In re Allegheny Health, Educ. & Research Found.

• Citation: 233 BR 671
• Decision Date: 06 May 1999
• Docket Number: Adversary No. 99-2043-MBM.,Bankruptcy No. 98-25773-MBM through 98-25777-MBM
• Parties: In re ALLEGHENY HEALTH, EDUCATION AND RESEARCH FOUNDATION, Allegheny University of the Health Sciences, Allegheny University Medical Practices, Allegheny Hospitals, Centennial and Allegheny University Hospitals-East, Debtors. Tenet Healthcare Corporation and Tenet HealthSystem Philadelphia, Inc., Plaintiffs, v. Kay Williams, CRNP and Pennsylvania Hospital, Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania

233 B.R. 671 (1999)

In re ALLEGHENY HEALTH, EDUCATION AND RESEARCH FOUNDATION, Allegheny University of the Health Sciences, Allegheny University Medical Practices, Allegheny Hospitals, Centennial and Allegheny University Hospitals-East, Debtors Tenet Healthcare Corporation and Tenet HealthSystem Philadelphia, Inc., Plaintiffs, v. Kay Williams, CRNP and Pennsylvania Hospital, Defendants.

Bankruptcy Nos. 98-25773-MBM through 98-25777-MBM, Adversary No. 99-2043-MBM.

United States Bankruptcy Court, W.D. Pennsylvania, Pittsburgh Division.

May 6, 1999.

COPYRIGHT MATERIAL OMITTED

David Zalesne, Klehr, Harrison, Harvey, Branzburg & Ellers LP, Philadelphia, PA, Peter D'Apice, Gibson, Dunn & Crutcher LLP, Dallas, TX.

MEMORANDUM AND ORDER OF COURT

M. BRUCE MCCULLOUGH, Bankruptcy Judge.

AND NOW, this 6th day of May, 1999, upon consideration of (a) Counts A-F and H of plaintiffs' First Amended Complaint, wherein plaintiffs assert that both defendants (i) misappropriated property of the above-captioned debtors' bankruptcy estate in the form of a computer disk (hereafter "the Zip Disk") and alleged intellectual property (hereafter "the Alleged Intellectual Property"),¹ (ii) violated this Court's order dated October 1, 1998, which order approved the sale of the instant debtors' assets to plaintiffs, because defendants failed to turn over the Zip Disk and Alleged Intellectual Property, (iii) misappropriated plaintiffs' trade secrets, which trade secrets plaintiffs contend comprise a portion of the Alleged Intellectual Property, (iv) engaged in unfair competition under Pennsylvania law because defendants usurped, or passed off as their own, particular portions of the Alleged Intellectual Property, (v) violated the Federal Lanham Act by engaging in the conduct complained of in the unfair competition count, (vi) converted the Zip Disk and the Alleged Intellectual Property, (vii) have engaged in copyright infringement with respect to copyrights which plaintiffs contend comprise a portion of the Alleged Intellectual Property, (b) Count G of plaintiffs' First Amended Complaint, wherein plaintiffs assert that Kay Williams, one of the instant defendants, has breached her fiduciary duty to the debtor-affiliated enterprise whose assets were ultimately purchased by plaintiffs on October 1, 1998, because Williams misused the Alleged Intellectual Property, (c) defendants' Answer and Affirmative Defenses to plaintiffs' initial complaint, wherein defendants contend, inter alia, that (i) this Court lacks subject matter jurisdiction over the claims pursued by plaintiffs in their complaint, (ii) venue is not proper in this Court with respect to plaintiffs' claims, and defendants are unfairly prejudiced by the inconvenient geographic location of plaintiffs' chosen forum (i.e., this Court), and (iii) plaintiffs' complaint fails to state claims upon which monetary, equitable, or injunctive relief can be granted, (d) the parties' respective trial briefs and memoranda of law regarding jurisdiction and venue, (e) this Court's order dated October 1, 1998, and in particular paragraph 7 thereof, which paragraph authorized the creation of an Indemnity Escrow from which could be satisfied the instant debtors' obligations of indemnity vis-a-vis plaintiffs as set forth in the Asset Purchase Agreement between the instant debtors and plaintiffs (hereafter "the Asset Purchase Agreement"), and (f) the Asset Purchase Agreement, and in particular, (i) paragraph 3.12 thereof, wherein the instant debtors warranted or represented that they "owned and held good and valid title . . . to all" of their personal property, and that, "at closing, they . . . would convey to . . . plaintiffs good and valid title to all" such property, and (ii) paragraph 9.01(a) thereof, wherein the instant debtors and plaintiffs agreed that the debtors would indemnify plaintiffs from and against any losses that plaintiffs might incur as a result of "any inaccuracy of any representation or warranty of" the debtors; and subsequent to the Court's denial of plaintiffs' request for a temporary restraining order with respect to defendants' continued use of the Alleged Intellectual Property; and after hearings on March 15-16, 1999, and April 13, 1999, it is hereby ORDERED, ADJUDGED, AND DECREED that (a) the first count of plaintiffs' First Amended Complaint, which count pleads a claim for misappropriation of bankruptcy estate property, shall be DISMISSED WITH PREJUDICE because said count fails to state a claim upon which relief can be granted, (b) the second count of plaintiffs' First Amended Complaint, which count pleads a claim for violation of the Court's October 1, 1998 order, shall be DISMISSED WITH PREJUDICE because said count, to the extent that it is premised upon defendants' failure to turn (1) the Zip Disk over to plaintiffs, is rendered moot by defendants' subsequent turnover of the Zip Disk, and (ii) the Alleged Intellectual Property over to plaintiffs, fails to state a claim upon which relief can be granted, (c) this Court has SUBJECT MATTER JURISDICTION over the remaining six counts of plaintiffs' First Amended Complaint because their outcome could conceivably have an effect upon the bankruptcy estate of the instant debtors, (d) plaintiffs' remaining six counts each constitute NONCORE PROCEEDINGS, (e) VENUE with respect to plaintiffs' remaining six counts is appropriate in this Court pursuant to 28 U.S.C. § 1409(a) because 28 U.S.C. § 1409(d) does not apply to said counts, and (f) resolution of defendants' request, pursuant to 28 U.S.C. § 1412, for transfer of plaintiffs' remaining six counts to the bankruptcy court for the Eastern District of Pennsylvania, shall be DEFERRED until after June 10, 1999, which is the date by which the parties must file formal written pleadings regarding such relief.

I.

The first count of plaintiffs' First Amended Complaint pleads a claim for misappropriation of property of the instant debtors' bankruptcy estate in the form of the Zip Disk and the Alleged Intellectual Property, and seeks, as the primary requested relief, an order from this Court directing defendants to turn such property over to plaintiffs. The Court finds curious this particular cause of action, and for several reasons must ultimately dismiss it for failure to state a claim upon which relief can be granted.

First, there can be no dispute, and the parties appear to agree, that plaintiffs purchased the Zip Disk and the Alleged Intellectual Property, to the extent that it exists, as a result of the October 1, 1998 sale in this Court. Consequently, the Zip Disk and the Alleged Intellectual Property, to the extent that it exists, clearly can no longer constitute property of the instant debtors' bankruptcy estate; instead, said property is now exclusively owned by plaintiffs. That being the case, it simply is not legally possible for plaintiffs to recover, via the first count in their instant complaint, misappropriated estate property; rather, any such recovery necessarily would be of plaintiffs' own property instead of property of the estate. Plaintiffs, of course, recognize this point because they seek recovery of the property in question not for the benefit of the debtors' bankruptcy estate but for themselves, as reflected in their prayer for relief in their first count.

With the understanding that plaintiffs' first count merely pleads a routine cause of action against defendants for misappropriation of, and ultimate turnover to, plaintiffs' of plaintiffs' property, a dismissal of plaintiffs' first count would be inappropriate because said count, described in that fashion, states an actionable claim upon which relief can be granted. However, and while the language in plaintiffs' First Amended Complaint does not reveal as much, a reading of plaintiffs' final memorandum on jurisdiction and venue (i.e., Plaintiffs' Reply to Defendants' Memorandum of Law Regarding Jurisdiction and Venue) makes clear to this Court that plaintiffs, via their first count, essentially assert the right of turnover of bankruptcy estate property which is exclusively provided to a trustee or debtor-in-possession pursuant to 11 U.S.C. § 542(a). Defendants vigorously maintain that plaintiffs lack standing to assert any such right of property recovery under § 542(a). Plaintiffs nevertheless contend that they have standing to assert said right because, according to plaintiffs, they obtained said right, or more appropriately the cause of action embodying said right, as a result of the October 1, 1998 purchase of assets from the instant debtors. For support of their position, plaintiffs point to paragraph 2.01(l) of the Asset Purchase Agreement, which provides, in relevant part, that the instant debtors "shall sell or assign . . . to plaintiffs . . . any and all claims and causes of action, including privileges related thereto, of . . . the debtors against third parties relating to the value, condition or title to the Assets." Unfortunately for plaintiffs, the Court must reject their position for several reasons.²

First, plaintiffs could not have obtained the instant debtors' bankruptcy estate's § 542(a) cause of action against defendants via the October 1, 1998 sale because (a) such a cause of action is not significantly unlike other statutorily-created actions under Chapter 5 of the Bankruptcy Code, which actions may not be assigned unless, consistent with 11 U.S.C. § 1123(b)(3)(B), such an assignment is to a representative of a bankruptcy estate for the sole purpose of pursuing said cause of action, see In re Sweetwater, 55 B.R. 724, 729-34 (D.Utah 1985), aff'd in part, rev'd in part on other grounds, 884 F.2d 1323 (10th Cir.1989) (also pointing out that assignment of such a cause of action under 11 U.S.C. § 1123(a)(5)(B), (D), and (b)(4) is impermissible because such an action, while it belongs to a debtor or its estate, does not constitute "property of the estate" under 11 U.S.C. § 541(a)); 9B Am....