In re Nat. Century Financial Enterprises

• Decision Date: 13 September 2005
• Docket Number: No. 04-3365.,04-3365.
• Citation: 423 F.3d 567
• Parties: In re: NATIONAL CENTURY FINANCIAL ENTERPRISES, INC., Debtor. Amedisys, Inc., et al., Appellants, v. National Century Financial Enterprises, Inc., Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

423 F.3d 567

In re: NATIONAL CENTURY FINANCIAL ENTERPRISES, INC., Debtor Amedisys, Inc., et al., Appellants, v. National Century Financial Enterprises, Inc., Appellee.

No. 04-3365.

United States Court of Appeals, Sixth Circuit.

Argued: June 1, 2005.

Decided and Filed: September 13, 2005.

ARGUED: Stephen E. Chiccarelli, Breazeale, Sachse & Wilson, Baton Rouge, Louisiana, for Appellants. Matthew A. Kairis, Jones Day, Columbus, Ohio, for Appellee. ON BRIEF: Daniel A. DeMarco, Hahn, Loeser & Parks, Cleveland, Ohio, Marc J. Kessler, Hahn, Loeser & Parks, Columbus, Ohio, for Appellants. Matthew A. Kairis, Chad A. Readler, Ryan D. Walters, Jones Day, Columbus, Ohio, for Appellee.

Before: MARTIN and ROGERS, Circuit Judges; FORESTER, District Judge.^*

OPINION

ROGERS, Circuit Judge.

Amedisys, Inc., and its related entities¹ appeal an order enforcing the automatic stay in bankruptcy, 11 U.S.C. § 362(a), against a civil action in which Amedisys is the plaintiff. National Century Financial Enterprises, Inc. ("NCFE"), the debtor, before its bankruptcy, supplied financing to the health care industry. NCFE bought accounts receivable from hospitals and other health care providers. The arrangement shortened the providers' waiting period for payment by insurance companies, Medicare, and Medicaid. Amedisys is a Louisiana corporation supplying home nursing services. Amedisys participated in a financing plan sponsored by one of NCFE's subsidiaries. NCFE and its subsidiaries, including National Premier Financial Services ("NPFS"), NPF VI, and NPF XII (collectively, "the NCFE entities"), filed for Chapter 11 bankruptcy in November 2002. In February 2003, Amedisys sued JP Morgan Chase Manhattan Bank ("JP Morgan") in Louisiana, seeking to recover about $7.3 million in accounts receivable held in a JP Morgan collection account in the name of NPF VI. Upon NCFE's motion, the bankruptcy court applied the automatic stay in bankruptcy, 11 U.S.C. § 362(a), to the Louisiana action. Amedisys appealed this decision; the district court affirmed. Because the Louisiana action is an "act to obtain possession of property of the [bankruptcy] estate," 11 U.S.C. § 362(a)(3), we affirm the bankruptcy court's and district court's conclusions that the automatic stay applies.

I.

The appeal hinges on the questions of (1) whether Amedisys, through the Louisiana action, seeks to obtain possession of accounts receivable funds that NPF VI, an NCFE entity, held in a JP Morgan account; and (2) whether in fact these accounts receivable constitute property of the bankruptcy estate. NCFE is an Ohio Corporation which, until its bankruptcy, was, along with its subsidiaries, the country's largest provider of healthcare accounts receivable financing. JA 556. The district court fully described the contractual relationship between Amedisys and the NCFE entities:

Amedisys, Inc., and its corporate subsidiaries provide home nursing services throughout the southeastern United States. Amedisys participated in a funding program operated by [NCFE], a company that finances health care providers by purchasing. . . their accounts receivable at a discount. NCFE purchased the receivables with funds raised through selling notes that were backed by the receivables themselves.

NCFE created numerous wholly-owned subsidiaries, known as "programs," for the purpose of issuing notes that were secured by pools of receivables and other collateral. The two largest such programs were NPF VI, administered by JP Morgan Chase Bank as indenture trustee, and NPF XII, administered by Bank One, N.A. as indenture trustee. Under the sale and subservice agreements into which NCFE programs and health care providers entered, receivables would be remitted directly into lockbox accounts and the NCFE program would advance funds to the provider on a weekly basis in payment of the receivables.

Amedysis participated in the NPF VI program, and its accounts receivable went into lockbox accounts at Huntington National Bank. The lockbox accounts were in the name of [NPFS]—an NCFE entity—and Amedisys or one of its subsidiaries. Those funds were then swept into a Collection Account at JP Morgan in the name of NPF VI. Though accounts receivable went into the Collection Account, NPF VI did not purchase every account receivable it collected. Section 6.1 of the Sale and Subservice Agreement provided:

The Purchaser and the Seller acknowledge that certain amounts deposited in the Collection Account may relate to Receivables other than Purchased Receivables and that such amounts continue to be owned by the Seller. All such amounts shall be returned to the Seller in accordance with Section 6.3.

The amounts in the Collection Account representing receivables that NPF VI did not purchase were called "overage funds." The Trustee (JP Morgan) was supposed to transfer such funds to Amedisys on NPFS's instruction. Amedisys states that it normally would receive electronic notice of the amount of any overage funds on Tuesdays.

In late October 2002, Amedisys became concerned after hearing reports that NCFE was experiencing financial difficulties. On the final Thursday of the month, Amedisys did not receive the overage funds it expected NPF VI would transfer to it. On November 6, 2002, the Chief Financial Officer of Amedisys performed an accounting and determined that NPF VI owed Amedisys approximately $7.3 million.

Dist. Ct. Op. at 3-5, JA 515-517. JP Morgan's duties as trustee of the collection accounts were outlined in Section 6.5 of the Sale and Subservice Agreement ("the sale agreement"), which provided, "On each purchase date for [Amedisys] . . ., [NPF VI] shall deliver to [JP Morgan] a written statement setting forth the amount to be paid to [Amedisys] from the purchased account in respect of the purchased receivables and [JP Morgan] shall make such payment in accordance with [NPF VI's] instructions." Supp. JA 13. JP Morgan was labeled a trustee in this arrangement only because of its fiduciary duty toward holders of the notes. The bankruptcy court, in a different decision from the one appealed here, has determined that JP Morgan bore no fiduciary duty toward Amedisys.

On November 8, 2002, Amedisys sued JP Morgan, NPF VI, NPFS, NCFE, and Lance Poulsen, the president of NFP VI, in the United States District Court for the Southern District of Ohio ("the Ohio action"). In the complaint, Amedisys demanded the return of the $7.3 million in accounts receivable held in the JP Morgan collection account.

On November 18, 2002, NCFE and its subsidiaries filed for chapter 11 bankruptcy. On December 19, 2002, the district court transferred the Ohio action to the bankruptcy court, as an adversary proceeding in the bankruptcy case. On January 16, 2004, Amedisys filed a second amended complaint in the bankruptcy court naming JP Morgan, NPF VI, NCFE, and NPFS as defendants, asserting the following claims:

I. Actual controversies exist between Amedisys and JP Morgan, and between Amedisys and NCFE, concerning Amedisys' right to have a total of more than $7.3 million in accounts receivable returned to it. Amedisys seeks a declaratory judgment holding that the sale agreement and trust indenture represent one contractual relationship among Amedisys, JP Morgan, and NCFE.

II. Amedisys seeks a declaratory judgment stating that JP Morgan, as an escrow agent, owed fiduciary obligations to Amedisys and violated those obligations.

III. The $7.3 million in accounts receivable is subject to an express trust established by the sale agreement.

IV. Amedisys' cash in the possession or control of the NCFE entities, approximately $7.3 million, is an unjust enrichment occurring by mistake or fraud. The funds should be impressed with a constructive trust requiring that the funds be returned to Amedisys.

V. The $7.3 million in accounts receivable is subject to a resulting trust.

VI. Amedisys is entitled to an immediate turnover of its property under 11 U.S.C. § 542.

VII. NCFE breached the Amedisys-NCFE sales agreement by failing to return timely and properly non-purchased receivables. NCFE also breached the agreement by failing to maintain a detailed accounting record.

VIII. Amedisys is entitled to specific performance of the agreement mandating NCFE to remit $7,337,569 to Amedisys.

IX. NCFE owed to Amedisys a fiduciary duty pursuant to the sale agreement to ensure that Amedisys' interests in the accounts were properly protected. NCFE breached this duty.

X. NCFE repeatedly made intentional misrepresentations to Amedisys, stating that it would ensure that Amedisys' funds would be timely released to it. Amedisys justifiably relied on these misrepresentations and has been directly injured as a result of the reliance.

On May 27, 2004, the bankruptcy court granted NCFE's and JP Morgan's motions for summary judgment as to all counts in the adversary proceeding except for Count VII (alleging that NCFE breached the sale agreement). The bankruptcy court determined that although NCFE did not pay for the disputed $7.3 million in accounts receivable, it "did actually purchase Amedisys's accounts receivable." Therefore, Amedisys would have only a "general contractual claim [against NCFE] for nonpayment"; Amedisys' assertions that it owned the accounts receivable at the time of NCFE's bankruptcy, and therefore that the $7.3 million in the JP Morgan collection account was not part of the bankruptcy estate, were unfounded.² By joint agreement of the parties, Count VII was dismissed on April 14, 2005. At this point, the bankruptcy court's grant of partial summary judgment became a final, appealable order. Amedisys filed a notice of appeal on April 22, 2005, and the appeal is now before the United States District Court for the Southern District of Ohio.

On February 21, 2003, Amedisys brought a state court action in Louisiana against JP Morgan, certain JP Morgan employees, and NCFE's insurer ("the Louisiana action"). JA 559. On March 24, 2003, the...