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., et al.,
Defendants.
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Case No. 02-02250
(Chapter 11)
(Jointly Administered)
Adversary Proceeding No.
04-10366
MEMORANDUM DECISION REGARDING MOTION FOR PARTIAL
SUMMARY JUDGMENT AND CROSS-MOTION FOR SUMMARY JUDGMENT
Sam J. Alberts, trustee for the DCHC Liquidating Trust (the
“Trust”) and plaintiff in this adversary proceeding, seeks to
avoid and recover certain allegedly fraudulent transfers (the
“Michael Reese Transfers”) from Michael Reese Medical Center
Corporation (“Michael Reese”), as well as other debtors in this
jointly administered bankruptcy case (collectively the
The decision below is hereby signed. Dated:
December 6, 2006.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	Subsequent to the filing of his motion for partial
summary judgment, Alberts requested leave to file a third amended
complaint adding Western as a defendant and adding language
regarding certain “Obligations” incurred by Michael Reese in
connection with its allegedly fraudulent transfers (D.E. No. 208,
filed August 29, 2006). 	The court granted this request in part
by permitting Alberts to add Western as a defendant in a decision
and accompanying order entered on October 12, 2006 (D.E. Nos.
247-48). 	The balance of Alberts’s request was resolved by a
stipulation entered into between the parties on October 18, 2006
(D.E. No. 254).
2 	Because Western was not yet a party to this proceeding
when Alberts filed his motion for partial summary judgment, HCA
and GHI were the only two defendants in a position to respond to
the motion.
2
“Debtors”), to defendants HCA, Inc. (“HCA”), Galen Hospital
Illinois, Inc. (“GHI”), and Western Plains Capital, Inc.
(“Western”) under the Illinois Uniform Fraudulent Transfer Act,
740 Ill. Comp. Stat. 160/1 et seq. (1990) (the “IUFTA”), pursuant
to 11 U.S.C. § 544. 	Alberts has moved for partial summary
judgment with respect to Count III of his second amended
complaint (D.E. No. 56, filed July 21, 2005) (the “Complaint”). 1
HCA and GHI (collectively the “Defendants”) oppose this motion
and have cross-moved for summary judgment on all counts in the
Complaint. 2
The Complaint lists six counts: two causes of action
premised on § 5(a)(1) of the IUFTA (Counts I and II), see 740
Ill. Comp. Stat. 160/5(a)(1), two causes of action under
§ 5(a)(2) of the IUFTA (Counts III and IV), see id. at
160/5(a)(2), and two causes of action under § 6(a) of the IUFTA
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3 	Unless indicated otherwise, all factual conclusions drawn
from the parties’ statements of material undisputed facts refer
to facts not disputed in the parties’ responsive statements,
which are therefore deemed as having been admitted pursuant to
Local Bankr. R. 7056-1, and all factual conclusions drawn from
the Complaint refer to allegations in the Complaint that are
admitted by the Defendants.
4 	The citation above is to a statement of material
undisputed facts filed by Alberts in connection with his prior
motion for partial summary judgment, which remains a part of the
record in this proceeding.
3
(Counts V and VI). 	See id. at 160/6(a). 	Alberts seeks partial
summary judgment with respect to Count III on a single issue:
whether the count is barred by the statute of repose set forth in
the IUFTA. 	The Defendants seek summary judgment on this issue
and several others. 	For the reasons that follow, the court will
deny Alberts’s motion in part, grant in part and deny in part the
cross-motion filed by the Defendants, and defer consideration of
one issue at this time.
I
The following facts are undisputed. 3 	Michael Reese was
formed as a wholly-owned subsidiary of Doctors Community Hospital
Corporation (“DCHC”), a privately-held healthcare management
company organized under the laws of Delaware. 	(Pl. Statement of
Material Undisputed Facts ¶ 15 (D.E. No. 104, filed March 9,
2006). 4 	On July 8, 1998, Michael Reese entered into an asset
purchase agreement (the “APA”) with GHI, a corporate subsidiary
of fellow defendant HCA, for the purchase of Columbia Michael
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5 	Alberts filed a counter-statement of material undisputed
facts to the Defendants’ cross-motion (D.E. No. 240, filed
September 28, 2006), but he neglected to file a statement of
disputed facts contradicting the assertions made by the
Defendants in their initial statement. 	Pursuant to Local Bankr.
R. 7056-1, the court will deem the facts stated in the
Defendants’ statement as having been admitted by Alberts insofar
as those facts do not contradict the facts laid out by Alberts in
his counter-statement. 	Alberts did not address the timing of the
Michael Reese Transfers in his counter-statement; accordingly,
the Defendants’ statement that the transfers closed on November
12, 1998, is binding.
Also as set forth in the Defendants’ statement of undisputed
material facts, DCHC subsidiary Grant Hospital Corporation signed
an asset purchase agreement with Columbia Grant Hospital Inc.,
for the purchase of Grant Hospital on the same date that Michael
Reese entered into the APA with GHI. 	(Def. Statement of Material
Undisputed Facts ¶ 2). 	Although this transaction has some
bearing on the overall dispute between the parties, it is
irrelevant with respect to the issues raised in the motions
considered in this memorandum decision.
4
Reese Hospital and Medical Center (“Michael Reese Hospital”).
(Compl. ¶ 15). 	Michael Reese and GHI entered into a series of
amendments to the APA throughout the fall of 1998. 	(Compl.
¶¶ 17-21). 	On November 9, 1998, the parties signed the “Sixth
Amendment” to the APA--the last such document signed prior to the
purchase of the hospital. 	(Compl. ¶ 21). 	The purchase of
Michael Reese Hospital closed on November 12, 1998. 	(Def.
Statement of Undisputed Material Facts ¶ 4 (D.E. No. 198, filed
August 28, 2006)). 5
Michael Reese and its affiliated Debtors filed for chapter
11 relief on November 20, 2002. 	After protracted proceedings
lasting almost 18 months, the Debtors achieved confirmation of
their second amended plan of reorganization (the “Plan”) on April
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6 Section 6.6(a) of the Plan specifies that the Trust “shall
be for the benefit of the holders of the NCFE Claim, Allowed
General Unsecured Claims and Allowed Patient Refund Claims.”
Other creditors’ claims were discharged by the Plan (e.g., if no
timely claim was filed) or assumed by the Reorganized Debtors (as
in the case of allowed medical malpractice claims). 	(See
generally Plan Art. IV).
7 	The Defendants’ motion to dismiss the original complaint
was denied without prejudice in an order entered March 31, 2005.
5
5, 2004, and their operations were taken over by entities known
as the “Reorganized Debtors.” 	Section 6.6 of the Plan provides
for the creation of the Trust, which is charged with liquidating
certain assets of the Debtors and distributing the proceeds to
certain classes of creditors (including certain unsecured
creditors). 6 	Among the assets transferred to the Trust were
fraudulent conveyance and other actions authorized under chapter
5 of the Bankruptcy Code. 	(Plan §§ 4.10, 6.6(f)).
Alberts initiated the instant adversary proceeding on
November 18, 2004. 	After filing an amended complaint (while at
the same time opposing the Defendants’ motion to dismiss the
original complaint), 7 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.
Alberts amended his complaint again on July 21, 2005, and
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8 	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.
9 	The court has not yet determined whether additional
transfers totaling $5,571,381.00 were made as alleged by Alberts.
(Summ. J. Order at 2 (D.E. No. 155, entered June 2, 2006)).
6
moved for partial summary judgment on March 9, 2006. 	The
Defendants filed an initial opposition to this motion under Fed.
R. Civ. P. 56(f) and then filed a supplemental opposition, which
Alberts moved to strike. 8
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. 	The court subsequently
entered an order reciting that Michael Reese transferred
$66,048,840.00 towards the purchase of Michael Reese Hospital. 9
Alberts filed the instant motion on July 27, 2006. 	The
Defendants responded to this latest motion by filing both an
opposition and a cross-motion for summary judgment. 	The
Defendants filed a separate motion for summary judgment on
November 6, 2006, which the court has not yet considered.
II
Pursuant to Fed. R. Civ. P. 56 (as incorporated by Fed. R.
Bankr. P. 7056), summary judgment will be granted where “there is
no genuine issue as to the material fact and the . . . moving
party is entitled to judgment as a matter of law.” 	Fed. R. Civ.
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7
P. 56(c). 	The court must deny summary judgment where there is a
genuine issue as to any material fact. 	Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986). 	If the movant makes a
properly supported motion, the burden shifts to the opposing
party to demonstrate specific facts showing that there is a
genuine issue for trial. 	Id.
If the moving party does not bear the burden of proof at
trial on an issue, summary judgment may be granted if the moving
party shows “that there is an absence of evidence to support the
nonmoving party’s case.” 	Celotex Corp. v. Catrett, 477 U.S. 317,
325 (1986). 	If the movant alleges that the opposing party lacks
proof to establish requisite elements of its case, the movant
must show the absence of such facts. 	Id. 	The court must view
the opposing party’s evidence in the light most favorable to non-
movant’s position and draw inferences in favor of that party,
provided such inferences are justifiable or reasonable.
Matsushita Elec. Indus. Co., Inc. v. Zenith Radio Corp., 475 U.S.
574, 587-88 (1986).
A. 	Statute of Limitations
The only issue presented by Alberts’s motion is whether
Alberts is time-barred from pursuing Count III of his Complaint
by § 10 of the IUFTA, which provides that a cause of action under
the act “is extinguished” unless brought “within four years after
the transfer was made or the obligation incurred.” 	740 Ill.
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8
Comp. Stat. 160/10(a). 	Alberts does not dispute that his
complaint was filed more than four years after the purchase of
Michael Reese Hospital, but argues that he is entitled to invoke
the statute of limitations available to any unsecured creditor of
the estate at the time that Michael Reese filed its petition.
Alberts identifies two such creditors: the United States
Department of Health and Human Services (“HHS”) and the Internal
Revenue Service (“IRS”). 	According to Alberts, HHS held a claim
for Medicare overpayments pursuant to 28 U.S.C. § 1345, while the
IRS held separate claims for taxes owed under the Federal
Unemployment Tax Act, 11 U.S.C. § 3301 et seq. (“FUTA”), and for
employment taxes owed pursuant to § 3111 of the Internal Revenue
Code. 	26 U.S.C. § 3111(a). 	He argues that the existence of
these three claims allows him to access either the six-year
statute of limitations provided by 28 U.S.C. § 2415 for actions
brought by the United States government (for the HHS claim) or
the ten-year statute of limitations provided by 26 U.S.C.
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10 	Section 6502 of the Internal Revenue Code provides that
“[w]here the assessment of any tax imposed by this title has been
made within the period of limitation properly applicable thereto,
such tax may be collected by levy or by a proceeding in court,
but only if the levy is made or the proceeding begun . . . within
10 years after the assessment of the tax . . . .” 	26 U.S.C.
§ 6502(a)(1). 	Section 6501 of the Internal Revenue Code
specifies that “the amount of any tax imposed by this title shall
be assessed within 3 years after the return was filed . . . .”
Id. at § 6501(a). 	Thus, the IRS has three years from the filing
of a tax return to render an assessment of the taxes owed and
another ten years from the date of assessment to pursue its
claims in court.
11 	Because the avoidance powers conferred upon the estate
representative by § 544(b) cannot be altered by the subsequent
conduct of a single creditor, the key question is whether an
unsecured creditor existed as of the petition date, not whether
such a creditor exists now. 	Marquette Bank Ill. v. Covey (In re
Classic Coach Interiors, Inc.), 290 B.R. 631, 640 (Bankr. C.D.
Ill. 2002); accord Acequia, Inc. v. Clinton (In re Acequia,
Inc.), 34 F.3d 800, 807 (9th Cir. 1994); Sheffield Steel Corp. v.
HMK Enterprises, Inc. (In re Sheffield Steel Corp.), 320 B.R.
423, 446 (Bankr. N.D. Okla. 2004).
9
§ 6502 10 for tax claims brought by the IRS (for the two IRS
claims).
The Defendants argue in response that (1) Alberts lacks
standing to assert any claims held by HHS or the IRS, or,
alternatively, should be equitably estopped from doing so, (2)
Alberts cannot invoke any statute of limitations other than § 10
of the IUFTA as a matter of law, and (3) there is no evidence in
the record that either HHS or the IRS were unsecured creditors of
Michael Reese as of the petition date. 11 	The court considers
each category of documents in turn.
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10
1. 	Standing & Equitable Estoppel
As a threshold issue (although it is actually one of the
last arguments that they make), the Defendants argue that Alberts
lacks standing to assert causes of action held by the IRS or HHS.
(Def. Opp’n at 83-93 (D.E. No. 195, filed August 28, 2006)).
Alternatively, they request that the court bar Alberts from
pursuing the instant action under traditional principles of
equity. 	(Def. Opp’n at 93-96). 	Both arguments derive from the
provisions of the Plan, which vest the § 544(b) claims formerly
held by the Debtors in the Trust but leaves the claims against
the former estate held by the IRS and HHS with the Reorganized
Debtors. (Plan §§ 1.29, 6.3(e)).
The standing argument requires little effort to refute.
Section 6.6 of the Plan provides for the transfer of the
“Liquidating Trust Assets” to the Trust. 	The Liquidating Trust
Assets include “Litigation Claims” (Plan § 1.50), which the Plan
defines as meaning, inter alia, “all remaining causes of action
of the Debtors as of the Effective Date, including but not
limited to claims or causes of action under sections 542 through
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12 	The Defendants state correctly that the Plan transferred
responsibility for payment of claims held by HHS and the IRS
against the estate to the Reorganized Debtors, but the claims at
issue here never belonged to those creditors. 	Rather, the claims
asserted by Alberts pursuant to § 544(b) belonged to the estate
in the first instance. 	See AP Indus., Inc. v. SN Phelps & Co.
(In re AP Indus., Inc.), 117 B.R. 789, 799-800 (Bankr. S.D.N.Y.
1990) (“Sections 544(b) and 548 of the [Bankruptcy] Code
expressly vest in the trustee or debtor-in-possession the right
to assert a claim for fraudulent conveyance under state or
federal law.”); see also Bank of Cal. v. LMJ, Inc. (In re LMJ,
Inc.), 159 B.R. 926, 928 (D. Nev. 1993) (“The Code section does
not give avoidance powers to creditors, nor have the courts
generally allowed creditors to invoke such power.”).
13 	Individual creditors can pursue their own state-law
fraudulent conveyance claims once the bankruptcy case is closed
and the automatic stay imposed by 11 U.S.C. § 362 expires.
Klingman v. Levinson, 158 B.R. 109, 113 (N.D. Ill. 1993).
11
553 of the Bankruptcy Code . . . .” 	(Plan § 1.53). 12
This court has already concluded that Alberts can invoke the
same powers that a chapter 11 trustee or debtor-in-possession
would possess because he is a “representative of the estate” as
defined by 11 U.S.C. § 1123. 	Alberts v. Tuft (In re Greater
Southeast Cmty. Hosp. Corp. I), 333 B.R. 506, 537-38 (Bankr.
D.D.C. 2005) (“Tuft”). 	Alberts works on behalf of the estate,
and it is that interest, not the interests of specific creditors,
that matters in determining whether a person can invoke
§ 544(b). 13 	His standing is not in doubt.
The court is equally unpersuaded by the Defendants’
equitable estoppel argument. 	The argument assumes that HHS and
the IRS will receive no benefit from any recoveries made by
Alberts because the Plan bifurcated the former Debtors into the
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14 	Cf. In re Acequia, Inc., 34 F.3d at 807-08 (holding that
preference actions maintained by estate representatives post-
confirmation benefit the estate within the meaning of 11 U.S.C.
§ 550 in part because “if confirmation and payment precluded
application of section 544(b), debtors undoubtedly would delay
filing plans of reorganization until completing all potential
litigation, a result that would contravene the Bankruptcy Code’s
goal of quick and equitable reorganization”).
12
Trust, which holds and prosecutes the litigation claims formerly
held by the Debtors for the benefit of certain creditors, and the
Reorganized Debtors, who retain the former Debtors’ liabilities
to HHS and the IRS. 	However, as the court explained in a recent
decision involving a different liquidating trust, even creditors
who hold no interests in a trust benefit from the creation of the
trust because they receive a greater pro rata distribution under
the debtor’s plan of reorganization than they would have received
had other creditors not exchanged their claims for shares in the
trust. 	Premium of America, LLC v. Sanchez (In re Premium Escrow
Services, Inc.), 342 B.R. 390, 401 & n.5 (Bankr. D.D.C. 2006).
In short, it does not matter whether the IRS or HHS would
benefit now from any recovery made by Alberts in this proceeding
because, starting from the petition date, they already benefitted
from the mere possibility of recovery, which could have only
increase the possibility that the Debtors would pay the IRS and
HHS claims in a manner satisfactory to those creditors. 14 	In any
event, § 544(b) simply does not require an estate representative
to demonstrate that the debtor into whose shoes she steps as of
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13
the petition date will benefit from the recovery, nor does it
recognize an equitable defense on those grounds to recovery of
otherwise avoidable transfers of assets. 	Even if the IRS and HHS
claims had been paid in full mere hours after commencement of the
case, that would not alter the estate representative’s ability to
invoke § 544(b). 	See n.11, supra.
Alberts has standing to pursue this lawsuit, and there is
nothing inequitable in permitting him to do so. 	The Defendants’
arguments to the contrary are denied.
2. 	Sovereign immunity
Section 544(b) of the Bankruptcy Code permits a trustee (or
other representative of the estate) to “use [the] statutes of
limitations available to any creditor in whose shoes he stands in
bringing the action.” 	Osherow v. Porras (In re Porras), 312 B.R.
81, 97 (Bankr. W.D. Tex. 2004); accord G-I Holdings, Inc. v.
Those Parties Listed on Exhibit A (In re G-I Holdings, Inc.), 313
B.R. 612, 636 (Bankr. D.N.J. 2004) (“G-I Holdings I”), rev’d in
part on other grounds by Official Comm. of Asbestos Claimants v.
Bank of N.Y., Civil No. 04-3423 (D.N.J. June 21, 2006) (“G-I
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15 	In G-I Holdings II, the district court held that the
doctrine of equitable tolling did not apply to New Jersey’s
version of the Uniform Fraudulent Transfer Act (the “UFTA”)
because that statute contained a statute of repose rather than a
statute of limitations. 	G-I Holdings II, slip op. at 20-22. 	The
decision is not relevant to the instant dispute because the
doctrine under which the IRS and HHS could extend the limitations
period set forth in the IUFTA is federal sovereign immunity, not
equitable tolling. 	See discussion, infra.
14
Holdings II”). 15 	In the case of government creditors, the
statute of limitations provided by federal law to the specific
creditor in question trumps any statute of limitations set forth
in the applicable state fraudulent transfer law under the Supreme
Court’s ruling in United States v. Summerlin, 310 U.S. 414
(1940). 	In re Porras, 312 B.R. at 97; accord Shearer v. Tepsic
(In re Emergency Monitoring Technologies, Inc.), 347 B.R. 17, 18-
19 (Bankr. W.D. Pa. 2006).
In Summerlin, the Supreme Court expounded upon the “well
settled” rule “that the United States is not bound by state
statutes of limitation or subject to the defense of laches in
enforcing its rights.” 	Summerlin, 310 U.S. at 416. 	Writing for
the majority, Chief Justice Hughes stated unequivocally:
When 	the 	United 	States 	becomes 	entitled 	to 	a
claim, acting in its governmental capacity and
asserts its claim in that right, it cannot be
deemed 	to 	have 	abdicated 	its 	governmental
authority 	so 	as 	to 	become 	subject 	to 	a 	state
statute putting a time limit upon enforcement.
Id. at 417. 	As the Ninth Circuit explained in Bresson v. Comm’r
of Internal Revenue, 213 F.3d 1173 (9th Cir. 2000), “if the
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16 	See also, e.g., United States v. Spence, 242 F.3d 392,
available at 2000 WL 1715216, *3 (10th Cir. 2000) (unpublished
op.); United States v. Gaona, 2004 WL 3186398, **2-3 (W.D. Tex.
Dec. 22, 2004); United States v. Stavros, 2002 WL 31545918, **3-4
(N.D. Ill. Nov. 13, 2002); United States v. Smith, 2002 WL
31174188, **4-5 (S.D. Ohio Aug. 23, 2002); United States v.
Kattar, 1996 WL 784587, **4-5 (D.N.H. Dec. 31, 1996); United
States v. Zahone, 1996 WL 437509, **2-4 (C.D. Ill. May 29, 1996);
Flake v. United States, 1995 WL 735740, **2-4 (D. Az. Sept. 29,
1995); Snyder v. United States, 1995 WL 724529, *12 (E.D.N.Y.
July 26, 1995); Stoecklin v. United States, 858 F. Supp. 167,
167-68 (M.D. Fla. 1994).
15
United States comes into possession of a valid claim, that claim
cannot be ‘cut off’ later by a state statute of limitations.”
Id. at 1176.
Numerous courts have held that the Summerlin rule applies to
fraudulent transfer actions brought by an unsecured governmental
creditor. 	See, e.g., Bresson, 213 F.3d at 1177-79; United States
v. Moore, 968 F.2d 1099, 1100-01 (11th Cir. 1992); United States
v. Jepsen, 131 F. Supp. 2d 1076, 1087-88 (W.D. Ark. 2000); United
States v. Nemecek, 79 F. Supp. 2d 821, 824-27 (N.D. Ohio 1999);
United States v. Cody, 961 F. Supp. 220, 221 (S.D. Ind. 1997);
United States v. Smith, 950 F. Supp. 1394, 1402-04 (N.D. Ind.
1996); United States v. Bantau, 907 F. Supp. 988, 991 (N.D. Tex.
1995). 16 	Many of these same courts have rejected expressly the
position (previously espoused by the Defendants) that Summerlin
does not apply because the UFTA contains a “statute of repose”
rather than a “statute of limitations.” 	See, e.g., Bresson, 213
F.3d at 1177-79; Nemecek, 79 F. Supp. 2d at 825-27; Cody, 961 F.
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17 	This court could locate only one decision in which a
court held that Summerlin did not apply to fraudulent conveyance
actions brought by a governmental creditor. 	In United States v.
Vellalos, 780 F. Supp. 705 (D. Haw. 1992), the district court
held that Summerlin did not apply to a fraudulent transfer action
brought by the IRS under Hawaii’s version of the UFTA because, in
its opinion, Summerlin applied only to common law causes of
action, whereas the UFTA created statutory causes of action.
Vellalos, 780 F. Supp. at 707-08. 	This holding was rejected
explicitly by the Ninth Circuit in Bresson. 	213 F.3d at 1178.
16
Supp. at 220. 17
Notwithstanding these settled principles of law, the
Defendants argue that the four-year statute of limitations set
forth in § 10 of the IUFTA is the governing statute of
limitations even if unsecured governmental creditors with longer
statute of limitations were in existence as of the petition date.
They argue that Summerlin does not apply in this case because (1)
the IRS and HHS have other ways of enforcing any claims they
might have against Michael Reese Corp., (2) Alberts is not acting
in a governmental capacity, and (3) Summerlin does not apply to
future governmental creditors (i.e., governmental creditors not
in existence at the time of the challenged transfer). 	Each of
these arguments contradicts settled law and sound reason;
accordingly, each argument must be rejected as a matter of law.
(a) 	Alternative means of enforcement
The Defendants quote selectively--very selectively--from the
Summerlin decision to support the novel proposition that “a state
statute of limitations will remain effective and applicable
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17
against a federal entity as long as there is ‘an opportunity
[for] the United States otherwise to enforce its claim.’” 	(Def.
Opp’n at 15 (quoting Summerlin, 310 U.S. at 417)). 	This is a
gross distortion of the Supreme Court’s actual sentiment. 	The
language surrounding the Defenants’ quote clarifies the meaning
of the excerpted language:
If this were a statute merely determining the
limits of the jurisdiction of a probate court
and 	thus 	providing 	that 	the 	County 	Judge
should have no jurisdiction to receive or pass
upon claims not filed within the eight months,
while 	leaving 	an 	opportunity 	to 	the 	United
States 	otherwise 	to 	enforce 	its 	claim, 	the
authority 	of 	the 	State 	to 	impose 	such 	a
limitation 	upon 	its 	probate 	court 	might 	be
conceded. 	But if the statute, as sustained by
the state court, undertakes to invalidate the
claim of the United States, so that it cannot
be 	enforced 	at 	all, 	because 	not 	filed 	within
eight 	months, 	we 	think 	the 	statute 	in 	that
sense transgressed the limits of state power.
Summerlin, 310 U.S. at 417 (emphasis added).
In other words, the Court merely distinguished a statute
that eliminated a claim, which the Court held to be
impermissible, from a statute that barred a particular court from
hearing a claim, which the Court considered permissible. 	Nothing
in the passage quoted above suggests that the Supreme Court
intended for Summerlin to apply only when a governmental creditor
possesses a single cause of action.
The court cannot conceive of a reason why the Supreme Court
would have engrafted the kind of limitation on the federal
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18
government’s sovereign immunity that the Defendants propose. 	As
the Court made clear two years prior to the Summerlin decision in
Guaranty Trust Co. of N.Y. v. United States, 304 U.S. 126 (1938)
(“Guaranty Trust”), the “true reason” for the federal
government’s immunity from laches or state statutes of
limitations “is to be found in the great public policy of
preserving the public rights, revenues, and property from injury
and loss[] by the negligence of public officers.” 	Id. at 132
(quotation omitted).
It can hardly be argued that the Summerlin rule “preserv[es]
the public rights” if it only applies whenever the government has
no other rights to assert in a particular dispute. 	To the
contrary, both Guaranty Trust and Summerlin stand for the
proposition that governmental error should never compromise the
national public interest except insofar as the people limit their
own rights through the passage of federal statutes of
limitations. 	See E.I. Dupont De Nemours & Co. v. Davis, 264 U.S.
456, 462 (1924) (“an action on behalf of the United States in its
governmental capacity . . . is subject to no time limitation, in
the absence of congressional enactment clearly imposing it”)
(“E.I. Dupont”).
(b) 	Governmental capacity
The Defendants suggest that the putative claims held by HHS
and the IRS are not claims held in a “governmental capacity”
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19
because these creditors will not benefit from the instant
lawsuit. 	See United States v. Banks, 115 F.3d 916, 919 (11th
Cir. 1997) (state statute of limitations applies “when the
government is acting to vindicate private interests, not a
sovereign or public interest” (emphasis in original)). 	As the
court explained in discussing Alberts’s standing to bring this
suit, this theory rests on the flawed premise that the IRS and
HHS must receive a present benefit from Alberts’s lawsuit for
their interests to be served when they have already benefitted
insofar as the right to bring the lawsuit could only have a
positive impact on the payment of their claims. 	See part II.A.1,
supra.
There is another, more fundamental flaw in the Defendants’
argument. 	It assumes that Alberts is asserting the claims
actually held by the IRS and HHS, as though these claims were
assigned to him by the creditors. 	They were not. 	The claims
assigned to Alberts were separate claims held by the Debtors as
debtors-in-possession that arose under § 544(b). 	See nn.12-13,
supra.
Congress crafted § 544(b) to give the representative of the
estate the ability to avoid any transaction that any unsecured
creditor of the estate could have avoided as of the petition
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18 	See S. Rep. No. 95-989 at 85 (1978), as reprinted in
1978 U.S.C.C.A.N. 5787, 5871 (section 544(b) “gives the trustee
the rights of actual unsecured creditors under applicable law to
void transfers”); see also H.R. Rep. No. 95-595 at 370 (1977), as
reprinted in 1978 U.S.C.C.A.N. 5963, 6326 (same).
19 	To the extent that § 544(b) conflicts with § 10 of the
IUFTA, the Bankruptcy Code provision controls under normal
principles of federal preemption. 	The Plan Committee v.
Pricewaterhousecoopers, LLP, 335 B.R. 234, 244 (D.D.C. 2005).
20
date. 18 	The estate representative steps into the shoes of each
such unsecured creditor and is cloaked with the rights of that
creditor. 	If an unsecured creditor of the estate could have
avoided a transaction under state law despite the existence of a
state statute of limitations on that claim because the creditor
was acting in a “governmental capacity,” so too can the estate
representative avoid the transfer under § 544(b). 	The unsecured
creditor’s ability to trump the applicable state statute of
limitations might derive from its sovereign immunity, but the
estate representative’s ability to override that same limitation
derives from § 544(b). 19 	The focus of the court in determining
who is acting in a “governmental capacity” is the unsecured
creditor, not the estate representative.
The basis for the claims allegedly held by the IRS derives
from Subtitle C of the Internal Revenue Code, which effectuates
the authority given to Congress to “collect Taxes” pursuant to
Article I, § 8 of the Constitution. 	The basis for the claim
allegedly held by HHS is the government’s common law right to
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20 	See United States v. Peoples Household Furnishings,
Inc., 75 F.3d 252, 254-56 (6th Cir. 1996) (claim assigned to
Small Business Association by virtue of the Small Business Act of
1953 had “governmental” purpose because the underlying law “was
designed to enhance the security and economic well-being of the
nation”); United States v. West, 299 F. Supp. 661,664 (D. Del.
1969) (government was “acting in its governmental capacity” by
“striving to protect ‘public money’” from delinquent debtor
(internal quotation omitted)).
21
recovery of funds paid in error to Michael Reese Hospital. 	See
United States v. Lahey, 399 F.3d 1, 5 (1st Cir. 2004) (describing
common law causes of action under which HHS can pursue Medicare
overpayments). 	Both types of claims fall squarely within the
rubric of the agencies’ “governmental capacit[ies]”. 20
(c) 	Future creditors
Finally, the Defendants argue that the Summerlin rule cannot
protect the claims held by the IRS and HHS because those alleged
claims arose after the Michael Reese Transfers. 	According to the
Defendants, application of the Summerlin rule under such
circumstances would “violate[] the parties’ state-created,
substantive right to protection from liability because the
parties have no way of knowing when, if ever, their liability
associated with the transfer will be extinguished.” 	(Def. Opp’n
at 22). 	It would also supposedly “rewrite [§] 544(b) and extend
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21 	The tone of the Defendants’ prose would lead one to
think that Alberts is somehow to blame for creating this supposed
“violat[ion]” of the (heretofore unknown) “right to protection
from liability,” when in fact it is the IUFTA which has created
this conundrum by permitting future creditors to avoid transfers
that took place before those creditors were owed any money.
Presumably, the Illinois legislature will amend the statute to
eliminate this provision if the economic catastrophe predicted by
the Defendants comes to pass.
22 	The Defendants cite no precedent that remotely suggests
anything like the proposition they advance. 	They point to
Landgraf v. USI Film Products, 511 U.S. 244 (1994), where the
Supreme Court held that certain provisions of the Civil Rights
Act of 1991 did not apply to Title VII cases pending on appeal
when the statute was enacted under traditional principles of
statutory retroactivity. 	Id. at 247-86. 	Given that both the
IUFTA and § 544(b) were already in effect at the time of the
Michael Reese Transfers, the court fails to see how that case has
any bearing on the instant dispute.
23 	The reader will recall that deadline for the IRS to
render an assessment is three years from the filing of a tax
return. 	See n.10, supra. 	The assessment, in turn, serves as the
starting point for the ten-year statute of limitations in which
the IRS may pursue its claims in court. 	Id.
22
its reach beyond comprehension . . . .” (Def. Opp’n at 13). 21
This argument holds little water. 22 	The IUFTA allows future
creditors to utilize its remedies. 	740 Ill. Comp. Stat. 160/5.
There is no great injustice in allowing HHS or the IRS to have a
fraudulent transfer claim under the IUFTA without a set statute
of limitations. 	The Defendants’ argument would apply as well to
a claim in existence prior to the fraudulent transfer whose
existence remained undisclosed. 	Consider a debtor who conceals
her tax debt by failing to file a tax return. 23 	Such a debtor
should not profit from her own deceit any more than a tortfeasor
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24 	The court recognizes that the doctrine of equitable
tolling does not apply to actions brought under the IUFTA because
that statute contains a statute of repose, see n.15, supra, but
the statute in question here is § 2602 of the Internal Revenue
Code, not § 10 of the IUFTA.
23
who conceals her tort is allowed to profit from that dishonesty
by invoking the statute of limitations. 24
Moreover, it is far from clear that applying the Summerlin
rule in cases like this would “provid[e] a trustee with avoidance
powers that have no temporal limitations whatsoever” as the
Defendants intimate. 	(Def. Opp’n at 13). 	In Guaranty Trust, the
Supreme Court refined its sovereign immunity jurisprudence by
holding that a claim assigned to the United States government
that had already lapsed under the applicable state statute of
limitations was not “revived” by its assignment to the United
States. 	304 U.S. at 141-42. 	In the Court’s view, because there
had “been no neglect or delay by the United States or its
agents,” the government had “lost no rights by any lapse of time
after the assignment,” id. at 141, and “the United States never
acquired a right free of a pre-existing infirmity, . . . which
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25 	The Ninth Circuit summarized the effect of the Guaranty
Trust holding on the Summerlin rule as follows:
Taken 	together, 	Summerlin 	and 	Guaranty 	Trust
suggest two countervailing principles. 	On the
one 	hand, 	if 	the 	United 	States 	comes 	into
possession of a valid claim, that claim cannot
be 	“cut 	off” 	later 	by 	a 	statute 	of
limitations. 	On 	the 	other 	hand, 	if 	a 	claim
already has become infirm (for example, when a
limitations 	period 	expires) 	by 	the 	time 	the
United 	States 	acquires 	the 	purported 	right,
the 	rule 	of 	Summerlin 	will 	not 	operate 	to
revive the claim.
Bresson, 213 F.3d at 1176 (emphasis in original).
24
public policy does not forbid.” 	Id. at 141-42. 25
Guaranty Trust involved the assignment of a claim, whereas
the hypothetical claim at issue here arose by operation of
§ 544(b). 	Nevertheless, a persuasive case could be made that
Guaranty Trust would prevent a governmental creditor from
bringing an action under the IUFTA if its claim did not arise
until after the four-year statute of repose had passed. 	Such a
rule would render the Defendants’ “Chicken Little” argument moot.
Finally, the whole point of the Summerlin rule and the
doctrine of federal sovereign immunity in general is that the
“right to protection from liability” (i.e., statutes of
limitations or repose) created by an individual State can be
“violate[d]” by the federal government whenever it is in the
public interest to do so. 	Indeed, where Congress does not pass a
statute of limitations specifically limiting a claim held by the
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25
government, that claim is inexhaustible. 	E.I. Dupont, 264 U.S.
at 462.
For all these reasons, the court concludes that Alberts can
utilize the extended statute of limitations available to
unsecured governmental creditors assuming that such creditors
existed as of the petition date.
3. 	Existence of unsecured governmental creditors
Having determined the availability of a statute of
limitations longer than that provided by § 10 of the IUFTA as a
matter of law, the court now considers whether there is any
genuine dispute as to whether creditors capable of invoking such
statutes existed on the petition date as a factual matter. 	As
the court noted previously, Alberts hangs his hat on three
alleged claims: one purportedly held by HHS due to Medicare
overpayments made to Michael Reese throughout 2002, and two
purportedly held by the IRS for FUTA and employment taxes. 	In
all three cases, Alberts relies at least in part on the proofs of
claim filed by HHS and the IRS in the Debtors’ main case as proof
of the claims’ existence.
“Proofs of claim are more than mere pleadings or
allegations--they are some evidence.” 	In re Cluff, 313 B.R. 323,
340 (Bankr. D. Utah 2004); accord In re Dove-Nation, 318 B.R.
147, 152 (B.A.P. 8th Cir. 2004); see also In re McGee, 258 B.R.
139, 147 (Bankr. D. Md. 2001) (noting that even rebutted proof of
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26 	The notion that a proof of claim has intrinsic
evidentiary value dates back to the Supreme Court’s ruling in
Whitney v. Dresser, 200 U.S. 532 (1906), where Justice Holmes,
writing for the court, concluded that the structure of the claims
allowance process and the requirement that a creditor file a
“proof” of her claim “indicates that the claim is regarded as
having a certain standing already established by the oath” taken
by the creditor when filing the proof of claim. 	Id. at 535.
27 	The court does not mean to suggest that Alberts will
prevail at trial if the only evidence adduced in support of his
assertion that HHS and the IRS were pre-petition creditors of
Michael Reese is the proofs of claim filed by those agencies. 	At
that point, Alberts would need to satisfy his evidentiary burden
of demonstrating the existence of these creditors by a
preponderance of the evidence, whereas for purposes of the
instant motions he need only show some evidence of their
existence in the record.
26
claim “retains some weight as evidence”). 26 	Thus, Alberts need
only show that the proofs of claim filed by HHS and the IRS
establish at least one of these creditors as holding an allowable
unsecured claim on the Debtors’ petition date to survive the
Defendants’ cross-motion. 27 	If Alberts can clear that hurdle,
the burden will fall on the Defendants to present some evidence
contradicting any such proofs of claim if they are to defeat
Alberts’s summary judgment motion.
(a) 	HHS claim
HHS filed Proof of Claim No. 01883 on November 3, 2003.
(Pl. Mem. at Ex. 1 (D.E. No. 177, filed July 27, 2006)). 	In its
proof of claim, HHS asserted an “[u]nsecured [n]on[-p]riority
[c]laim” totaling $176,400.00 for Medicare overpayments made over
the course of 2002. 	In a subsequent letter sent to former DCHC
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28 	Prior to its November 15, 2005, letter, Mutual of Omaha
had indicated that HHS actually owed Michael Reese $1,961,962.00
due to underpayments made in 2002. 	(Demchick Decl. at Ex. B).
The eye-catching discrepancy between these two figures (a
difference of $2,015,148.00) appears to be due to a revised
calculation by Mutual of Omaha as to the amounts paid to Medicare
by Michael Reese in 2002.
27
Vice-President Donna Talbot on November 15, 2005, Mutual of Omaha
Insurance Company (“Mutual of Omaha”), the insurance provider
acting as an intermediary between HHS and Michael Reese,
calculated that Michael Reese owed HHS $53,186.00 for
overpayments made in 2002. 	(Demchick Decl. at Ex. C). 28 	The HHS
proof of claim and Mutual of Omaha letter are the only exhibits
proffered by Alberts in support of his allegation that HHS was an
unsecured creditor as of the petition date.
This meager evidence is not enough to withstand the
Defendants’ cross-motion for summary judgment. 	As the court
explained at the hearing on the parties’ last round of summary
judgment motions, the evidence produced by Alberts suggests that
Michael Reese was overpaid at some point in 2002, but it does not
show that the company was overpaid before the petition date.
(Apr. 4, 2006 Hr’g Tr. at 148:8-17 (D.E. No. 145, filed May 12,
2006)). 	Simply put, there is not even a scintilla of evidence
that HHS overpaid Michael Reese anytime before December 31, 2002.
Alberts might have avoided this result had he produced
evidence as to which costs reported by Michael Reese at the end
of 2002 fell short of the projected costs reported by Michael
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28
Reese throughout the year. 	Such evidence would have allowed the
court to determine when specific Medicare overpayments were made.
But Alberts has given the court nothing of the sort. 	Instead, he
has submitted a draft settlement between a group of affiliated
debtors and HHS in a different bankruptcy case in which the
parties have agreed to pro-rate HHS’s claim for Medicare
overpayments as if the overpayments had been made uniformly
throughout the course of the year. 	(Pl. Mem. at Ex. 2). 	This
“evidence” suggests that the parties in that case found it more
convenient to pro-rate HHS’s claim than to litigate it, nothing
more.
There is no evidence in the record from which a factfinder
could reasonably infer that HHS was an unsecured creditor of
Michael Reese on the Debtors’ petition date. 	For that reason,
summary judgment must be granted to the Defendants with respect
to Alberts’s invocation of the six-year statute of limitations
provided by 28 U.S.C. § 2415 based on the claim allegedly held by
HHS.
(b) 	Employment tax claim
In the alternative, Alberts asserts that the IRS was an
unsecured creditor as of the Debtors’ petition date because
Michael Reese owed the IRS $87,067.67 in FICA and Medicare taxes
for the pay period commencing on November 10, 2002, and ending on
November 23, 2002. 	The only evidence presented in support of
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29 	Unauthenticated evidence is as inadmissible on a motion
for summary judgment as it would be at trial. 	Dicello v.
Jenkins (In re Int’l Loan Network, Inc.), 160 B.R. 1, 6 (Bankr.
D.D.C. 1993). 	But the Defendants have waived any objection to
the admissibility of the exhibits attached to Robinson’s
affidavit by failing to raise the issue in their opposition to
Alberts’s motion. 	See Kattan v. District of Columbia, 995 F.2d
274, 277-78 (D.C. Cir. 1993) (holding that argument not raised in
opposition to motion was waived). 	In any event, the
admissibility of the exhibits does not affect the outcome of the
court’s decision one way or the other.
30 	These documents are irrelevant in the context of the
instant dispute. 	First, they are not admissible as evidence with
regards to the truth of the matters asserted therein, but only
insofar as they reflect certain positions taken by the parties
and actions taken by the court. 	Tuft, 333 B.R. at 523 n.16.
Second, they do not address the concerns that the court expresses
below with regards to the sufficiency of the other evidence
presented by Alberts, making them superfluous at best.
29
this allegation is the affidavit of current Michael Reese CFO
Phillip J. Robinson (with a series of unauthenticated exhibits
attached thereto) 29 and a series of documents filed in the
Debtors’ main bankruptcy case. 30
The Defendants contend that the IRS was not a creditor of
Michael Reese on the petition date because the employer taxes
serving as a basis for the claim did not attach until the wages
in question were paid by Michael Reese, which could not have
occurred pre-petition given that the pay period itself extended
three days past the petition date. 	(Def. Opp’n at 40). 	But the
IRS did not need to hold a matured claim against Michael Reese to
qualify as a creditor on the petition date. 	Rather, the
Bankruptcy Code defines the term “creditor” to include any entity
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30
holding a “claim” against the debtor arising pre-petition, 11
U.S.C. § 101(10)(A), and defines a “claim” as meaning any “right
to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed undisupted, legal, equitable, secured, or unsecured.”
Id. at § 101(5)(A) (emphasis added).
In this case, the IRS held a contingent claim against
Michael Reese as soon as its employees performed work for which
they were entitled to a wage (the contingency being the payment
of the wage for the work performed). 	See Psychotherapy and
Counseling Center, Inc. v. Shalala (In re Psychotherapy and
Counseling Center, Inc.), 195 B.R. 536, 543 (Bankr. D.D.C. 1996)
(citing Lousberg, Kopp, Kutsunis, and Weng, P.C. (In re Bonnett),
158 B.R. 125 (Bankr. C.D. Ill. 1993), for the proposition that a
“contingent claim is a claim that has not yet accrued and that is
dependent upon some future event that may never happen”). 	To the
extent that this claim arose pre-petition, the IRS was a pre-
petition creditor of Michael Reese. 	The date upon which the
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31 	The IUFTA similarly defines a “creditor” as “a person
who has a claim,” 740 Ill. Comp. Stat. 160/2(d), and defines a
“claim” as meaning “a right to payment, whether or not the right
is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured.” 	Id. at 160/2(c) (emphasis
added). 	Thus, the IRS was not only a creditor as of the petition
date, but a creditor capable of invoking the provisions of the
IUFTA as well. 	See A.P. Properties, Inc. v. Goshinsky, 714
N.E.2d 519, 522 (Ill. 1999) (“To properly plead a claim under the
[IUFTA], the creditor must demonstrate that the debtor owes or
potentially owes a ‘payment’ to the creditor.”).
31
claim matured is irrelevant. 31
The Defendants argue that the IRS was not a priority
unsecured creditor for purposes of 11 U.S.C. § 507(a)(8) because
the tax return relating to the employer taxes in question was not
due in the three years preceding the petition date, and that
therefore the IRS must have been an administrative (as opposed to
an unsecured) creditor on the petition date. 	(Def. Opp’n at 47-
50). 	This is pure hogwash. 	“Taxes arising from conduct of the
debtor, as opposed to the estate, are pre[-]petition taxes and
should not be compensated as an administrative expense.” 	In re
Garfinkels, 203 B.R. 814, 819 (Bankr. D.D.C. 1996). 	“When
employment taxes relate to wages or salaries earned
pre[-]petition but not paid until after the filing in bankruptcy,
they are specifically excluded from administrative status by
virtue of sections 503(b)(1)(B)(i) and 507(a)(8)(D).” 	4 Collier
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32 	The Defendants attempt to distinguish In re Garfinckels
and Collier on the grounds that “the facts here demonstrate that
the tax [sic] employment tax claim arose from the conduct of the
estate, not the conduct of the debtor.” 	(Def. Reply at 23 (D.E.
No. 249, filed October 12, 2006). 	In truth, the contingent claim
held by the IRS arose whenever Michael Reese’s employers
performed the work for which they were owed a wage, which makes
the relevant conduct here (i.e., the incurrence of liability by
Michael Reese to its employees) that of the debtor, not the
estate. 	Moreover, the quote from Collier recited above
specifically contemplates post-petition payment of wages. 	The
Defendants may disagree with the treatise’s description of the
law, but they cannot distinguish it.
33 	Congress amended § 507 of the Bankruptcy Code as part of
the Bankruptcy Abuse Prevention and Consumer Protection Act, Pub.
L. 109-8 (generally effective Oct. 17, 2005) (“BAPCPA”), but this
proceeding predates the enactment of that statute. 	Accordingly,
all references to titles 28 and 11 of the U.S. Code are to the
pre-BAPCPA version of those titles.
32
on Bankruptcy ¶ 503.07[2][d] (15th ed. 2006). 32
Section 507(a)(8)(D) provides for treatment of taxes owed on
wages earned within ninety days of the petition date so long as
the return on those taxes is due “after three years before the
date of the filing of the petition . . . .” 33 	In other words,
returns due longer than three years before the petition (e.g., in
this case, a return due December 31, 1998) are not accorded
priority status under the sub-section. 	Nothing in the statute
suggests that the return must be due pre-petition.
The Defendants suggest that because § 507(a)(8)(A)(iii)
provides for priority treatment of certain kinds of taxes “not
assessed before, but assessable, under applicable law or by
agreement, after, the commencement of the case,” and because no
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34 	The Defendants contend that if the claims are not
priority claims under § 507(a)(8), the claims would be
administrative claims under 11 U.S.C. § 503(b)(1)(B)(i) that must
be treated as issuing after the commencement of the case. 	The
court does not need to address that argument because the claims
are indeed § 507(a)(8) claims.
33
such language is present in § 507(a)(8)(D), the latter section
prevents employer taxes for pay periods straddling the petition
date from receiving priority treatment. 	(Def. Reply at 21). 34
They cite Paulson v. IRS (In re Paulson), 152 B.R. 46 (Bankr.
W.D. Pa. 1992), as having “explicitly stated that [an] employment
tax period that straddles the petition date did not have a return
that was due to be filed ‘within three years prior to the filing
of the bankruptcy petition’ per 11 U.S.C. § 507(a)(8)(D).” 	(Def.
Reply. at 22).
The Defendants’ statutory construction argument presents a
classic comparison of apples to oranges. 	Section 507(a)(8)(A)
addresses the priority of taxes “measured by income or gross
receipts” (i.e., income and sales taxes). 	Sub-section (A)(i)
sets forth the general rule that such taxes be “for a taxable
year ending on or before the date of the filing of the petition
for which a return, if required, is last due . . . after three
years before the date of the filing of the petition.” 	In other
words, the sub-section permits priority unsecured treatment of
tax claims based on returns due within three years of the
petition date so long as the return is due “on or before” the
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34
year in which the petition is filed.
Sub-sections (A)(ii) and (A)(iii) essentially operate as
gap-fillers for the IRS where a return is due more than three
years prior to the petition date but a late assessment (i.e., an
assessment made outside the ordinary three-year window set forth
in 26 U.S.C. § 6501(a)) is made by the IRS for some legitimate
reason (e.g., litigation in the Tax Court regarding a notice of
deficiency determined by the Commissioner). 	Sub-section (A)(ii)
treats tax claims under those circumstances as priority unsecured
claims if the taxes are “assessed within 240 days . . . before
the date of the filing of the petition . . . .” 	Sub-section
(A)(iii) covers taxes that are assessable before the petition
date but not assessed until after the petition is filed
regardless of how long ago the return corresponding to that
assessment was filed.
Like sub-section (A), § 507(a)(8)(D) limits the scope of the
priority treatment afforded by § 507(a) to claims based on
returns due to be filed no earlier than three years before the
debtor’s petition for bankruptcy relief. 	Unlike sub-section (A),
sub-section (D) provides no exceptions for tax claims based on
returns due more than three years prior to the petition date.
That is because sub-section (D), unlike sub-section (A), is tied
to wages earned by individuals within ninety days of the petition
date (or the date of the cessation of the debtor’s business,
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35 	This latter limitation explains why § 507(a)(8)(D)
requires that the return relating to employer taxes be due to be
filed no more than three years before the petition date;
otherwise, the IRS could assert priority status for tax claims
that it failed to pursue diligently so long as the cessation of
the debtor’s business occurred far enough in advance of the
petition date. 	There would be no need for this requirement if
the language regarding “cessation of the debtor’s business” found
in § 507(a)(3) were eliminated: if that were the case,
§ 507(a)(3) would restrict the temporal scope of the IRS’s claim
by itself.
36 	Presumably, Congress recognized that employment taxes,
unlike income taxes, are of a divisible character allocable to
each day of employment.
35
whichever comes first). 	11 U.S.C. § 507(a)(3). 35
To summarize, the language regarding assessment found in
§ 507(a)(8)(A)(iii) extends the potential scope of priority
backwards for the taxes listed in that sub-section. 	Nothing in
that sub-section or any other part of § 507(a)(8) suggests that
Congress intended to allow the IRS to hold priority claims where
the return is filed post-petition in sub-section (A) but not sub-
section (D). 	To the contrary, sub-section (A)(i) applies only to
returns for a year ending “on or before” the petition date--a
restriction not found in sub-section (D). 36 	“Where Congress
includes particular language in one section of a statute but
omits it in another section of the same Act, it is generally
presumed that Congress acts intentionally and purposely in the
disparate inclusion or exclusion.” 	Rusello v. United States, 464
U.S. 16, 23 (1983) (internal quotation omitted).
As for the In re Paulson decision, that case concerned a
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37 	Section 727(b) provides that a discharge under § 727(a)
discharges the debtor from all pre-petition debts “[e]xcept as
provided in section 523 of [title 11] . . . .” 	Section
523(a)(1)(A), in turn, excepts from discharge “a tax . . . of the
kind and for the periods specified in section 507(a)(2) or
507(a)(8) of [title 11] . . . .” 	Thus, any claims held by the
IRS afforded priority status by § 507(a)(8) are non-dischargeable
as well.
36
dispute between the IRS and a debtor as to whether certain
penalties and post-petition interest on taxes and penalties were
immune from the debtor’s discharge pursuant to 11 U.S.C.
§§ 727(b) and 523(a)(1)(A). 	Id. at 47. 37 	As part of its
recitation of the facts underlying the dispute, the bankruptcy
court noted that the IRS had made assessments on employer taxes
for the first and fourth quarters of 1983, “which quarter was
partially pre-petition and partially post-petition,” id., and
that the debtor’s tax liabilities for “the first and second
quarters of 1983 . . . were all due to be filed within three
years prior to the filing of the bankruptcy petition.” 	Id.
(emphasis added). 	In the Defendants’ view, the court’s omission
of the fourth quarter of 1983 in the latter quote is tantamount
to a ruling that “the ‘straddling’ employment tax quarter was not
a priority claim.” 	(Def. Reply at 22).
The court finds it highly unlikely that the Paulson court
would make a ruling of the sort suggested by the Defendants sub
silentio and without solicitation from the parties. 	It is far
more likely that the court’s initial description of “a Form 941
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37
liability against the Debtor for the fourth quarter of 1983,”
id., was actually a typographical error given that (1) the
decision never mentions a “Form 941” for the fourth quarter of
1983 again, and (2) the decision mentions a “Form 941” for the
second quarter of 1983 everywhere else in the decision except in
that initial description. 	See id. at 47, 51. 	In any event, the
court can hardly be persuaded by a decision devoid of reasoning
with respect to the point at issue. 	In re Paulson is useless
insofar as the instant dispute is concerned.
There is, however, another problem with the evidence
produced by Alberts that the Defendants do not address. 	The
Robinson affidavit references a pay period running from November
10, 2002, to November 23, 2002, but it does not specify that
wages were earned on all or any specific days within that period.
The most that a factfinder could infer from his evidence is that
wages might have been earned prior to the petition date. 	As the
party with the burden of proof on this issue, Alberts must
establish that wages were earned prior to the petition date, not
that they could have been earned prior to the petition date.
There is one important difference between this gaffe by
Alberts and his similar mistake with respect to the alleged HHS
claim. 	Alberts was put on notice by the court at a prior hearing
that he needed to provide more than a range of dates straddling
the petition date to fulfill his evidentiary burden with respect
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38 	The court can speculate that Michael Reese was an
operating hospital with employees performing work each day of
November of 2002, and for that reason the parties recognized that
taxes were incurred for each day of that month. 	But
speculation--even well-reasoned speculation--is not the same as
evidence.
38
to the latter claim. 	He was not given notice that he needed to
supply evidence that wages were earned prior to November 20,
2002. 	The court did not raise the issue at the prior hearing,
and the Defendants failed to articulate the problem in their
lengthy opposition and cross-motion.
It would be unfair to hold Alberts’s feet to the fire for
failing to supply evidence that no one thought to request. 38 	For
that reason, the court will give both Alberts and the Defendants
an opportunity to supplement the record with respect to whether
wages were earned by Michael Reese employees between November 10,
2002, and November 19, 2002. 	Should Alberts fail to supply such
evidence, summary judgment will be granted to the Defendants on
this point. 	But if Alberts is able to provide evidence that
would permit an inference that work was performed prior to the
petition date (e.g., by providing documentary or testimonial
evidence to the effect that Michael Reese employees worked on the
dates in question or usually worked on the days of the week that
fell within those dates), the court will grant summary judgment
in his favor on this point unless the Defendants can produce
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39 	There is one complicating factor that warrants the
parties’ attention. 	As the court mentioned previously, there is
at least a legitimate question as to whether the IRS could have
invoked the longer statute of limitations supplied by 26 U.S.C.
§ 6502 under the Summerlin rule if the November 12, 2002 deadline
for filing a fraudulent transfer action imposed by § 10 of the
IUFTA had passed before the IRS’s claim arose. 	See part
II.A.2.c, supra. 	Thus, to the extent that Alberts fails to show
that wages were earned on November 10, 2002, November 11, 2002,
or November 12, 2002, the Defendants could argue that the
Summerlin rule does not apply to the IRS’s employer tax claim and
request summary judgment on that basis. 	The court would then be
put in the position of having to decide the difficult legal
question set forth above.
39
evidence to the contrary. 39
(c) 	FUTA claim
Finally, Alberts asserts that the IRS was a pre-petition
unsecured creditor of Michael Reese based on FUTA taxes assessed
on July 15, 2002. 	The issue here is not whether evidence in
support of this assertion exists, but whether such evidence is
admissible. 	The Defendants contend that it is not because (1)
the evidence was produced after the close of discovery and (2)
some of the evidence is unauthenticated.
The court agrees with the Defendants that Alberts should not
receive summary judgment on this issue. 	The only evidence that
Alberts produces in support of his position is the proof of claim
filed by the IRS against Greater Southeast Community Hospital in
the Debtors’ main bankruptcy case and an undated letter from the
IRS that is misidentified as a copy of Michael Reese’s 940EZ tax
form for the period ending on December 31, 1999, in the affidavit
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40
that purports to authenticate it. 	(Demchick Decl. ¶ 9). 	Both
documents were produced after the close of discovery, and the
letter from the IRS is inadmissible because it was not properly
authenticated. 	Fed. R. Bankr. P. 7056 (incorporating Fed. R.
Civ. P. 56(e)); Fed. R. Evid. 602.
At the same time, the proof of claim filed by the IRS would
be enough by itself to defeat a motion for summary judgment, see
In re Cluff, 313 B.R. at 340, and the court sees no justice in
striking the proof of claim if it was seasonably produced, an
issue in dispute. 	Alberts represents that the evidence was
disclosed within a reasonable time of its discovery. 	(Pl. Reply
¶¶ 56-57). 	The Defendants quarrel that Alberts was in a position
to locate the proof of claim earlier. 	The court views this as a
material issue in genuine dispute that is better off left for
resolution at a plenary hearing at the pre-trial conference
scheduled in this adversary proceeding.
Both sides to this dispute have engaged in a “scorched
earth” litigation strategy that has produced many needless delays
and unseemly accusations throughout this proceeding. 	If that is
how the parties wish to conduct themselves, so be it, but they
can hardly expect the court to resolve their disputes over unmet
discovery deadlines based on the papers submitted in connection
with cross-motions for summary judgment. 	The court will
tentatively deny summary judgment with respect to both sides of
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40 	As noted below, see n.42, infra, Alberts has not put
forth any evidence of actual fraud by Michael Reese, which is one
of the elements of § 5(a)(1) of the IUFTA, the basis for Count I.
740 Ill. Comp. Stat. 160/5(a)(1). 	In addition, Counts II, IV,
and VI of the Complaint are directed toward the other Debtors in
existence at the time of the Michael Reese Transfers, yet Alberts
has produced no evidence of any involvement by other Debtors in
the Michael Reese Transfers. 	Nevertheless, the court will not
grant summary judgment to the Defendants on these counts because
the Defendants did not put Alberts on notice that he needed to
address these issues.
41
this issue subject to renewal once the court resolves the messy
issue regarding the delay in production of the IRS proof of
claim.
B. 	Existence of an Unsecured Present Creditor
In addition to their opposition to Alberts’s motion for
summary judgment, the Defendants seek summary judgment with
respect to all of the counts in Alberts’s Complaint. 	The court
has resolved that cross-motion insofar as Counts I-IV of the
Complaint are concerned, 40 but Counts V and VI of the Complaint
reference a different provision of the IUFTA that imposes
additional evidentiary requirements on Alberts. 	Specifically,
they invoke § 6(a) of the IUFTA, which only provides relief for
creditors of a debtor in existence at the time of the challenged
transfer. 	Id. at 160/6(a).
Alberts has demonstrated that at least two subsidiaries of
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41 	A third NCFE subsidiary, NPF VI, Inc., entered into a
sale and subservicing agreement with Michael Reese for the
accounts receivables of Michael Reese Hospital. 	Although this
agreement appears to pre-date the Michael Reese Transfer, it also
appears to convey a conditional security interest in the accounts
receivable to NPF VI, Inc., to the extent that the agreement
between the parties was deemed a loan agreement rather than a
sales agreement by a court of competent jurisdiction. 	(Lau Decl.
at Ex. 1 (D.E. No. 106, filed March 9, 2006)). 	Alberts has not
presented any evidence demonstrating that this contingent
arrangement did not come to pass.
42 	The Defendants argue that these creditors could not have
held claims against Michael Reese prior to the Michael Reese
Transfers because performance on the contracts was conditioned on
that very transfer. 	Once again, the Defendants construe the
definition of a “claim” too narrowly. 	As soon as the parties
entered into their respective contracts, the NCFE subsidiaries
held contingent claims against Michael Reese. 	See In re
Psychotherapy and Counseling Center, Inc., 195 B.R. at 543 (“a
claim arises for bankruptcy purposes when the contingent
liability is established”). 	The contracts precede the Michael
Reese Transfers; ergo, the NCFE subsidiaries held unsecured
claims against Michael Reese prior to the Michael Reese
Transfers.
42
National Century Financial Enterprises (“NCFE”) 41 --NPF-CSL, Inc.
and NPF X, Inc.--were creditors of Michael Reese at the time of
the Michael Reese Transfers. 	(Lau Decl. at Exs. 2-3). 42 	These
creditors were not, however, entitled to an extended statute of
limitations like HHS or the IRS. 	Their potential claims expired
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43 	Alberts notes in a footnote that Michael Reese engaged
in actual fraud in consummating the Michael Reese Transfers,
which would “extend[] the four-year limitations period to ‘one
year after the transfer or obligation was or reasonably could
have been discovered by the claimant.’” (Pl. Reply at 3 n.4 (D.E.
No. 220, filed September 5, 2006)) (quoting 740 Ill. Comp. Stat.
160/10(a)). 	The problem here is that he has not submitted any
real evidence of intentional fraud on the part of Michael Reese.
He cites his own interrogatory responses as proof of actual
fraud, but those responses do not establish Michael Reese’s
intent in initiating the Michael Reese Transfers. 	Instead, the
responses indicate that actual fraud was perpetrated against
Michael Reese’s creditors because the Michael Reese Transfers
resulted in constructive fraud. 	(Pl. Opp’n at Ex. E (D.E. No.
221, filed September 6, 2006)).
44 	Alberts also asserts that “DCHC was a co-obligor on the
initial $1,000,000 purchase deposit of Michael Reese to [the]
Defendants,” (Pl. Opp’n ¶ 5; Pl. Counter-Statement of Undisputed
Material Facts ¶ 39), but he provides no evidence in support of
this bald assertion.
43
on November 12, 2002, pursuant to § 10 of the IUFTA. 43
Alternatively, Alberts argues that HHS was an unsecured
creditor of Michael Reese at the time of the Michael Reese
Transfers. 44 	The process by which he arrives at this conclusion
is somewhat convoluted. 	He argues that GHI owed HHS for Medicare
overpayments prior to its sale of Michael Reese Hospital, and
that those liabilities were assumed by Michael Reese as part of
the APA. 	Alberts then argues that because the closing statement
of the APA was executed on November 11, 1998, and “the majority
of the subject transfers were made at 12:57 and 12:59 on November
12, 1998,” (Pl. Opp’n ¶ 7), Michael Reese became obligated on the
debt owed to HHS for Medicare overpayments prior to “the majority
of” its allegedly fraudulent transfers.
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44
As a practical matter, Alberts’s position--namely, that a
creditor of Michael Reese existed prior to the Michael Reese
Transfers because the exchange of consideration between the
parties to the purchase of Michael Reese Hospital did not occur
instantaneously--is too cute by half. 	As a technical matter, it
is simply wrong. 	The payments made to the Defendants on November
12, 1998, followed the incurrence of debt to GHI by Michael Reese
in exchange for the hospital, which occurred when the APA was
executed on November 11. 	This incurrence of debt would itself be
avoidable pursuant to a timely complaint under the IUFTA if it
defrauded a creditor in existence at the time of the incurrence.
See 740 Ill. Comp. Stat. 160/6(a) (providing for avoidance of
“transfer[s] made” or “obligation[s] incurred”). 	There is
evidence that there were such creditors in existence, but HHS
itself was not an unsecured creditor of Michael Reese at the time
of the incurrence of debt to GHI; rather, it became a creditor of
Michael Reese upon the incurrence of the debt.
If the underlying incurrence of debt to GHI is not
avoidable, the subsequent payment of that debt on November 12,
1998, is similarly unavoidable because the only way that the
subsequent transfers made by Michael Reese could have been for
less than equivalent value (or actually fraudulent) would be if
the underlying incurrence of debt GHI is avoidable as fraudulent.
Singling out one creditor for payment may constitute a
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45
preferential transfer under the right circumstances, see 11
U.S.C. § 547, but it is not a fraudulent one. 	See In re
Liquidation of Medcare HMO, Inc., 689 N.E.2d 374 (Ill. Ct. App.
1997) (“Under Illinois law, . . . the mere preference of one or
more creditors over others does not constitute a fraudulent
transfer.”).
Unless and until the initial incurrence of debt to GHI by
Michael Reese is avoided, Alberts has no right to recover the
funds paid in satisfaction of the debt created by that
incurrence. 	Alberts has not demonstrated that there was an
unsecured creditor of Michael Reese whose claim existed at the
time of the incurrence of debt to GHI and who could have brought
a timely suit to avoid that incurrence on the petition date.
Therefore, the court will grant summary judgment in favor of the
Defendants on Counts V-VI with respect to both the obligation
incurred (the acquisition of debt by Michael Reese) and the
subsequent transfers (payments made on that debt).
III
For the reasons set forth above, and except with respect to
the factual issue of whether the IRS had a contingent unsecured
claim against Michael Reese for unpaid employment taxes based on
work performed by Michael Reese employees between November 10,
2002, and November 23, 2002, the court will deny Alberts’s motion
for summary judgment, grant the Defendants’ cross-motion for
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45 	The parties may renew their motions for summary judgment
with respect to whether the IRS held an unsecured pre-petition
claim against Michael Reese for unpaid FUTA taxes at the pre-
trial conference currently scheduled for January 4, 2006, unless
the issue is mooted by the court’s determination of the parties’
motions with respect to whether the IRS held a contingent
unsecured pre-petition claim against Michael Reese for employment
taxes based on the parties’ responses to the court’s forthcoming
order to show cause.
46	O:\Andrew Fausett Temp Docs\Decisions with Related Orders\Alberts v. HCA, Inc. (In re Greater Southeast Cmty. Hosp. Corp. I)\decision_summary judgment_Alberts v. HCA_final.wpd
summary judgment with respect to the factual issue of whether HHS
had an unsecured claim against Michael Reese on the petition date
and with respect to Counts V and VI, and deny the rest of the
cross-motion. 	The court will enter a separate order to show
cause directing all parties to supplement the record in a manner
consistent with this decision. 	Depending on the response of the
parties, the court will either grant or deny the balance of the
parties’ motions at that time. 45
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
Jeffrey W. Kilduff
Lani R. Miller
Stephen D. Brody
O’Melveny & Myers LLP
1625 Eye Street, NW
Washington, DC 20006
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