "charity beneficiaries", approximately, 63 Plan "B" residents [which did not include, approximately, 19 Assignment residents [fn83] ] nearly half of its total residents[fn84]. On March 13, 1990, The Osborn's Board of Trustees unanimously passed a resolution not to admit any new fully-supported Plan "B" residents" until financial analysis was completed"[fn85]. The Plan "B" freeze did not end until 2000[fn86].

The Van Scoyoc Report

In June 1990, Van Scoyoc issued its lengthy Market Analysis Study [the "Van Scoyoc Report" ][fn87], which provided advice to The Osborn as to how to attract "a broad enough segment of the financially qualified market for residency"[fn88]. The Van Scoyoc Report pointed out that "The successful development of an Osborn housing community will depend on a well-planned public relations and marketing campaign"[fn89]. The Van Scoyoc Report went on to state that:

In order to accommodate the needs of the market segment likely to seek residency, it is recommended that an Osborn housing community provide a convenient, secure and service-oriented program in a quality setting which is compatible with the target market's present standard of living.

In Search Of The Affluent Elderly

In its Report, Van Scoyoc reported to The Osborn's Board of Trustees:

After careful study of all the factors presented in the market analysis, Van Scoyoc Associates believes there is adequate market opportunity to pursue an Osborn housing community[fn90].

The Van Scoyoc Report went on to state that:

In order to accommodate the needs of the market segment likely to seek residency, it is recommended that an Osborn housing community provide a convenient, secure and service-oriented program in a quality setting which is compatible with the target market's present standard of living[fn91].

Upon receipt of the Van Scoyoc Report, Zwerger reported to The Osborn's Board of Trustees that Van Scoyoc had concluded that "[a] market for a CCRC was identified but perceived to represent a small segment of the affluent elderly population"[fn92].

Selecting Projected Fees

In connection with its surveys and analysis, Van Scoyoc used the following projected fees' options provided by the Osborn[fn93]: entry fees between $175,000 and $218,750 with monthly fees between $1,450 and $2,050 or a monthly fee only of between $2,850 and $3,810[fn94].

The Entry Fee/Monthly Fee Option

Based upon the projected entry fee/monthly fee option, Van Scoyoc concluded that "Fewer households are financially eligible under the entry fee/monthly fee program (2,688 and 711)"[fn95]. The local service area consisted of Rye, Harrison, Rye Brook, Port Chester, Larchmont, Mamaroneck and parts of "Scarsdale and White Plains[fn96].

The Monthly Fee Only Option

Van Scoyoc used projected monthly fees of between $2,850 and $3,810 with respect to a" monthly fee only" option"[fn97]. Based upon these projected monthly fees, also provided by The Osborn[fn98], Van Scoyoc concluded that between" 4,126 and 1,103 households(householder 65+ and 75+) in the local service area are estimated to afford the monthly fee only plan"[fn99]. Based on its analysis, Van Scoyoc concluded:

While the overall 75+ market looks reasonable, the relatively small number of qualified one-person 75+ households indicates further planning should assess options for moderating rate requirements to broaden affordability among this key market segment[fn100].

Adjusting Entrance & Monthly Fees

While acknowledging that "there is a relationship between fees and the number of people who can afford to pay them"[fn101] the Osborn chose to raise the proposed entrance fees[fn102] rather than "moderating" them as recommended by Van Scoyoc in order to "broaden affordability,".

Importance Of Health Care & Nursing Services

The Van Scoyoc Report stated that "As access to health and nursing services at the Osborn was the most important feature to the respondent market, further attention to this aspect will also be required in program planning. In other similar facilities, the inclusion of nursing coverage in the fees for residency often provides a competitive advantage and enhances program marketability"[fn103]

Creating A Residential Image

The Van Scoyoc Report made the "following recommendations" to The Osborn in order "to create a residential image and separate identity for the new accommodations:"

Design a master plan which creates a campus image; buffer landscaping will help to minimize the nursing home dominance on the site.

Develop a separate access road as a" gateway" to the new housing community.

Incorporate outdoor activities such as walking trails, gardening areas, etc.

Develop the new community center to serve as a focus for the housing components.

Develop a separate name for the new community to distinguish it from present Osborn facilities and, in turn, more effectively market the units[fn104].

Van Scoyoc also recommended that a "financial feasibility study that identifies the costs for developing, financing and operating the proposed community should be completed"[fn105].

Public Relations & Marketing Campaign

The Van Scoyoc Report cautioned, however, that

Once a go decision is reached, it will be crucial to have a well planned public relations and marketing campaign to capture the full market potential. Further, the sponsor will also need to address numerous internal and external issues, including corporate structuring for new facilities, regulatory considerations, real estate tax issues, and site planning[fn106].

Financial Feasibility Study Needed

In accordance with the Van Scoyoc Report, The Osborn retained KPMG Peat Marwick [" KPMG" ] to provide to The Osborn's Board of Trustees with a more detailed financial analysis of the proposed Pathway 2000 Project [fn107]. On November 13, 1990, KPMG presented its preliminary financial analysis [" KPMG Report" ] to The Osborn's Board of Trustees[fn108].

Disappearing Plan "B" Residents

Among other things, the KPMG Report contained a table covering a ten year period beginning in 1990, which projected that the number of fully-supported "B" residents would drop from 60 in 1990 to 22 in 1999 [fn109]. The reduction in the number of Plan "B" residents significantly reduced the actuarial liability of the Osborn[fn110].

Diluting The No Eviction Policy

In 1990-1991 The Osborn changed its "A" Resident contract "to remove the promise of a resident never having to leave because of inability to pay"[fn111]. In that same time period the Osborn also "froze "B" admissions . . . we raised our prices 29% . . . and we reaffirmed our commitment not to take Medicaid residents"[fn112].

Mission Statement: To Serve The Financially Independent

The Osborn's Board of Trustees also adopted a Mission Statement for The Osborn which provided as follows:

To meet the needs of men and women age 65 years and older by providing a congenial living environment, quality housing, and a continuum of appropriate care in settings ranging from independent living to nursing facility. In so doing, it is our intent to serve the financially independent as well as those who need financial support consistent with the spirit of Miriam Osborn's will and the prudent use of the resources of the Miriam Osborn Memorial Home Association[fn113].

The Pathway 2000 Project : Let The Metamorphosis Begin

In 1991 the Osborn's Board of Trustees approved[fn114] the Pathway 2000 Plan [renamed Pathway 2000 Project] recognizing that it would be" re-inventing The Osborn into a modern, efficient, and marketable Continuing Care Retirement Community "[fn115]. As of that time when the Pathway 2000 Project was approved, The Osborn was providing some charity care to 82 of its 144 residents or over 50% of its Residents[fn116]. In the winter of 1993, The Osborn published a special issue of a quarterly newsletter called "Outlook."[fn117] The issue contained a number of articles on the Pathway 2000 Project.

As stated in the lead article:

After four years of research and planning, The Osborn has set forth a proposal for a revitalized housing and health care program for older people which promises to become a standard for quality continuing care retirement communities nationwide[fn118].

The Good Life

In another article entitled "The Good Life At The New Osborn," The Osborn informed its readers that" Residents of the new, expanded Osborn now under development will enjoy a wide variety of amenities, activities and recreational facilities"[fn119].

Fees To Pay For The Cost Of Construction

In the same issue, Zwerger and John Bowen ["Bowen"], The Osborn's Chairman of the Board, authored a joint column which discussed the Pathway 2000 Project and which addressed the subject of the Entrance Fees and Monthly Fees that would be charged by The Osborn[fn120].

We want to point out that we cannot quote firm prices for our entry fees and monthly fees at this time. Those fees must accurately reflect the cost of the project, which we will not know until we are closer to construction.

The Pathway 2000 Project, which was completed in two phases [Phase I and Phase II], involved "the construction of 26 new buildings and the renovation of 4 other buildings"[fn121].

The Osborn's Board of Trustees financed the cost of construction through the issuance of tax exempt bonds[fn122] which were to be "pa(id) down . . . in part (with) the entrance fees that were charged"[fn123]. As such the "more [the Osborn] spent [on construction] the more it was going to cost [its] residents"[fn124]. The total cost of the Pathway 2000 Project, which converted The Osborn into its present facility, was $135,000,000[fn125].

Direct Mail Marketing Strategy

It is clear that given the anticipated construction costs of implementing the Pathway 2000 Project a marketing strategy needed to be developed to attract senior citizens who were and are "age and income qualified"[fn126]. The Osborn's Marketing Department developed a direct mail marketing strategy which was designed to position "The Osborn and Sterling Home Care as the most sought after, premier continuing care and home care providers in the market"[fn127]. As Zwerger acknowledged, The Osborn's marketing campaign was directed" to the aged income qualified population for specific units" and it was specifically addressed to "individuals who can afford those accommodations"[fn128]. Between 1997 and year end 2003, The Osborn's marketing expenditures totaled approximately $3.1 million[fn129].

Independent Living Units

In connection with its marketing efforts, The Osborn engaged the services of Glynn Devins Advertising & Marketing["Glynn Devins" ] to "design the advertising (and develop) the list"[fn130] of senior citizens who might be interested in living at The Osborn. The direct mailings were based upon specific zip codes with "Criteria includ(ing) one name per household, $75,000 minimum household income, age 70+ and age 75+"[fn131]. The direct mailings sent by The Osborn in connection with its marketing campaign contained letters and brochures that described The Osborn and the services that it provided[fn132]. In one of the letters The Osborn informed recipients that:

There is an exciting, new opportunity to enjoy gracious, comfortable, worry-free retirement living in Westchester County, in a place you've known and respected for years. Construction will soon begin on two new Sterling park apartment buildings on The Osborn campus in Rye.

The expansion of Sterling Park, our independent living community, continues the tradition of excellence for which The Osborn is widely known, and completes a ten-year development program of new construction and renovation on our expansive campus. The new Sterling Park project will include 94 private, spacious apartments, as well as underground parking, a dining room, meeting room, library, screening room and game room, all in Westchester County's most desirable continuing care retirement community.

Residents of the new Sterling Park will enjoy an incomparable package of amenities and services, as well as priority access to The Osborn Pavilion Health Care Center[fn133].

The letters also contained copies of a marketing brochure describing life at The Osborn[fn134].

Westchester's Preferred Retirement Lifestyle

In one brochure The Osborn referred to itself as "Westchester's Preferred Retirement Lifestyle"[fn135], which was the "impression" that The Osborn wanted to give[fn136]. The marketing brochures also contained pictures of The Osborn's newly built" garden homes (which) combined gracious style and comfortable living: ideal residences for the perfect lifestyle"[fn137] and emphasized the point that "Sterling Park is for those who are ready for retirement lifestyle without concessions, "and" Sterling Park is the preferred retirement choice in Westchester County" [fn138].

The New Osborn

Upon completion of the Pathway 2000 Project, The Osborn consisted of (1) 84 skilled nursing beds located in the Pavilion, The Osborn's skilled nursing facility, (2) 188 Entrance Fee independent living units located in the garden homes and in the 2000, 3000, and 4000 apartment buildings ["Entrance Fee Units" ] and (3) 105 other units located in the Osborn, Strathcona and Sterling buildings which were apartments used as either assisted living or independent rental units[fn139].

Entrance Fee Units: Who Can Afford Them?

The Osborn does not permit anyone who cannot afford The Osborn's entrance fees to occupy any of the 188 Entrance Fee Units[fn140]. Entrance Fee Units comprise a substantial majority of the independent living units at The Osborn and of the total independent living and assisted living units on The Osborn campus[fn141]. Entrance Fee Units also comprise a substantial majority of the square footage of the total space occupied by all of the independent and assisted living units, and of the newly built-out The Osborn campus[fn142].

Accessibility, Home Ownership & Medicaid

Entrance Fee Units may be more accessible[fn143] to those residents who owned homes[fn144] [depending upon income, age and mortgages[fn145] ] and resided in The Osborn's primary service area including the City of Rye, the southern portion of the City of White Plains, the Town of Mamaroneck, The Town of Harrison, the Village of Port Chester, the Village of Rye Brook, the eastern portion of the Village of Scarsdale and the Village of Larchmont[fn146].

Although The Osborn accepts Medicare it does not accept Medicaid[fn147] which excludes a substantial percentage of elderly from access to The Osborn's Pavillion[fn148] and shifts the burden of caring for Medicaid patients to other skilled nursing facilities located in Westchester County[fn149].

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