In re Greater Southeast Community Hosp. Corp. I

• Decision Date: 06 December 2006
• Docket Number: Bankruptcy No. 02-02250.,Adversary No. 04-10366.
• Citation: 365 B.R. 293
• 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

Page 293

365 B.R. 293

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.

December 6, 2006.

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Andrew M. Troop, 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, Jeffrey W. Kilduff, O'Melveny & Myers LLP, Sam J. Alberts, White & Case LLP, Washington, DC, Deryck A. Palmer, New York, NY, Joseph R. Damato, Seyfarth Shaw, Washington, DC, Ted A. Berkowitz, Farrell Fritz, PC, Uniondale, NY, for Debtors.

MEMORANDUM DECISION REGARDING MOTION FOR PARTIAL SUMMARY JUDGMENT AND CROSS-MOTION FOR SUMMARY JUDGMENT

S. MARTIN TEEL, JR., Bankruptcy Judge.

Sam J. Alberts, trustee for the DCHC Liquidating Trust (the "Trust") and plaintiff in this adversary proceeding, seeks to avoid and recover certain allegedly fraudulent transfers (the "Michael Reese Transfers") from Michael Reese Medical Center Corporation ("Michael Reese"), as well as other debtors in this jointly administered bankruptcy case (collectively the "Debtors"), to defendants HCA, Inc. ("HCA") Galen Hospital Illinois, Inc. ("GHI"), and Western Plains Capital, Inc. ("Western") 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. Alberts has moved for partial summary judgment with respect to Count III of his second amended complaint (D.E. No. 56, filed July 21, 2005) (the "Complaint").¹ HCA and GHI (collectively the "Defendants") oppose this motion and have cross-moved for summary judgment on all counts in the Complaint.²

The Complaint lists six counts: two causes of action premised on § 5(a)(1) of the IUFTA (Counts I and II), see 740 Ill. Comp. Stat. 160/5(a)(1), two causes of action under § 5(a)(2) of the IUFTA (Counts III and IV), see id. at 160/5(a)(2), and two causes of action under § 6(a) of the IUFTA (Counts V and VI). See id. at 160/6(a), Alberts seeks partial summary judgment with respect to Count III on a single issue: whether the count is barred by the statute of repose set forth in the IUFTA. The Defendants seek summary judgment on this issue and several others. For the reasons that follow, the court will deny Alberts's motion in part, grant in part and deny in part the cross-motion filed by the Defendants, and defer consideration of one issue at this time.

I

The following facts are undisputed.³ 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. (Pl. Statement of Material Undisputed Facts ¶ 15) (D.E. No. 104, filed March 9, 2006).⁴ On July 8, 1998, Michael Reese entered into an asset purchase agreement (the "APA") with GHI, a corporate subsidiary of fellow defendant HCA, for the purchase of Columbia Michael Reese Hospital and Medical Center ("Michael Reese Hospital"). (Compl.¶ 15). Michael Reese and GHI entered into a series of amendments to the APA throughout the fall of 1998. (Compl. ¶¶ 17-21). 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. (Compl. ¶ 21). The purchase of Michael Reese Hospital closed on November 12, 1998. (Def. Statement of Undisputed Material Facts ¶ 4 (D.E. No. 198, filed August 28, 2006)).⁵

Michael Reese and its affiliated Debtors filed for chapter 11 relief on November 20, 2002. After protracted proceedings lasting almost 18 months, the Debtors achieved confirmation of their second amended plan of reorganization (the "Plan") on April 5, 2004, and their operations were taken over by entities known as the "Reorganized Debtors." 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 (including certain unsecured creditors).⁶ 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)).

Alberts initiated the instant adversary proceeding on November 18, 2004. After filing an amended complaint (while at the same time opposing the Defendants' motion to dismiss the original complaint),⁷ the Defendants filed a second motion to dismiss. The court denied the second motion to dismiss, but ordered Alberts to file a second amended complaint alleging facts that would justify his "lumping" together of the debtors in his complaint or specify which of the debtors consummated the allegedly fraudulent conveyance.

Alberts amended his complaint again on July 21, 2005, and moved for partial summary judgment on March 9, 2006. The Defendants filed an initial opposition to this motion under Fed.R.Civ.P. 56(f) and then filed a supplemental opposition, which Alberts moved to strike.⁸

The parties appeared before the court on April 4, 2006, for a hearing on Alberts's motion for partial summary judgment, at which time the court ruled from the bench that the motion should be granted in part and denied in part. The court subsequently entered an order reciting that Michael. Reese transferred $66,048,840.00 towards the purchase of Michael Reese Hospital.⁹

Alberts filed the instant motion on July 27, 2006. The Defendants responded to this latest motion by filing both an opposition and a cross-motion for summary judgment. The Defendants filed a separate motion for summary judgment on November 6, 2006, which the court has not yet considered.

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). If the movant alleges that the opposing party lacks proof to establish requisite elements of its case, the movant must show the absence of such facts. Id. The court must view the opposing party's evidence in the light most favorable to nonmovant'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).

A. Statute of Limitations

The only issue presented by Alberts's motion is whether Alberts is time-barred from pursuing Count III of his Complaint by § 10 of the IUFTA, which provides that a cause of action under the act "is extinguished" unless brought "within four years after the transfer was made or the obligation incurred." 740 Ill. Comp. Stat. 160/10(a). Alberts does not dispute that his complaint was filed more than four years after the purchase of Michael Reese Hospital, but argues that he is entitled to invoke the statute of limitations available to any unsecured creditor of the estate at the time that Michael Reese filed its petition.

Alberts identifies two such creditors: the United States Department of Health and Human Services ("HHS") and the Internal Revenue Service ("IRS"). According to Alberts, HHS held a claim for Medicare overpayments pursuant to 28 U.S.C. § 1345, while the IRS held separate claims for taxes owed under the Federal Unemployment Tax Act, 11 U.S.C. § 3301 et seq. ("FUTA"), and for employment taxes owed pursuant to § 3111 of the Internal Revenue Code. 26 U.S.C. § 3111(a). He argues that the existence of these three claims allows him to access either the six-year statute of limitations provided by 28 U.S.C. § 2415 for actions brought by the United States government (for the HHS claim) or the ten-year statute of limitations provided by 26 U.S.C. § 6502¹⁰ for tax claims brought by the IRS (for the two IRS claims).

The Defendants argue in response that (1). Alberts lacks standing to assert any claims held by HHS or the IRS, or, alternatively, should be equitably estopped from doing so, (2) Alberts cannot invoke any statute of limitations other than § 10 of the IUFTA as a matter of law, and (3) there is no evidence in the record that either HHS or the IRS were unsecured creditors of Michael Reese as of the petition date.¹¹ The court considers each category of documents in turn.

1. Standing & Equitable Estoppel

As a threshold issue (although it is actually one of the last arguments that they make), the Defendants argue that Alberts lacks standing to assert causes of action held by the IRS or HHS. (Def. Opp'n at 83-93 (D.E. No. 195, filed August 28, 2006)). Alternatively, they request that the court bar Alberts from pursuing the instant action under traditional principles of equity. (Def. Opp'n at 93-96). Both arguments derive from the provisions of the Plan, which vest the § 544(b) claims formerly held by the Debtors in the Trust but leaves the claims against the former estate held by the IRS and HHS with the Reorganized Debtors. (Plan §§ 1.29, 6.3(e)).

The standing argument requires little effort to refute. Section 6.6 of the Plan...