Hawkes v. Automated Recovery Sys. of N.M., Inc. (In re Automated Recovery Sys. of N.M., Inc.)

• Decision Date: 02 February 2023
• Docket Number: Case No. 22-10225,Adv. No. 22-1018
• Citation: 648 B.R. 392
• Parties: IN RE: AUTOMATED RECOVERY SYSTEMS OF NEW MEXICO, INC., Debtor. Mitchell and Victoria Hawkes, Plaintiffs, v. Automated Recovery Systems of New Mexico, Inc., San Juan Regional Medical Center, Inc., and San Juan Health Partners Inc., Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

648 B.R. 392

IN RE: AUTOMATED RECOVERY SYSTEMS OF NEW MEXICO, INC., Debtor.Mitchell and Victoria Hawkes, Plaintiffs,

v.Automated Recovery Systems of New Mexico, Inc., San Juan Regional Medical Center, Inc., and San Juan Health Partners Inc., Defendants.

Case No. 22-10225

Adv. No. 22-1018

United States Bankruptcy Court, D. New Mexico.

Signed February 2, 2023

Nicholas H. Mattison, Feferman, Warren & Mattison, Albuquerque, NM, Daniel A. White, Askew & White, LLC, Albuquerque, NM, for Plaintiffs.

Sara Jean MacCarthy, Hall, Render, Killian, Heath & Lyman, PC, Milwaukee, WI, M. Brian Sabey, Mark Lynn Sabey, Hall Render Killian Heath & Lyman PC, Denver, CO, for Defendants San Juan Health Partners, Inc., San Juan Regional Medical Center, Inc.

Gerald R. Velarde, The Law Office of Gerald R. Velarde, Albuquerque, NM, Joseph Yar, Velarde & Yar, Albuquerque, NM, for Defendant Automated Recovery Systems Of New Mexico, Inc.

OPINION

David T. Thuma, United States Bankruptcy Judge

Plaintiffs moved the Court to "revisit" two conclusions reached in the Court's opinion and order denying Plaintiffs’ motion to abstain and/or remand. The Court will deny the motion, except that the Court will make additional findings relating to the supplemental jurisdiction issue, discussed below.

A. Facts.¹

For the purpose of ruling on the motion, the Court finds:²

On January 21, 2022, plaintiffs Mitchell and Victoria Hawkes ("Plaintiffs"), on behalf of themselves and others similarly situated, filed a class action complaint against San Juan Regional Medical Center, Inc., San Juan Health Partners, Inc. (together, the "San Juan Defendants") and Automated Recovery Systems of New Mexico, Inc. ("Debtor"). The complaint initiated civil action No. D-1116-CV-2021-00513 in the Eleventh Judicial District Court, State of New Mexico.

The complaint is set out in pages 11-20 of Plaintiffs’ motion for abstention and remand. All allegations in the complaint are incorporated by reference, including the following paraphrased allegations:

• Debtor and the San Juan Defendants are together referred to as the "Defendants." (e.g., ¶ 9 et seq.).

• Defendants operated a partnership, joint venture and/or joint enterprise ... They shared a community of interest with the object or purpose of collecting medical debt through lawsuits in New Mexico Courts... they shared control over common business activities ... they share management and employees ... and they share profits and losses (¶ 11).

• Defendants operated as each other's employees, agents, apparent agents, or contractors, and acted within the scope of their employment, agency, apparent agency, or contract when engaging in the conduct described herein. Defendants are vicariously liable for each other's actions. (¶ 12).

• Defendants participated in, authorized, aided and abetted, and/or ratified the misconduct described herein. (¶13).

• SJRMC³ and SJHP⁴ hired ARS⁵ to collect on their behalf ... Under the terms of their agreement, ARS was entitled to collect a "commission" - in other words, a contingent fee - if it was able to collect from Mr. and Mrs. Hawkes ... The agreement specifically stated that ARS planned to conduct litigation in its own name to collect the debt. ... SJRMC and SJHP did not sell the debt to ARS.... SJRMC and SJHP remained the parties entitled to payment of the debt.... SJRMC, SJHP, and ARS knew that their conduct was illegal.... Although Defendants’ agreement was essentially an employment agreement for ARS, it was disguised as an "assignment" in an effort to evade New Mexico law. (¶¶ 30-36).

• ARS has engaged in the unauthorized practice of law in hundreds of lawsuits. SJRMC and SJHP received the proceeds of numerous illegal judgments obtained by ARS. (¶¶ 42-43).

• The common questions include: whether ARS engaged in the unauthorized practice of law as defined by New Mexico law; whether Defendants’ conduct violated the UPA; whether ARS's unauthorized practice of law violated New Mexico law in other ways; whether class members are entitled to damages or other relief; and whether ARS's lawsuits are void or it would otherwise be inequitable for Defendants to retain or collect amounts reduced to judgments. (¶47)

• WHEREFORE, Plaintiffs pray that the court: certify this case as a class action and appoint counsel below to represent the class; award actual, statutory, and punitive damages as set forth above; find Defendants to be jointly and severally liable; award declaratory and injunctive relief; award reasonable attorney fees and costs; and grant such further relief that is just and reasonable under the circumstances. (Prayer for Relief).

The claims asserted against Debtor's estate are referred to as the "Debtor Claims." The claims asserted against the San Juan Defendants are referred to as the "San Juan Claims."

If Plaintiffs were awarded all requested relief, Debtor's valuable asset (about 1,500 collection judgments against multiple debtors, scheduled at $10,000,000) would be worthless, and the Defendants would owe a lot of money to Plaintiffs and the class claimants.

Debtor moved to dismiss the complaint, arguing that its actions and procedures were entirely lawful and in accordance with a New Mexico statute and a rule of civil procedure for the New Mexico magistrate courts, where all of the judgments were obtained.

On November 3, 2021, the state court judge denied the motion to dismiss. Debtor filed this chapter 11 case on March 23, 2022.

On May 16, 2022, Plaintiffs filed a motion to apply Bankruptcy Rule⁶ 7023 to the claims allowance process, to set a schedule for certifying class claims, and for an extension of time to file an individual and/or class proof of claim (the "Class Claim Motion"). The Court entered a stipulated order on June 6, 2022, which, inter alia, vacated the bar date for the Plaintiffs and other potential class members and held that Bankruptcy Rule 7023 would apply to class proofs of claim.

The parties mediated their disputes on July 28, 2022. No settlement was reached.

Plaintiffs withdrew the Class Claim Motion on August 17, 2022. Twelve days later, Debtor removed the state court action this proceeding to the district court, commencing this adversary proceeding. The district court referred the proceeding to this Court. Plaintiffs filed the motion for abstention and remand on September 12, 2022, asking the Court to abstain from hearing the proceeding and to remand it to state court. Defendants opposed the motion. On November 22, 2022, the Court denied the motion. Plaintiffs filed the motion for reconsideration on December 6, 2022.

B. The Order Denying the Motion to Abstain and Remand is Interlocutory.

The Court's order denying Plaintiffs’ motion to abstain and remand is interlocutory. See, e.g., In re Denton , 236 B.R. 418, 419 (10th Cir. BAP. 1999) ("an interlocutory order denying a motion to remand or to abstain is appealable as a matter of discretion pursuant to 28 U.S.C. § 158(a)(3)").

Under Rule 54(b), an order adjudicating fewer than all claims of all parties "may be reviewed at any time before entry of a judgment ..." The rule applies to reconsideration of interlocutory orders. See, e.g., C & A Const. Co. v. DHC Dev. , 501 Fed. App'x 763, 779 (10th Cir. 2012) (applying Rule 54(b) to the district court's interlocutory order); Raytheon Constructors, Inc. v. ASARCO, Inc. , 368 F.3d 1214, 1217 (10th Cir. 2003) (Rule 54, not Rule 60, provides the basis for reconsidering an interlocutory order); Trujillo v. Board of Educ. of Albuquerque Public Schools , 212 Fed. App'x 760, 765 (10th Cir. 2007) (unpublished) (same). "[I]interlocutory orders are not subject to the law of the case doctrine and may always be reconsidered prior to final adjudication." Filebark v. U.S. Dept. of Transp., 555 F.3d 1009, 1013 (D.C. Cir. 2009), cert. denied , 558 U.S. 1007, 130 S.Ct. 487, 175 L.Ed.2d 375 (2009) (quoting Langevine v. District of Columbia, 106 F.3d 1018, 1023 (D.C. Cir. 1997) ). "District courts generally remain free to reconsider their earlier interlocutory orders." Naylor Farms, Inc. v. Anadarko OGC Co., 2011 WL 7053794, at *1 (W.D. Okla. 2011) (citing Rimbert v. Eli Lilly and Co., 647 F.3d 1247, 1251 (10th Cir. 2011) ). The Court may reconsider its interlocutory order denying Plaintiffs’ motion to abstain and remand.

Tenth Circuit courts may rely on their general discretionary authority to reconsider interlocutory orders, as justice requires. See, e.g., Friedman v. Dollar Thrifty Automotive Group, Inc., 2015 WL 8479746, at *2 (D. Colo. 2015) ("In deciding a motion to reconsider an interlocutory order, the court is not bound by the stricter standards for considering a Rule 59(e) or 60(b) motion.... Instead, a court has plenary power to revisit and amend interlocutory orders as justice requires."); Trujillo v. Board of Educ. of the Albuquerque Public Schools , 470 F. Supp. 2d 1270, 1275 (D.N.M. 2005), aff'd and remanded , 212 Fed. App'x 760 (10th Cir. 2007) (applying the discretionary standard and determining that it was in the interests of justice to grant a motion to reconsider in part); Dombos v. Janecka, 2012 WL 1372258, at *3 (D.N.M.) ("Notably, neither rule 59 nor rule 60 apply to interlocutory orders a district court reconsiders before entry of final judgment.").

C. The Debtor Claims are Core.

Plaintiffs ask the Court to reconsider the ruling that the Debtor Claims are core.⁷ Plaintiffs point to the following statement in In re Gardner , 913 F.2d 1515 (10th Cir. 1990) :

Bankruptcy courts have jurisdiction over core proceedings. See 28 U.S.C. § 157. Core proceedings are proceedings which have no existence outside of bankruptcy. In re Alexander, 49 B.R. 733, 736 (Bankr. D.N.D. 1985). Actions which do not depend on the bankruptcy laws for their existence and which could proceed in another court are not core proceedings. In re Wood, 825 F.2d 90, 96 (5th Cir. 1987).

913 F.2d at 1517-18 (italics added).

Gardner is consistent with the Court's ruling. Bankruptcy court jurisdiction is derived from § 1334(a...