Convalescent Center of Roanoke Rapids, Inc.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
CONVALESCENT CENTER OF
ROANOKE RAPIDS, INC., 	06-00310-8-RDD
Debtor. 	Chapter 11
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ORDER
This case is before the court on the debtor’s motion to compromise the claim of Omnicare
of Carolina, Inc., (“Omnicare”) and to resolve the remaining disputes between the debtor and
Omnicare. On July 18, 2006, the court conducted a hearing on this matter in Wilmington, North
Carolina. This order confirms the ruling provided at the conclusion of the hearing approving the
compromise.
On September 10, 1999, the debtor contracted with Omnicare for the provision of pharmacy
services for the debtor’s residents during the time it operated its skilled nursing home facility. On
February 3, 2006, the debtor filed for relief under Chapter 11. Thereafter, Omnicare filed a proof
of claim (claim no. 5) in the amount of $92,484.96.
On June 9, 2006, Omnicare filed its “Motion For (I) Appointment of Trustee Or, In The
Alternative, For Conversion, (II) Rehearing Or To Set Aside Order Conditionally Approving
SO ORDERED.
SIGNED this 07 day of August, 2006.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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Disclosure Statement, Fixing Last Day To File Objections To The Disclosure Statement, Fixing Last
Day To File Acceptances / Rejections of the Plan, Setting Hearing On Confirmation Of The Plan,
Directing That Ballots Be Filed, And Directing The Plan Proponent To File Reports on Ballots, And
(III) Other Relief” (hereinafter “motion filed June 9, 2006"). On June 15, 2006, the debtor filed an
objection to the claim of Omnicare, aserting that the debtor was entitled to certain credits pursuant
to the Pharmacy Services Agreement that it entered with Omnicare. Omnicare disputed the
allegations that the debtor was eligible for credits because the debtor allegedly failed to notify
Omnicare of credit adjustments to each invoice within the 45-day period under the Pharmacy
Services Agreement. On June 20, 2006, the debtor filed its amended plan and amended disclosure
statement.
The debtor and Omnicare seek to resolve their outstanding disputes, including: (1) the
debtor’s objection to Omnicare’s claim; (2) Omnicare’s motion filed June 9, 2006; and (3) any
potential objections to the debtor’s amended plan and amended disclosure statement (except any
objection necessary to ensure that the debtor complies with the compromise). The debtor and
Omnicare propose the following terms for settlement of the outstanding disputes: (1) Omnicare shall
have an allowed unsecured claim in the amount of $88,000.00; (b) Omnicare shall agree to accept
85% of its allowed claim in full satisfaction of its debt, contingent upon approval of this subject
compromise and confirmation of the amended plan with such amount to be paid on the effective date
as defined in the amended plan; (3) if the compromise is approved, Omnicare will not pursue its
motion filed June 9, 2006 unless the debtor’s amended plan is not confirmed; and (4) Omnicare will
not oppose confirmation of the debtor’s amended plan; however, it may oppose any provision of the
amended plan that is inconsistent with the subject compromise.
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The Bankruptcy Administrator opposes the compromise, asserting that the proposed
treatment of Omnicare’s claim is inconsistent with the allowed treatment provided for other
unsecured creditors holding similar claims. The amended plan provides that unsecured claims in an
amount greater than $30,000.00 shall be paid in full over five years with interest as well as a security
interest in certain property. Alternatively, an unsecured claimant with a claim in excess of
$30,000.00 may elect to be paid 35% of its claim on the effective date. The Bankruptcy
Administrator asserts that the debtor has not offered other unsecured creditors with similar claims
the same treatment as Omnicare. She asserts that the debtor has provided insufficient support and
justification for the disparate treatment of Omnicare’s unsecured claim.
Section 1123(a)(4) states: “Notwithstanding any otherwise applicable nonbankruptcy law,
a plan shall provide the same treatment for each claim or interest of a particular class, unless the
holder of a particular claim or interest agrees to a less favorable treatment of such particular claim
or interest.”11 U.S.C. § 1123(a)(4). As noted by the Third and Ninth Circuits, § 1123(a)(4) “only
requires equality of treatment of claims or interests placed in the same class.” In re Jersey City Med.
Ctr., 817 F.2d 1055, 1061 (3d Cir. 1987); In re Acequia, Inc., 787 F2d 1352, 1363 (9th Cir. 1986).
While § 1122 requires substantial similarity of claims in a particular class, it does not necessitate
that all substantially similar claims be placed in a particular class; moreover, “it grants some
flexibility in classification of unsecured claims.” In re Bryson Properties, XVIII, 961 F.2d 496, 502
(4th Cir. 1992). Here, the debtor intends to treat Omnicare in a class of its own.
The compromise takes a disputed claim of $92,484.96 and reduces it to $74,800.00 to be paid
on the effective date. This is a significant reduction of Omnicare’s claim, and substantially similar
claims have the option of being fully paid over a five-year period with interest and secured by a
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second priority deed of trust on the debtor’s real property. In light of this compromise resolving a
number of disputes, Omnicare will be treated in a separate class of its own; however, even if it was
treated in a class with other substantially similar claims, the court does not believe the compromise
violates the equality of treatment requirement of § 1123(a)(4). The court, having examined the
proposed compromise in light of the risks and rewards of not settling, approves the compromise
proposed by the debtor and Omnicare, pursuant to Bankruptcy Rule 9019.
“END OF DOCUMENT”
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