Saint Vincents Catholic Medical Centers of New Yor and Liquidating Trustee

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------X
In re Saint Vincent’s Catholic Medical 	Chapter 11
Centers of New York, et al.
Case No. 10-11963
Debtors.
Jointly Administered
-----------------------------------------------------X
MEMORANDUM DECISION FINDING JURISDICTION TO HEAR AND DETERMINE
DEBTORS’ OBJECTION TO CLAIM
Appearances:
Ken Eckstein and Adam Rogoff
Kramer Levin Naftalis & Frankel LLP
for Debtors
Seth Kupferberg, Assistant Attorney General
Office of the New York Attorney General
for New York State Department of Labor
Suzanne Hepner and Robert Stroup
Levy Ratber PC
for 1199SEIU United Healthcare Workers
Avrum J. Rosen and George N. Bara
Law Offices of Avrum J. Rosen, PLLC
for the New York Nurses Association
David Neier and Randy Rodgers
Winston & Strawn, LLP
for General Electric Capital Corporation
David Botter, Sarah Link Schultz, and Ashleigh Baylock
Akin, Gump, Strauss, Hauer & Feld, LLP
for the Official Committee of Unsecured Creditors
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 1 of 11

2
The Court considers the allowance of the proof of claim filed by the New York State
Department of Labor (“Department of Labor”). The objection at issue is whether the New York
State Worker Adjustment and Retraining Notification Act (“NY WARN Act”) is applicable to
the St. Vincents Catholic Medical Centers of New York (“St. Vincents”). Before deciding that
issue the Court must decide whether the bankruptcy court or an administrative proceeding by the
Department of Labor is the appropriate forum for liquidating this claim. The Debtors1 and the
Department of Labor have agreed that oral argument at the March 3, 2011 hearing would be
limited to whether the bankruptcy court or the Department of Labor’s administrative proceeding
is the appropriate forum for liquidating this claim.
JURISDICTION
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C.
§157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated
July 10, 1984. Adjudication of the allowance or disallowance of a claim constitutes a core
proceeding within the meaning 28 U.S.C. § 157(b)(2)(B). Venue of the captioned cases in this
District is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
BACKGROUND
The Court finds the facts as stated by the Debtors in the Objection to Proof of Claim to be
complete and incorporates them by reference.
1 In addition to SVCMC, the Debtors are as follows: (i) 555 6th Avenue Apartment Operating Corporation; (ii)
Bishop Francis J. Mugavero Center for Geriatric Care, Inc.; (iii) Chait Housing Development Corporation; (iv) Fort
Place Housing Corporation; (v) Pax Christi Hospice, Inc.; (vi) Sisters of Charity Health Care System Nursing Home,
Inc. d/b/a St. Elizabeth Ann’s Health Care & Rehabilitation Center; (vii) St. Jerome’s Health Services Corporation
d/b/a Holy Family Home; and (viii) SVCMC Professional Registry, Inc. There are certain affiliates of SVCMC who
are not Debtors.
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 2 of 11

3
St. Vincents and certain of its affiliates, as Chapter 11 debtors and debtors in possession
(each a “Debtor” and collectively, the “Debtors”) filed for bankruptcy on April 14, 2010. Prior
to filing, the Debtors’ Board of Directors appointed a Special Restructuring Committee, hired
restructuring professionals, and took steps to cut costs and assess their restructuring alternatives.
Objection to Proof of Claim ¶ 3. In February 2010, the Greenwich Village hospital’s (“the
Hospital”) financial condition was so dire that the Governor of New York formed a Task Force
consisting of management, the Department of Health (“DOH”), federal, state, and local elected
officials, union representatives and others, to explore options to preserve the Hospital as an acute
care facility in the West Village. Obj. ¶ 3.
On April 6, 2010, after determining no viable option existed for continuing operation of
the Hospital, the Debtors’ Board of Directors voted to approve closure of the Hospital and on
April 9, 2010, the Debtors submitted a plan of closure (“Closure Plan”) to the Department
Health. Obj.¶ 5. Shortly thereafter, the Debtors began to shut down the Hospital under the
supervision of the Department of Health and other state regulatory authorities. Obj. ¶ 8. On
April 12, 2010, the Debtors provided notice to approximately 2,780 Hospital employees that
layoffs would occur in connection with the closure. Obj. ¶ 8.
On April 14, 2010, the Debtors filed a chapter 11 petition. Obj. ¶ 6. On the same day,
Debtors filed a motion seeking authorization to continue the implementation of the Closure Plan.
Obj. ¶ 7. By the end of April, the Hospital’s emergency room was closed and all inpatients had
been discharged or transferred to other healthcare providers. Obj. ¶ 8-11. On April 21, 2010, the
DOH approved the closure of the Hospital’s inpatient services subject to compliance with the
Closure Plan. Obj. ¶ 9. Approval for closure of the outpatient facilities was not given at that
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 3 of 11

4
time. Instead, the Debtors worked with the DOH’s Office of Mental Health to transfer outpatient
services to new healthcare providers. Obj. ¶ 10.
In connection with the closure, approximately 1,800 employees were terminated by the
end of April. Obj. ¶ 11. During May, June, July, and August, the Hospital continued transferring
and closing facilities and an additional six-hundred sixteen (616), three-hundred eleven (311),
thirty-three (33), and eighteen (18) employees were terminated in each respective month. Obj. ¶
11.
On September 22, 2010, the Department of Labor filed a proof of claim and in doing so
submitted to this Court’s jurisdiction over that claim. Despite the publicity surrounding the
closing of the Hospital and the various motions heard before this Court, including a motion to
approve the Debtors’ Closure Plan, the Department of Labor filed its first notice of appearance in
this case on September 27, 2010, five months after the filing of the petition. In the proof of
claim, the Department of Labor asserts a $48.75 million claim for “pay back and benefits” due to
terminated Hospital employees (the “WARN Claim”), under the NY WARN Act. Obj. ¶ 15. The
Department of Labor argues that this claim is entitled to administrative priority under section
503(b)(1)(A)(ii) of the Bankruptcy Code or, alternatively, to priority under section 507(a)(4)
and/or (5) of the Bankruptcy Code. Obj. ¶ 15. Additionally, the WARN Claim asserts that the
claim is subject to “verification and completion of an investigation by and hearing before the
Commissioner of Labor pursuant to NYS Labor Law § 860-f, as authorized pursuant to 11
U.S.C. § 362(b)(4).” Obj. ¶ 15.
The Objection to Claim
The Debtors objected to the Department of Labor’s WARN Claim and seek to have it
expunged on the grounds that St. Vincents is not an “employer” subject to the NY State WARN
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 4 of 11

5
Act; and even if it was subject to the Act, St. Vincents acted in good faith in failing to provide
the requisite notice to its employees prior to termination.
The Department of Labor filed opposition asserting that the “liquidating fiduciary
exception” recognized under federal law has never been applied under the NY WARN Act. Its
applicability is an issue of first impression under New York state law and the Department of
Labor believes it should be decided first by the state administration. It also argues that whether
the Debtor qualifies for the “good faith” exception should be determined by the Commissioner.
Additionally, the Department of Labor argues that even if the “liquidating fiduciary exception”
would be applicable under New York law, the Debtors do not fall under that exception.
The Department of Labor also maintained that its commencement of an administrative
proceeding is not subject to the stay pursuant to section 362(b)(4) (commonly referred to as the
“police powers” exception to the automatic stay). This began a dispute between the parties as to
whether or not this Court had the ability to determine the Debtors’ Objection to Claim. In their
reply, the Debtors argue that the Department of Labor submitted to this Court’s jurisdiction by
filing the proof of claim, the Department of Labor fails to meet the “police power” exception and
is subject to the automatic stay; and even if the stay does not apply to the Department of Labor,
Debtors suggest that the Court may enjoin the Department of Labor from proceeding against the
Debtors and operate under its concurrent jurisdiction in adjudicating the claim.
Because this was not addressed in the Debtors’ initial papers, the Court granted the
Department of Labor permission to file a sur-reply and the Debtors permission to respond to the
sur-reply. In their sur-reply, the Department of Labor argues that section 362(b)(4) is applicable
to administrative proceedings and that section 105(a) is not a basis to sustain the objection to the
claim, especially since the Debtors have not moved for an injunction. The Department of Labor
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 5 of 11

6
also argues that filing a proof of claim does not mean that the Commissioner is divested of his
power to liquidate the claim. The Department of Labor acknowledges that any collection of that
claim must be done in bankruptcy court. The Debtors used their sur-sur reply to reinforce their
arguments that the automatic stay bars the Department of Labor’s administrative proceeding, that
the Court can enjoin such a proceeding, and that the administrative proceeding does not divest
this Court of jurisdiction.
After the briefs were filed, the parties asked the Court to limit argument to whether the
bankruptcy court was the appropriate forum for determining the allowance and liquidation of this
claim.
SUMMARY OF THE LAW
Core Proceeding
The Department of Labor, in its first court appearance since this case was filed, argued
that because a proceeding to determination the amount of its WARN claim, which has not yet
been commenced, may qualify as an exception to the automatic stay pursuant to section
362(b)(4), the bankruptcy court is divested of its ability to liquidate that claim.
Bankruptcy judges have authority to “hear and determine . . . any or all core proceedings
arising under title 11” and “may enter appropriate orders and judgments” in accordance with that
jurisdiction. 28 U.S.C. § 157(b)(1). 	In granting bankruptcy judges this authority, Congress
provided a non-exclusive list of proceedings that are within a bankruptcy court’s “core”
jurisdiction, including the “allowance or disallowance of claims against the estate.” Id. at §
(b)(2)(B).
When the Department of Labor filed a proof of claim, it “necessarily became a party
under the court’s core jurisdiction.” Id. at § (b)(2)(B); see also In re CBI Holding Co., 529 F.3d
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 6 of 11

7
432, 466-67 (2d Cir. 2008) (filing a proof of claim submits a creditor to the bankruptcy court’s
equitable jurisdiction in proceedings affecting that claim); S.G. Phillips Constructors, Inc. v. City
of Burlington (In re S.G. Phillips Constructors, Inc.), 45 F.3d 702, 703 (2d Cir. 1995)
(concluding that the determination of a proof of claim is a core matter). There can be no doubt
that this Court has jurisdiction over the determination of this claim as “nothing is more directly at
the core of bankruptcy administration . . . than the quantification of all liabilities of the debtor.”
In re BKW Sys., Inc., 66 Bankr. 546, 548 (Bankr. D.N.H. 1986).
In addition to being a core proceeding, the Bankruptcy Code mandates that this Court
determine the amount of the Department of Labor’s claim. Section 502(b) states that “if an
objection to a claim is made, the court, after notice and a hearing, shall determine the amount of
such claim in lawful currency of the United States as of the date of the filing of the petition . . . .”
Based on the foregoing, the bankruptcy court has core jurisdiction to hear and decide the
objection to the Department of Labor’s proof of claim. See Gulf States Exploration Co. v.
Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1391 (2d Cir.
1990) (“[W]e hold that the instant adversary proceeding, which involves the determination of an
objection to a proof of claim filed in the bankruptcy case, is clearly at the core of the federal
bankruptcy function of restructuring debtor-creditor rights, implicating the unique powers of
bankruptcy court.”).
The Department of Labor argues that because an administrative proceeding, not yet
commenced, may fall under the police powers exception to the automatic stay, this Court should
choose not to liquidate this claim and urges this Court to follow Judge Drain’s decision in Gazez
v. New York State Department of Labor, (In re Fortunoff Holdings, LLC) (Bankr. S.D.N.Y.
January 24, 2011) (Adv. Pro. No. 10-3339). The facts of that case make it inapplicable to the
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 7 of 11

8
proceeding at hand. 	In Fortunoff, the Department of Labor had commenced an administrative
proceeding to assess damages under the NY WARN Act on November 4, 2009. See Complaint
at 7, ¶ 27, Gazez v. New York State Department of Labor, (In re Fortunoff Holdings, LLC)
(Bankr. S.D.N.Y. January 24, 2011) (Adv. Pro. No. 10-3339). On June 29, 2010, the chapter 7
trustee brought an adversary proceeding seeking a declaratory judgment that the automatic stay
was in place and requesting an injunction in connection with the Department of Labor’s
administrative proceeding. Id. at 8-11.
Unlike in Fortunoff, no administrative proceeding has been commenced by the
Department of Labor and there is no motion for declaratory or injunctive relief pending before
this Court. This is simply an objection to a proof of claim that is well within this Court’s
authority to determine.
A bankruptcy court “may . . . choose to liquidate [a] claim itself or choose to abstain and
defer to another forum for liquidation of the claim.” Collier on Bankruptcy P 502.03 (Alan N.
Resnick & Henry J. Sommer eds., 16th ed.). In this case, the Court sees no reason to defer to
another forum for the determination of this claim. As stated previously, the determination of this
claim is a matter of the Court’s core jurisdiction. See Gulf States Exploration Co., 896 F.2d at
1391. The Department of Labor’s claim is not the only claim filed under the WARN Act. There
are at least six other claims filed that will need to be resolved by this Court in connection with
the state and federal WARN Acts. See Hr’g Tr. 77, Mar. 3, 2011. Some of the employees on
whose behalf the Department of Labor has filed this claim, have also filed federal and NY
WARN Act claims as part of the New York Nurses Association or the 1199SEIU United
Healthcare Workers. See Hr’g Tr. 73-74. Some individuals covered under the Department of
Labor’s WARN claim and the New York Nurses Association’s WARN Claim have also filed
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 8 of 11

9
individual claims. Id. Because there have been so many WARN Claims filed, there is great
potential for the duplication of litigation as well as for conflicting rulings on the claims.
Determining all of the claims in the bankruptcy forum would be the most effective way to avoid
duplicative and inconsistent litigation.
Additionally, some of the employees that form the basis for the Department of Labor’s
WARN claim are also part of the 1800 employees covered by a settlement agreement between
the Debtors and certain former medical professionals of Saint Vincents, referred to as the Tail
Fund Settlement, which was approved by this Court on October 17, 2010 and which resolved
claims of employees arising from incidents occurring on or before the last day patient services
were provided by the Hospital. Determining the allowance and liquidation of the WARN Claim
in this Court will allow all of the parties affected by this claim, including the Committee of
Unsecured Creditors, the New York Nurses Association, the 1199SEIU United Healthcare
Workers, and those employees covered under the Tail Fund Settlement, to have an opportunity to
be heard in the bankruptcy court. Only in bankruptcy court can complete relief for all parties be
afforded.
Injunction pursuant to section 105(a)
The Debtors urge the Court to enjoin the Department of Labor despite the fact no
administrative proceeding has been commenced. See New Jersey v. W.R. Grace & Co. (In re
W.R. Grace & Co.), 412 B.R. 657 (D. Del. 2009) (upholding the bankruptcy court’s injunction
against the NJ Department of Environmental Protection); In re Vantage Petroleum Corp., 25
B.R. 471 (Bankr. E.D.N.Y. 1982) (issuing a temporary restraining order against the Department
of Energy). A proceeding to obtain an injunction, however, must be brought as an adversary
proceeding pursuant to Federal Rule of Bankruptcy Procedure 7001(7) and a showing of
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 9 of 11

10
irreparable harm must be made. See Collier on Bankruptcy P 105.04 (Alan N. Resnick & Henry
J. Sommer eds., 16th ed.). “Courts have been near universal in reversing injunctions which have
been issued without compliance with Rule 7001.” Id. (citing State Bank of S. Utah v. Gledhill
(In re Gledhill), 76 F.3d 1070, 1080 (10th Cir. 1996); Feld v. Zale Corp. (In re Zale Corp.), 62
F.3d 746, 762 (5th Cir. 1995); Wedgewood Inv. Fund, Ltd. v. Wedgewood Realty Group, Ltd. (In
re Wedgewood Realty Group, Ltd.), 878 F.2d 693, 701 (3d Cir. 1989); Ramirez v. Whelan (In re
Ramirez), 188 B.R. 413, 416 (B.A.P. 9th Cir. 1995); Stacy Fuel & Sales, Inc. v. Ira Phillips, Inc.
(In re Stacy), 167 B.R. 243, 248 (N.D. Ala. 1994)).
The Debtors have cited two cases in which injunctions were issued outside of adversary
proceedings. See In re Metro Transportation Company, 64 B.R. 968, 972 (Bankr. E.D. Pa.
1986); In re Vantage Petroleum Corp., 25 B.R. 471 (Bankr. E.D.N.Y. 1982). In Metro
Transportation, the court enjoined an insurance company, that was excepted from the stay, from
cancelling the insurance on a fleet of 800 taxi cabs in Philadelphia. In re Metro Transp., 64 B.R.
at 974. In so ruling, the court considered not only that the cabs would be inoperable without
insurance, but also the effect that taking 800 cabs off of Philadelphia’s streets would have on
transportation and commerce in the city. Id.
Debtors also cite In re Vantage Petroleum, where the court issued a temporary restraining
order against the Department of Energy so that the trustee would have more than fifteen days to
review and respond to an eighty-four page document that if unanswered would result in a
nonreviewable default judgment. 25 B.R. at 477. In each of these cases, the assets of the
debtor’s estate would have been jeopardized if immediate action was not taken. While this
liquidation of St. Vincents involves a Hospital and various medical facilities, which must be
maintained and creditors such as medical malpractice victims and non-WARN claim employees
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 10 of 11

11
who are looking to the estate for recovery on their claims, there is no immediate danger to the
public or to the estate that would justify noncompliance with the rules of procedure. In light of
the fact that this request for an injunction is not properly before this Court, it would be improper
to enjoin the Department of Labor at this time.
CONCLUSION
The bankruptcy court has core jurisdiction to determine both the allowance and the
amount of the Department of Labor’s proof of claim. 28 U.S.C. § 157(b)(2)(B); 11 U.S.C. §
502(b); see also Gulf States Exploration Co., 896 F.2d at 1391. The Court finds no reason to
defer the liquidation of this claim to another forum. Because no adversary proceeding has been
commenced, the request for an injunction is not properly before the Court. The parties should
submit a scheduling order for an evidentiary hearing to determine the allowance and amount of
the Department of Labor’s WARN claim.
Dated: Poughkeepsie, New York
March 14, 2011
/s/ Cecelia G. Morris
United States Bankruptcy Judge
10-11963-cgm Doc 1462 Filed 03/14/11 Entered 03/14/11 16:10:02 Main Document
Pg 11 of 11