S&B Surgery Center

OCR transcription for search; preserved printed pages are authoritative

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ENTERED
AUG 18 2009

CLERK: © BANKRUPTOY COURT

CENTRAL ELST RST OF CALIFORNIA
: Deputy Clerk

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AUTHENTI
U.S. GOVER

TED
INFORMA]IPN
GPO

In re:

$&B SURGERY CENTER, INC.,
dba S&B Surgery Center, II
Debtor.

l. Introduction

This case raises the issue of what a
chapter 11 committee of unsecured creditors
must do to meet its statutory obligation under
§ 1102(b)(3)' to provide access to information
for unsecured creditors. The court holds that,
under the facts of this case, the committee
must establish and. maintain an_ internet
website to provide non-confidential information

' Unless otherwise indicated, all chapter,

section and rule references are to the
Bankruptcy Code, 11 US.C.A. §§ 101-1532
(West 2008) and to the Federal Rules of
Bankruptcy Procedure, Rules 1001-9036.

ENT

Case 2:09-bk-19825-PC Doc125 Filed 08/17/09 Entered 08/18/09 18:55:21 Des¢
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Page 1 of 5

yo FILED

AG i 7209

QUIRK ES,
im ae Ca,
F “a

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.: LAQ9-19825SB
Chapter 11
OPINION REQUIRING CREDITORS’

COMMITTEE TO ESTABLISH WEBSITE
FOR CREDITOR INFORMATION

Date: July 28, 2009
Time: 2:00 p.m.
Ctrm: 1575

Floor: 15th

for unsecured creditors regarding the chapter
11 case.’

ll. Relevant Facts

S & B Surgery Center, Inc. (“S&B”),
a chapter 11 debtor in possession, operates
an out-patient surgery center in Century City
(a district in the western part of Los Angeles).
5&B has approximately 70 unsecured priority
prepetition claimants (mostly wage claimants),
and some 150 general unsecured creditors.

* While such a website may also be used to
provide confidential information with password
protection to creditors who have signed an
appropriate confidentiality agreement, this
issue has not been raised in this case.

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Case 2:09-bk-19825-PC Doc125 Filed 08/17/09 Entered 08/18/09 18:55:21 Desa

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The total of unsecured prepetition claims
exceeds $36 million. $&B anticipates
confirming a reorganization plan that will
permit it to continue in business.3

To fulfill its § 1102(b)(3)(A) duties to
unsecured creditors, the committee has
proposed that it establish a call-in telephone
number through which creditors may request
information and provide comments regarding
the case, and that the committee’s counsel be
prepared to respond as appropriate to such
calls.

The committee requests that it be excused
from providing a website for making
information available, because it projects that
the cost of establishing and maintaining such
a website would range from $500 to $3,000
per month. The committee arques that such a
cost is excessive and unwarranted in this case
(which it describes as a “small case”).

ill. Analysis

The Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 ("“BAPCPA")}
added subsection (3) to § 1102(b), which
states in relevant part:

A committee appointed under
subsection (a) shall—

(A) provide access to information for
creditors who—

(i) hold claims of the kind represented
by that committee; and

(ii) are not appointed to the

committee;
(B) solicit and receive comments from
the creditors described in

subparagraph (A); and

{C) be subject te a court order that
compels any additional report or
disclosure to be made to the creditors
described in subparagraph (A).

This motion relates primarily fo the duty of
providing information imposed by
§ 1102(b)(3)(A).

*$&B maintains that it is operationally solvent,
and that its financial difficulties arise from its
guarantees that it has given for a substantial
part of the debt of Doctors Hospital Century
City, another debtor in this court.

Page 2 of 5

The language of BAPCPA does not define
the “access” or “information” that § 1102(b)(3}
requires. Both the legislative history of
§1102(b)(3) and the caselaw thereunder give
sparse guidance on how to apply the statutory
provisions.

A. The House Report

The House Report containing — the
legislative history of § 1102(b}\(3} sheds little
light on the application of this provision:

Section 405(b} requires the committee
to give creditors having claims of the
kind represented by the committee
access to information. In addition, the
committee must solicit and receive
comments from these creditors and,
pursuant to court order, make
additional reports or disclosures
available to them.

H.R. Rep. No. 109-31, at 87 (2005), reprinted
in 2005 U.S.C.C.A.N. 88, 153.

This statement does not provide any
meaningful guidance regarding the type of
information to which access must be given or
the manner in which it should be
communicated. Accord, In re Refco inc.,
336 B.R. 187, 190 n.1 (Bankr, $.D.N.Y. 2006).
In addition, the House Report does not
indicate whether an_ official creditors’
committee faces any sanctions, other than
being subject to a court order compelling the
provision of additional information, if the
committee does not provide adequate access
to relevant information about the case. /d.

B. Caselaw

The only published opinion on the
application of § 1102({b)(3) is the Refco
opinion by Judge Robert Drain, which sets
forth a masterful and detailed consideration of
this section in light of its history and policy.
Judge Drain based his analysis on the similar
duties imposed on chapter 7 trustees by
§ 704(7) and the caselaw thereunder, on
similar provisions under the Bankruptcy Act of
1898 and the limited caselaw thereunder, and
on the function of a creditors’ committee in a
chapter 11 bankruptcy case. See Refco, 336
BR. at 192-98.

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Case 2:09-bk-19825-PC Doc125 Filed 08/17/09 Entered 08/18/09 18:55:21 Des¢

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Judge Drain found three propositions
relating to a chapter 7 trustee’s duties that
apply to a committee of creditors under
§ 1102(b)(3)(A). First, a chapter 7 trustee has
a fairly extensive duty under § 704(7)} to keep
parties in interest informed. Refco, 336 B.R.
at 193 (citing Pineiro v. PBGC, 318 F. Supp.
2d 67, 102 (S.D.N.Y. 2003}). Second, the
§ 704(7) duty of a chapter 7 trustee is limited
and does not include providing privileged
information or information that is proprietary or
confidential. Refco, 336 B.R. at 193. Third,
a trustee’s right to a protective order is
informed by the trustee’s fiduciary duties to
creditors and the estate. /d.

In addition, Judge Drain emphasized the
pivotal role of creditors’ committees in the
bankruptcy process. Their diverse functions,
he stated, should be considered in
determining creditors’ committees’ duties
under § 1102(b)(3}:

Official committees have diverse
duties: they are the primary
negotiating bodies for a chapter 11
plan; they also provide supervision of
the debtor and execute an oversight
function; they may investigate the
debtor's assets and affairs; and they
may perform such other services as
are in the interest of the unsecured
creditor body.

fd. at 1195 (citing Johns-Manville Sales Corp.
v. Doan (in re Johns-Manville Corp.), 26 BR.
919, 925 (Bankr. S.D.N.Y. 1983)). Many of
the functions of a creditors’ committee, Judge
Drain noted, require the acquisition and
preservation of confidential information,
including information protected by the
attorney-client privilege and counsel's duties
of confidentiality. Creditors who are not
members of the committee generally should
not be provided access to this confidential
information, he stated.’

The court in Refco recognized that the
application of § 1102(b)(3)(A) requires a

* Judge Drain noted that some confidential
information may be provided under a suitable
confidentiality agreement to certain creditors
with a need to receive the information at issue.
See fd. at 198.

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balancing of a committee's duties of disclosure
to its constituents {usually the unsecured
creditors) with the need to protect sensitive
information, to preserve the attorney-client
privilege and (where applicable) to comply
with securities laws. /d. at 197. This balance
must be struck in each individual case, and
varies from one case to another.

In light of these considerations, Judge
Drain interpreted § 1102(b)(3)(A) to require
that the committee provide access to
information through an internet website, and
issued an order requiring the committee to
establish and maintain a website to provide
information to creditors. 336 B.R. at 200. The
order listed twelve requirements the
committee of creditors must meet on its
website.” Id.

* The Refco court ordered that twelve

requirements be met on the website:
“(1) general information concerning — the
chapter 11 cases of Refco Inc. and its
affiliated debtors, including case dockets,
access te docket filings, and general
information concerning significant parties in
the cases; (2) monthly Committee written
reports summarizing recent proceedings,
events and public financial information; (3)
highlights of significant events in the cases; (4)
a calendar with upcoming significant events;
(5) access to the claims docket as and when
established by the Debtors or any claim agent
retained in the cases; (6) a general overview
of the chapter 11 process; (7) press release
issued by each of the Committee and the
Debtors; {8} a non-public registration form for
creditors to request “real-time” case updates
via e-mail; (9) a non-public form to submit
creditor questions, comments and requests for
access to information; (10) responses to
creditor questions, comments and requests for
access ta information provided, that the
Committee may privately provide such
responses in the exercise of its reasonable
discretion, including in the light of the nature of
the information request and the creditor's
agreements to appropriate confidentiality and
trading constraints; (11} answers to frequently
asked questions; (12) links to other relevant
websites.” 336 B.R. at 200.

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Case 2:09-bk-19825-PC Doc125 Filed 08/17/09 Entered 08/18/09 18:55:21 Des¢

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The order also stated that the creditors’
committee must distribute case updates by e-
mail for creditors registered for this service on
the website, and that the committee must
establish and maintain a telephone number
and an e-mail address for creditors to submit
questions and comments. /d.

C. Application to This Case

The committee in this case contends that
this chapter 11 case is relatively small, in
comparison to Refco. Therefore, relying on a
footnote in the Refco decision that a website
“may not be justified in a smaller case,” the
committee argues that it should be excused
from establishing and maintaining such a
website. See id. at 198 n.11. However, the
court finds that, with more than 220 unsecured
creditors and over $36 million in unsecured
claims, this a medium sized case, in which
establishment of a website should be required.

The committee next argues that
the expense to establish and maintain a
website is burdensome, and thus
unwarranted. The committee's cost estimates
range from $500 to $3,000 per month.®

The court does not find this expense
burdensome in this case. If the cost is $1000
per month, the total cost of maintaining the
website for two years (24 months} would be
$24,000. The debtor’s schedules list more
than $25 million in assets. Viewed in this
context, the cost of setting up and maintaining
the website for the duration of this case is
minimal. This relatively insignificant expense
should be given fittle weight when balanced
against the creditors’ significant need for
current information in this fairly large and
rapidly moving case.

The court leaves open the question
whether all twelve Refco requirements must
be satisfied in this case, so long as the needs
of the non-commitiee creditors are met. This

* The court would not be surprised if a
website could be established for a lower price.
In this technologically advanced age, setting
up a website is not a burdensome
undertaking. This court does not require a
dedicated website; the committee may add its
information onto an existing provider's site.

Page 4 of 5

issue is beyond the scope of the motion before
the court, and remains to be addressed.

IV. Conclusion
The court finds that the committee in this
case must establish a website to satisfy its
duties under § 1102(b)}{3){A) to provide access
to information to the unsecured creditors.

Dated: August 18, 2009

y

n. Sapfuel/l/ Bufford
Upited States Bankruptcy Judge

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Case 2:09-bk-19825-PC Doc125 Filed 08/17/09 Entered 08/18/09 18:55:21 Des¢

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NOTE TO USERS OF THIS FORM:
1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document.
2) The title of the judgment or order and all service information must be filled in by the party lodging the order.
3) Category I. below: The United States trustee and case trustee (if any} will always be in this category.
4) Category Il. below: List ONLY addresses for debtor (and attorney}, movant (or attorney) and person/entity (or
attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in
category I.

NOTICE OF ENTERED ORDER AND SERVICE LIST

Notice is given by the court that a judgment or order entitled (specify) OPINION REQUIRING
CREDITORS’ COMMITTEE TO ESTABLISH WEBSITE FOR CREDITOR INFORMATION was entered
on the date indicated as “Entered”on the first page of this judgment or order and will be served in the
manner indicated below:

|. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEE”) — Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of August 17, 2009, the
following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary
proceeding to receive NEF transmission at the email address(es) indicated below.

Jeffrey L. Kandel, Esq. jkandel@pszjlaw.com

Samuel R. Maizel, Esq. smaizel@pszjlaw.com
Benjamin Seigel, Esq. bseigel@buchalter.com
Jeffrey K. Garfinkle, Esq. bkgroup@buchalter.com
United States Trustee ustpregion16.la.ecf@usdoj.gov
Dare Law, Esq. dare.law @usdoj.gov

Russell Clementson, Esq. russell.clementson@usdoj.gov

L] Service information continued on attached page

ll. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or
order was sent by United States Mail, first class, postage prepaid, to the following person(s) and/or
entity{ies) at the address(es) indicated below:

S&B Surgery Center

dba S&B Surgery Center II
120 South Spalding Drive
Suite 301
Beverly Hills, California 90212

[] Service information continued on attached page

lll. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this
judgment or order which bears an “Entered” stamp, the party lodging the judgment or order will serve a
complete copy bearing an “Entered” stamp by U.S. Mail, overnight mail, facsimile transmission or email
and file a proof of service of the entered order on the following person(s) and/or entity(ies) at the
address(es), facsimile transmission number(s), and/or email address(es) indicated below:

L] Service information continued on attached page

ADDITIONAL SERVICE INFORMATION (if needed):