In re Consol. Medical Transport, Inc.

• Decision Date: 17 October 2003
• Docket Number: Adversary No. 02 A 00210.,Adversary No. 01 A 00458.,Bankruptcy No. 00 B 21108.
• Citation: 300 B.R. 435
• Parties: In re CONSOLIDATED MEDICAL TRANSPORT, INC., Debtor. Bennett Three Leasing Services, Inc., d/b/a Daley's Ambulance Service, Plaintiff, v. Consolidated Medical Transport, Inc., Defendant. Daley's Medical Rental Supply, Inc., Plaintiff, v. Daleyco, Inc. d/b/a Daley's Ambulance Service and Bennett Three Leasing Services, Inc., Defendants, Third-Party Plaintiffs, v. Consolidated Medical Transport, Inc., Third-Party Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

Page 435

300 B.R. 435

In re CONSOLIDATED MEDICAL TRANSPORT, INC., Debtor.

Bennett Three Leasing Services, Inc., d/b/a Daley's Ambulance Service, Plaintiff, v. Consolidated Medical Transport, Inc., Defendant.

Daley's Medical Rental Supply, Inc., Plaintiff, v. Daleyco, Inc. d/b/a Daley's Ambulance Service and Bennett Three Leasing Services, Inc., Defendants, Third-Party Plaintiffs, v. Consolidated Medical Transport, Inc., Third-Party Defendant.

Bankruptcy No. 00 B 21108.

Adversary No. 01 A 00458.

Adversary No. 02 A 00210.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

October 17, 2003.

COPYRIGHT MATERIAL OMITTED

Keevan Morgan, Morgan & Bley Ltd., Chicago, IL, for Debtor/Defendant.

Jose A. Isasi, Sachnoff & Weaver, Chicago, IL, for Plaintiff.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JACK B. SCHMETTERER, Bankruptcy Judge.

These adversary proceedings consolidated for trial relate to the bankruptcy case filed by Debtor-Defendant Consolidated Medical Transport, Inc. d/b/a CoMed Transport ("CoMed" or "Debtor-Defendant") under Chapter 11. They involve an ongoing dispute stemming from the sale in bankruptcy of CoMed's assets under 11 U.S.C. § 363 to Bennett Three Leasing Services, Inc., and to Bennett's nominee Daleyco, Inc, d/b/a Daley's Ambulance Service (collectively "Bennett" or "Plaintiff"). Bennett seeks judgment that the Debtor-Defendant breached certain provisions of the purchase agreement with respect to assigned medicare receivables, and that Comed made misrepresentations regarding an expired lease also assigned to it through the sale.

The Adversary proceedings were tried, evidence taken, the parties rested, and the Court now makes and enters the following Findings of Fact and Conclusions of Law.

For reasons detailed below, judgment will enter for Plaintiff on Count I of Adversary 01 A 00458 and Count I of the Counter-complaint in Adversary 02 A 00210 (the Medicare issue), and in favor of Debtor-Defendant as to Count II of Adversary 01 A 00458 and Count II of the Counter-complaint in Adversary 02 A 00210 (the Lease issue).

HISTORY AND RELATED LITIGATION

The parties used the sale as a starting point for extensive litigation.

CoMed filed a four-count lawsuit against Bennett on May 11, 2001 in Adversary Complaint No. 01 A 00440. It alleged that Bennett breached the purchase agreements by failing to make payments to former Comed employees, permitting Comed's property to be damaged while in its care, for failure to pay rent for the occupancy of premises at 1234 Sibley Boulevard, and for failing to turn over certain accounts receivables collected on behalf of Comed. On October 25, 2001 the parties settled three out of the four Counts of that Adversary, and the remaining count was dismissed.

Bennett filed the first of the two captioned Adversary proceedings against CoMed on May 15, 2001. Adversary Complaint 01 A 00458. It alleged in Count I that CoMed breached the Lot 2 Purchase Agreements relating to certain medicare accounts receivables by causing the government agencies administrating Medicare to have a claim against those accounts receivables, thus rendering them uncollectible. Count II alleged breach of contract based on Bennett's purchase of a purported "month-to-month lease" on the dispatch center at 1234 Sibley Boulevard ("Sibley Lease") which lease, according to Bennett, had already expired. Bennett charged in Count III that John Daley, Jr., President of CoMed, was unjustly enriched as a result of payments made to obtain the purported "month-to-month lease." Count IV alleged breach of contract for failure to turnover property that was purportedly assigned as part of a contract with the Town of Munster. Count V pleaded breach of contract based on Comed's alleged failure to credit certain payments of 401(k) funds withheld from the paychecks of former Comed employees. CoMed responded with successive motions to dismiss and for summary judgment, which were earlier denied.

Daley's Medical Rental Supply, Inc., ("Daley's") initiated the second captioned Adversary proceeding against Bennett alleging that it was owed payments for use and rental of oxygen tanks installed on ambulances sold at CoMed's asset sale. Adversary 02 A 00210. Daley's Adversary Complaint prompted Bennett to file a third-party complaint in Adversary 02 A 00210 alleging that CoMed was ultimately responsible for the oxygen storage tanks.

CoMed responded by denying responsibility for the storage tanks and asserting a five-count counterclaim for declaratory judgment. See 02 A 00210 Debtor-Defendant's Answer, Affirmative Defenses, and Counter-Complaint to Amended Third-Party Complaint. Count I of CoMed's counterclaim requested a declaratory judgment that CoMed sold the Medicare accounts free and clear of all liens and encumbrances. Count II sought a declaration that Bennett is judicially estopped from asserting that it did not receive a valid month-to-month lease under the purchase agreement. Counts III, IV, and V asserted other theories which are not of concern because they were later settled.

Bennett sought dismissal of the counter-complaint on grounds that issues raised therein were the same as those in Adversary 01 A 00458. That motion was denied.

Daley's and Bennett subsequently settled many issues. However, their settlement did not affect CoMed's counterclaims in Adversary 02 A 00210 or Bennett's Counts in Adversary 01 A 00458.

Although the foregoing settlement mooted the third party complaint in Adversary 02 A 00210, the counter-claims seeking declarations that overlapped with Adversary 01 A 00458 were preserved. A pretrial order consolidated for purposes of trial Counts I-IV of the Debtor's Counter-Complaint, Adversary 02 A 00210, with Adversary 01 A 00458. (See Final Pre-trial Order November 26, 2003.) Bennett later voluntarily dismissed with prejudice Count III of Adversary 01 A 00458. On February 24, 2003, CoMed and Bennett reached a settlement as to Counts IV and V. of Adversary 01 A 00458 and CoMed's Counterclaim Counts III, IV, and V. in Adversary 02 A 00210. The settlement was approved by the Court on the record, February 24, 2003, though an order to that effect has not yet been entered.¹ Transcript of Proceedings Feb. 24, 2003.

The remaining issues in dispute that went to consolidated trial involved the Medicare accounts receivable issue (Count I of Adversary 01 A 00458 and Count I of the counter-complaint in Adversary 02 A 00210) and the Sibley lease (Count II of Adversary 01 A 00458 and Count II of the counter-complaint in Adversary 02 A 00210).

MATTERS IN DISPUTE

Medicare Accounts 01 A 00458 (Count I) and 02 A 00210 (Counterclaim Count I)

Bennett contends that CoMed's failure to disclose the government's investigation and suspension of payments of Medicare receivables prior to the asset sale relieves Bennett of responsibility in the event the Federal Health Care Financing Administration ("HCFA") were to seek a future repayment, or in the event that a private qui tam action by former CoMed employees were to obtain such relief. Bennett argues that related information provided by CoMed during the due diligence period prior to the sale was insufficient; criticizes the marketing of CoMed's assets by representatives of Abrams (the firm that marketed the sale for CoMed); and argues that CoMed willfully failed to disclose information explaining that a lawsuit filed in 1996 by private parties and joined in by the government prior to the sale would affect the Medicare accounts receivable. Plaintiff's Amended Post Trial Brief at 9. Specifically, Bennett claims that it was never handed a copy of the qui tam complaint against CoMed or HCFA notices and order suspending medicare payments, or the government pleading joining in the suit; was not told the amount of damages requested in suit; and that CoMed and Abrams never informed it about the lawsuit and government order freezing Medicare payments even though those actions put in jeopardy any collection of Medicare receivables. Pl.'s Am. Rev. Proposed Findings of Fact ¶ 49-56.

In response, CoMed insists that information given to Bennett was sufficient under the circumstances, and it finds fault with Bennett's due diligence. CoMed points out that the large due diligence binders that it and Abrams supplied contained information on the Medicare accounts receivables dispute, yet representatives of Bennett never read or negligently disregarded the information. Debtor-Defendant's Post-Trial Findings of Fact ¶ 45, 49.

CoMed also contends that Ms. Smith of the Abrams firm discussed the Medicare lawsuit with representatives from Bennett prior to the sale, but no further discussion or information was requested. Debtor-Def. Post-Trial Findings of Fact ¶ 68. According to CoMed, since Bennett was given notice of the Government actions and qui tam suit, it was Bennett's responsibility to become familiar with pleadings involved and with government rules pertaining to payment of Medicare accounts receivable that were thereby implicated. Debtor-Def. Post-Trial Findings of Fact ¶ 40.

Sibley Lease 01 A 00458 (Count II) and 02 A 00210 (Counterclaim Count II)

Bennett claims that CoMed made significant misrepresentations regarding the lease at 1234 Sibley Boulevard which was assumed and assigned to it under 11 U.S.C. § 365 as part of the sale. Bennett asserts that Comed represented that the Sibley lease remained operative on a month to month basis, and represented at the sale auction that amount past due for rent constituted the cure amount necessary to permit assumption by Bennett of that lease. Plaintiff's Amended Findings ¶ 78. Pursuant to these representations, Bennett paid the assertedly past rent due to John W Daley, President of CoMed. However, Bennett says that it later determined that the lease had expired prior to the bankruptcy filing. Id. ¶ 85. Condemning the transaction as an insider deal, Bennett insists that a lease which expired prior to bankruptcy cannot be...