In re CS Associates
| Decision Date | 05 December 1990 |
| Docket Number | Adv. No. 90-0275S.,Bankruptcy No. 88-12842S |
| Citation | 121 BR 942 |
| Parties | In re CS ASSOCIATES d/b/a University Nursing and Rehabilitation Center, Debtor. UNITED JERSEY BANK, Indenture Trustee, Plaintiff, v. CS ASSOCIATES d/b/a University Nursing and Rehabilitation Center; The Philadelphia Authority for Industrial Development; Pennsylvania Millers Mutual Insurance Company; and Mitchell W. Miller, Trustee, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Mitchell W. Miller, Philadelphia, Pa., Trustee.
Edward J. DiDonato, Camille Spinale, Kathy McAlice, Philadelphia, Pa., for Trustee.
John J. Francis, Jr., Morristown, N.J., William F. Sweeney, Philadelphia, Pa., for plaintiff United Jersey Bank.
Michael F. Henry, Philadelphia, Pa., for defendant Pennsylvania Millers Mut. Ins. Co.
Philip M. Brandt, Philadelphia Industrial Development Corp., Philadelphia, Pa., for defendant Philadelphia Indust. Development Corp.
Marvin H. Mercer, III, Philadelphia, Pa., for debtor.
James J. O'Connell, Philadelphia, Pa., Asst. U.S. Trustee.
We herein decide two matters related to the above entitled case, both of which were initiated by UNITED JERSEY BANK ("UJB"), the Trustee under a Trust Indenture ("the TI") through which construction of a nursing home formerly operated by CS ASSOCIATES, d/b/a UNIVERSITY NURSING AND REHABILITATION CENTER, the Debtor in this case ("the Debtor"), was financed. The first is the above-captioned adversary proceeding, in which UJB seeks a declaration of its rights to the potential proceeds of a hazard insurance policy on the Debtor's facility. The second is a motion in the Debtor's main bankruptcy case for a declaration of UJB's rights to sums held by it in the Bond Fund ("the BF") and Bond Reserve Fund ("the BRF") created in the TI and/or relief from the automatic stay to utilize these sums for the exclusive benefit of the Debtor's bondholders.
The adversary proceeding ultimately presents the issues of whether a mortgagee who is deleted from an insurance policy by a mistake made principally by the insurer continues to possess an insurable interest, despite such deletion. We conclude that, despite the possibly unilateral nature of the mistake of the insurer, Defendant PENNSYLVANIA MILLERS MUTUAL INSURANCE COMPANY ("PMMI"), PMMI's expressed intention to insure UJB's interest but for its mistake allows us to reform the policy to include UJB as an insured party. We also hold that UJB is entitled to assert the status of an insured party under an "equitable lien" theory as to PMMI. However, we are uncertain as to the priority of UJB's security interest in the insurance proceeds relative to that of Defendant MITCHELL W. MILLER, ESQUIRE, the Trustee of the Debtor's estate ("the Trustee"), and hence we do not decide this issue at this time.
With respect to the issue of UJB's rights to the sums in the two bond funds, we conclude that the Debtor, as settlor, created express trusts in favor of the beneficiary-bondholders when those funds were established. Therefore, we conclude that, while these funds may be property of the Debtor's estate, the Debtor's slight interest therein as a mere settlor of a trust authorizes UJB, as trustee, to obtain relief from the automatic stay to utilize these sums for the sole benefit of the bondholders.
On August 15, 1988, the Debtor, then operating a nursing home located at 747 South Broad Street, Philadelphia, PA. ("the Facility"), filed a voluntary petition for relief pursuant to Chapter 11 of the Bankruptcy Code. The case has had a long history, in which UJB has been an active participant. At the outset, the Debtor unsuccessfully sought to prevent the Commonwealth of Pennsylvania Department of Health from closing the Facility due to its failure to provide adequate services to its patients.
After the Facility was closed in late 1988, the Debtor's Official Unsecured Creditors' Committee presented a Plan of Reorganization which featured the sale of the Facility to an entity which apparently intended to purchase and operate it in tandem with an adjacent hospital with partially interlocking ownership, also in bankruptcy and also closed to patients post-petition. See In re University Medical Center, Bankr. No. 88-00003S. However, this effort failed because the Facility was severely vandalized in December, 1989, prior to confirmation of the Plan.
Unwilling to abide the extended process of attempting to resurrect the sale transaction after potential insurance claims were resolved, this court, on a motion of the United States Trustee which was supported by UJB, converted this matter to a Chapter 7 case on April 18, 1990. The Trustee was appointed on April 25, 1990.
The Answer and subsequent responses filed by PMMI denied that liability existed under its pertinent hazard insurance policy extending from May, 1989, to May, 1990 ("the 1990 Policy"), due to the failure of the Debtor (or any party acting on its behalf) to properly file a claim. The Trustee also filed an Answer denying UJB's priority to the insurance proceeds vis-a-vis his interest in it.
The order also noted that we were disinclined to stay the trial on June 20, 1990, while the district court considered the motion to withdraw reference of the proceeding. Instead, we requested that the parties file, on or before June 18, 1990, Statements and Briefs addressing "whether PMMI is entitled to a jury trial in this court, whether the jury demand has been waived, and whether this court can conduct a jury trial."
On June 12, 1990, PMMI also filed a motion to dismiss the proceeding for failure to state a claim against it. On June 15, 1990, UJB filed a motion for summary judgment in this proceeding in its favor.
On the June 20, 1990, trial date, the parties requested and we agreed that the trial should not go forward and that a schedule for disposition of the matters filed in the proceeding should be devised instead. The result of this colloquy was an Order of June 22, 1990, which, inter alia, provided a schedule for amending the Complaint and deciding any dispositive motions pressed by the parties, and set a new trial date of September 27, 1990. UJB ultimately pressed its summary judgment, although PMMI abandoned its motion to dismiss.
On September 11, 1990, the Honorable Jan E. DuBois of the district court entered an Order denying PMMI's motion to withdraw the reference of this proceeding to that court. In so doing, Judge DuBois expressly approved that aspect of our Order of June 12, 1990, holding that the instant matter was a core proceeding. In light of this Order, this court, on September 14, 1990, filed an unreported Memorandum and Order denying (1) that aspect of PMMI's Motion requesting a jury trial in this proceeding; and (2) UJB's Motion for Summary Judgment.
In our analysis of the jury-trial issue, we determined that the first two prongs of the three-pronged analysis for determining whether a jury trial may be demanded in a bankruptcy proceeding, established as follows in Granfinanciera v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 2790-2802, 106 L.Ed.2d 26 (1989), were absent: (1) whether the action was traditionally legal in nature as of the date of the enactment of the Seventh Amendment in the late 18th century; and (2) whether the remedy sought was legal or equitable in nature.
Noting the prayer for relief in the Complaint quoted at page 945 supra and thus focusing on the second "more important" factor set forth in Granfinanciera, id., 109 S.Ct. at 2790, we concluded that the remedy sought was...
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