In re Coalinga Reg'l Med. Ctr.
| Decision Date | 02 October 2019 |
| Docket Number | Case No. 18-13677-B-9 |
| Citation | 608 B.R. 746 |
| Parties | IN RE COALINGA REGIONAL MEDICAL CENTER, a California local health care district, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of California |
Riley C. Walter, Fresno, CA, for Debtor.
Don J. Pool, Fresno, CA, for Creditor Committee.
René Lastreto II, Judge United States Bankruptcy Court
Creditor's committees play valuable roles in chapters 11 and 9 reorganization dramas. They can be inconvenient antagonists for certain debtors trying to emerge at play's end fully reorganized with new funds from a powerful secured creditor. They can be protagonists opposing strong constituencies in a herculean battle for the debtor's existence. This dispute is not about those roles. This is about how the committee's role is introduced.
Here the United States trustee for Region 17 ("UST") appointed a committee of unsecured creditors ("Committee") under authority UST purportedly has under 11 U.S.C. § 1102(a)(1) but the debtor, a rural hospital district, opposes the appointment contending UST did not have that authority under that subsection. After reviewing the positions of the characters in this drama, the court concludes Committee's role was not correctly introduced.
11 U.S.C. § 1102(a)(1) does not authorize Committee's appointment in this chapter 9 case and Committee should be disbanded.
For almost seventy years, the Coalinga Regional Medical Center ("Debtor" or "CRMC") provided medical services to residents in a 900 square mile section of southwestern Fresno County in Central California. Facing financial tumult and numerous lawsuits for many years, CRMC's Board of Directors elected to close the hospital temporarily and filed a petition under Chapter 9 of the United States Bankruptcy Code in September 2018.
Two months later and before entry of the Order for Relief, UST filed its Notice of Appointment of Unsecured Creditors' Committee under 11 U.S.C. §§ 901 and 1102(a). The two committee members were Beckman Coulter, Inc. ("Beckman") and Elitecare Medical Staffing, Inc. ("Elitecare"). Doc. #55. Both creditors filed claims exceeding $200,000.00. Beckman furnished medical equipment, supplies and leasing services to CRMC. Elitecare provided temporary medical personnel. The court entered the Order for Relief on December 21, 2018. Doc. #78. Sometime later, the UST filed an "Amended Appointment of Official Committee of Unsecured Creditors" stating the two committee members were appointed to the Committee effective December 21, 2018. Doc. #159.
During the three months after entry of the Order for Relief, Debtor sought and obtained approval to limit notices, to reject certain executory contracts, and to fix a bar date for filing proofs of claim. Committee was silent. Then Debtor filed a motion for court approval of a proposal to lease the acute care hospital and other facilities to Coalinga Medical Center, LLC, an affiliate of American Advance Management Group ("CMC transaction"). CRMC's Board and the district's voters approved the CMC transaction - understandable since the hospital would reopen if the court approved.1
Now resuscitated, Committee applied to employ two law firms as counsel: Smiley Wang-Ekvall, LLP (doc. #122) and Frandzel, Robins, Bloom and Csato, L.C. (doc. #127). Debtor objected to both applications. Doc. ##143, 146.2 Debtor's arguments opposing the applications largely raise the arguments addressed here. Debtor also asserts that a committee is unnecessary and that the debtor cannot be compelled to pay counsel fees. The court has not ruled on these applications.
Committee filed a limited opposition to the CMC transaction.3 Committee's concerns were: whether the transaction was Debtor's best option, the fate of a portion of the sale or lease proceeds that were arguably free of the interests of the bondholders, and whether the better vehicle for the CMC transaction was in a Plan of Adjustment. The court approved the CMC transaction.
A month later, Beckman filed its own motion asking the court to appoint an Unsecured Creditors Committee under 11 U.S.C. § 1102(a)(2) - applicable in Chapter 9 cases under § 901 (a) - which authorizes the court to appoint "additional committees" if necessary "to assure adequate representation."4 Alternatively, Beckman asks the court to "ratify" the UST's appointment of Committee. Almost concurrently, Debtor filed this motion to vacate appointment of Committee and to disband Committee.5 The hearings on Debtor's and Beckman's motions (and the motions for appointment of Committee counsel) have been continued at the parties' request for about four months.
Meanwhile, the Chapter 9 has advanced apace. CRMC asked the court to approve a loan transaction and CRMC's issuance of new revenue bonds to "refinance" certificates of participation (COP) that would be in default since the CMC transaction involved a lease to a private entity. Certain benefits enjoyed by Debtor, if approved, included releases of certain liens and a lower interest rate. This transaction was approved. Debtor filed many motions to reject certain executory contracts. Debtor also sought and obtained orders about service and scheduling hearings on the Plan of Adjustment and Disclosure Statement. Debtor also filed a Plan of Adjustment and Disclosure Statement.6
Debtor contends that the UST lacks authority to appoint unsecured creditors' committees in chapter 9 cases under 11 U.S.C. § 1102(a)(1). First, the plain language of § 1102(a)(1) does not give the UST authority; it only applies in Chapter 11 cases. Second, the "[UST] has virtually no role in a chapter 9 case due, in part, to the reservation of rights to the States that are not delegated to the federal government in accordance with the Tenth Amendment of the United States Constitution." Doc. #223. And third, the statute listing UST's authorized duties, 28 U.S.C. § 586, omits any reference to chapter 9. Debtor heavily relies on Judge Rhodes' decision, In re City of Detroit, 519 B.R. 673 (Bankr. E.D. Mich. 2014) (" Detroit"), the only published decision the parties or the court found confronting the UST's authority to appoint committees in Chapter 9 cases.
Debtor also contends that § 105 (a) as implemented by Rule 2020 () authorizes the court to disband Committee. Debtor again relies on Detroit to support its argument.
Beckman argues that the UST has the authority to appoint a Committee under §§ 901 and 1102, and the court has the authority to vacate a committee formed thereunder pursuant to § 105, but such a remedy is not warranted in this instance. Doc. #292. Because § 1102 is incorporated in its entirety, Beckman urges, § 1102(a)(1) is applicable in chapter 9 cases. Id. Lastly, Beckman argues that disbanding Committee is unwarranted because Debtor cannot adequately represent the interests of the unsecured creditors since they are "a diverse set of creditors, including ... trade creditors, employees and lessors." Id.
Detroit is not binding on this court, Beckman reminds us, and argues that it is not persuasive because numerous committees have been appointed in Chapter 9 cases in this circuit in the past. Nevertheless, any review of UST actions should be on an "abuse of discretion" basis and Debtor has not established that UST has abused its discretion here. Id.
The UST argues that it has authority under §§ 901 and 1102 to appoint a committee of unsecured creditors. Doc. #294. UST points out that § 901(a) includes both entire sections (e.g., §§ 301, 333, etc.) and subsections (e.g., §§ 347(b), 350(b), etc.), establishing Congress' intent to incorporate § 1102 in its entirety - i.e., if Congress wanted to exclude § 1102(a)(1), it knew how. This fact, UST claims, is evidenced in § 1161 () which specifically excludes § 1102(a)(1). Congress chose not to explicitly exclude § 1102(a)(1) under § 901, which means, according to UST, it intended for § 1102(a)(1) to be applicable in chapter 9 cases. Doc. #294. Detroit did not discuss § 1161 so, UST claims, that case is not persuasive.
Another example why § 1102(a)(1) should be read to include Chapter 9, UST contends, is § 1109. That section provides for parties' rights to be heard in "this chapter" (Chapter 11) and is incorporated in Chapter 9. Putting aside the language "after the order for relief under Chapter 11 ...," UST infers if § 1102(a)(1) is read to exclude Chapter 9, it would render § 1109 meaningless. Id. UST notes Detroit did not analyze § 1109 either.
Finally, UST argues that the court does not have authority to disband Committee. Section 1102 enumerates the court's and the UST's authority pertaining to committees - and nowhere is the court given authority to disband a committee. Supporting their contention, the UST cites two decisions in Chapter 11 cases from the Northern District of Illinois: In re Shorebank Corp., 467 B.R. 156, 164 (Bankr. N.D. Ill. 2012) (" Shorebank") () and In re Caesars Entm't Operating Co., 526 B.R. 265, 269-70 (Bankr. N.D. Ill. 2015) (" Caesars") ().
Committee's opposition largely follows the UST's opposition. Also, Committee urges the court to look at the whole statute (both Chapter 9 and incorporated provisions of the Code). Section 1102 was amended in 1986, Committee correctly points out, eliminating the court's role in committee formation and limiting court review of committee composition and cites In re WHEELER TECH., 139 B.R. 235, 239 (9th Cir. BAP 1992) (). Committee adds another example of a statute...
To continue reading
Request your trial