Columbia Hosp. for Women Med. Ctr., Inc. v. NCRIC, In. (In re Columbia Hosp. for Women Med. Ctr., Inc.)

• Decision Date: 21 September 2011
• Docket Number: Adversary No. 09–10010.,Bankruptcy No. 09–00010.
• Parties: In re COLUMBIA HOSPITAL FOR WOMEN MEDICAL CENTER, INC., Debtor.Columbia Hospital for Women Medical Center, Inc., Plaintiff, v. NCRIC, Inc., Defendant.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

461 B.R. 648

In re COLUMBIA HOSPITAL FOR WOMEN MEDICAL CENTER, INC., Debtor.Columbia Hospital for Women Medical Center, Inc., Plaintiff,
v.
NCRIC, Inc., Defendant.

Bankruptcy No. 09–00010.

Adversary No. 09–10010.

United States Bankruptcy Court, District of Columbia.

Sept. 21, 2011.

[461 B.R. 656]

George R. Pitts, Dickstein Shapiro LLP, Washington, DC, for Plaintiff.

Mary Kim, Dickstein Shapiro LLP, Washington, DC, for Defendant.

MEMORANDUM DECISION S. MARTIN TEEL, JR., Bankruptcy Judge.

The plaintiff, Columbia Hospital for Women Medical Center, Inc. (“Columbia Hospital”), commenced this adversary proceeding by the filing of a complaint seeking payment, in accordance with section 542(b) of the Bankruptcy Code (11 U.S.C.), of amounts due to it under a judgment entered against NCRIC, Inc. (“NCRIC”) in the original amount of $18,220,002, plus interest and costs, by the Superior Court of the District of Columbia on or about February 20, 2004, and affirmed by the District of Columbia Court of Appeals (the “NCRIC Judgment”). Pursuant to a consent order entered in Columbia Hospital's bankruptcy case, NCRIC has turned over to Columbia Hospital all amounts due under the NCRIC Judgment except for $239,044.33 as to which NCRIC has claimed a right of setoff. In support of its right of setoff, NCRIC points to a judgment against Columbia Hospital that it obtained from Jackson & Campbell by way of an assignment made in conformance with D.C.Code § 28–2301. In response, Columbia Hospital contends that NCRIC has no such right of setoff because (1) no mutuality of obligations exists between Columbia Hospital and NCRIC; (2) the assignment to NCRIC of the Jackson & Campbell judgment (the “J & C Judgment”) was champertous; (3) NCRIC has waived its right of setoff; (4) NCRIC's right of setoff, if it exists, is inferior in priority to the liens of other secured creditors; and (5) NCRIC's setoff claim should be denied in the exercise of the court's equitable discretion because NCRIC acquired the J & C Judgment merely as a litigation tactic to gain an advantage in Columbia Hospital's civil action against NCRIC.

To address the issue of setoff, the only remaining issue in this adversary proceeding, the parties agreed that the matter would be tried without witnesses. They submitted, as an agreed trial record, stipulated facts and exhibits,¹ then submitted

[461 B.R. 657]

trial briefs, and then appeared before the court on November 24, 2009, to present oral argument regarding the findings of fact and conclusions of law warranted by the agreed trial record.

The determination of NCRIC's right of setoff, a claim against the estate, goes to the distribution of the res, the estate of the debtor, being administered by this court. Accordingly, this is a paradigmatic core proceeding, both in the statutory sense, because it falls within 28 U.S.C. § 157(b)(1), and in the constitutional law sense regarding what core issues in a bankruptcy system may be heard and decided by an Article I bankruptcy judge instead of an Article III judge. In any event, the parties have consented to the court's hearing and determining the matter.²

For the reasons that follow, I conclude that NCRIC's right of setoff is a valid secured claim.

I A Stipulated Findings of Fact

1. Columbia Hospital is a District of Columbia not-for-profit corporation and is the debtor and debtor in possession in the above-indicated bankruptcy case. Columbia Hospital owned and operated Columbia Hospital for Women, which was chartered by the United States Congress in 1866 to provide health care and medical services to women and infants. The Columbia Hospital for Women operated from 1866 until it closed in 2002.

2. NCRIC is a District of Columbia corporation having its principal place of business at 1115 30th Street, NW, Washington, DC 20007. NCRIC provides medical malpractice insurance to physicians in the District of Columbia and is not in the business of acquiring or purchasing claims.

3. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. The claim set forth in the Amended Complaint of Columbia Hospital for Women Medical Center, Inc. pursuant to Section 542(b) of the Bankruptcy Code for Payment of Judgment Against NCRIC, Inc. is a core matter within the meaning of 28 U.S.C. § 157(b)(2)(A), (B) and (E).

4. On October 2, 2000, NCRIC filed a lawsuit against Columbia Hospital in the Superior Court of the District of Columbia (Case No. 2000–CA–007308–B) seeking approximately $1.3 million in damages for alleged failure to pay premiums under its insurance contract (the “NCRIC Litigation”). Columbia Hospital, represented by Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C. (“Kellogg Huber”), responded with counterclaims for, among other things, breach of contract and tortious interference with business relations.

5. Columbia Hospital became unable to continue operations in 2002. The Boards of Directors of Columbia Hospital and Columbia Hospital for Women Foundation, Inc., a District of Columbia non-profit corporation (the “Foundation”) and the sole member of Columbia Hospital, therefore determined at a joint board meeting held on May 3, 2002 that it would be in the best interests of Columbia Hospital and the community it served that Columbia Hospital

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cease admissions and effectuate an orderly winding-up of its operations. Michael M. Barch and Robin C. Newton were appointed by the Board of Directors of Columbia Hospital and the Foundation to serve as liquidating trustees of Columbia Hospital.

6. By September 26, 2002, Columbia Hospital had ceased operations and had sold its real property, including its hospital facility as well as medical equipment, and had announced that the proceeds from the sale of those assets would be employed to pay its creditors with any remainder being distributed to a nonprofit group to be determined later.

7. After Columbia Hospital filed its counterclaims in the NCRIC Litigation, NCRIC, on or about October 9, 2002, filed a motion to “enlarge” the time for discovery in the NCRIC Litigation.

8. NCRIC's motion was denied by the Superior Court on or about April 2, 2003.

9. On or about June 5, 2003, NCRIC also filed a “motion to require defendant to provide security for costs” in which it urged the court in the NCRIC Litigation to require Columbia Hospital to post security in the amount of $35,000 to cover costs in the NCRIC Litigation. This motion was denied by the court in the NCRIC Litigation by order entered on October 7, 2003.

10. On or about July 10, 2003, counsel for NCRIC sent a letter to counsel for Columbia Hospital in which, among other things, NCRIC proposed settling the NCRIC Litigation.

11. Columbia Hospital responded by letter dated August 5, 2003, rejecting NCRIC's proposal to resolve the case.

12. NCRIC then filed a motion on August 20, 2003, to join Michael Barch and Robin Newton, the Liquidating Trustees of Columbia Hospital, as parties to the NCRIC Litigation.

13. The Superior Court denied NCRIC's motion to join Mr. Barch and Dr. Newton as parties on October 6, 2003.

14. As of October 6, 2003, Jackson & Campbell P.C. (“Jackson & Campbell”) held an unsecured judgment against Columbia Hospital by virtue of a consent judgment entered in its favor and against Columbia Hospital on October 4, 2002, in the case styled Jackson & Campbell, P.C. v. Columbia Hospital for Women Medical Center, Inc., Civil Action No. 02–0000838 (D.C. Super. Ct.) (the “J & C Litigation”) in the original principal amount of $189,429.41 (the “J & C Judgment”).

15. As of October 6, 2003, NCRIC was not a party to, and had no interest in, or connection with, the J & C Litigation.

16. Columbia Hospital issued letters to creditors in October, 2002, in which it stated that it would be unable to satisfy the claims of unsecured creditors and that the debts of and claims against Columbia Hospital far exceeded its assets. NCRIC had obtained a copy of one such letter by June 5, 2003.³

[461 B.R. 659]

17. On October 7, 2003, NCRIC entered into an assignment agreement with Jackson and Campbell regarding the J & C Judgment (the “Assignment Agreement”).

18. On October 8, 2003, Jackson & Campbell filed in the J & C Litigation a “Notice of Assignment of Judgment to NCRIC, Inc.” (“Notice of Assignment”).

19. Columbia Hospital had been represented by Leo Roth, Esq. in the J & C Litigation; however, his representation of Columbia Hospital was limited to negotiation and entry of the J & C Judgment. From and after entry of the J & C Judgment, Columbia Hospital was not represented by counsel in the J & C Litigation.

20. After filing its Notice of Assignment in October 2003, NCRIC commenced post-judgment proceedings against Columbia Hospital and its principals in the J & C Litigation by, among other things, filing discovery motions, taking discovery, and serving subpoenas and other documents upon the former directors and officers of Columbia Hospital personally and through professional process servers, including the following:

a. On Michael Barch on November 25, 2003, at his residence.

b. On Dr. Robin Newton on December 10, 2003, at her residence.

c. On Michael Barch on December 15, 2003, at his residence.

d. On Dr. Safa Rifka on December 15, 2003, at his place of business during business hours.

e. On Peter Ben–Ezra on December 15, 2003, at his place of business during business hours.

f. On Dr. Nabil Asterbadi on December 15, 2003, at his residence.

g. On Dr. Nabil Asterbadi on December 15, 2003, at his place of business during business hours.

h. On Dr. Safa Rifka on January 22, 2004, at his place of business during business hours.

i. On Dr. Nabil Asterbadi on January 22, 2004, at his residence.

j. On Dr. Safa Rifka on January 30, 2004, at his place of business during business hours.

21. Dr. Rifka, Dr. Asterbadi and Mr. Ben Ezra were all directors of Columbia Hospital at the time the decision was made to close the hospital and liquidate its assets.

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