New York Miscellaneous Reports


(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[EDITOR’S NOTE: This case is unpublished as indicated by the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

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.


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

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1996 when it was revoked by the Assessor and partially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

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.


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

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

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

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

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.

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

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

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

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

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

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

In Search Of The Affluent Elderly

In its Report, Van Scoyoc reported to The Osborn’s Board of

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

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

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

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

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

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

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

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

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

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

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

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

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

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