In re Greater Southeast Community Hosp. Corp I

• Decision Date: 18 January 2007
• Docket Number: Bankruptcy No. 02-02250.,Adversary No. 04-10366.
• Citation: 365 B.R. 322
• Parties: In re GREATER SOUTHEAST COMMUNITY HOSPITAL CORP. I, et al., Debtors. Sam J. Alberts, Trustee for the DCHC Liquidating Trust, Plaintiff, v. HCA Inc., et al., Defendants.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

365 B.R. 322

In re GREATER SOUTHEAST COMMUNITY HOSPITAL CORP. I, et al., Debtors Sam J. Alberts, Trustee for the DCHC Liquidating Trust, Plaintiff, v. HCA Inc., et al., Defendants.

Bankruptcy No. 02-02250.

Adversary No. 04-10366.

United States Bankruptcy Court, District of Columbia.

January 18, 2007.

COPYRIGHT MATERIAL OMITTED

Lucius B. Lau, Jeffrey E. Schnmitt, White & Case, LLP, Washington, DC, for plaintiff.

Andrew M. Troop, Weil, Gotshal & Manges LLP, Christopher R. Mirick, Weil, Gotshal & Manges, LLP, Boston, MA, Cleveland Lawrence, III, Holly E. Loiseau, Peter D. Isakoff, Weil, Gotshal & Manges LLP, David Fisher, Assistant Attorney General, Tax, Bankruptcy and Finance Section, Joseph R. Damato, Seyfarth Shaw, Jeffrey W. Kilduff, O'Melveny & Myers LLP, Sam J. Alberts, White & Case LLP, Washington, DC, Deryck A. Palmer, New York, NY, Ted A. Berkowitz, Farrell Fritz, PC, Uniondale, NY, for Debtors.

SUPPLEMENTAL MEMORANDUM DECISION REGARDING DEFENDANT WESTERN PLAINS CAPITAL INC.'S MOTION FOR SUMMARY JUDGMENT

S. MARTIN TEEL, JR., Bankruptcy Judge.

Western Plains Capital Inc. ("Western"), one of three defendants (the "Defendants") in this adversary proceeding commenced by the plaintiff Sam J. Alberts, trustee for the DCHC Liquidating Trust (the "Trust"), seeks summary judgment with respect to all counts alleged against it in the Third Amended Complaint filed by Alberts on November 1, 2006. On January 4, 2007, the court heard argument with respect to this motion, at the conclusion of which it issued an oral ruling in which it partially denied Western's motion. This supplemental memorandum decision resolves the balance of Western's motion and amends the court's oral ruling in one respect.

I

The following facts are undisputed.¹ Michael Reese Medical Center Corporation ("Michael Reese") was formed as a wholly-owned subsidiary of Doctors Community Hospital Corporation ("DCHC"), a privately-held healthcare management company organized under the laws of Delaware. On July 8, 1998, Michael Reese entered into an asset purchase agreement (the "APA") with Galen Hospital Illinois, Inc. ("GHI"), a corporate subsidiary of fellow defendant HCA Inc. ("HCA"), for the purchase of Columbia Michael Reese Hospital and Medical Center ("Michael Reese Hospital"). Also on July 8, 1998, Grant Hospital Corporation, another subsidiary of DCHC, signed a separate asset purchase agreement, with Columbia Grant Hospital Inc. for the purchase of Grant Hospital.

On November 9, 1998, the parties signed the "Sixth Amendment" to the APA — the last such document signed, prior to the purchase of the hospital. The sale of both hospitals closed on November 12, 1998. At that time, various lenders to Michael Reese wired funds (the "Michael Reese Transfers")² to a Wachovia bank account owned by C/HCA Capital, LP (the "Capital LP"). (Def. Statement of Undisputed Material Facts ¶ 9 (D.E. No. 335, filed Dec. 7, 2006).)³ The Capital LP consisted of a general partner, C/HCA Capital, GP, Inc. (the "Capital GP"), and a limited partner, Western. Western owned the Capital GP at the time of the Michael Reese Transfers and merged into a single entity with the Capital GP in December of 2000. (Kilduff Decl. Ex. A.) The Capital LP ceased to exist in that same month. (Kilduff Decl. Ex. A.)

On November 20, 2002, DCHC filed for chapter 11 relief along with several of its subsidiaries (collectively the "Debtors"), including Michael Reese. After protracted proceedings lasting almost 18 months, the Debtors achieved confirmation of their second amended plan of reorganization (the "Plan") on April 5, 2004. Section 6.6 of the Plan provides for the creation of the Trust, which is charged with liquidating certain assets of the Debtors and distributing the proceeds to certain classes of creditors. Among the assets transferred to the Trust were fraudulent conveyance and other actions authorized under chapter 5 of the Bankruptcy Code. (Plan §§ 4.10, 6.6(f).)

Acting in his capacity as trustee, Alberts initiated the instant adversary proceeding on November 18, 2004, seeking to recover the Michael Reese Transfers under the Illinois Uniform Fraudulent Transfer Act, 740 Ill. Comp. Stat. 160/1 et seq. (1990) (the "IUFTA"), pursuant to 11 U.S.C. § 544. After amending his complaint twice, Alberts moved for summary judgment on March 9, 2006. That motion was granted in part and denied in part in an oral decision dated April 4, 2006, and accompanying order entered on June 2, 2006.

Alberts filed a motion for partial summary judgment on July 27, 2006, on the discrete issue of whether the Second Amended Complaint was barred by the IUFTA's statute of repose. See 740 Ill. Comp. Stat. § 160/10(a). HCA and GHI responded by filing both an opposition and a cross-motion for summary judgment. The very next day, Alberts filed a motion to amend his complaint a third time to include Western as a defendant. The court granted Alberts leave to add Western as a party in a decision and order entered on October 12, 2006.

On December 6, 2006, the court entered a memorandum decision and accompanying order resolving in part the motion for partial summary judgment filed by Alberts and the cross-motion for summary judgment filed by the Defendants. HCA I, supra n. 1. The balance of those motions was decided in a memorandum decision and order entered on January 3, 2007, regarding the parties' responses to a separate order to show cause entered on December 6, 2006. The court entered yet another memorandum decision and order partially resolving a separate motion for summary judgment filed by GHI and HCA on January 3, 2007. Alberts v. HCA, Inc. (In re Greater Southeast Cmty. Hosp. Corp. I), ___ B.R. ___, 2007 WL 987366 (Bankr.D.D.C.2007). The court supplemented that decision by way of an oral ruling issued on January 5, 2007. Each decision is binding on Western as law of the case.

On January 4, 2007, the parties presented their arguments at a hearing on Western's motion. At the conclusion of that hearing, the court issued an oral ruling in which it denied Western's motion for summary judgment with respect to whether Western succeeded to the liabilities of the Capital LP and was therefore a proper party to this adversary proceeding and whether Alberts's complaint was barred by the IUFTA's statute of repose. The court also granted summary judgment in favor of Alberts sua sponte with respect to the former issue. The court reserved judgment on all other issues raised in Western's motion.⁴

II

Pursuant to Fed.R.Civ.P. 56 (as incorporated by Fed. R. Bankr.P. 7056), summary judgment will be granted where "there is no genuine issue as to the material fact and the ... moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). The court must deny summary judgment where there is a genuine issue as to any material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the movant makes a properly supported motion, the burden shifts to the opposing party to demonstrate specific facts showing that there is a genuine issue for trial. Id.

If the moving party does not bear the burden of proof at trial on an issue, summary judgment may be granted if the moving party shows "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When a movant points to such a lack of evidence, the non-moving party must come forward with evidence that supports its, case. Id. The court must view the opposing party's evidence in the light most favorable to non-movant's position and draw inferences in favor of that party, provided such inferences are justifiable or reasonable. Matsushita Elec. Indus. Co., Inc. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In light of the court's January 4, 2007 oral decision, the only issue left for the court's consideration is whether Western is entitled to summary judgment on its affirmative defense that it was a subsequent transferee of the Michael Reese Transfers who received those transfers for value, in good faith, and without knowledge of Michael Reese's insolvency pursuant to 11 U.S.C. § 550. The court resolves that extant issue below. In addition, the court supplements its earlier oral ruling with respect to Western's statute of repose defense based on its further contemplation of that issue since the January 4, 2007 hearing on Western's motion.

A. Affirmative Defense under 11 U.S.C. § 550(b)

Section 550 of the Bankruptcy Code provides in pertinent part:

(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544 ... of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from —

(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or

(2) any immediate or mediate transferee of such initial transferee.

(b) The trustee may not recover under section (a)(2) of this section from —

(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or

(2) any immediate or mediate good faith transferee of such transferee.

11 U.S.C. § 550. "In other words, an initial transferee is strictly liable to the trustee if the transaction is avoidable under [§ 544], but an entity that receives assets from an initial transferee in good faith and without knowledge of the avoidability of the transfer may assert a defense against the trustee." Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190, 1196 (10th Cir.2002); accord Ross v. United States (In re Auto-Pak, Inc.), 73 B.R. 52, 55 (D.D.C.1987).⁵ In this case, the court does not need to consider whether Western, as the...