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 RESPONSES TO ORDER TO SHOW CAUSE
The plaintiff Sam J. Alberts, trustee for the DCHC
Liquidating Trust (the “Trust”), and the defendants HCA Inc.
(“HCA”) and Galen Hospital Illinois, Inc. (“GHI,” and
The decision below is hereby signed. Dated: January
2, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 	In addition to HCA and GHI, Western Plains Capital, Inc.
(“Western”) is a defendant in this adversary proceeding, but it
was not added as a party until after Alberts filed the motion for
partial summary judgment from which the order to show cause at
issue in this memorandum decision arose.
2
collectively the “Defendants”), 1 have filed responses to the
court’s order to show cause entered on December 6, 2006 (D.E. No.
330) (the “Show Cause Order”). 	Based upon these responses, the
court concludes that it is appropriate to grant summary judgment
in favor of Alberts with respect to the factual issue of whether
the Internal Revenue Service (the “IRS”) held an unsecured pre-
petition claim against the debtor Michael Reese Medical Center
Corporation (“Michael Reese”). 	The court will deny the
Defendants summary judgment with respect to the same issue.
I
The court has recited the facts underlying this dispute at
length in prior decisions and need not recapitulate those
recitations in detail here. 	Briefly stated, Michael Reese
entered into a contract with GHI, a subsidiary of HCA and
affiliate of Western, for the purchase of Columbia Michael Reese
Hospital and Medical Center (“Michael Reese Hospital”) in June of
1998. 	After a series of delays, Michael Reese finally purchased
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2 	The court awarded summary judgment to Alberts on this
factual issue in an oral decision dated April 4, 2006, and
subsequent order entered on June 2, 2006. 	There is an
outstanding dispute as to whether Michael Reese transferred funds
or incurred obligations totaling an additional $5,571,381.00,
which the court will consider once again in resolving the motion
for partial summary judgment filed by the Defendants on November
6, 2006.
3
the hospital on November 12, 1998, for at least $66,048,840.00. 2
Michael Reese, along with several other corporate affiliates
(collectively the “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 5, 2004.
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.
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)).
Acting in his capacity as trustee, Alberts initiated the
instant adversary proceeding on November 18, 2004, seeking to
recover the assets transferred to the Defendants on November 12,
1998 (the “Michael Reese Transfers”), 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. 	After
amending his complaint twice, Alberts moved for summary judgment
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on March 9, 2006. 	That motion was granted in part and denied in
part in an oral decision dated April 4, 2006, and accompanying
order entered on June 2, 2006.
Alberts filed a second motion for summary judgment on July
27, 2006, this time seeking partial summary judgment with respect
to the affirmative defense raised by the Defendants that his
lawsuit was barred by the IUFTA’s four-year statute of repose.
See 740 Ill. Comp. Stat. 160/10(a). 	Although he acknowledged
that his suit did not commence within four years of the Michael
Reese Transfers, Alberts argued that he was entitled to a longer
statute of limitations because the Department of Health and Human
Services (“HHS”) and the IRS were creditors of Michael Reese when
Michael Reese filed its petition. 	The Defendants both opposed
Alberts’s motion and cross-moved for summary judgment on this and
other issues.
In a memorandum decision entered on December 6, 2006, the
court held that Alberts was entitled to invoke the statute of
limitations available to any pre-petition unsecured governmental
creditor of Michael Reese, but that Alberts had failed to produce
any evidence demonstrating that HHS was such a creditor. 	Alberts
v. HCA, Inc. (In re Greater Southeast Cmty. Hosp. Corp. I), Adv.
Pro. No. 04-10366, slip op. at 7-28 (Bankr. D.D.C. Dec. 6, 2006),
available at 2006 WL 3519298 (“HCA”). 	The court further
concluded that any claim held by the IRS for employment taxes
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3 	The court also noted that there was a “legitimate
question” as to whether Alberts could invoke the longer statute
of limitations available to the IRS under the Supreme Court’s
decision in United States v. Summerlin, 310 U.S. 414 (1940), if
the only work creating employment tax liability for Michael Reese
occurred pre-petition but after the deadline for commencing a
fraudulent transfer action under the IUFTA had passed. 	See HCA,
slip. op. at n.39. 	Alberts has obviated this concern by
producing evidence demonstrating that work occurred before that
deadline passed.
4 	Alberts also argued that the IRS held a pre-petition
unsecured claim against Michael Reese for unpaid taxes owed under
the Federal Unemployment Tax Act, 11 U.S.C. § 3301 et seq. 	The
court denied both sides’ requests for summary judgment on this
issue without prejudice to renewal at a later hearing due to the
court’s inability to reach a satisfactory conclusion on the basis
of the papers before it. 	HCA, slip op. at 39-41. 	The court’s
decision today renders that unresolved issue moot.
5
arising from work incurred during the pay period straddling
Michael Reese’s petition date would constitute an unsecured claim
to the extent that the work creating the tax liability occurred
prior to the petition date, id. at 28-37, 3 but that there was no
evidence in the record from which the court could infer that work
occurred prior to the petition date. 	Id. at 37. 	This latter
concern was raised by the court sua sponte. 	Id. at 37-38. 4
Rather than “hold Alberts’s feet to the fire for failing to
supply evidence that no one thought to request,” id. at 38, the
court decided to “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.” 	Id. 	The court laid out the terms
of this “opportunity” in as straightforward a manner as possible:
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5 	The Defendants argue that these exhibits are inadmissible
hearsay evidence. 	(Def. Response at 2-3). 	The court declines to
rule on this issue because the testimonial evidence supplied by
Alberts satisfies the requirements of the Show Cause Order.
6
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
evidence to the contrary.
Id. at 38-39. 	The Show Cause Order, entered on the same date as
the memorandum decision quoted above, effectuated this directive.
II
Alberts has ostensibly satisfied the requirements set forth
in the court’s Show Cause Order by submitting declarations from
three Michael Reese Hospital employees in which the employees
state that they worked on November 10, 2002, through November 12,
2002, a declaration from the CEO of Michael Reese to the same
effect, and a representative sample of Michael Reese’s payroll
register for the period of November 10, 2002, to November 23,
2002, as well as the pay periods preceding and following that pay
period. 5 	The Defendants have no evidence to counter these
declarations and exhibits. 	Instead, they argue that the evidence
submitted by Alberts is neither “competent” nor “admissible.”
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6 	As the court noted in its December 6, 2006 memorandum
decision, the exhibits to the Robinson declaration are
unauthenticated and therefore inadmissible on a motion for
summary judgment. 	HCA, slip op. at n.29. 	As the court also
noted in its memorandum decision, the Defendants waived any
objection to the admissibility of such evidence by failing to
raise the issue in their opposition to Alberts’s motion. 	Id.
7 	The Defendants acknowledge in their own cross-motion for
summary judgment that Michael Reese purchased Michael Reese
Hospital and suggest no reason why the employment taxes generated
by that hospital would not be the obligation of Michael Reese.
7
(Def. Response at 1).
The Defendants contend that the declarations submitted by
Michael Reese Hospital employees Carolyn Jackson, Carolyn
Simpkins, and Mary Meade (the “Employee Declarations”) are
worthless because “each declarant merely asserts that she worked
in the accounts payable or patient accounting department at
Michael Reese Hospital, which is owned by Michael Reese Medical
Center Corporation.” (Def. Response at 2 (internal quotations
omitted)). 	This argument is fine so far as it goes, but there is
other evidence in the record (e.g., the declaration of Michael
Reese CFO Phillip Robinson and the exhibits attached to that
declaration) 6 that make it clear that the employees of Michael
Reese Hospital were the employees for whom employment taxes were
owed by Michael Reese. 	(Pl. Statement of Facts As to Which There
Is No Genuine Issue in Support of Pl. Mot. for Partial Summ. J.
at Ex. 3 (D.E. No. 178, filed July 27, 2006)). 7 	The Employee
Declarations, when read in tandem with the Robinson declaration
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and its attached exhibits, are enough to warrant summary judgment
in Alberts’s favor by themselves.
Even if the court were to discount the Employee Declarations
entirely, the declaration of Dr. Enrique Beckmann, past and
present CEO of Michael Reese, provides an alternative basis for
awarding Alberts summary judgment. 	In that declaration, Beckmann
avers that “[f]rom 2000 through the date of this [d]eclaration,
[Michael Reese] has been in continuous operation,” that
“[Michael] Reese Hospital provides medical care and treatment 24
hours each day, seven days a week, 365 days a year[,] . . . [and]
has employees on duty . . . 24 hours a day, seven days a week,
365 days a year,” and that “[d]uring the period of November 10
through 12, 2002, [he] personally visited [Michael] Reese
Hospital and saw people who were employed by [Michael Reese]
working at [Michael] Reese Hospital.” 	(Pl. Response at Ex. D).
The Defendants dismiss these statements as “broad and general,”
(Def. Response at 3), but the court is hard put to imagine
clearer testimonial evidence supporting the fact that Michael
Reese employees earned wages on November 10, 2002, through
November 12, 2002.
The Defendants also suggest that it would be inequitable to
permit Alberts to rely on the Beckmann declaration without
allowing the Defendants an opportunity to cross-examine Beckmann
on the subject matter of that declaration. 	(Def. Response at 4).
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In point of fact, the Defendants could have deposed Beckmann on
this issue at any point during the discovery process, but chose
not to do so. 	Moreover, the Defendants have not presented any
evidence indicating that they asked Alberts to name witnesses who
could provide the sort of information contained in the Beckmann
declaration only to be told that no such person existed. 	Rather,
it appears that both sides were surprised by the court’s
conclusion that there was a gap in the evidentiary record before
it.
Both Alberts and the Defendants were given an opportunity to
present whatever evidence they could muster to fill that gap.
Alberts put that opportunity to good use; the Defendants could
not. 	Cross-examination is unnecessary where both parties have
had an opportunity to conduct discovery and there is no genuine
dispute with respect to the material fact in question. 	In such
circumstances, summary judgment is the only appropriate result.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
III
For the reasons set forth above, the court will grant
summary judgment in favor of Alberts on the factual issue of
whether the IRS held an unsecured pre-petition claim against
Michael Reese for employment taxes.
An order follows.
[Signed and dated above.]
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10	O:\Andrew Fausett Temp Docs\Decisions with Related Orders\Alberts v. HCA, Inc. (In re Greater Southeast Cmty. Hosp. Corp. I)\decision_OTSC_Alberts v. HCA.wpd
Copies to: All counsel of record.
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