In re Integrated Health Services, Inc.

• Decision Date: 09 January 2004
• Docket Number: Adversary No. 03-53694.,Bankruptcy No. 00-389 MFW.
• Parties: In re INTEGRATED HEALTH SERVICES, INC., et al. C. Taylor Pickett, Plaintiff, v. Integrated Health Services, Inc., Defendant.
• Court: U.S. District Court — District of Delaware

304 B.R. 101

In re INTEGRATED HEALTH SERVICES, INC., et al.

C. Taylor Pickett, Plaintiff, v. Integrated Health Services, Inc., Defendant.

Bankruptcy No. 00-389 MFW.

Adversary No. 03-53694.

United States District Court, D. Delaware.

January 9, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Alfred Villoch, III, Edmon L. Morton, James L. Patton, Joel A. Waite, Joseph M. Barry, Maureen D. Luke, Robert S. Brady, Sharon M. Zieg, Young Conaway Stargatt & Pickett, LLP, Wilmington, DE, Arthur Steinberg, New York City, Francis G.X. Pileggi, Fox, Rothschild, O'Brien & Frankel, Ian Connor Bifferato, Bifferato, Bifferato & Gentilotti, J. Kate Stickles, Saul, Ewing LLP, Megan Nancy Harper, Landis, Rath & Cobb LLP, Michael G. Busenkell, Morris, Nichols, Arsht & Tunnell, William Pierce Bowden, Ashby & Geddes, Wilmington, DE, for debtors.

Don A. Beskrone, Office of U.S. Trustee, Wilmington, DE, U.S. Trustee.

Anthony M. Saccullo, Charlene D. Davis, Christopher A. Ward, GianClaudio Finizio, The Bayard Firm, Stephanie Ann Fox, Steven K. Kortanek, Klehr, Harrison Harvey Branzburg & Ellers, Wilmington, DE, for Official Committee of Unsecured Creditors.

John C. Demmy, Stevens & Lee, P.C., Wilmington, DE, Leighton Aiken, Owens, Clary & Aiken, LLP, Dallas, TX, for plaintiff.

Dmitry Pilipis, Frederick B. Rosner, Jaspan Schlesinger Hoffman LLP, Wilmington, DE, for Abe Briarwood Corp.

OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

This matter is before the Court on the Motion of the plaintiff, C. Taylor Pickett ("Pickett"), for Summary Judgment. Picket seeks a declaration from this Court that the defendant, Integrated Health Services ("IHS"), assigned to him its rights to a membership in the Caves Valley Country Club ("the Membership"). IHS has filed a Cross Motion for Summary Judgment seeking a declaration that the Membership was not assigned to Pickett. For the reasons discussed below, the Court will grant Summary Judgment in favor of IHS.

I. FACTUAL BACKGROUND

IHS joined the Club as a corporate member in 1993, paying a subscription fee of $75,000. Stock Certificates for preferred and common stock were issued to IHS. IHS held all rights, title and interest to the Membership from 1993 until December 31, 1998, when IHS named Pickett, its Chief Financial Officer, as its "corporate designee" in recognition of Pickett's past services to IHS. This was memorialized in a memorandum from the Chief Executive Officer of IHS to Pickett ("the Elkins Memo"). The Elkins Memo stated that IHS "has assigned to [Pickett] all its rights, title and interest related to the membership." Additionally, the Elkins Memo stated that Pickett would remain the corporate designee unless he resigned the Membership or was terminated by IHS for cause. In 1999, the Club registered Pickett as IHS' designated member.

On February 2, 2000 ("the Petition Date"), IHS and its affiliates (collectively "the Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Debtors continued to manage their businesses and properties as debtors in possession. Following the bankruptcy filing, Pickett served as an officer of IHS until December 31, 2001. At that time, IHS and Pickett mutually agreed that he should leave IHS' employ and executed an agreement with respect to their various rights ("the Letter Agreement"). Pickett continued to enjoy the privileges at the Club and paid the annual dues associated with the Membership after he left IHS' employ.

On January 17, 2002, IHS designated a "new member" for the Membership. However, that "new member" withdrew his name from consideration before any action was taken. On August 7, 2002, IHS made a request of the Club to remove Pickett as the corporate designee. In response to this second attempt, Pickett sent a letter requesting that IHS acknowledge his ownership of the Membership. IHS did not respond to the request. Pickett then filed the instant Complaint seeking a declaration that the Membership was assigned to him and, therefore, is not property of the IHS bankruptcy estate.

II. JURISDICTION

This Court has jurisdiction over this matter as a core proceeding pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(A), (E), (M) & (O).

III. DISCUSSION

The issue presented is whether IHS validly assigned the Club Membership to Pickett.

A. Motion for Summary Judgment

To grant a motion for summary judgment, the court must determine whether the moving party has established that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Rule 56 "mandates an entry of summary judgment, after adequate time for discovery and upon motion against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. 2548. In making that determination, the court must assume that the undisputed facts are true.

B. Choice of Law

In deciding whether or not the agreement between IHS and Pickett was an assignment, we must first determine which state's law should apply using the choice of law rules of the forum state. In re Eagle Enters., Inc., 223 B.R. 290, 292 (Bankr.E.D.Pa.1998). Delaware courts apply the "most significant relationship test" as outlined in the Restatement Second of Conflict of Laws. Edelist v. MBNA America Bank, 790 A.2d 1249, 1255-56 (Del.Super.Ct.2001). The "most significant relationship test" identifies which state has the most interest in a particular transaction by analyzing the following factors: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. Id. at 1256.

Here, the Elkins Memo was drafted, sent and received in Maryland. Pickett resides in Maryland. Moreover, the subject matter of the Elkins Memo was a membership in a country club located in Maryland. Consequently, we conclude that Maryland has the "most significant relationship" to this transaction and its law should govern the issue of the validity of the assignment.

C. Effect of Nonassignment Clause in the Club's Bylaws

IHS argues that, even if the Elkins Memo amounts to an assignment, the nonassignment clause contained in the Club's Bylaws rendered the assignment void. Under Maryland law, a contract may provide that it shall not be assignable. Michaelson v. Sokolove, 169 Md. 529, 182 A. 458, 459 (1936).

Maryland has not specifically addressed whether the assignor can assert a nonassignability clause as a defense against the assignee. However, other courts have held that a nonassignment clause is a defense available only to the party who was to be protected by such clause. Paul v. Chromalytics Corporation, 343 A.2d 622, 626-27 (Del.Super.Ct.1975). The nonassignment clause is a "personal" provision for the benefit of the obligor that will not prevent the subsequent assignment if the obligor does not assert its rights. Logan Planing Mill Company v. Fidelity and Casualty Company of New York, 212 F.Supp. 906, 912 (S.D.W.Va.1962). A nonassignment clause "ordinarily serves to protect the obligor alone and does not affect the legal or equitable rights of the assignor and assignee as between themselves." Paul, 343 A.2d at 627.

Other courts go further. The Oklahoma Supreme Court held that the assignor should not be able to "maintain the inequitable position" of arguing that the nonassignability clause prevented him from doing what he did. In re Kaufman, 37 P.3d 845, 855 (Okla.2001) (citing State Farm Fire & Casualty Ins. Co. v. Farmers Ins. Exchange, 489 P.2d 480, 482 (Okla.1971)).

We find persuasive the holdings of these courts which deny this defense on equitable grounds. Therefore, we conclude that IHS may not use the nonassignability provision in the Club Bylaws as a defense to the purported assignment by IHS.

D. Validity of Alleged Assignment

Under Maryland law, the validity of an assignment is determined by the actual intent of the parties. State of Maryland, Central Collection Unit v. Columbia Medical Plan, 300 Md. 318, 478 A.2d 303, 309 (1984). The language of the contract is the primary source of determining the intention of the parties. Turner v. Turner, 147 Md.App. 350, 809 A.2d 18, 49 (Md.Ct.Spec.App.2002). "Clear and unambiguous language of a written agreement controls, even if the expression is not congruent with the parties' actual intent at the time of the document's creation." B & P Enter. v. Overland Equip. Co., 133 Md.App. 583, 758 A.2d 1026, 1037 (Md.Ct.Spec.App.2000).

However, if the agreement is ambiguous, parol or extrinsic evidence is permissible to determine the parties' true intent. Kobrine, L.L.C. v. Metzger, 151 Md.App. 260, 824 A.2d 1031, 1039 (Md.Ct.Spec.App.2003). Moreover, what is ambiguous language is a question of law for the court to decide. Einhorn v. Fleming Foods of Pennsylvania, 258 F.3d 192, 194 (3d Cir.2001). Language is ambiguous if it is susceptible to different interpretations. Id. at 194; Stanbalt Realty Co. v. Commercial Credit Corp., 42 Md.App. 538, 401 A.2d 1043, 1045 (Md.Ct.Spec.App.1979)(citing Allen v. Steinberg, 244 Md. 119, 127, 223 A.2d 240 (Md.Ct.Spec.App.1966)). If it is reasonable, the contract must be viewed in its entirety so as to give effect to each clause. Sagner v. Glenangus Farms, Inc., 234 Md. 156, 198 A.2d 277, 283 (Md.Ct.Spec.App.1964). When it is not reasonable to give each term its common meaning, the agreement is ambiguous.

In this case, Pickett submitted the Elkins Memo as the only evidence of an assignment. Pickett argues that the language is unambiguous; the Elkins Memo provides that "IHS has assigned to [Pickett] all its rights, title and...