In re Berkelhammer, Bankruptcy No. 01-14772 (AJG).

• Decision Date: 13 June 2002
• Docket Number: Bankruptcy No. 01-14772 (AJG).,Adversary No. 02-8033A.
• Citation: 279 B.R. 660
• Parties: In re Edward B. BERKELHAMMER & Joellen Berkelhammer, Debtors. Edward M. Berkelhammer, Plaintiff, v. Anotonia C. Novella, as Commissioner of the New York State Department of Health, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

279 B.R. 660

In re Edward B. BERKELHAMMER & Joellen Berkelhammer, Debtors Edward M. Berkelhammer, Plaintiff, v. Anotonia C. Novella, as Commissioner of the New York State Department of Health, Defendant.

Bankruptcy No. 01-14772 (AJG).

Adversary No. 02-8033A.

United States Bankruptcy Court, S.D. New York.

June 13, 2002.

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Law Offices of Barton P. Levine, by Barton P. Levine, New York City, for Debtor.

Eliot Spitzer, Attorney General of the State of New York, by Neal S. Mann, Assistant Attorney General, New York City, for Antonia C. Novella, as Commissioner of the New York State Department of Health.

MEMORANDUM OPINION ON MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT

ROBERT D. DRAIN, Bankruptcy Judge.

Debtor and plaintiff Edward M. Berkelhammer (the "Debtor" or "Dr. Berkelhammer") has sought an injunction pursuant to section 105 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., requiring defendant Antonia C. Novella (the "Commissioner"), as Commissioner of the New York State Department of Health ("NYSDH") to refrain from violating section 525(a) of the Bankruptcy Code and, consistent therewith, to (i) cause the Debtor's name to be removed from the "Excluded or Restricted Provider List" of the NYSDH's Medical Assistance Program ("Medicaid Program"), (ii) designate the Debtor as a "full participating Provider" within the meaning of the Medicaid Program, (iii) and promptly take all necessary steps to notify Debtor's employer, Kings County Hospital Center, of such actions.

This proceeding was originally brought only against the NYSDH. At the hearing on NYSDH's motion to dismiss under Fed.R.Civ.P. 12(b)(1), (6), made applicable herein by Bankruptcy Rule 7012, NYSDH agreed (a) to deem the complaint to be amended to add a responsible officer of NYSDH as a defendant and to delete NYSDH as a defendant and (b) to deem the Debtor's pleadings to be a motion for summary judgment pursuant to Fed.R.Civ.P. 56, made applicable herein by Bankruptcy Rule 7056. The parties have now entered into a stipulation memorializing those agreements, and pursuant thereto the Debtor's amended complaint names the Commissioner, as a responsible officer of NYSDH, as the sole defendant.¹

The parties agreed that there were no disputed issues as to any relevant, material fact and that the respective motions could be decided on the pleadings.

FACTS

The Debtor filed for relief under chapter 7 of the Bankruptcy Code on August 28 2001. Since 1990 and continuing during his chapter 7 case, he has been a staff psychiatrist at Kings County Hospital Center in Brooklyn, New York. This employment provides most of his household income and health, disability and life insurance and pension benefits.

Dr. Berkelhammer does not provide services or supplies to Medicaid recipients. Nevertheless, in 1998 Kings County Hospital Center informed him that for it to comply with applicable NYSDH Medicaid Program guidelines, all of its staff physicians must be deemed "Medicaid eligible;" physicians excluded from or ineligible for the Medicaid Program would be terminated unless they promptly became eligible. This was important to Dr. Berkelhammer because he had not been eligible for the Medicaid Program since May 8, 1992.

At that time, he had entered into a Stipulation of Settlement with the New York State Department of Social Services in which he agreed (a) to be excluded from the Medicaid Program with leave to reapply after August 14, 1992, and (b) to pay $127,392.77 in respect of alleged Medicaid overpayments. This Stipulation of Settlement stated that it was not "an admission by [Dr. Berkelhammer] of the accuracy or validity of any of the claims, facts, or findings asserted [against him], or of any willful misconduct, knowing violation of generally accepted medical practice or of any knowing violation of the requirements of the Medicaid program." Indeed, the record contains no suggestion that Dr. Berkelhammer has ever engaged in any misconduct or any knowing violation of the Medicaid Program.

Although the 1992 Stipulation of Settlement stated that Dr. Berkelhammer's $127,392.77 monetary obligation would be "enforceable in the same manner, and with like effect, as that prescribed for final administrative judgments by Section 145 a of the Social Services Law," Dr. Berkelhammer did not pay that obligation. Nor did NYSDH seek to collect the amount owed it. For his part, Dr. Berkelhammer was content to remain on the "Medicaid ineligible list" because his practice did not require him to provide services to Medicaid recipients. Being on the "Medicaid ineligible list" was not a concern until Kings County Hospital Center required in 1998 that he become eligible again or lose his job.

On July 13, 1998, Dr. Berkelhammer and the NYSDH entered into a Reinstatement Agreement pursuant to which Dr. Berkelhammer agreed to pay NYSDH $120,000 in equal monthly installments over ten years and NYSDH reinstated his Medicaid privileges. The Reinstatement Agreement provided that the foregoing obligation was nonrecourse to Dr. Berkelhammer, the only remedy for his default being NYSDH's right to revoke Dr. Berkelhammer's Medicaid privileges. The Reinstatement Agreement provides that NYSDH cannot issue a notice of default until a monthly installment is over 30 days late, and that Dr. Berkelhammer has an additional 30-day grace period before NYSDH can act to terminate his privileges.

For the next three years Dr. Berkelhammer made payments under the Reinstatement Agreement. He filed for relief under chapter 7 for multiple reasons, including tax liabilities. Counsel for the Debtor thereafter gave NYSDH notice of the commencement of the Debtor's chapter 7 case, of the fact that he had instructed the Debtor not to make further payments under the Reinstatement Agreement (as NYSDH was a prepetition creditor), and of the deadline for objecting to the Debtor's discharge. In response, and without obtaining relief from the automatic stay under section 362 of the Bankruptcy Code NYSDH sent Dr. Berkelhammer a notice of default under the Reinstatement Agreement. NYSDH did not file a proof of claim in the chapter 7 case and did not object to the Debtor's discharge. The order granting the Debtor's discharge under section 727 of the Bankruptcy Code was issued on January 18, 2002.

On February 19, 2002, NYSDH issued a letter to Dr. Berkelhammer notifying him that it had terminated his participation in the Medicaid Program, effective November 24, 2001, thirty days after its issuance of the default notice. The only reason for this action, for which NYSDH did not seek relief from the Court, was Dr. Berkelhammer's cessation of payments under the Reinstatement Agreement upon the start of his chapter 7 case. This adversary proceeding ensued. Kings County Hospital Center has informed Dr. Berkelhammer that the termination of his employment is imminent if he remains "Medicaid ineligible."

DISCUSSION

The Commissioner contends that this proceeding should be dismissed because (i) the Court lacks jurisdiction over her in light of NYSDH's sovereign immunity under the Eleventh Amendment and (ii) the amended complaint fails to state a claim. The latter contention is based on the position that (a) 28 U.S.C. § 959(2) required the Debtor to comply with the Reinstatement Agreement postpetition, (b) the Reinstatement Agreement was an executory contract that could be assumed only by curing the monetary default, which the Debtor has not done, and (c) the Debtor's nonrecourse obligation to NYSDH is not subject to section 525(a) of the Bankruptcy Code.

Sovereign Immunity and Ex parte Young

While the United States Supreme Court has in recent years clarified the expansive scope of the states' sovereign immunity, it has continued also to recognize the validity of the Ex parte Young exception to that doctrine. Seminole Tribe v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 1131 n. 16, 134 L.Ed.2d 252 (1996): "We have already seen that several avenues remain open for ensuring state compliance with federal law.... Most notably, an individual may obtain injunctive relief under Ex parte Young [209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908)] in order to remedy a state officer's ongoing violation of federal law." See also Alden v. Maine, 527 U.S. 706, 119 S.Ct. 2240, 2262-63, 144 L.Ed.2d 636 (1999) (Ex parte Young exception is an essential part of sovereign immunity doctrine).

Ex parte Young permits prospective relief against state officers based on the fiction that such a suit is not an action against a "state" but, rather, is meant to prevent an individual's continuing violation of federal law. Idaho v. Coeur d'Alene Tribe of Idaho, 521 U.S. 261, 117 S.Ct. 2028, 2034, 138 L.Ed.2d 438 (1997). There are exceptions to this fiction, however: "The real interests served by the Eleventh Amendment are not to be sacrificed to elementary mechanics of captions and pleadings." Id. For the Young doctrine to apply, the suit must truly be for prospective relief, not, for example, for the recovery of money from the state for a past violation. Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 1356, 39 L.Ed.2d 662 (1974). Relatedly (although the actual application of this limitation is less clear), the court must not intrude upon "special sovereignty interests" of the state (Coeur d'Alene, 117 S.Ct. at 2040): "Idaho's sovereign interest in its lands and waters would be affected in a degree fully as intrusive as almost any conceivable retroactive levy upon funds in its Treasury.... The dignity and status of its statehood allows Idaho to rely on its Eleventh Amendment immunity and to insist upon responding to these [quiet title] claims in its own courts...." Id. at 2043.² Finally, there must not be an existing federal remedial scheme that is so detailed as to preclude the application of judicially created equitable remedies. Seminole Tribe, 517 U.S. at 74, 116 S.Ct. 1114. "Our precedents do teach us, nevertheless, that...