In re Englewood Community Hosp. Corp., Bankruptcy No. 88 B 04795.
| Decision Date | 26 July 1990 |
| Docket Number | Bankruptcy No. 88 B 04795. |
| Citation | 117 BR 352 |
| Parties | In re ENGLEWOOD COMMUNITY HOSPITAL CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Richard G. Smolev, Sachnoff & Weaver, Ltd., Chicago, Ill., for trustee.
Joseph Stein, Sachnoff & Weaver, Ltd., Chicago, Ill., trustee.
Ariel Weissberg, Anthony V. Ponzio, Weissberg and Associates, Ltd., Chicago, Ill., for Photographic Conservation Associates, Ltd.
This matter comes before the Court on the motion of Photographic Conservation Associates Ltd. ("PCA") for the allowance and payment of administrative and possessory lien claims.1 For the reasons set forth herein, the Court hereby denies the motion.
The Court has jurisdiction to entertain this motion pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(B).
Englewood Community Hospital Corporation (the "Debtor") ceased its business operations in February 1988. The Debtor operated a community hospital. When the Debtor closed, it housed forty years of medical records dating from approximately 1947. On March 25, 1988, shortly after the Debtor ceased operations, it filed a Chapter 7 petition. Subsequently, Joseph Stein (the "Trustee") was appointed trustee of the estate. Hence, rights to, possession of, and duties to maintain the Debtor's records became the responsibility of the Trustee as representative of the estate. See 11 U.S.C. §§ 323, 521(4), 541(a)(1), 542(a) and 704(2).
On July 20, 1988, the Trustee presented an emergency motion for authority to retain The Devon Group for the purpose of establishing a retention and disposition program for the Debtor's medical records. (PCA Exhibit No. 3, p. 6). At that hearing, after notice (PCA Exhibit No. 4), the Court entered an order authorizing the Trustee, inter alia, to retain The Devon Group for the purpose of removing microfilmed records from the premises of the Debtor. On August 1, 1988, after further hearing on that motion, the Court entered an Order authorizing "The Devon Group to undertake a records disposition and retention program with respect to all records of the Debtor and to expend $59,700.00 in connection therewith." (PCA Exhibit No. 3, p. 8). It is undisputed that this sum has been paid from estate funds to The Devon Group.
The Trustee's emergency motion related to a July 6, 1988 proposal submitted to the Trustee by Ira Berlin ("Berlin") as director of The Devon Group, entitled "Records Disposition Program for the Hospital of Englewood." (PCA Exhibit No. 1). The proposal dealt with both hard copy and microfilm patient records and states in relevant part:
Given the number of departments whose document must be checked against the medical records, this department\'s records must be the last in the disposition process. When the updating of records has been completed, the medical records can be donated to another nonprofit organization. The Devon Group has located on sic organization that has agreed to accept these permanent records.
The proposal also identified the quantity and location of the records and proposed that they be permanently retained but relocated. (PCA Exhibit No. 1, p. 64-65). It also contained photographs illustrating the volume and manner of storage, the location of both the boxed and shelved hard copy records, the microfilm records stored in cabinets and the related equipment used for retrieval and viewing of same. (PCA Exhibit No. 1, p. 66-68).
On August 25, 1988, the Trustee entered into an agreement with the Jewish International Photodocumentary Society, a not-for-profit corporation, (the "Society"), located at 1554 West Devon Avenue, Chicago, Illinois. (PCA Exhibit No. 5). The agreement which was not prepared by the Trustee, but of unknown authorship, states in relevant part: "the Society has been requested by the Trustee to retain the medical records (Appendix I); and to under take sic the legal retention, protection, storage and retrieval of these medical records for the former patients of Englewood Hospital; and whereas, the Society has agreed to this undertaking. . . ." (PCA Exhibit No. 5, p. 1). The Society was to commence providing these services for the medical records on September 1, 1988. The Trustee's delegate was to deliver the records to the Society. The Society agreed to abide by all record retention requirements and to respond to requests and subpoenas for the medical records, but not to charge the Trustee for these services. The agreement was signed by the Trustee and Murray M. Mattenson ("Mattenson") as executive director of the Society. The Court, however, did not authorize the Trustee to enter into this agreement with the Society.
PCA filed the instant motion and its proof of claim on April 16, 1990, (PCA Exhibit No. 17), asserting an administrative claim pursuant to 11 U.S.C. §§ 507(a)(1) and 503(b) in the amount of $19,031.00. PCA is an Illinois corporation, of which Mattenson is the sole officer, director and shareholder. (PCA Exhibit Nos. 13, 14 and 15). PCA is in the photographic conservation business. The motion alleges that PCA organizes, maintains, accesses and transports hospital and medical records. PCA has maintained a portion of the Debtor's records from October 1988 through June 1990 at its leased business facility. The Trustee filed a response in opposition to the motion, to which PCA replied. The Court conducted an evidentiary hearing on June 21 and 22, 1990.
The Devon Group is, or was, a consortium of members whose exact identities were unknown to the Trustee. The Trustee testified that the procedure to access the records prior to Berlin's death, was to send Berlin the subpoenas received by the Trustee with the checks for the fees endorsed over to Berlin. (PCA Exhibit No. 6). Subsequent to Berlin's demise, the Trustee followed the same procedure, but would endorse the checks over to Mattenson. (Trustee Exhibit Nos. 2, 3, 4, 5, 6, 7 and 8, and PCA Exhibit No. 11).
The Trustee further testified that prior to Berlin's death, no demands for rent, services or expenses were made by PCA or Mattenson. Moreover, the Trustee claimed that he never had a conversation with Mattenson prior to Berlin's death. He stated that he spoke to Mattenson two weeks after Berlin's death in regards to acting on the subpoenas. The Trustee stated that no discussions were had with Mattenson with respect to rent due and owing to PCA until March 21, 1990. (Trustee Exhibit Nos. 9 and 10).
Mattenson testified that he is sole officer, director and shareholder of PCA and resides at 1554 West Devon Avenue, Chicago, Illinois, where PCA has its principal place of business. He founded the Society, admitted that he signed the agreement between the Society and the Trustee (PCA Exhibit No. 5), but currently holds no position with the Society. Berlin was never affiliated with nor an agent for the Society except for the closing of a purchase of certain real estate. (Trustee Exhibit No. 1). Mattenson testified that in 1989 he began storing some of the hard copy records and microfilm. He stated that Berlin rented space from PCA to store the Debtor's medical records and that the Society was a subtenant of PCA under PCA's leasehold interest. (PCA Exhibit No. 12). Mattenson testified he had an oral agreement with Berlin under which he was to be paid monthly rent of $754.50 plus the subpoena fees for search, retrieval and copying the medical records. In addition, Mattenson stated that he had a conversation with Berlin, wherein Berlin assured him that the Trustee would pay rental and turn over the subpoena fees to him. Berlin made certain payments to PCA totaling $907.50 (PCA Exhibit Nos. 7 and 8) by checks imprinted as drawn on an account entitled:
The hard copy medical records and microfilm comprise a total of 40,000 pounds and occupy approximately one-third of PCA's rented premises. Mattenson stated that before Berlin's death, he never had a conversation with the Trustee with regards to the medical records. The current rental paid by PCA under its lease for the entire premises is $650.00 per month plus $10.00 per month for water. (PCA Exhibit No. 12). At the time of trial, PCA increased its claim to include Mattenson's time for supervising the moving of the records in 1988 for an added charge of $5,120.00. The total of PCA's amended claim for storage ($15,844.50), microfilm and related equipment ($184.50), moving ($5,120.00), and records retrieval for the Trustee ($330.00) equals $21,479.00. (PCA Exhibit No. 16).
PCA alleges that the central issue is that the Trustee engaged Berlin as his agent who, in turn, hired PCA as a subcontractor to perform such services. PCA argues that the Trustee is estopped to deny that Berlin was his agent because the Trustee's agreement with the Society referenced that a "delegate" was to deliver the records to the Society and the earlier agreement with The Devon Group created an agency with the Trustee.
In his response, the Trustee maintains that the estate is not indebted to PCA. The Trustee claims that with the approval of the Court, he entered into the agreement with The Devon Group, to which the estate has paid the agreed and approved consideration for the maintenance of and access to all of the Debtor's records. Pursuant to that authority, the Trustee entered into the subsequent agreement with the Society. The Trustee contends that Mattenson, through The Devon Group, maintained the Debtor's records and performed the other required obligations along with Berlin until ...
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