In re Genesis Health Ventures, Inc.

• Decision Date: 12 September 2001
• Docket Number: No. 00-2692/JHW,00-2494/JHW.,00-2692/JHW
• Citation: 266 BR 591
• Parties: In the Matter of GENESIS HEALTH VENTURES, INC., et al., Debtors. In the Matter of Multicare AMC, Inc., et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

266 B.R. 591 (2001)

In the Matter of GENESIS HEALTH VENTURES, INC., et al., Debtors In the Matter of Multicare AMC, Inc., et al., Debtors.

Nos. 00-2692/JHW, 00-2494/JHW.

United States Bankruptcy Court, D. Delaware.

September 12, 2001.

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David G. Aelvoet, Linebarger Heard Goggan Blair Graham Pena & Sampson, LLP, Austin, TX, for Bexar County.

Gary L. Barnhart, St. Louis, MO, for Missouri Department of Revenue.

Elio Battista, Jr., The Bayard Firm, Wilmington, DE, for GMS Group, LLC.

Noel C. Burnham, Montgomery McCracken Walker & Rhoads LLP, Philadelphia, PA, for Catholic Health Initiatives.

John T. Carroll, Cozen O'Connor, Philadelphia, PA, for Cozen O'Connor.

William E. Chipman, Jr., Greenberg Traurig, LLP, Wilmington, DE, for THCI Mortgage Holding Company, LLC.

Mark D. Collins, Richards Layton & Finger, Wilmington, DE, for Genesis Health Ventures, Inc., Poorman-Douglas Corp. and Richards, Layton & Finger, P.A.

Victoria Watson Counihan, Greenberg Traurig, Wilmington, DE, for THCI Mortgage Holding Company, LLC.

Steven T. Davis, Obermayer Rebmann Maxwell & Hippel, LLP, Wilmington, DE, for AGE Institute of Pennsylvania, Inc., AGE Institute of Massachusetts, Inc., AGE Institute of Florida, Inc., Delaware Valley Convalescent Homes, Inc., AGE Holdings, Inc. and Ohio Bureau of Workers Compensation.

Daniel J. DeFranceschi, Richards, Layton & Finger, Wilmington, DE, for Genesis Health Ventures.

Michael David Debaecke, Blank, Rome, Comisky & McCauley, LLP, Wilmington, DE, for Blank Rome Comisky & McCauley, LLP.

Paul J. Dougherty, III, McCarter & English, Wilmington, DE, for Michael Goff, McCarter & English, LLP.

John S. Fagan, Fagan & Broussard, P.C., Orange Park, FL, for Medallion Smith.

Lee Harrington, Blank Rome Comisky & McCauley, Philadelphia, PA, for Blank Rome Comisky & McCauley, LLP.

William Kevin Harrington, Duane, Morris & Heckscher, LLP, Wilmington, DE, for Susquehanna Center, Inc. and Massachusetts Housing Finance Agency.

David E. Hudgens, Ambrecht Jackson DeMouy Crowe & Etal, Mobile AL, for Todd W. Martin, III.

James E. Huggett, Klehr Harrison Harvey Branzburg & Ellers, Wilmington, DE, for Paul, Weiss, Rifkind, Wharton & Garrison.

Gary A. Hurwitz, Media, PA, for Catherine McLaughlin.

David A. Jenkins, Smith Katzenstein & Furlow, LLP, Wilmington, DE, for Charles L. Grimes.

Laura Davis Jones, Pachulski, Stang, Ziehl, Young & Jones, Wilmington, DE, for Pachulski, Stang, Ziehl, Young & Jones, P.C.

Steven K. Kortanek, Klehr, Harrison, Harvey, Branzburg & Ellers, Wilmington, DE, for Paul, Weiss, Rifkind, Wharton & Garrison and Klehr, Harrison, Harvey, Branzburg & Ellers.

Nina M. LaFleur, Jacksonville, FL, for Lynwood Roberts.

Kimberly Ellen Connolly Lawson, Werb & Sullivan, Wilmington, DE, for Michael Bronfein.

Neal J. Levitsky, Agostini Levitsky Isaacs & Kvlesza, Wilmington, DE, for JSM Co. and Commonwealth of Pennsylvania, Department of Labor & Industry

Donald Litman, Mayerson Law Office, Trappe, PA, for Sarah King.

Rachel Sarah Lowy, Pachulski, Stang, Ziehl, Young & Jones, Wilmington, DE, for Genesis Health Ventures, Inc.

Maureen D. Luke, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE, for Multicare AMC, Inc.

Christina M. Maycen, Morris James Hitchens & Williams, LLP, Wilmington, DE, for New Jersey Self Insurers Guaranty Association.

Selinda A. Melnik, Smith, Katzenstein & Furlow, LLP, Wilmington, DE, for Charles L. Grimes.

Anita Morse, State of Indiana, Attorney General's Office, Indianapolis, IN, for State of Indiana.

L. Vincent Ramunno, Ramunno & Ramunno, Wilmington, DE, for Vincent Russo.

Allison E. Reardon, Wilmington, DE, for Matthew E. McGovern, Office of Attorney General for Maryland.

Eric Lopez Schnabel, Klett Rooney Lieber & Schorling, Wilmington, DE, for Mellon Bank, N.A., Administrative Agent for Secured Lenders.

Jayne Shinko, State of Pennsylvania, Chief Counsel Office Employment Security, Harrisburg, PA, for Commonwealth of Pennsylvania, Department of Labor & Industry, Bureau of Employer Tax Operations.

Russell C. Silberglied, Debra E. Spivack, Richards, Layton & Finger, Wilmington, DE, for Genesis Health Ventures, Inc. and Richards, Layton & Finger.

OPINION ON CONFIRMATION

JUDITH H. WIZMUR, Bankruptcy Judge.

Presented here is the proposed confirmation of the debtors' joint plan of reorganization. For the reasons expressed herein, I conclude that the plan is confirmable, subject to the modifications noted herein.

FACTS AND PROCEDURAL HISTORY

The Genesis debtors¹ and the Multicare debtors² are leading providers of healthcare and support services to the elderly. They operate inpatient facilities in 5 regional areas of the United States, as well as a national pharmacy and medical supply business. In 1997, Genesis Health Ventures, Inc. ("Genesis"), along with other entities, acquired the Multicare Companies, Inc. Genesis now owns 43.6% of the common stock of the Multicare parent company. Genesis manages Multicare through a comprehensive management agreement which includes all operational, financial and administrative responsibilities. Multicare has no management or administrative infrastructure of its own.

The Genesis and Multicare debtors filed their separate Chapter 11 bankruptcy cases on June 22, 2000. The Genesis debtors' pre-petition indebtedness to the Senior Lenders is approximately $1.2 billion, and is secured by liens on substantially all of the Genesis debtors' assets. The Genesis debtors are also indebted for approximately $80 million in general unsecured claims and approximately $387 million in subordinated debt. The Multicare debtors' pre-petition indebtedness to the Senior Lenders in approximately $443 million, also secured by liens on substantially all of Multicare debtors' assets. The Multicare debtors are indebted for approximately $26.4 million in general unsecured claims and approximately $258 million in subordinated debt.

The debtors' Joint Plan of Reorganization was filed on July 6, 2001. The plan divides Genesis claims into 11 classes, and Multicare claims into 8 classes. The Senior Lender claims in each case (Classes G2 and M2) will receive cash, some of which has already been paid as adequate protection payments, New Senior Notes, New Convertible Preferred Stock and most of the New Common Stock in the reorganized Genesis Company. The general unsecured claimants in both cases (Classes G4 and M4) will receive New Common Stock, estimated in the debtors' Disclosure Statement to approximate a dividend of 7.34%, exclusive of the value of the New Warrants, which will also be distributed to these classes. Genesis and Multicare Senior Subordinated Note Claims (Classes G5 and M5) will receive the same percentage of distribution as general unsecured claimants. In both cases, punitive damages claims are separately classified (Classes G7 and M7), with no distribution except to the extent covered by insurance. All preferred and common stock interests in both companies are extinguished.

For purposes of voting and distribution under the plan, the debtors' reorganization plan contemplates the deemed consolidation of all of the Genesis Debtors as a single legal entity, and all of the Multicare Debtors as a single legal entity. Following the deemed consolidations, the common stock of Multicare will be canceled and New Common Stock of the reorganized Multicare will be deemed to be allocated to Multicare creditors. Genesis and Multicare will then merge. The creditor bodies of Multicare and Genesis will receive a proportionate share of the New Common Stock of the Reorganized Genesis.

All impaired classes in both cases voted to accept the plan, with the exception of Class 5, Genesis Senior Subordinated Note Claims, which rejected the plan.³

Hearings on the confirmation of the plan were held on August 28 and August 29, 2001. Many of the filed objections were resolved. The primary objectors remaining are Class G5 claimants, including GMS Group LLC⁴ and Charles Grimes⁵, several G4, G7, M4 and M7 claimants, including certain tort claimants and the AGE Institute entities, the United States Trustee, and several shareholders, including James Hayes, Steven Sapperstein and Todd Martin.

DISCUSSION

To confirm a proposed Chapter 11 plan of reorganization, the proponent bears the burden of establishing the plan's compliance with each of the thirteen elements of 11 U.S.C. § 1129(a). In re Gulfstar Indus., Inc., 236 B.R. 75, 77 (M.D.Fla. 1999). Creditors objecting to the proposed plan bear the burden of producing evidence to support their objection. In re Shortridge, 65 F.3d 169, 1995 WL 518870 (6th Cir.1995) (Unpublished opin.); In re Goddard, 212 B.R. 233, 239 n. 7 (D.N.J. 1997). The Code imposes an independent duty upon the court to determine whether a plan satisfies each element of § 1129, regardless of the absence of valid objections to confirmation. In re Bolton, 188 B.R. 913, 915 (Bankr.D.Vt.1995); In re Shadow Bay Apartments, Ltd., 157 B.R. 363, 365 (Bankr.S.D.Ohio 1993).

A consensual plan requires the proponent to demonstrate that the plan satisfies all thirteen elements of section 1129(a), in which case the plan must be confirmed. Beal Bank, S.S.B. v. Waters Edge L.P., 248 B.R. 668, (D.Mass.2000). A nonconsensual plan requires the proponent to prove all but one of the thirteen elements, that all classes consent or are unimpaired, 11 U.S.C. § 1129(a)(8), plus the additional requirements of section 1129(b), that the plan does not unfairly discriminate against dissenting classes and that treatment of such dissenting classes is fair and equitable. The plan presented here is nonconsensual as to Class G5.

No challenge is posed by the objectors to the compliance by this plan with subsections 1129(a)(2) (proponents' compliance with Bankruptcy Code provisions, including adequate disclosure);⁶ (a)(4) (court approval of payments); (a)(5) (disclosure...