In re CS Associates
| Decision Date | 21 October 1993 |
| Docket Number | Adv. No. 93-0472S.,Bankruptcy No. 88-12842S |
| Citation | 160 BR 899 |
| Parties | In re CS ASSOCIATES, d/b/a University Nursing & Rehabilitation Center, Debtor. Mitchell W. MILLER, Trustee, Plaintiff, v. Eugene SPITZ, M.D. and Raymond Silk, M.D., Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Mitchell W. Miller, Miller & Miller, Philadelphia, PA, Trustee.
D. Ethan Jeffrey, Ciardi, Fishbone & DiDonato, Philadelphia, PA, for Trustee.
J. Scott Victor, Saul, Ewing, Remick & Saul, Marc J. Zucker, Mann, Ungar & Spector, P.A., Philadelphia, PA, for defendant — Raymond Silk, M.D.
Robert J. Bush, Media, PA, for defendant — Eugene Spitz, M.D.
Pace Reich, Philadelphia, PA, for debtor.
John J. Francis, Jr., Shanley & Fisher, P.C., Morristown, NJ, William Sweeney, Schubert, Bellwoar, Mallon & Walheim, Philadelphia, PA, for United Jersey Bank.
Joseph DiGuiseppe, Asst. City Solicitor, Law Dept., Enforcement Div., Philadelphia, PA, for City of Philadelphia.
Dr. Nicholas Canuso, pro se.
Frederic Baker, Ass't. U.S. Trustee, Philadelphia, PA.
Before the court for a final resolution is an adversary proceeding commenced by the Chapter 7 trustee in this case, Mitchell W. Miller ("the Trustee"), pursuant 11 U.S.C. §§ 723(a), (b), seeking a deficiency of over $10 million against Raymond Silk, M.D. ("Silk"), one of three general partners of the Debtor, CS ASSOCIATES ("the Debtor"), a limited partnership which previously operated the University Nursing & Rehabilitation Center. Silk defends on the grounds, inter alia, that (1) the Trustee's claim is barred by laches or a two year statute of limitations which he proposes that the court "borrow" from 11 U.S.C. § 546(a)(1); and (2) the Trustee erroneously calculated an excessive deficiency by including, in his calculations, claims for which Silk is not "personally liable," as determined by the terms of certain claims against the Debtor or which arose prior to the expiration of the statute of limitations applicable to the claimants' causes of action against him individually.
Finding relevant caselaw sparse, we conclude, on the basis of a reading of the applicable statutory law, that the Trustee is entitled to a recovery of approximately $1.5 million against Silk. First, we refuse to find the Trustee's action barred by limitations or laches, since we find that any "borrowing" from § 546(a)(1) is inappropriate and that the Trustee did not unreasonably delay in the filing of the instant matter to the unfair prejudice of Silk. Further, we find that the deficiency to be assessed includes (1) those claims which Silk alleges were barred against him personally by the applicable state statute of limitations; and (2) claims contingent on (a) the payment of an agreed judgment by one of Silk's co-partners, and (b) to the City of Philadelphia ("the City") by United Jersey Bank ("UJB") under 11 U.S.C. § 506(c). We also find that Silk is not able to invoke in his defense an intra-partner agreement allegedly limiting his liability to twenty-five (25%) percent of the deficiency. However, we find that the deficiency for which Silk is liable does not include the claim of La Mar-Gate, Inc. ("LMG"), since this debt was incurred prior to Silk's joining the partnership and there is no evidence that he expressly assumed liability for that debt; or the claim of UJB since that claim is limited by its own terms to recourse against the Debtor's realty.
The bankruptcy case underlying the instant proceeding was filed by the Debtor on August 15, 1988. Attempts of the Debtor to keep its nursing home open in the face of pending state health law violations proved impossible after late 1988. Later efforts to sell its facility and that of an adjacent hospital with related ownership, which was the subject of an earlier bankruptcy case, In re University Medical Center, Bankr. No. 88-00003S ("UMC" or "the UMC Case"), was frustrated by vandalization of both facilities in November, 1989. This case, as had the UMC Case earlier, was converted to Chapter 7 on April 18, 1990, and the Trustee was appointed on April 25, 1990.
The most significant legal matters in the early stages of the Trustee's stewardship were suits instituted by UJB, as an alleged insured party, and by the Trustee himself, to collect on liability insurance covering the facility. The UJB claim resulted in a lengthy Opinion reported at 121 B.R. 942 ("CS I"). The administration of the Debtor's estate has also featured a sale of the remains of the Debtor's facility in November, 1992.
The administration process will hopefully end with a continued Final Audit hearing scheduled on November 18, 1993. At the initial Final Audit hearing on October 14, 1993, we directed the Trustee to file, serve, and list for hearing, on November 18, 1993, a proposed Objection to the claim of UJB and any other Objections to claims which he might deem appropriate on or before October 18, 1993. All of the other Objections to claims were litigated earlier in 1993, and the only Objection presently outstanding is an Objection of Silk to UJB's claim, the hearing on which we continued to November 9, 1993; and the Trustee's Objection to the purported secured status of the claims of the Internal Revenue Service ("the IRS"), on which briefing is to be completed by October 22, 1993.
Two appeals of our previous decisions arising out of this case have resulted in recent decisions of the district court: (1) a reversal of our reduction, to $150,000, of a requested $250,000 one-third contingent fee on a $750,000 settlement of the Trustee's lawsuit against the liability insurer of the Debtor's facility, payable to the Trustee's special counsel, Harry P. Begier, Esquire, which is reported at 1993 WL 315656 (E.D.Pa. Aug. 18, 1993) ("CS II"); and (2) an affirmance of our decision allowing the City to assert its tax claims against UJB under § 506(c), at 159 B.R. 148 (E.D.Pa.1993), appeal docketed (3rd Cir.) ("CS III").
The instant § 723 proceeding was filed by the Trustee on June 8, 1993, against Silk and another co-partner of the Debtor, Eugene Spitz, M.D. Collectively Silk and Spitz are referenced herein as "the Partners;" the third, managing partner of the Debtor, Dr. Nicholas Canuso, has averted any actions against him by filing his own personal bankruptcy case in the District of New Jersey.
The Partners both initially responded to the Complaint in this proceeding by filing Motions requesting that this court dismiss the Complaint because the Trustee's claims were barred by the allegedly-applicable two-year statute of limitations set forth at 11 U.S.C. § 546(a)(1). This court, in an Opinion of July 29, 1993, reported at 156 B.R. 755 ("CS IV"), denied these Motions, finding that an action brought by a Trustee under § 723 is not subject to § 546(a)(1).
On August 5 and 13, 1993, respectively, the Partners each filed motions requesting reconsideration of CS IV and seeking partial summary judgment as to certain claims which they contended had to be excluded from any deficiency claim, i.e.: (1) $470,000, consisting of claims which had been amended, duplicated, disallowed or withdrawn; (2) $597,510.26, which was allegedly the sum of claims that were no longer claims against the estate since they were to be paid out of the sale of partnership realty; and (3) $8,221,873.02 for which the Partners asserted that they were not "personally liable" because the state statutes of limitations allegedly applicable thereto had expired. On August 13, 1993, the Partners also both filed Answers to the Complaint, affixing jury demands thereto.
In response to these filings, this court entered an Order on August 17, 1993, stating that, since the instant proceeding was equitable in nature, the Partners had no right to a trial by jury therein. Accord, In re Bell & Beckwith, 112 B.R. 863, 867 (Bankr.N.D.Ohio 1990). But see In re Owensboro Distilling Co., 108 B.R. 572, 574 (Bankr.W.D.Ky.1989) (). We also denied the requests for reconsideration and the attempts to dismiss any aspects of the proceeding pending a trial before this court, scheduled on August 31, 1993.
At the outset of the trial on the latter date, counsel for the Trustee and Spitz advised us that they had agreed to the entry of a judgment against Spitz in the amount of $600,000. Thereafter, the matter went to trial with Silk as the only remaining defendant.
In support of his claims against Silk, the Trustee offered his own testimony and that of D. Ethan Jeffrey, Esquire, an associate in the law firm representing the Trustee in this case. Jeffrey testified that he had reviewed the claims against the Debtor's estate and, following adjustments for withdrawn, disallowed, amended, reduced or settled claims, the Debtor's deficiency remained in the amount of $5,222,211.06. This figure included a claim of UJB which had been reduced from $6,665,000 to $3,360,000, and a reduction in the claim of LMG from $1,000,000 to $200,000.
The Trustee testified that, following his appointment, he attempted to locate records of the accounts receivable owed to the Debtor, but was unsuccessful and had therefore been unable to pursue collection of same. He admitted that, following a meeting of creditors on June 19, 1990, he certified that this case was a "no asset" case. However, at a status hearing on this case scheduled by this court on September 8, 1992, resulting in the fixing of a bar date of November 16, 1992, he reported that he was monitoring an insurance claim of the Debtor. This claim was ultimately settled and approved by this court on December 23, 1992, in the amount of $750,000, the settlement being uncontested after Silk withdrew his objections thereto. The docket...
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