Humana Insurance Co. et al v. Greater Southeast Community Hospital Corporation I

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORPORATION I, et
al.,
Debtors.
____________________________
HUMANA INSURANCE COMPANY and
HUMANA HEALTH PLAN, INC.,
Plaintiffs,
v.
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORPORATION I, et
al.,
Defendants.
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Case No. 02-02250
(Chapter 11)
(Jointly Administered)
Adversary Proceeding No.
09-10002
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE MOTION TO
DISMISS AND CONTINUING SCHEDULING CONFERENCE
For ease of discussion, I will refer to the two plaintiffs
in this adversary proceeding collectively as Humana and treat
them as though a single entity. 	Humana seeks by its complaint
relief against the defendants, the Reorganized Debtors under the
confirmed plan in this case, with respect to executory contracts
The document below is hereby signed.
Signed: July 14, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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(the “Contracts”) between one of the Reorganized Debtors, Michael
Reese Hospital Corporation (“Michael Reese” or the “Hospital”),
and Humana. 	The Reorganized Debtors are the successors to five
of the debtors in the jointly administered cases, with the other
debtor, Pine Grove Hospital Corporation (“Pine Grove”), not
having become a Reorganized Debtor under the confirmed plan. 	The
confirmed plan is the Second Amended Joint Chapter 11 Plan of
Reorganization (“Plan”) as modified by the order confirming the
Plan (“Confirmation Order”).
The complaint seeks two forms of relief. 	First, the
complaint seeks a declaratory judgment that the Reorganized
Debtors are liable, jointly and severally, pursuant to the
confirmed plan, for obligations under a February 2007 Settlement
Agreement between Humana and the Reorganized Debtors dealing with
the Contracts, and under the Stipulation and Order signed by the
court in April 2007 that approved the Settlement Agreement.
Second, the complaint seeks a monetary judgment against the
Reorganized Debtors pursuant to the monetary obligations provided
for under the Settlement Agreement.
I
The automatic stay of 11 U.S.C. § 362(a) has stayed this
adversary proceeding with respect to three of the defendants,
Michael Reese, Envision Hospital Corporation formerly known as
Doctors Community Healthcare Corporation (“Envision”), and
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Pacifica of the Valley Corporation (“Pacifica”) because they each
have commenced a bankruptcy case elsewhere. 	This decision
addresses the motion to dismiss with respect to the Reorganized
Debtors other than those three entities. 	This decision and the
order thereon apply, in other words, to the two other Reorganized
Debtors, Greater Southeast Community Hospital Corporation I
(“Greater Southeast”), and Pacin Healthcare-Hadley Memorial
Hospital Corporation (“Hadley”).
II
The allegations of the complaint, and the exhibits thereto,
establish the following facts. 	Prior to the commencement of the
debtors’ cases in November 2002, Humana and Michael Reese had
been parties to the Contracts, and those Contracts remained
executory contracts as of the commencement of the cases. 	Michael
Reese was in default in making payments under the Contracts, and
did not cure those defaults after the commencement of the cases.
The confirmed plan consolidated the debtors (except Pine Grove)
substantively as well as administratively. 	The confirmed plan
provided that this court would retain jurisdiction over matters
arising in, and under, and related to the case, and required that
the Reorganized Debtors serve a Notice of Assumption or Rejection
of Executory Contracts and Unexpired Leases (the “Notice”),
setting out which contracts and leases would be assumed and which
rejected. 	Any contract not listed was deemed assumed but subject
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1 	The listed signatories to the Settlement Agreement did
not include Hadley, but the opening paragraph of the Settlement
Agreement refers to the Reorganized Debtors as agreeing to the
Settlement Agreement. 	Moreover, the Stipulation was on behalf of
Humana and the Reorganized Debtors.
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to future rejection at the discretion of the Reorganized Debtors.
On May 11, 2004, the Reorganized Debtors served the required
Notice, and because the Contracts were not listed, they were
assumed, subject to rejection. 	Because the Contracts were, at
least provisionally, assumed, on August 10, 2004, Humana filed
claims for cure of the pre-petition defaults, one for
$1,519,791.42, the other for $176,801.25 (the “Cure Claims” or,
simply, the “Claims”). 	The Reorganized Debtors disputed the
claim amounts. 	The Reorganized Debtors and Humana wanted to
resolve this dispute, and after good faith, arms-length
negotiations, achieved a mutually acceptable compromise, embodied
in a Stipulation dated March 6, 2007 (the “Stipulation”)
attaching a Settlement Agreement of February 2007. 1 	The
Stipulation included within it a proposed order for approval of
the Stipulation (so that when signed by the court, it became a
Stipulation and Order). 	The Stipulation recited that the
confirmed plan:
provides that any executory contract not specifically
designated by the Reorganized Debtors as either assumed
or rejected is deemed assumed as of the Effective Date,
subject only to the Reorganized Debtor’s right (the
“Retained Right of Rejection”) to decline to assume any
agreement for which the cure amount is not fixed in an
amount acceptable to the Reorganized Debtors.
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Under the Stipulation and the Settlement Agreement, Michael Reese
agreed to assume the Contracts. 	The complaint alleges that the
Reorganized Debtors assumed the Contracts. 	But the Stipulation
recited only that Michael Reese “is hereby deemed to have assumed
the Contracts on the terms and conditions stated in the
Settlement Agreement[.]” 	In turn, the Settlement Agreement
recited that “the Hospital [defined to mean Michael Reese] has
determined to assume the Contracts” and provided that the parties
[defined to mean Michael Reese and Humana] agree that “the
Hospital [meaning Michael Reese] will file a motion . . . to
assume the Contracts.”
The Settlement Agreement further provided that “Humana
agrees to accept $300,000 as satisfaction of the Hospital’s
defaults under the Contract, (the ‘Settlement Amount’)” and
provided that “[t]he Hospital [defined to mean Michael Reese]
agrees to pay Humana the Settlement Amount in 24 equal [monthly]
installments . . . .” 	The Settlement Agreement provided that
“Humana will take all necessary steps to withdraw the Claims with
prejudice, and waives all right to file additional Claims in the
Case [defined to mean the jointly administered cases].” 	In turn,
the Stipulation provided that
in furtherance of the provision of the Settlement
Agreement requiring Humana to withdraw any proofs of
claim, including the Cure Claims, filed by Humana in
connection with the Debtors’ bankruptcy cases, such
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claims are hereby deemed withdrawn effective upon the
Court’s entry of an Order approving this Stipulation[.]
On April 1, 2007, the court signed the Stipulation and Order,
thereby approving the Stipulation and the Settlement Agreement,
but the payments required have not been kept current.
III
In seeking to dismiss for lack of subject matter
jurisdiction, the Reorganized Debtors do not contest Humana’s
contention that if the dispute can only be resolved by
interpreting the Plan and the Confirmation Order confirming that
plan, the court has subject matter jurisdiction. 	See Kassover v.
Prism Venture Partners, LLC (In re Kassover), 336 B.R. 74, 79
(Bankr. S.D.N.Y. 2006). 	The Reorganized Debtors contend in their
motion to dismiss that “[w]hile the cure claim settled by the
Settlement Agreement arose out of procedures set forth in the
Plan, the claim presently asserted by Humana is a simple claim
for breach of an obligation to pay money and the procedures set
forth in the Plan regarding assumption and rejection of executory
contracts and fixing of cure claims have no bearing on the
outcome of Humana’s claims.” 	Humana responded in its opposition
that a provision for consolidation of the estates of the
Reorganized Debtors in the confirmed plan makes each Reorganized
Debtor obligated for Michael Reese’s obligations to Humana
arising from the Settlement Agreement and the Stipulation and the
terms thereby approved for payment of amounts pursuant to the
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forthcoming assumption of the Contracts. 	Specifically, Humana
contends that Article 9 of the Confirmation Order, repeating the
words of Plan § 6.2(a), reads:
Deemed Substantive Consolidation of Debtors.
. . . . . . .
(iv) each and every Claim filed or to be filed in
the Chapter 11 Case of any of the Debtors shall be
deemed filed against the consolidated Debtors and shall
be deemed one Claim against the consolidated debtors.
In their reply to the opposition to their motion to dismiss, the
Reorganized Debtors contend that the later Settlement Agreement
and Stipulation approved by the court operated to displace any
obligations under the confirmed plan and to make only Michael
Reese liable for the assumed executory contract. 	Specifically,
pursuant to the Settlement Agreement, Humana withdrew its claims
filed in the Debtors’ cases in exchange for Michael Reese’s
promise to pay a settlement amount over time. 	See Settlement
Agreement, ¶¶ 3-4. 	Humana has not had an opportunity to respond
to the reply.
Necessarily, evaluation of the Reorganized Debtors’ argument
entails ascertaining whether the confirmed plan’s consolidation
provisions were intended to apply to any later agreement fixing
the obligation of only one Reorganized Debtor for prepetition
defaults under an executory contract and calling for that
Reorganized Debtor to pay the obligation. 	In other words, it is
necessary to interpret the confirmed plan to determine whether
the words “Claim filed or to be filed” (as used in the confirmed
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plan) include the claim fixed by the Settlement Agreement that
settled the dispute of how much was owed by Michael Reese on the
Cure Claims. 	Those Cure Claims plainly were claims filed in the
case for which each Reorganized Debtor (to the extent that the
claims were allowed) was liable, and the assumption of the
Contracts converted the Cure Claims into an allowed
administrative claim (for which a proof of claim was
unnecessary), as assumption of an executory contract converts a
cure claim into an administrative claim. 	The Reorganized Debtors
may be correct that by specifying that it was Michael Reese that
was assuming the Contracts, the Settlement Agreement turned that
administrative claim into an obligation for which only Michael
Reese assumed responsibility, with that obligation not being a
“Claim filed or to be filed” in the jointly administered cases.
But a declaration to that effect would amount to an
interpretation of the confirmed plan as not including the
obligation as a “Claim filed or to be filed.” 	The court has
subject matter jurisdiction over that dispute.
At best, the Reorganized Debtors’ argument is a contention
that the complaint fails to state a claim upon which relief can
be granted. 	The Reorganized Debtors are free to file a motion to
dismiss for failure to state a claim upon which relief can be
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2 	If they file such a motion and it includes evidence
beyond what is pled in the complaint, the motion would be one for
summary judgment, and should follow the procedures applicable to
such motions under the District Court Local Rule (which this
court follows) that is applicable to such motions. 	The parties
should be prepared to address whether reliance on provisions of
the confirmed plan (beyond selected provisions attached to the
complaint) would be deemed to be facts pled within the complaint,
and as thus as not requiring a motion for summary judgment.
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granted. 2
IV
Beyond seeking a declaratory judgment, Humana seeks a
monetary judgment against each of the Reorganized Debtors.
Because a declaratory judgment in favor of the Reorganized
Debtors would moot the claim for a monetary judgment, I need not
determine at this juncture whether the court would have
jurisdiction over the claim for a monetary judgment. 	Only if I
grant a declaratory judgment in favor of Humana would it be
necessary to address that issue.
V
In light of the foregoing, it is
ORDERED that with respect to Greater Southeast and Hadley,
the motion to dismiss is denied to the extent it seeks dismissal
on the grounds that the court lacks subject matter jurisdiction
to adjudicate the complaint’s request for declaratory relief, and
within 10 days of the entry of this order, Greater Southeast and
Hadley shall file an answer to that part of the complaint. 	It is
further
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10	O:\TEEL\Judge Temp Docs\Humana v GSE (In re GSE) Mem Decsn re MTD Subj Matter Jurisn_v2.wpd
ORDERED that the court defers ruling on the motion to the
extent the motion seeks dismissal based upon the court’s lack of
subject matter jurisdiction with respect to the count of the
complaint seeking a monetary judgment. 	It is further
ORDERED that a scheduling conference as to Greater Southeast
and Hadley shall be held on July 28, 2009, at 9:30 a.m.
[Signed and dated above.]
Copies to: All counsel of record; Office of United States
Trustee.
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