Alberts, Trustee v. Galen Hospital Illinois, Inc. et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORP., I, et al.,
Debtors.
____________________________
SAM J. ALBERTS, TRUSTEE FOR
THE DCHC LIQUIDATING TRUST,
Plaintiff,
v.
HCA INC. AND GALEN HOSPITAL
ILLINOIS, INC.,
Defendants.
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Case No. 02-02250
(Chapter 11)
(Jointly Administered)
Adversary Proceeding No.
04-10366
DECISION REGARDING PORTION OF
MOTION TO AMEND SECOND AMENDED COMPLAINT
Sam J. Alberts, trustee for the DCHC Liquidating Trust and
plaintiff in this adversary proceeding, seeks to amend his
complaint for the third time since commencing his suit to avoid
and recover certain allegedly fraudulent conveyances made to
defendants HCA, Inc. (“HCA”) and Galen Hospital Illinois, Inc.
(“GHI,” and collectively the “Defendants”) pursuant to 11 U.S.C.
The decision below is hereby signed. Dated: October
12, 2006.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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§ 544. 	Alberts originally sought to amend his complaint in two
ways. 	First, he wanted to add Western Plains Capital, Inc.
(“Western”) as a defendant (Mot. at 1). 	Second, he wished to
“clarify” that he seeks to avoid both the transfers between the
debtors and the Defendants and the obligations underlying them
(id.). 	At a hearing on the motion held on October 4, 2006, the
parties appeared ready to reach agreement on a stipulation that
would resolve the need for the latter change, and the parties
agreed to attempt to reduce such a stipulation to writing. 	This
decision addresses the request for leave to add Western as a
defendant.
I
Alberts filed his initial complaint on November 18, 2004.
In that complaint, Alberts alleged that the debtors’ purchase of
Columbia Michael Reese Hospital and Medical Center (“Michael
Reese”) constituted a fraudulent conveyance because the purchase
price of the hospital ($71 million) was too high and the debtors
were insolvent at the time of the bankruptcy. 	Alberts added a
second count to the complaint seeking to pierce the corporate
veil between HCA and any of its subsidiaries that received funds
transferred in payment for Michael Reese.
After Alberts filed an amended complaint (while at the same
time opposing the Defendants’ motion to dismiss the original
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1 	The Defendants’ motion to dismiss the original complaint
was denied without prejudice in an order entered March 31, 2005
(D.E. No. 20).
2 	The court ultimately denied Alberts’s motion to strike,
but did award him attorneys’ fees and costs for expenses incurred
in drafting and prosecuting the motion (D.E. No. 154, entered
June 2, 2006).
3
complaint), 1 the Defendants filed a second motion to dismiss.
The court denied the second motion to dismiss, but ordered
Alberts to file a second amended complaint alleging facts that
would justify his “lumping” together of the debtors in his
complaint or specify which of the debtors consummated the
allegedly fraudulent conveyance (D.E. No. 47, entered June 23,
2005).
Alberts filed his second amended complaint on July 21, 2005
(D.E. No. 56). 	The defendants filed both answers and
counterclaims to the second amended complaint on August 5, 2006
(D.E. Nos. 61-62); Alberts answered the Defendants’ counterclaims
on August 23, 2006 (D.E. Nos. 63-64). 	After the parties filed a
flurry of discovery-related motions, Alberts filed a motion for
partial summary judgment on March 9, 2006 (D.E. No. 102). 	The
defendants filed an initial opposition to this motion under Fed.
R. Civ. P. 56(f) (D.E. No. 113, filed March 20, 2006) and then
filed a supplemental opposition (D.E. No. 127, filed April 3,
2006), which Alberts moved to strike (D.E. No. 132, filed April
3, 2006). 2
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The parties appeared before the court on April 4, 2006, for
a hearing on Alberts’s motion for partial summary judgment, at
which time the court ruled from the bench that the motion should
be granted in part and denied in part (D.E. No. 137; see also
D.E. No. 145, filed May 12, 2006 (transcript of April 4, 2006
hearing)). 	The court entered an order to that effect on June 2,
2006 (D.E. No. 155), and the court approved the scheduling order
proposed by the parties jointly on June 16, 2006 (D.E. No. 164).
On July 27, 2006, Alberts filed another motion for partial
summary judgment (D.E. No. 176). 	The Defendants responded to
this latest motion by filing both an opposition (D.E. No. 195,
filed on August 28, 2006) and a cross-motion for summary judgment
(D.E. No. 200, filed August 28, 2006). 	The instant motion was
filed one day after the Defendants’ opposition and cross-motion
were filed (D.E. No. 208, filed August 29, 2006). 	Under the
current scheduling order in effect, the deadline for dispositive
motions passed on September 29, 2006, and all discovery other
than the parties’ depositions of expert witnesses closed on
September 15, 2006. 	Trial is set for December 3-4, 6, and 11-12.
II
Fed. R. Civ. P. 15(a) (as incorporated by Fed. R. Bankr. P.
7015) provides that leave to amend a pleading “shall be freely
given when justice so requires.” 	As explained by the Supreme
Court in Foman v. Davis, 371 U.S. 178 (1962):
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[i]n the absence of any apparent or declared
reason--such as undue delay, bad faith or
dilatory motive on the part of the movant,
repeated failure to cure deficiencies by
amendments previously allowed, undue
prejudice to the opposing party by virtue of
allowance of the amendment, futility of
amendment, etc.--leave should, as the rules
require, be freely given.
Id. at 182.
“Within these bounds, a [trial] court has discretion to
grant or deny leave to amend under Rule 15(a).” 	Atchinson v.
District of Columbia, 73 F.3d 418, 426 (D.C. Cir. 1996).
However, “outright refusal to grant the leave without any
justifying reason . . . is not an exercise of discretion.”
Foman, 371 U.S. at 182. 	Instead, the court must “provide[] a
sufficiently compelling reason” (i.e., one of the bases for
denial of amendment set forth in Foman) to avoid giving rise to
an inference of abuse of discretion. 	Robinson v. Detroit News,
Inc., 211 F. Supp. 2d 101, 114 (D.D.C. 2002).
Factors generally considered by courts adjudicating a motion
to amend in this circuit include “whether amendment of a
complaint would require additional discovery,” Atchinson, 73 F.3d
at 426, whether “a party has had sufficient opportunity to state
a claim but has failed to do so,” Mittleman v. United States, 997
F. Supp. 1, 10 (D.D.C. 1998), and whether there is “undue delay”
causing prejudice to other parties to the case. 	Atchinson, 73
F.3d at 426. 	“[W]hen the motion to amend is filed late in the
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3 	The rule is not absolute. 	See Maharishi Hardy Blechman
Ltd. v. Abercrombie & Fitch Co., 292 F. Supp. 2d 535, 554
(S.D.N.Y. 2003) (“Although generally disfavored, the [c]ourt has
discretion to grant a party leave to amend its complaint even
after that complaint is dismissed on summary judgment.”); see
also, e.g., Chestnut v. St. Louis County, Mo., 656 F.2d 343, 349
(8th Cir. 1981) (allowing amendment after summary judgment was
filed); Cuffy v. Getty Refining & Marketing Co., 648 F. Supp.
802, 806-07 (D. Del. 1986) (same); Dairy Fresh Foods, Inc. v.
Ramette (In re Country Club Market, Inc.), 175 B.R. 1011, 1016
(Bankr. D. Minn. 1994) (same). 	Nonetheless, courts have denied
amendment at least in part on those grounds in so many cases that
this court cannot list them all. 	See, e.g., Bediako v. Stein
Mart, Inc., 354 F.3d 835, 840-41 (8th Cir. 2004); Fraser v.
Nationwide Mut. Ins. Co., 352 F.3d 107, 116-17 (3d Cir. 2003);
Lowe’s Home Centers, Inc. v. Olin Corp., 313 F.3d 1307, 1314-15
(11th Cir. 2002); Bethany Pharmacoal Co., Inc. v. QVC, Inc., 241
F.3d 854, 861-62 (7th Cir. 2001); Roberts v. Az. Bd. of Regents,
661 F.2d 796, 798 (9th Cir. 1981); Sakamoto v. U.S. Envtl.
Protection Agency, 443 F. Supp. 2d 1182 (N.D. Cal. 2006),
available at 2006 WL 2067848, *14; Calkins v. Midland Funding
NCC-2 Corp., 412 F. Supp. 2d 699, 702 (W.D. Mich. 2006); Xpeditor
Creditor Trust v. Credit Suisse First Boston (USA) Inc., 399 F.
Supp. 2d 375, 379-80 (S.D.N.Y. 2005); McCarthy v. Dun &
Bradstreet Corp., 372 F. Supp. 2d 694, 700-01 (D. Conn. 2005);
Guckenberg v. Wis. Central Ltd., 178 F. Supp. 2d 954, 960 (E.D.
Wis. 2001). 	As the Fifth Circuit explained in Freeman v.
Continental Gin Co., 381 F.2d 459 (5th Cir. 1967):
Much of the value of summary judgment
procedure in the cases for which it is
appropriate . . . would be dissipated if a
party were free to rely on one theory in an
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litigation, justice requires the [c]ourt to determine whether
there is prejudice to the defendants.” 	Hollinger-Haye v.
Harrison Western/Franki-Denys, 130 F.R.D. 1, 1 (D.D.C. 1990).
Moreover, “it is generally inappropriate to grant leave to amend
a complaint while summary judgment is pending.” 	Coplin v. Conejo
Valley Unified Sch. Dist., 903 F. Supp. 1377, 1388 (C.D. Cal.
1995). 3
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attempt to defect a motion for summary
judgment and then, should that theory prove
unsound, come back long thereafter and fight
on the basis of some other theory.
Id. at 469-70.
7
Alberts claims that Western, a subsidiary of HCA, is the
actual holder of the bank account that received impermissible
conveyances from the debtors, and that he first learned of this
fact on April 3, 2006 (Mot. ¶ 17). 	Since that time, Alberts
asserts, he has tried without success to reach an agreement with
the Defendants whereby HCA or Western would guarantee any
judgment against GHI and Western would replace HCA as a party
(id. at ¶ 19). 	The Defendants counter that Western has already
agreed to satisfy any judgment against HCA and that Alberts has
waited too long to add Western as a defendant.
The court agrees with the Defendants that it should not take
over four months to add a defendant to a complaint, but “a court
should not deny leave to amend based solely on time elapsed
between the filing of the complaint and the request for leave to
amend.” 	Adair v. Johnson, 216 F.R.D. 183, 186 (D.D.C. 2003).
Rather, “[t]he length of a litigation is relevant only insofar as
it suggests either bad faith on the part of the moving party or
potential prejudice to the non-moving party should an amendment
be allowed.” 	Caribbean Broadcasting Sys., Ltd v. Cable &
Wireless PLC, 148 F.3d 1080, 1084 (D.C. Cir. 1998); see also
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4 	The Defendants argue that Alberts cannot add Western as a
defendant because the deadline for joining new parties passed on
September 9, 2005, pursuant to the court’s scheduling order (D.E.
No. 36, entered May 31, 2005). 	This argument focuses on the
wrong order. 	On June 16, 2006, the court entered an amended
order eliminating the deadline for joining parties and setting a
deadline for motions to amend pleadings of September 22, 2006
(D.E. No. 164 ¶ 2). 	The second amended scheduling order extends
that deadline by another week (D.E. No. 190, entered August 16,
2006). 	Alberts filed his motion well in advance of either
deadline.
5 	See Clark v. America’s Favorite Chicken Co., 896 F. Supp.
611, 615 (E.D. La. 1995) (adding new defendant would not
prejudice existing defendants because “substantial discovery” had
been completed, which would allow new defendants to “bring
themselves ‘up to speed’” more quickly).
8
Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local
Union 639, 883 F.2d 132, 145 (D.C. Cir. 1989) (amendment
permitted despite two-month delay in part because “there was no
evidence of prejudice . . . or of deliberate delay or bad
faith”). 4
The Defendants do not allege that Alberts acted in bad faith
in failing to request leave to add Western as a defendant prior
to August 29, 2006. 	Nor do they demonstrate any undue prejudice
arising from such amendment. 	The only possible harm that could
occur as a result of adding Western to this proceeding would be a
delay in the trial due to the need to accommodate any discovery
by Western, but such delay, if any, would likely be minimal
because the Defendants can share the results of their discovery,
which is almost finished, with Western. 5 	Moreover, the
defendants have filed a cross-motion for summary judgment which,
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6 	Some courts require that any amendment to a complaint
proposed after a motion for summary judgment is filed be
“supported by substantial and convincing evidence” for leave to
be granted. 	Adorno v. Crowley Towing and Transp. Co., 443 F.3d
122, 126 (1st Cir. 2006); accord Borough of Ellwood City, Pa. v.
Pa. Power Co., 570 F. Supp. 553, 556 (W.D. Pa. 1983). 	The
Defendants do not cite, and this court cannot locate, any
decision in this circuit expressly adopting this evidentiary
requirement, and the court declines to adopt such a standard
here.
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if granted, would obviate the need for trial altogether.
The Defendants also argue that it would be futile to allow
Alberts to add Western as a defendant because the statute of
limitations would bar any suit against Western at this juncture
and Western was a “mere conduit” of any fraudulent conveyances
from the debtors. 	“Courts may deny a motion to amend a complaint
as futile . . . if the proposed claim would not survive a motion
to dismiss.” 	James Madison Ltd. v. Ludwig, 82 F.3d 1085, 1099
(D.C. Cir. 1996). 	Both of the Defendants’ arguments in support
of a finding of futility are affirmative defenses that can only
be granted on a motion to dismiss if it is clear from the face of
the complaint that the defenses are meritorious. 	Smith-Haynie v.
District of Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998). 6
The allegedly fraudulent conveyance at issue in this
adversary proceeding took place in either December of 1998 or
January of 1999 according to the proposed third amended complaint
(Mot. at Ex. B ¶ 23). 	Western could not be added as a defendant
until October of 2006 at the earliest. 	Even applying the longer
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7 	Alberts has argued in other contexts that he is entitled
to invoke the even longer statute of limitations that may be
available to the Department of Health and Human Services and the
Internal Revenue Service because these entities were unsecured
creditors of the debtors on the petition date; this contention is
the subject of the parties’ cross-motions for summary judgment.
The court does not need to consider the validity of that argument
here given its ruling with respect to the “relation back”
doctrine.
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statute of limitations provided by the Illinois Uniform
Fraudulent Transfer Act, 740 Ill. Comp. Stat. 160/1 et seq.
(1990), which Alberts invokes pursuant to 11 U.S.C. § 544(b)(1),
the seven-year gap between the challenged conveyance and the
initiation of proceedings against Western is time-barred on its
face. 	See 740 Ill. Comp. Stat. 160/10 (establishing four-year
statute of limitations). 7
Nevertheless, Alberts could overcome this hurdle if he could
demonstrate that the addition of Western as a defendant “relates
back” to the date of the filing of his initial complaint pursuant
to Fed. R. Civ. P. 15(c) (as incorporated by Fed. R. Bankr. P.
7015). 	That rule states in pertinent part:
(c) Relation Back of Amendments. 	An
amendment of a pleading relates back to the
date of the original pleading when . . .
(2) the claim or defense asserted in the
amended pleading arose out of the
conduct, transaction, or occurrence set
forth or attempted to be set forth in
the original pleading, or
(3) the amendment changes the party or
the naming of the party against whom a
claim is asserted if the foregoing
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8 	The Defendants raised the issue of notice for the first
time at the October 4, 2006 hearing. 	The court need not consider
an argument that is raised for the first time at a hearing on a
motion, but will do so out of an abundance of caution.
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provision (2) is satisfied and, within
the period provided by Rule 4(m) for
service of the summons and complaint,
the party to be brought in by amendment
(A) has received such notice of the
institution of the action that the party
will not be prejudiced in maintaining a
defense on the merits, and (B) knew or
should have known that, but for a
mistake concerning the identity of the
proper party, the action would have been
brought against the party.
Id. 	As this court explained the rule in Alberts v. Arthur J.
Gallagher & Co. (In re Greater Southeast Cmty. Hosp. Corp. I),
341 B.R. 91 (Bankr. D.D.C. 2006):
[A]n amended complaint seeking to add an
additional defendant will be permitted to
relate back if it (1) arose out of the
conduct, transaction, or occurrence set forth
or attempted to be set forth in the original
pleading; (2) the added parties received
notice of the action within the time period
provided for under [Fed. R. Bankr. P.
7004(m)] such that the parties will not be
prejudiced in maintaining a defense; and (3)
the added parties knew or should have known
that they were proper parties but for the
plaintiff’s mistake.
Id. at 97.
The Defendants argue that Western has never received notice
of the instant proceeding, much less within the time required by
Rule 7004(m). 8 	Alberts counters that Western was placed on
constructive notice of the proceeding through the “identity of
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9 	The Defendants asserted at the October 4, 2006 hearing
that even if Alberts’s claims against Western related back to an
earlier pleading, that pleading would be the second amended
complaint, which was filed long after the statute of limitations
for Alberts’s actions expired. 	As the court explained from the
bench, the Defendants’ argument is flawed because the second
amended complaint itself relates back to the original complaint,
which, for purposes of a motion to dismiss, was filed before the
statutory deadline passed.
12
interest” and “shared attorney” doctrines (Mot. ¶¶ 31-35). 	All
of these arguments turn on factual determinations that cannot be
made on a motion to dismiss or, by extension, a motion to amend a
complaint. 9 	Similarly, the Defendants’ contention that Western
did not and should not have known that it was a proper party but
for Alberts’s mistake is a fact-driven argument that need not be
rebutted in Alberts’s complaint. 	Alberts v. Tuft (In re Greater
Southeast Cmty. Hosp. Corp. I), 2006 WL 2793177, *17 (Bankr.
D.D.C. Sept. 21, 2006).
Finally, there is nothing in the proposed third amended
complaint that establishes Western as a “mere conduit” of the
allegedly fraudulent conveyance made by the debtors to GHI or
HCA. 	Indeed, the proposed third amended complaint does not even
identify which of the Defendants was the initial transferee of
the conveyance. 	The court could not dismiss the complaint
against Western pursuant to Fed. R. Civ. P. 12(b)(6) (as
incorporated by Fed. R. Bankr. P. 7012); therefore, it cannot
deny amendment to the complaint under the futility doctrine,
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10 	The court queried Alberts at the October 4, 2006 hearing
as to whether the Defendants would be prejudiced by the need for
discovery on the issue of relation back (and, by implication,
Western’s “mere conduit” defense). 	Alberts expressed his intent
to conduct expedited discovery on these issues to ensure that
trial would proceed on schedule. 	The court is confident that any
delay in the trial date will be so minimal that it does not
unduly prejudice the Defendants. 	Moreover, it strikes the court
as unfair to hold that on the one hand Alberts cannot amend his
complaint if the amended allegations fail to state a claim, but
that on the other hand he cannot amend his complaint if it does
state a claim because the claim will require additional discovery
by and against the newly added defendant. 	Given Alberts’s
willingness to engage in expedited discovery with respect to
Western and the fact that Western, not HCA or GHI, will be out of
pocket for the costs associated with discovery, the court
concludes that there is no undue prejudice to HCA or GHI.
13	O:\Andrew Fausett Temp Docs\Decisions with Related Orders\decision_amend_Alberts v. HCA_v3.wpd
either. 10
III
For the reasons set forth above, the court will grant the
motion to amend insofar as it seeks to add Western as a defendant
to this proceeding.
An order follows.
[Signed and dated above.]
Copies to:
Lucius B. Lau
Jeffrey E. Schmitt
White & Case LLP
701 Thirteenth Street, N.W.
Washington, DC 20005
Counsel for the plaintiff
Jeffrey W. Kilduff
Lani R. Miller
Stephen D. Brody
O’Melveny & Myers LLP
1625 Eye Street, NW
Washington, DC 20006
Counsel for the defendants
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