Greenbelt CT Imaging Center, LLC

1 Dkt. No. 183 is titled: “Motion of Creditor Siemens Financial Services, Inc. (i) to
Compel Performance of Lease Obligations Under 11 U.S.C. § 365(d)(5); (ii) for Allowance of
Administrative Claims Under 11 U.S.C. §§ 365(d)(5) and 503(a); (iii) for Adequate Protection
Under 11 U.S.C. § 363(e); and (iv) to Compel Debtor to Assume or Reject Leases.”
Dkt. No. 192 is titled: “Motion of Creditor Siemens Medical Solutions USA, Inc. (i) to
Compel Performance of Certain Executory Contract Obligations Under 11 U.S.C. § 365(d)(5);
(ii) for Allowance of Administrative Claims Under 11 U.S.C. §§ 365 and 503(a); (iii) for
Adequate Protection Under 11 U.S.C. § 363(e); and (iv) to Compel Debtor to Assume or Reject
Certain Executory Contracts.”
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In re: 	Case No. 07-18958PM
Chapter 11
Greenbelt CT Imaging Center, LLC,
Debtor.
Siemens Medical Solutions USA, Inc. and
Siemens Financial Services, Inc.,
Movants,
v.
Greenbelt CT Imaging Center, LLC,
Respondent.
MEMORANDUM OF DECISION
This matter came before the court for hearing on April 10, 2008, on Motions1 filed by
Siemens Financial Services, Inc. (“Financial”) and Siemens Medical Solutions USA, Inc.
Date signed July 01, 2008
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2 As discussed further herein, the equipment agreements are the subject of adversary
proceedings commenced by the Debtor.
3 The agreements relating to the Somatom and PET scanners were assigned to Financial.
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(“Medical”) (collectively, “Siemens”) (Dkt. Nos. 183 and 192), and the opposition of Greenbelt
CT Imaging Center, LLC (“the Debtor”). The court is assisted in the resolution of these matters
by the Stipulations of Fact entered into evidence and filed on the record (Dkt. No. 276), as well
as the post-hearing memoranda filed by the parties (Dkt. Nos. 278, 288 and 290).
The Debtor and Siemens are parties to service and equipment agreements2 with respect to
three pieces of medical scanning equipment. This equipment is described as a Somatom
Sensation CT scanner (“Somatom”), an Ecat Accel PET scanner (“PET”) and a Biograph 16
PET/CT scanner (“Biograph”). The Somatom and PET scanners are located at the Debtor’s
Greenbelt, Maryland location, while the Biograph – a scanner described by Siemens’ expert to
be the superior equipment – is at the Debtor’s Rockville, Maryland location. The dispute
between the parties involves six agreements – three service agreements and three equipment
agreements made between the Debtor and Medical.3
The court notes that the relief originally sought by Siemens in the Motions has narrowed
in light of adversary proceedings commenced by the Debtor against Medical (AP No. 08-00202)
and Financial (AP No. 08-00203). In these actions set for trial in December 2008, the Debtor
alleged that the Lease Agreements relating to the three pieces of equipment at issue herein
amounted to financing agreements rather than true leases. In answering the complaints, Siemens
admitted that the agreements were in the form of financing, leaving for trial determinations as to
the extent and value of Siemens’ liens. Accordingly, Siemens’ request in the Motions to compel
the Debtor to assume or reject the equipment “leases” is now moot.
As narrowed, the issues before the court for decision are whether Medical and Financial
are entitled to allowance of administrative claims, adequate protection, compelled assumption or
rejection of the service agreements under 11 U.S.C. § 365(d)(2) and compelled performance of
the service agreements.
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Adequate Protection
Siemens asserts entitlement to adequate protection of their interests in the medical
equipment under 11 U.S.C. § 363(e). Adequate protection is addressed, although not defined, in
11 U.S.C. § 361 that provides:
When adequate protection is required under section 362, 363, or 364 of this title
of an interest of an entity in property, such adequate protection may be provided
by –
(1) requiring the trustee to make a cash payment or periodic cash payments to
such entity, to the extent that the stay under section 362 of this title, use, sale, or
lease under section 363 of this title, or any grant of a lien under section 364 of this
title results in a decrease in the value of such entity’s interest in such property;
(2) providing to such entity an additional or replacement lien to the extent that
such stay, use, sale, lease, or grant results in a decrease in the value of such
entity’s interest in such property; or
(3) granting such other relief, other than entitling such entity to compensation
allowable under section 503(b)(1) of this title as an administrative expense, as
will result in the realization by such entity of the indubitable equivalent of such
entity’s interest in such property.
Adequate protection as framed by Siemens is in the form of an administrative expense under 11
U.S.C. § 503(a). In determining the extent of adequate protection Siemens is entitled to, or the
amount of the administrative claim, this court must first ascertain the value of the medical
equipment, and then calculate the rate of depreciation of the equipment during the pendency of
this case. The principle involved is to have the payments made by the Debtor keep pace with the
depreciation of the lien collateral. In re Hanna, 912 F.2d 945, 950-951 (CA8 1990). With
regard to valuation, the parties offered testimony of appraisers that the court found modestly
qualified.
Siemens’ appraiser, Dan Capozzelli (“Capozzelli”), an asset manager for Siemens,
opined that the PET scanner, delivered in November 2003, was valued at $150,000.00 in August
2007, and $53,000.00 in March 2008. The Somatom, delivered in August 2004, was valued at
$419,000.00 in September 2007, and $309,000.00 in March 2008. The Biograph, delivered in
July 2005, was valued at $794,000.00 in September 2007, and $604,000.00 in March 2008.
Capozzelli explained that the values were derived from consultation with brokers based solely on
Siemens’ records and an assumption that the equipment was in good condition. Capozzelli takes
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the brokers’ values, throwing out values that he perceives to be too high or too low, and assigns a
value. The process of valuation was referred to by Capozzelli as “desktop” evaluations.
Siemens urges that, based on their expert’s values from at or around the petition date
(September 16, 2007) through March 2008, the depreciation in value of the medical equipment
less the amounts paid by the Debtor leaves a deficiency totaling $137,721.05 ($7,028.15 as to the
PET; $35,098.46 as to the Somatom; and $95,594.44 as to the Biograph).
Carl Miceli (“Miceli”), a senior appraiser accredited by the American Society of
Appraisers, the Equipment Appraisers Association of North America and the Association of
Machinery and Equipment Appraisers, among others, was retained postpetition by the Debtor
and made his valuations in February 2008. His appraisal report was admitted into evidence at
the hearing and appears in the record at Dkt. No. 270-2. Miceli testified as to the methodology
used in valuing the medical equipment, which was also set forth on page five of the report.
Miceli consulted with dealers to ascertain value, as did Capozzelli; however, Miceli viewed the
equipment, determining the property to be “for the most part, in good to fair condition.” Miceli
testified, and as reflected in the report, that he valued the PET scanner at $40,000.00, the
Somatom at $275,000.00 and the Biograph at $800,000.00 as of February 13, 2008. It was
Miceli’s opinion that the type of equipment at issue has an economic life of approximately five
to seven years and “in the first year of use it depreciates very rapidly and then slows down over
the next few years and then levels off to parts machines.” (Trans. p. 75). The experts appeared
to be in agreement in this respect. (See Trans. p. 20).
Miceli suggested that “high tech medical equipment of this nature” depreciates at least
10% a year. (Trans. p. 70). As the Debtor did not have a starting point valuation, it added 5% to
Miceli’s values to arrive at petition date values. Using the depreciation in value of the medical
equipment less the amounts paid by the Debtor (to which there was no dispute as to these
amounts), the Debtor computed no deficiency and urged that Siemens was adequately protected.
As Miceli was engaged in February 2008, before the hearing, his opinion as to the value
of the medical equipment at the time of the filing of the bankruptcy case will be given less
weight. On the other hand, Capozzelli cannot be considered a disinterested witness. While
Capozzelli’s competence at valuation is limited to medical equipment, Miceli is a generalist.
Yet, Miceli viewed the medical equipment and consulted the technicians handling same. The
court finds the testimony of the experts close to being in equipoise. Capozzelli’s knowledge of
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the industry was impressive and Miceli’s approach to the appraisal discipline professional in all
respects.
Siemens has the burden of proof to establish its entitlement to an award under 11 U.S.C.
§ 503(b). It demonstrated that a substantial contribution was made to this estate. Thus, the
burden of persuasion shifts to the Debtor. After consideration of the record, the court finds the
value of the medical equipment as of the date of filing and as of the date of the hearing as
follows:
Equipment 	Value/Petition Date 	Value/April 10, 2008 	Depreciation
PET 	$100,000.00 	$53,000.00 	$47,000.00
Somatom 	$350,000.00 	$300,000.00 	$50,000.00
Biograph 	$800,000.00 	$700,000.00 	$100,000.00
As there is no dispute as to the amounts paid by the Debtor postpetition in connection with the
equipment, and based on the court’s determination of value and depreciation, Siemens’ interests
are adequately protected.
Administrative Claim
With respect to the service agreements, the Debtor concedes that since the petition date
through the date of the hearing, there was then due $44,758.07 as to the Biograph, $26,250.00 as
to the Somatom and $26,250.00 as to the PET. In defense of non-payment, the Debtor asserts
that because the Biograph was inoperative for 47 days, or 32% of the time of the service
agreement, that it is entitled to a setoff of $47,000.00. The court is handicapped somewhat in
that the service agreement related to the Biograph is less than legible. The agreement, however,
appears to reflect a “Performance Guarantee” of 97% based on an average of 12 months. (Dkt.
No. 192-3, p. 21). The “System Performance Guarantee” is set forth on p. 26 of Dkt. No. 192-3
and provides the remedy for a performance level less than guaranteed. The contract remedy is
not non-payment but an extension of the warranty. The agreement further provides that there are
no warranties express or implied. Siemens has no responsibility for damages relating to lost
revenues or consequential damages.
Nonetheless, this matter comes before the court for a determination of administrative
expenses, requiring a showing of demonstrable benefit to the estate. As stated above, the burden
is on the claimant. In re Best Products, Inc., 173 B.R. 862 (BC S.D.N.Y. 1994). Based on this
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record, the court is unwilling to allow the total administrative expenses sought by Siemens as the
services for which compensation is sought appear inadequate. If the Biograph was inoperative,
whether it be for a full day or a half day, the Debtor could not operate from the Rockville
facility. Patients are not like vehicles waiting in line at a car wash. They require prepping and
cannot be made ready at the whim of the Biograph. The court will allow Siemens $100,000.00
as an administrative expense claim from the petition date through April 10, 2008, and direct the
Debtor to pay this sum within 60 days from the entry of an order.
Assumption/Rejection of Service Agreements
The court is unwilling at this stage of the case to compel the Debtor to assume or reject the
service agreements prior to the filing of a Chapter 11 Plan. Under 11 U.S.C. § 1123(b)(2), a plan
may provide for the assumption, rejection or assignment of any executory contract or unexpired
lease not previously rejected. It may well be in the Debtor’s interest to reject one or more of the
service contracts. Its business plan may not call for the use of all three scanners. Were the
Debtor compelled at this point to assume the service agreements and later find the equipment
redundant, or as suggested by both experts, outmoded, then the future liability under the
agreements would be accorded the status of an administrative expense to the detriment of the
Debtor and other creditors. In re Columbia Gas System, Inc., 50 F.3d 233, 238-239 (CA3 2003);
cf. In re Central Florida Metal Fabrication, Inc., 190 B.R. 119, 122 (BC M.D. FL 1995). The
court finds no countervailing reason to compel action in that Siemens offered no proof to support
the proposition that it needed certainty to perform its end of the bargain or mitigate its damages.
Counsel for Siemens shall submit an appropriate order on notice.
cc: 	Debtor
Debtor’s Counsel
Siemens Medical Solutions USA, Inc.
Siemens Financial Services, Inc.
Siemens Medical Solutions USA, Inc.’s Counsel
Siemens Financial Services, Inc.’s Counsel
Office of the United States Trustee
Parties Requesting Notice
End of Memorandum of Decision
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