In Re Bayonne Medical Center
| Decision Date | 26 May 2010 |
| Docket Number | Bankruptcy No. 07-15195 MS.,Adversary No. 08-2256 MS. |
| Citation | 429 B.R. 152 |
| Parties | In re BAYONNE MEDICAL CENTER, Debtor.Allen D. Wilen, as the Liquidating Trustee of Bayonne Medical Center, Plaintiff,v.Pamrapo Savings Bank, S.L.A., Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Sills Cummis Epstein & Gross, P.C., Philip R. White, Andrew H. Sherman, Newark, NJ, for Official Committee of Unsecured Creditors.
Gibbons P.C., Frank Vecchione, Dale E. Barney, Natasha M. Songonuga, Newark, NJ, for Pamrapo Savings Bank, S.L.A.
Opposing motions for summary judgment were presented, with the plaintiff 1 seeking avoidance of a purported preferential transfer. These motions test the concepts of “insider” and “ordinary course of business.” The dispute arises out of partial repayment of a community bank loan. That loan was to and for the benefit of the community's nonprofit hospital. Hospital-bank connections were as expected in Bayonne, New Jersey, a small, densely populated port city set somewhat apart at the southern tip of a water-bound Hudson County peninsula. It is, even today, a tightly knit hometown retaining a certain admirable independence, pride and spirit.
Bayonne Medical Center (“BMC”), established in 1888 and at the heart of its community, encountered the pitfalls of modern hospital economics and was driven to incur more and more debt. Healthcare facilities bond issues floated through the conduit of the New Jersey Health Care Facilities Financing Authority (“HCFFA”) provided aid, then first aid, then were sought out for life support itself. Other financing, including bank loans, supplemented bond sale proceeds. Cash flows depended on such interstices as reimbursement by private health insurers, Medicare, Medicaid, and state charity care funding; outside competition sapped those in-patient pools capable of funding hospital operations; important but financially risky services were terminated (e.g., obstetrics). This hospital's survival (as with many throughout the state and region) was seriously at issue by some time in 2006.
Meanwhile, Pamrapo Savings Bank (“Pamrapo”) 2 operated for generations in Bayonne, expanding its banking business within its niche. It has been and remains in and of Bayonne (having its main office and eight of eleven branches located in the city). Besides certain common memberships on the bank board of directors and the hospital board of trustees which linked the two longstanding local institutions, in 2005 Pamrapo issued a commercial unsecured $2 million line of credit to BMC on favorable terms. In May 2006 the earlier unsecured line of credit was increased to $3 million as a bridge loan in anticipation of $80 million of new bond issue funding.
As BMC fell faster toward bankruptcy (eventually filing on April 16, 2007), Pamrapo was, first, repaid $1 million of its then $3 million loan balance (by check written October 13, 2006, and honored October 17, 2006) out of bond anticipation note financing of $10 million. Then, after the $80 million bond fund application was rejected and a formative hospital board meeting of December 7, 2006, the remaining Pamrapo loan balance became secured with a mortgage on hospital real property. This court has already awarded partial summary judgment to the plaintiff voiding the December mortgage as a preferential transfer to the bank, taking place not within ninety days of BMC's petition filing, but within one year of that date. The extended bankruptcy preference avoidance period (looking back from the petition date up to a full year) was based on a finding that in the mortgage transaction the bank was an “insider” of the hospital. The hospital's dire financial condition (“insolvency”) at the time the mortgage grant became effective went essentially uncontested by the bank. No “ordinary course” defense was raised as to the late-in-the-day securing of the bank loan.
Now before the court are the issues of BMC's solvency at the time of the October 2006 partial loan repayment, Pamrapo's contested status as an alleged “nonstatutory” insider in this transfer, and the disputed defense contention that the repayment was made “in the ordinary course.”
After BMC filed its April 16, 2007 voluntary petition under Chapter 11, an Official Committee of General Unsecured Creditors (the “Committee”) was appointed. By Order entered on September 24, 2007 the court granted the Committee standing to pursue this adversary proceeding to recover alleged preferential or fraudulent transfers to Pamrapo. The Committee filed its complaint in this adversary proceeding on September 16, 2008, later amended on April 14, 2009.3
On April 9, 2009 the court entered an Order confirming the debtor's First Amended Plan of Reorganization which created a liquidating trust, dissolved the Committee and named Allen D. Wilen as the Liquidating Trustee. The Liquidating Trustee became the plaintiff in the ongoing adversary proceeding.4
On November 25, 2009 the plaintiff and defendant filed cross-motions for summary judgment on various counts of the First Amended Complaint.5 The court heard oral argument on December 29, 2009, at which time partial summary judgment was rendered. The court granted the Trustee summary judgment on Counts V and IX (ruling that the December 2006 mortgage transfer was a voidable preference to an insider). Partial summary judgment was also granted to the...
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