IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION. In re: CASE NO (SGJ)

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1 Vincent P. Slusher State Bar No DLA Piper LLP (US) 1717 Main Street, Suite 4600 Dallas, Texas Telephone: (214) Facsimile: (972) Thomas R. Califano Jeremy R. Johnson DLA Piper LLP (US) 1251 Avenue of the Americas New York, New York Tel: (212) Fax: (212) ATTORNEYS FOR THE DEBTORS AND DEBTORS IN POSSESSION IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: CASE NO (SGJ) ERICKSON RETIREMENT CHAPTER 11 COMMUNITIES, LLC, et al. 1 Jointly Administered Debtors. RESPONSE TO THE UNITED STATES TRUSTEE S MOTION TO SHOW CAUSE REGARDING APPOINTMENT OF A PATIENT CARE OMBUDSMAN UNDER 11 U.S.C. 333 The above-captioned debtors and debtors in possession (collectively, the Debtors ), by their proposed attorneys, DLA Piper LLP (US), hereby respond to the motion to show cause regarding a hearing on the appointment of a patient care ombudsman ( Ombudsman Motion ), pursuant to section 333 of title 11 of the United States Code (the Bankruptcy Code ), filed by 1 The Debtors in these Chapter 11 cases are Erickson Retirement Communities, LLC, Ashburn Campus, LLC, Columbus Campus, LLC, Concord Campus GP, LLC, Concord Campus, LP, Dallas Campus GP, LLC, Dallas Campus, LP, Erickson Construction, LLC, Erickson Group, LLC, Houston Campus, LP, Kansas Campus, LLC, Littleton Campus, LLC, Novi Campus, LLC, Senior Campus Services, LLC, Warminster Campus GP, LLC, Warminster Campus, LP. EAST\

2 the Office of the United States Trustee (the U.S. Trustee ). In support of this Response, the Debtors respectfully represent as follows: Preliminary Statement While the Debtors continue to discuss resolution of the Ombudman Motion with the Office of the U.S. Trustee and relevant regulators, the Debtors submit this response to show that the appointment of a patient care ombudsman, pursuant to Bankruptcy Code section 333, is not necessary in this case. 2 The Debtors business is not a traditional healthcare business, requiring the appointment of a patient care ombudsman. The Debtors manage its facilities, yet the independent not-for-profit organizations which own the facilities (the NFPs ) are in fact the licensed operators. In fact, only three (3) of the facilities relevant to these bankruptcy proceedings Ann s Choice, Fox Run, and Maris Grove offer healthcare services to residents, and only ten percent (10%) of the total residents at the Debtors facilities receive healthcare services. In addition, patients are adequately protected because several state and federal agencies oversee the patient care. Finally, the Debtors have agreed to self report to this Court, the U.S. Trustee, and the applicable state regulators. Therefore, the Debtors respectfully request that this Court exercise its discretion and not appoint a patient care ombudsman pursuant to Bankruptcy Code section 333(a)(1) in these cases. 2 The Debtors are in the process of negotiating an agreed order with the U.S. Trustee and the Office of the Texas Attorney General, Bankruptcy Regulatory Section (the Attorney General ), whereby the Debtors are to self report to this Court, the Texas State regulators, and the independent not-for-profit organizations (the NFPs ) associated with each campus in lieu of the appointment of a patient care ombudsman. The parties have not yet finalized the agreed order, but they intend to do so shortly. The Debtors expect that the agreed order will resolve all issues concerning the appointment of a patient care ombudsman. EAST\

3 General Background 1. On October 19, 2009 (the Petition Date ), the Debtors commenced these cases by each filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. 2. The Debtors remain in possession of their assets and continue to operate and manage their businesses as debtors in possession pursuant to Bankruptcy Code sections 1107 and No trustee, examiner or committee of creditors has been appointed in these cases. Description of the Debtors CCRCs 4. The Debtors manage the continuing care retirement community ( CCRCs ) pursuant to management agreements with the respective NFPs at each campus. The CCRCs are large campus-style communities that provide seniors with the opportunity to age in place, by offering a full life-cycle of retirement services from independent living through skilled nursing on the same property. 5. The Debtors partner with National Senior Campuses, Inc. ( NSC ), a not-forprofit organization, to operate the campuses. Each of the Debtors completed communities, except two (2), are operated by NFPs that are subsidiaries of NSC. 6. The respective NFPs, not the Debtors, are the licensed healthcare operators at each campus and are responsible for residents day-to-day care. 7. Only three (3) of the campuses relevant to these bankruptcy proceedings Ann s Choice, Fox Run, and Maris Grove provide healthcare services to residents. 8. Of all residents, only about ten percent (10%) live in either assisted-living facilities or skilled-nursing facilities. The vast majority of residents at the Debtors facilities do not receive any patient care. EAST\

4 Argument 9. Based on the facts and circumstances of these cases, the Debtors submit that this Court should exercise its discretion under Bankruptcy Code section 333 and not appoint a patient care ombudsman because (a) the Debtors are not a healthcare business under Bankruptcy Code section 333; (b) state and federal regulators serve the role of de facto ombudsmen in these cases; and (c) the Debtors have agreed to self report to the relevant constituencies, thus obviating the need to appoint an ombudsman. I. The Debtors Are Not A Healthcare Business Under Bankruptcy Code Section The Debtors are not a healthcare business within the meaning of Bankruptcy Code section 333(a)(1) because they do not operate the communities, but rather, they manage the communities pursuant to management agreements with the NFPs. The NFPs are the licensed healthcare operators of the communities. Moreover, healthcare services are not provided at every campus. Only three (3) of the CCRCs offer healthcare services to residents, and only about 10% of the residents of the CCRCs live in either assisted-living facilities or skilled-nursing facilities. 11. Section 333(a)(1) of the Bankruptcy Code provides: If the debtor... is a health care business, the court shall order, not later than 30 days after the commencement of the case, the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients of the health care business unless the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case. 11 U.S.C. 333(a)(1). The term health care business is defined under 11 U.S.C. 101(27)(A). 3 3 The term health care business EAST\

5 12. In addition, the Debtors management of the CCRCs does not render it a healthcare business, as defined by Bankruptcy Code section 333. See In re Medical Assocs. Of Pinellas, L.L.C., 360 B.R. 356, (Bankr. M.D. Fla. 2007) (holding that debtor was not healthcare business because it only provided administrative support to a group of physicians and their practices, with any services to the public only ancillary to that primary function. ). Therefore, because the Debtors are not a healthcare business, this Court should not appoint a patient care ombudsman in these cases. II. A Patient Care Ombudsman Is Not Necessary For The Protection Of The Residents. 13. Although the Debtors firmly believe that they are not a healthcare business, even if they were considered a healthcare business, a patient care ombudsman is not necessary for the protection of the residents because: (i) healthcare services are only provided at three (3) of the CCRCs managed by the Debtors; (ii) the NFPs provide the healthcare services as part of the operation of the communities; (iii) only ten percent (10%) of the residents at the CCRCs receive any type of healthcare services from the NFPs; (iv) several state and federal agencies oversee the patient care provided at the CCRCs; (v) the Debtors have an exemplary history of patient care; (vi) there are adequate internal safeguards, such as oversight by the Debtors senior vice president of operations; (vii) patients have the ability to protect their rights and may lodge (A) means any public or private entity (without regard to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for (i) the diagnosis or treatment of injury, deformity, or disease; and (ii) surgical, drug treatment, psychiatric, or obstetric care; and (B) includes (ii) any long-term care facility, including any (I) skilled nursing facility; (II) intermediate care facility; (III) assisted living facility; (IV) home for the aged; (V) domiciliary care facility; and (VI) health care institution that is related to a facility referred to in subclause (I), (II), (III), (IV), or (V), if that institution is primarily engaged in offering room, board, laundry, or personal assistance with activities of daily living and incidentals to activities of daily living. EAST\

6 complaints with several state agencies as well as the NFPs; and (viii) these bankruptcy filings are wholly unrelated to the patient care provided by the NFPs at the campuses. 14. Bankruptcy Code section 333(a)(1) only requires the appointment of ombudsman if the debtor is a healthcare business and, under the specific facts of the case, such ombudsman is necessary for the protection of the patients. 11 U.S.C. 333(a)(1) (emphasis added); see In re Medical Assocs. of Pinellas, L.L.C., 360 B.R. 356 (Bankr. M.D. Fla. 2007) (declining to appoint patient care ombudsman); In re Saber, 369 B.R. 631, (Bankr. D. Colo. 2007) (declining to appoint ombudsman because (i) debtor's bankruptcy filing was unrelated to patient care, (ii) it was unlikely financial crisis during bankruptcy would impair debtor s ability to provide quality medical care, and (iii) debtor was very experienced and in good professional standing); In re Alternate Family Care, 377 B.R. 754, 758 (Bankr. S.D. Fla. 2007) (holding that ombudsman was not necessary under specific facts of case); In re Total Woman Healthcare Ctr., P.C., No , 2006 Bankr. LEXIS 3411, *4-*6 (Bankr. M.D. Fla. Dec. 14, 2006) (declining to appoint ombudsman because patients had not been adversely affected by bankruptcy filing and debtor understood its record-keeping and reporting obligations) Accordingly, the Debtors submit that the appointment of a patient care ombudsman under Bankruptcy Code section 333(a)(1) is unnecessary in these cases. 4 According to the Alternate Family Care court, there are nine (9) factors to be considered in determining if a patient care ombudsman is necessary include the: (a) cause of the bankruptcy; (b) presence and role of licensing and supervising entities; (c) debtor s past history of patient care; (d) ability of the patients to protect their rights; (e) level of dependency of the patients on the facility; (f) likelihood of tension between the interests of the patients and the debtor; (g) potential injury to the patients if the debtor drastically reduced its level of patient care; (h) presence and sufficiency of internal safeguards to ensure appropriate level of care; and (i) impact of the cost of an ombudsman on the likelihood of a successful reorganization. 377 B.R. at 75. The Debtors submit that these factors weigh in favor of not appointing a patient care ombudsman in these cases. EAST\

7 III. The Debtors Have Agreed To Self Report. 16. The Debtors have agreed to self report to this Court and are attempting to resolve this issue with the U.S. Trustee and applicable regulators. The Debtors proposed self reporting goes beyond that which is required of a patient care ombudsman and is sufficient for this Court to determine whether the level of patient care at the CCRCs is adequate. 17. In the Fifth Circuit, other courts have issued orders requiring debtors to self report in lieu of appointing a patient care ombudsman. See In re Laredo Urgent Care, PA, Case No (Bankr. S.D. Tex. July 11, 2008); In re Positive Health Management, Inc., Case No (Bankr. S.D. Tex. May 8, 2008). 18. Additionally, Bankruptcy Rule (b) states that "[i]f the court has ordered that the appointment of an ombudsman is not necessary... the court, on motion of the United States trustee or a party in interest, may order the appointment at any time during the case if the court finds that the appointment of an ombudsman is necessary to protect patients." Bankruptcy Rule (b). Therefore, if at any time, the U.S. Trustee or any other party in interest believes that the Debtors self reporting is inadequate, they are not without recourse and may ask this Court to reevaluate its decision not to appoint a patient care ombudsman. EAST\

8 19. Therefore, the Debtors respectfully request that this Court exercise its discretion to not appoint a patient care ombudsman pursuant to Bankruptcy Code section 333(a)(1) and instead enter an order requiring the Debtors to self report to this Court regarding patient care. Date: November 16, 2009 Dallas, Texas Respectfully submitted, /s/ Vincent P. Slusher Vincent P. Slusher State Bar No vince.slusher@dlapiper.com DLA Piper LLP (US) 1717 Main Street, Suite 4600 Dallas, Texas Telephone: (214) Facsimile: (972) Thomas R. Califano (Pro Hac Vice) thomas.califano@dlapiper.com Jeremy R. Johnson (Pro Hac Vice) jeremy.johnson@dlapiper.com DLA Piper LLP (US) 1251 Avenue of the Americas New York, New York Tel: (212) Fax: (212) Attorneys For Debtors And Debtors In Possession EAST\