Denunzio v. Ivy Holdings, Inc. (In re E. Orange Gen. Hosp., Inc.), Civ. No. 17–1595

• Decision Date: 28 June 2018
• Docket Number: Bankruptcy Case No. 15–31232 (Jointly Administered),Civ. No. 17–1595
• Parties: IN RE: EAST ORANGE GENERAL HOSPITAL, INC., et al., Debtors. Roseann Denunzio, Plaintiff, v. Ivy Holdings, Inc. ; Ivy Intermediate Holdings, Inc.; Prospect Medical Holdings, Inc.; Prospect New Jersey, Inc.; Prospect EOGH, Inc. ; Defendants.
• Court: U.S. District Court — District of New Jersey

587 B.R. 53

IN RE: EAST ORANGE GENERAL HOSPITAL, INC., et al.,¹ Debtors.Roseann Denunzio, Plaintiff,

v.Ivy Holdings, Inc. ; Ivy Intermediate Holdings, Inc.; Prospect Medical Holdings, Inc.; Prospect New Jersey, Inc.; Prospect EOGH, Inc. ; Defendants.

Civ. No. 17–1595

Bankruptcy Case No. 15–31232 (Jointly Administered)

United States District Court, D. New Jersey.

Signed June 28, 2018

Christopher W. Hager, Niedweske Barber Hager, LLC, Morristown, NJ, for Plaintiff.

Bradford J. Sandler, Benesch Friedlander Coplan & Aronoff, L.L.P., Wilmington, DE, Daniel Robert Levy, Epstein Becker & Green PC, Newark, NJ, for Defendants.

KEVIN MCNULTY, U.S.D.J.:

This is an appeal from orders of Judge Vincent F. Papalia of the U.S. Bankruptcy Court for the District of New Jersey. The debtor, a hospital, was sold free and clear in bankruptcy after due notice to creditors, including the plaintiff, who then remained silent but now seeks to assert her claims against the purchaser. Three orders are relevant:

(1) Order dated January 21, 2016, authorizing, inter alia , sale of all the debtor's assets free and clear of liens, claims, and encumbrances. ("Sale Order", Bankruptcy ECF no. 330);

(2) Order dated November 23, 2016, granting the motion of Prospect² to enforce the Sale Order and ordering Ms. DeNunzio to dismiss, without prejudice, her pending lawsuit against Prospect in the Superior Court of New Jersey, Law Division, Essex County. ("Sale Enforcement Order". Bankruptcy ECF No. 867); and

(3) Order dated February 21, 2017, denying Ms. Denunzio's motion for reconsideration of the Sale Enforcement Order and denying the parties' applications for sanctions. ("Reconsideration Order", Bankruptcy ECF No. 912, copy at ECF No. 1–1).

Ms. Denunzio appeals from the second and third orders. For the reasons stated herein, the appeal is denied, and the Sale Enforcement Order and the Reconsideration Order are affirmed.

I. Background

The facts, which are not substantially in dispute, are as follows:

On May 28, 2014, East Orange General Hospital, Inc. and Essex Valley Healthcare, Inc. (collectively, "Debtors") entered into an asset purchase agreement with Prospect EOGH, Inc ("original APA").³ (Bankruptcy ECF No. 57 at ¶ 9).⁴ See also (Bankruptcy ECF No. 330–1 at 1) (referring to the May 28, 2014 Asset Purchase Agreement as the "Original Agreement").

Over a year later, on August 19, 2015, Ms. Denunzio, Appellant here, was terminated from her employment with Debtor East Orange Hospital. (Compl. ¶ 6). She had been working as a laboratory aide and department administrative assistant in the Hospital's Pathology Department since March 1968. (Id. at ¶¶ 4–6).

The next month, "[o]n September 16, 2015, the Debtors received approval of a Certificate of Need from the New Jersey Department of Health for the sale of the Hospital's assets to Prospect [EOGH, Inc.], subject to certain conditions." (Bankruptcy ECF No. 57 at ¶ 10). See also (Compl. ¶ 30). Then, on October 7, 2015, the proposed sale was approved by New Jersey Acting Attorney General John J. Hoffman pursuant to the Community Health Care Assets Protection Act. (Bankruptcy ECF No. 57 at ¶ 10). The proposed sale was also approved by the Superior Court of New Jersey on October 28, 2015. (Id. ) The original APA did not close, however. (Id. at ¶ 11).

Nearly three months after Ms. Denunzio's termination from the Hospital, on November 10, 2015, East Orange General Hospital filed for relief under Chapter 11 of the Bankruptcy Code. (ECF No. 1 of Bankruptcy Case No. 15–31232). On that same date, Essex Valley Healthcare, which is the parent company of East Orange General Hospital, also filed for relief under Chapter 11. (ECF No. 1 of Bankruptcy Case No. 15–31233). On November 13, 2015, Judge Papalia ordered the Chapter 11 cases of East Orange General Hospital and Essex Valley Healthcare to be "consolidated for procedural purposes only and jointly administered under lead Case No. 15–31232." (ECF No. 22 of Bankruptcy Case No. 15–31232, ¶ 2); (ECF No. 4 of Bankruptcy Case No. 15–31233, ¶ 2). Judge Papalia also issued an Order authorizing Debtors to retain and appoint Prime Clerk LLC ("Prime Clerk") as the claims and noticing agent for the Debtors. (Bankruptcy ECF No. 25).⁵

On November 20, 2015, the Debtors as sellers and Prospect EOGH, Inc. as buyer entered into an Amended and Restated Asset Purchase Agreement ("APA").⁶

(Bankruptcy ECF No. 57–2, Exh. B). See (Bankruptcy ECF No. 57 at ¶ 11). See also (Compl. ¶ 31). On that same date, the Debtors filed a Motion for the entry of orders "(i) approving (a) bidding procedures, including bid protections for the stalking horse bidder, (b) form and manner of sale notices, and (c) sale hearing date, and (ii) authorizing and approving (a) the sale of substantially all of the Debtors' assets free and clear of liens, claims, and encumbrances and (b) assumption and assignment of certain executory contracts and unexpired leases." ("Sale Motion"). (Bankruptcy ECF No. 57).

On November 25, 2015, Prime Clerk served Ms. Denunzio and her counsel via First Class Mail with a copy of the Notice of Commencement of Chapter 11 Bankruptcy Cases and the Meeting of Creditors ("Notice of Commencement") (Bankruptcy ECF No. 83). See Affidavit of Service, Exh. B (Bankruptcy ECF No. 89 at 43) (listing "Roseann Denunzio" and "Roseann Denunzio v. EOGH, et al.").⁷

On December 9, 2015, East Orange General Hospital filed a list of all creditors.⁸ (Bankruptcy ECF No. 124). The list included Ms. Denunzio and her counsel. (Id. at 33) (listing "Roseann Denunzio" and "Roseann Denunzio v. EOGH, et al.").

Six days later, on December 15, 2015, the Bankruptcy Court entered an Order approving the bidding procedures and form and manner of notices, and setting a sale hearing date ("Bidding Procedures Order"). (Bankruptcy ECF No. 171).

The next day, on December 16, 2015, East Orange Hospital filed its Schedules of Assets and Liabilities (Bankruptcy ECF No. 175), and Statement of Financial Affairs (Bankruptcy ECF No. 176).⁹ The Hospital's "Schedule F–Creditors Holding Unsecured Nonpriority Claims" form listed "Roseann Denunzio v. EOGH, et al." as a contingent, unliquidated, and disputed "litigation claim." (Id. at 29).¹⁰ The "Amount of Claim" was described as "unknown." (Id. )

On December 18, 2015, Prime Clerk served Ms. Denunzio, through her counsel, via first class mail with a copy of the Notice of Sale of Certain Assets at Auction ("Sale Notice").¹¹ (Bankruptcy ECF No. 208, Exh. A). See Affidavit of Service (Bankruptcy ECF No. 208 at 47) (listing "Roseann Denunzio v. EOGH, et al."). The Sale Notice informed Ms. Denunzio's counsel of the sale-related hearing to be held on January 20, 2016 and the January 6, 2016 deadline for objections. (Bankruptcy ECF No. 208, Exh. A at 4–6). A copy of the Bidding Procedures Order and the Bidding Procedures was attached to the Notice. (Id. at 1 n.2, 7–21).

On January 19, 2016, the Bankruptcy Court issued an Order establishing, inter alia , deadlines to file proofs of claim "(as defined in section 101(5) of the Bankruptcy Code ), including but not limited to all claims of setoff or recoupment and claims arising under section 503(b)(9) of the Bankruptcy Code, against the Debtors that arose on or prior to the Petition Date." (Bankruptcy ECF No. 313 at 2–3). The deadline for all creditors (except governmental units) was set for February 26, 2016 at 5:00 p.m. (Id. at 2–3).

After a hearing on January 20, 2016, the Bankruptcy Court entered its Order authorizing the Debtors to (a) sell substantially all of their assets free and clear of liens, claims, and encumbrances, and (b) assume and assign certain executory contracts and unexpired leases ("Sale Order", Bankruptcy ECF No. 330). See also Bankruptcy ECF No. 337 (copy of the transcript of the Sale Hearing). The Sale Order, filed on January 21, 2016, included a copy of the APA, as amended, as Exhibit A. (Bankruptcy ECF Nos. 330–1 to –8). See also (Sale Order ¶ 31) (providing that the Sale, including, but not limited to, the terms and conditions of the APA and other agreements and transfers, "are hereby authorized and approved in all respects.").

In particular, the Sale Order addressed successor liability. Paragraph 13 of the Order provided as follows:

The Successful Bidder¹² is not a mere continuation of the Debtors, there is not substantial continuity between the Successful Bidder and the Debtors, and there is no continuity of enterprise and no common identity between the Debtors and the Successful Bidder. The Successful Bidder is not holding itself out to the public as a continuation of any Debtor. The Successful Bidder is not a successor to any Debtor or any Debtor's estate by reason of any theory of law or equity, and the Sale does not amount to a consolidation, merger, or de facto merger of Buyer and the Debtors.

(Id. at ¶ 13).¹³ Moreover, in accordance with Section 363(f) of the Bankruptcy Code, paragraph 33 of the Order provided that all claims and interests, known or unknown, would be extinguished by the sale:

[U]pon the Closing Date and pursuant to and except as otherwise set forth in the Agreement, the Assets shall be transferred to Buyer free and clear of all Encumbrances, Claims, interests, and liens... liabilities related to the Internal Revenue Code, or any other liability relating to Debtors or any of the Debtors' predecessors or Affiliates, whether known or unknown, choate or inchoate, filed or untiled, scheduled or unscheduled, noticed or unnoticed, recorded or unrecorded, perfected or unperfected, allowed or disallowed, contingent or non-contingent, liquidated or unliquidated, matured or unmatured, material or nonmaterial, direct or indirect, disputed or undisputed, whether arising prior to or subsequent to the commencement of these chapter 11 cases, and whether imposed by agreement, understanding, law, equity or otherwise, including claims otherwise arising under doctrines of successor liability (other than Assumed Liabilities and Permitted

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