In re American Development Intern. Corp.
| Decision Date | 27 October 1995 |
| Docket Number | 391-3385.,Civ. A. No. 3:94-CV-2514-D. Bankruptcy No. 391-33645-SAF-7. Adv. No. 393-3372 |
| Citation | 188 BR 925 |
| Parties | In re AMERICAN DEVELOPMENT INTERNATIONAL CORPORATION, Debtor. George S. BAYOUD, Plaintiff-Appellee, v. MEDICAL CENTER HOSPITAL OF GARLAND, INC., General Health Services, Inc., Hospital Corporation of America, and Ornda Healthcorp, Inc., Defendants-Appellees. AMERICAN DEVELOPMENT INTERNATIONAL CORPORATION, Plaintiff-Appellee, v. HOSPITAL CORPORATION OF AMERICA, Defendant-Appellee, Paige B. Bayoud, M.D., Appellant, Robert Yaquinto, Jr., Trustee, Appellee, and G. Communities, Inc., Appellee. |
| Court | U.S. District Court — Northern District of Texas |
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Joyce W. Lindauer (argued), Dallas, TX, for appellant Paige B. Bayoud.
Stephen F. Malouf and Michael R. Mitchell (argued), Law Offices of Stephen F. Malouf, P.C., Dallas, TX, for plaintiff-appellee George S. Bayoud.
Camille R. McLeod (argued), Baker & McKenzie, Dallas, TX, for appellees OrNda Healthcorp, Inc. and G. Communities, Inc.
Robert Yaquinto, Jr. (argued), Trustee, Dallas, TX, for plaintiff-appellee American Development International Corp.
Frank Shor, Dallas, TX, for defendant-appellee General Health Services, Inc.
William B. Chaney (argued), Conant Whittenburg Whittenburg & Schachter, Dallas, TX, for defendant-appellee Hospital Corporation of America.
This is an appeal from an order of the bankruptcy court approving a compromise settlement agreement and enjoining certain litigation. The court must decide a question of standing to appeal, and determine whether the court below erred when it enjoined a nonbankrupt third party from engaging in nonbankruptcy litigation. The court holds that appellant has standing only to challenge the injunction. The court therefore dismisses the appeal in part. The court concludes that although the bankruptcy court acted properly in several respects, it erred by failing to consider and enter the requisite injunction findings, and its broad injunction is not supported by the record. The court therefore vacates the order approving settlement and remands for further proceedings.
Appellant Paige B. Bayoud, M.D. ("Paige") appeals an order of the bankruptcy court approving a settlement agreement and enjoining certain litigation in the chapter 7 bankruptcy of debtor-appellee American Development International Corporation ("ADIC"), and two adversary proceedings that were consolidated with the ADIC bankruptcy. Although the appeal arises in the context of the bankruptcy of ADIC — Paige's wholly-owned corporation — it is necessary to recount in some detail certain related litigation, spawned by a long-standing and bitter dispute between Paige and his physician-brother, plaintiff-appellee George S. Bayoud, M.D. ("George").1
Paige formed ADIC for the purpose of acquiring and owning a medical facility (the "Hospital") located in Garland, Texas. Pursuant to an August 4, 1971 lease agreement (the "Hospital Lease"), North Central Investment Corporation ("NCIC") — owner of the building and land on which the Hospital was located — leased the Hospital to appellee Medical Center Hospital of Garland, Inc. ("MCHG") for a period of 20 years. Paige incorporated MCHG in order to enter into the Hospital Lease and operate the Hospital. Appellee General Health Services, Inc. ("GHS") later purchased MCHG and guaranteed the Hospital Lease. GHS thereafter sold MCHG to appellee Hospital Corporation of America ("HCA"). MCHG and NCIC entered into a supplemental lease agreement (the "Supplemental Lease") of the Hospital. The Supplemental Lease extended the lease term from 20 to 25 years. HCA guaranteed MCHG's obligations under the Hospital Lease and Supplemental Lease. In 1982, as a component of a multi-facility sale, HCA conveyed ownership of MCHG to Republic Health Corporation ("RHC"), the predecessor of appellee OrNda Healthcorp, Inc. ("ORNDA"). RHC neither assumed nor guaranteed the Hospital Lease or Supplemental Lease.
Prior to and during the relevant time period when the ownership of the Hospital tenant was changing and the Hospital Lease was extended by the Supplemental Lease, Paige and his brother George were involved in litigation concerning ownership of the landlord, NCIC. In North Central Inv. Corp. v. Bayoud, Cause No. 78-9851-I in the 162nd Judicial District Court of Dallas County, Texas (the "NCIC Litigation") — a stockholder derivative suit that George initiated — the state court determined inter alia that Paige and George each owned 50% of NCIC. The court also appointed a receiver to liquidate NCIC's assets.2
On December 30, 1988 the NCIC receiver sold the Hospital building and land to Century 21 Mark IV Realtors, Inc. ("Century 21") for $2.3 million, payable partly in the cash sum of $1,185,643.67 and partly by execution and delivery of a real estate lien note (the "Century 21 Note") in the principal sum of $1,114,166.33. The Century 21 Note was secured by a deed of trust on the Hospital building and land, and was payable to Bill Long, District Clerk of Dallas County, for the benefit of NCIC. Also on December 30, 1988 NCIC assigned its rights under the Hospital and Supplemental Leases to Century 21.
Paige contends that he desired to purchase the Hospital in his own name, but that the state court denied the request because he was an NCIC shareholder. Paige maintains that Century 21 was supposed to acquire the Hospital on behalf of him and his medical company, ADI Medical Group ("ADI Medical"). He attacks the state court's order approving the sale to Century 21 on the ground that the order approved a sale for $2.3 million in cash, and the Century 21 Note should not have been accepted as part of the purchase price. He asserts that he made the loan to ADI Medical to acquire the Hospital and that Century 21 used this money to purchase the Hospital. He contends ADI Medical was to acquire the Hospital and that ADIC was retained to manage the facility. Paige also alleges that the Century 21 Note was obtained by fraud.
Century 21 transferred the Hospital building and land — encumbered by the Century 21 Note — to ADIC on April 1, 1989. On April 4, 1989 ADIC filed for bankruptcy, but the case was dismissed a few months later. On June 23, 1989, as part of the NCIC Litigation, the state court awarded ownership of the Century 21 Note to George. This judgment was affirmed on appeal. During the pendency of the appeal, Paige and NCIC deposited cash in lieu of a supersedeas bond, and later posted a supersedeas bond.
On December 15, 1989 RHC and its parent, REPH Acquisition Company ("REPH"), filed for bankruptcy.3 MCHG had already vacated the Hospital premises several months earlier, and had subleased the Hospital. On December 28, 1989 MCHG notified ADIC that it was terminating the Hospital Lease. ADIC did not file a proof of claim in the RHC or REPH bankruptcies. HCA filed claims on its own behalf4 and on behalf of ADIC. RHC initiated various adversary proceedings against HCA. MCHG has since become appellee G. Communities, Inc. a non-operating shell corporation.
On May 6, 1991 ADIC filed for bankruptcy a second time. George obtained relief from the automatic stay so that he could foreclose on the Hospital based upon nonpayment of the Century 21 Note.5 During the lift stay proceedings, the bankruptcy court indicated that if the Century 21 Note was fraudulent, the state court could address the issue. George foreclosed on the Hospital on July 2, 1991.
Paige filed suit in Paige B. Bayoud, Individually and NCIC v. Bayoud, et al., Cause No. 91-07734-J in the 191st Judicial District Court of Dallas County, Texas (the "Bayoud Litigation"), alleging that George had wrongfully foreclosed on the Hospital because the Century 21 Note was fraudulently obtained. The state court granted summary judgment against Paige. The court ruled in relevant part that Paige's claims concerning the validity of the Century 21 Note, the enforceability of the lien, and George's rights under the note, were either determined in the NCIC Litigation or were precluded by the doctrine of res judicata. George counterclaimed against Paige and NCIC, alleging that they were liable for a deficiency that remained on the Century 21 Note following foreclosure. The state court held in favor of Paige and NCIC on the note, concluding they were not liable. The court also determined, however, that Paige was liable to George on the supersedeas undertakings posted in connection with the appeal in the NCIC Litigation, and that George was entitled to recover his attorney's fees from Paige.
Following the state district court's decision in the Bayoud Litigation, Paige initiated an appeal (the "Bayoud Appellate Litigation"). The Bayoud Appellate Litigation has been stayed by the state appeals court pending resolution of the present appeal.
The ADIC case was converted to a chapter 7 liquidation by order entered August 6, 1991, and Robert Yaquinto, Jr. ("Trustee") was appointed trustee. On July 1, 1991, while the case was pending in chapter 11, ADIC filed an adversary proceeding against HCA. American Dev. Int'l Corp. v. Hospital Corp. of Am., Adversary No. 391-3385. In this proceeding ADIC sought to recover against HCA for violations of the Hospital Lease and Supplemental Lease that ADIC contended MCHG committed when it vacated the Hospital in December 1989.
On June 10, 1992 George filed a state court lawsuit against appellees MCHG, GHS, HCA, and RHC, alleging breach of the Hospital and Supplemental Leases. This lawsuit was removed to the bankruptcy court and docketed as Bayoud v. Medical Ctr. Hosp. of Garland, Inc., et al., Adversary No. 393-3372. The proceeding was thereafter consolidated with the ADIC bankruptcy, Adversary No. 391-3385, and the HCA proofs of claim filed in the RHC and REPH bankruptcies.
Paige filed another lawsuit in 1993. In Bayoud and ADI Medical Group v. Century 21,...
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