In re Hardeman Cnty. Hosp. Dist., CASE NO. 13–70103–HDH9

• Decision Date: 02 November 2015
• Docket Number: CASE NO. 13–70103–HDH9
• Citation: 540 B.R. 229
• Parties: In re Hardeman County Hospital District d/b/a Hardeman County Memorial Hospital, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Texas

540 B.R. 229

In re Hardeman County Hospital District d/b/a Hardeman County Memorial Hospital, Debtor.

CASE NO. 13–70103–HDH9

United States Bankruptcy Court, N.D. Texas, Wichita Falls Division.

Signed November 2, 2015

Josiah M. Daniel, III, SBT # 05358500, Matthew W. Moran, SBT # 24002642, Katherine D. Grissel, SBT # 24059865, Vinson & Elkins L.L.P., Trammell Crow Center, 2001 Ross Avenue, Suite 3700, Dallas, Texas 75201, Tel: 214.220.7718, Fax: 214.999.7718, jdaniel@velaw.com; mmoran@velaw.com; kgrissel @velaw.com, Attorneys for the Debtor

FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF ORDER CONFIRMING PLAN OF ADJUSTMENT

Harlin DeWayne Hale, United States Bankruptcy Judge

On October 21, 2015, the Court conducted the Confirmation Hearing on the Amended Plan of Adjustment(Doc. # 283, the “Plan”)¹filed by Hardeman County Hospital District d/b/a Hardeman County Memorial Hospital (the “Debtor” or the “Hospital”). The court-approved Plan Summary was appropriately transmitted to Creditors, and the Court finds that due and proper notice has been given of the Confirmation Hearing and the deadlines and procedures for voting and for filing objections to the Plan. The objection (Doc. # 291) filed by TMJMF Holdings, L.P. (“TMJMF”), the objection (Doc. # 299) filed by InterEXPO Ltd. (“InterEXPO”), and any other objections or responses to Confirmation of the Plan that (a) have not been withdrawn, waived, or settled prior to the entry of the Order Confirming Plan or (b) are not cured by the relief granted herein, are overruled on the merits, and all withdrawn objections or responses each are hereby deemed withdrawn with prejudice. Upon the record of the Confirmation Hearing, the Court makes these Findings of Fact and Conclusions of Law (the “Findings and Conclusions”):

The Debtor

1. Hardeman County Hospital District, which does business under the name Hardeman County Memorial Hospital, is the county hospital serving Quanah, Texas and Hardeman County.

2. The Hospital is designated as a critical-access licensed 24–bed general acute-care facility and is also designated as a Trauma Level 4 facility. Its services include acute medical care, out-patient services, rehabilitation services, swing-bed program, clinic services, and intensive outpatient mental health services for senior adults. The Hospital is the primary and acute care center for Quanah, Hardeman County, and portions of the surrounding counties. The Hospital presently has partnered with the town of Crowell in neighboring Foard County to be its medical provider for its rural health clinic.

3. Hardeman County Hospital District is a taxing district, and thus is a political subdivision, of the State of Texas. It was created by an act of the Texas Legislature in 1979. Its enabling statute has been codified by the Legislature and is found in the Special District Local Laws Code at Chapter 1038. Tex. Spec. Dist. Local Laws Code§ 1038.001 et seq. The District operates solely with the taxes it raises by levy on properties located within its boundaries and the revenues of its medical and healthcare services and operations. The enabling legislation provides that “[t]he legislature may not make a direct appropriation for the construction, maintenance, or improvement of a district facility.” Id.§ 1038.006. Accordingly, “the district has full responsibility for: (1) operating all hospital facilities; and (2) providing medical and hospital care for the district's needy inhabitants.” Id.§ 1038.101.

4. The communities of Quanah, Hardeman County, and Foard County depend on the Hospital in multiple ways. As noted, it maintains an emergency room 24 hours a day, seven days a week. This emergency-room availability is critically important to the employers of the communities, such as the gypsum wallboard manufacturing plant that employs 130 people, the school district that is the largest employer in the county, as well as all residents of all ages of the communities served by the Hospital as well as visitors and those needing medical services while traveling through, such as car crash victims. The economic, social, and community-building and -bonding effects of the Hospital cannot be calculated in mere dollars and cents.

5. The dollars and cents are of course important. The Hospital must match its expenditures to its revenues and operate within its means. The Hospital was in serious financial distress by the end of 2012 and insolvent in early 2013. As a result, its Board of Directors voted on March 21, 2013 to file a petition under Chapter 9, the municipal bankruptcy provisions of the federal Bankruptcy Code, as the best available means of restructuring and revivifying itself in order to successfully continue its mission to provide healthcare services to its communities including needy inhabitants into the future. The Court entered the Order for Relief(Doc. # 24) on March 27, 2013.

6. The Plan, which is dated, as originally filed by the Debtor, August 14, 2015 (Doc. # 269), and as amended, September 4, 2015 (Doc. # 280),²is intended to pay secured claims in full, to provide a fair distribution to Unsecured Creditors, to assume and continue more than 200 executory contracts and leases that are beneficial to the Debtor, to maintain its facilities and its corps of dedicated employees and healthcare providers, and to accomplish its statutory mission within the communities it serves. The Second Amended Disclosure Statement for the Plan of Adjustment(Doc. # 288) and the evidence presented at the Confirmation Hearing have detailed the steps and work that have gone into rehabilitating the Hospital during the postpetition era. Confirmation of the Plan will be the final step in the rehabilitation and adjustment of debts of the Hospital and its repositioning to continue its mission well out into the future.

Jurisdiction and Venue

7. This Court has jurisdiction over this Chapter 9 case and this matter under 28 U.S.C. § 1334(a)& (b), and venue is proper under 28 U.S.C. §§ 1408and 1409. Confirmation of the Plan is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (L), and (O), and this Court has authority to enter a final order determining whether the Plan complies with the Bankruptcy Code and should be confirmed.³

8. Because it is a political subdivision of the State of Texas that has been specifically authorized by the Texas Legislature to seek relief under Chapter 9,⁴the Debtor is a proper municipal debtor under Bankruptcy Code § 109. Further, the Debtor is the proper proponent of the Plan under Bankruptcy Code § 941. A debtor in a Chapter 9 Case has the exclusive right to propose a plan of adjustment. SeeCollier on Bankruptcy¶ 941.02 (16th ed.) (hereinafter “Collier”) (citing Ashton v. Cameron Cty. Water Improvement Dist. No. 1,298 U.S. 513, 56 S.Ct. 892, 80 L.Ed. 1309 (1936)and U.S. v. Bekins,304 U.S. 27, 58 S.Ct. 811, 82 L.Ed. 1137 (1938), both construing the Tenth Amendment to the United States Constitution as requiring that a municipal debtor be left in complete control of its political and governmental affairs).

Brief History of Chapter 9

9. Chapter 9 was added to the national bankruptcy law during the Great Depression. Prior to adoption of the Bankruptcy Code, it was generally called “Chapter IX.” From its earliest days, it has afforded restructuring relief to political subdivisions of states that specifically authorize their political subdivisions to file petitions to commence cases in bankruptcy courts. The purpose of Chapter 9 is beneficent for both debtors and creditors. Collierspeaks of “the broad remedial purpose of chapter 9,” Collier¶ 900.02[2][b], and noted commentators who have focused on Chapter 9 have observed:

[I]t is not always possible to pay, and it is in the interest of all (creditors as well as debtors)to reach an accommodation when this eventuality occurs. This may require coercion of unwilling parties, since individual creditors may find it in their interest to resist a solution even when it is in the interest of the creditors as a whole.This is the “collective action” problem ... [B]ankruptcy [is] the solution to the collective action problem....

Michael W. McConnell & Randal C. Picker, When Cities Go Broke: A Conceptual Introduction to Municipal Bankruptcy,60 U. Chi. L. Rev.425, 426 (1993)(emphasis added).

10. The Debtor has limned the history of Chapter 9 in its Confirmation Hearing Brief (Doc. # 302), demonstrating that its early history has deep Texas roots. The Debtor's case and its Plan fit well within that tradition.

Standards for Confirmation Under Bankruptcy Code § 943

11. A Chapter 9 plan proponent has the burden to prove the requirements for confirmation of a plan by preponderance of the evidence. In re City of Detroit,524 B.R. 147, 202 (Bankr.E.D.Mich.2014); In re Barnwell Cnty. Hosp.,471 B.R. 849, 855–56 (Bankr.D.S.C.2012); In re Pierce Cnty. Hous. Auth.,414 B.R. 702, 715 (Bankr.W.D.Wash.2009); In re Mount Carbon Metro. Dist.,242 B.R. 18, 31 (Bankr.D.Colo.1999).

12. The Debtor has carried its burden of proof for Confirmation. The evidentiary record of the Confirmation Hearing and the provisions of the Plan support this Court's findings of fact and conclusions of law.

13. Bankruptcy Code § 943(b)(1).In accordance with Bankruptcy Code § 943(b)(1), the Plan complies with the provisions of the Bankruptcy Code made applicable to Chapter 9 cases by Bankruptcy Code §§ 103(f)and 901. Specifically:

(a) Bankruptcy Code § 1122.Article IV of the Plan classifies each Claim against the Debtor into a Class containing only substantially similar Claims as mandated by § 1122(a) of the Bankruptcy Code. “The application of § 1122in chapter 9 cases should be essentially the same as in chapter 11 cases.” Collier¶ 901.04[35]. See alsoSupreme Forest Woodmen Circle v. City of Belton,100 F.2d 655, 657 (5th Cir.1938)(non-negotiable warrants may be placed in the same class of a Chapter IX plan as negotiable bonds). The legal rights under applicable law of each Holder of Claims within each Class under the...