In re Promise Healthcare Grp.
| Decision Date | 20 April 2023 |
| Docket Number | 18-12491 CTG |
| Parties | In re PROMISE HEALTHCARE GROUP, LLC, et al., Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Chapter 11 (Jointly Administered)
Claimant Patrick Wassmann alleges that he suffered grievous injuries as a result of negligent care provided by Promise Hospital of Lee, Inc., a debtor in this bankruptcy case. As of the petition date, that claim was within the applicable state-law statute of limitations, and Wassmann filed a proof of claim before the bar date.
The liquidating trustee nevertheless objected to Wassmann's claim, contending that it is time barred. The liquidating trustee now seeks summary judgment on that basis. Section 502(b) of the Bankruptcy Code states that when a proof of claim is subject to an objection, the court "shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition and shall allow such claim in such amount."[1]
That statutory language means that, unlike other civil litigation in which courts examine the facts as they exist at the time of trial, the decision of a bankruptcy court on a claim objection looks at a "snapshot" of the debtor's liabilities as they existed as of the bankruptcy filing. If a creditor held a valid "right of payment" against the debtor on the petition date, that creditor is entitled to an allowed claim in bankruptcy.
The liquidating trustee takes a different view, arguing that if the statute of limitations on a claim will run after the petition date, it is incumbent on a creditor who seeks to assert that claim in bankruptcy also to file a lawsuit outside of bankruptcy - including by obtaining relief from the automatic stay and/or discharge injunction, as necessary. The liquidating trustee's apparent construction of § 502(b) is that while the amount of any allowed claim is determined as of the petition date, the validity of the claim is assessed as of the date of the claims allowance decision. Accordingly, to the extent a statute of limitations is running after the petition date (because the creditor had not filed a prepetition lawsuit), filing a timely proof of claim is insufficient. A creditor must also bring suit outside of bankruptcy before the statute expires or risk disallowance of the creditor's claim.
When the liquidating trustee sought summary judgment on this basis, the Court found the contention surprising. When pressed to identify authority that supported the claim however, the liquidating trustee did point to a number of cases, some but not all of which do support his position. Despite those cases, however, this Court concludes that the position is nevertheless incorrect. The Court issues this Memorandum Opinion to explain why the authorities on which the liquidating trustee relies either do not support his reading of § 502(b) or, to the extent they do support it, this Court finds their reasoning unpersuasive. The liquidating trustee's motion for summary judgment will be denied.
The debtors[2] in these cases operated various short and long term hospital and nursing facilities throughout the country.[3] On November 5, 2018, the debtors filed for chapter 11 bankruptcy protection.[4] The Court confirmed the debtors' liquidating plan on September 17 2020.[5] That plan became effective on October 1, 2020.[6] The debtors' plan established a liquidating trust and appointed Robert N. Michaelson[7] as liquidating trustee.[8] Pursuant to the terms set forth in the plan, the liquidating trustee is the "sole entity responsible for reconciling and objecting to Claims against the Debtors and their Estates and making Distributions to Allowed Claims."[9]
1. Wassmann's claim
Claimant Patrick Wassmann[10] filed a $10 million proof of claim on January 4, 2019, well before the May 31, 2019, bar date set by the Court at the outset of the bankruptcy.[11] Wassmann's claim is based on "damages and injuries [allegedly] caused by the [debtors' allegedly] negligent care of [Wassmann], between March 15, 2017 and June 9, 2017," while Wassmann was a resident at one of the debtors' Florida facilities.[12]
In addition to Wassmann's proof of claim, Wassmann also filed a post-petition lawsuit against the debtors in Florida state court, notwithstanding the automatic stay imposed by virtue of the bankruptcy filing.[13] Under Florida law, all medical malpractice claims must be brought "within 2 years from the time the incident giving rise to the action occurred."[14] This gave Wassmann an outside date of June 9, 2019 to bring his state-law claim against the debtors. On March 11, 2019 (four months into the bankruptcy case), Wassmann filed a petition in state court to extend the statute of limitations on his claim for 90 days, giving him until September 8, 2019 to file his claim.[15] On June 13, 2019, more than seven months after the petition date, Wassmann initiated his state-court action against Promise Hospital of Lee, Inc., one of the debtors.[16]
2. The liquidating trustee's objection
The liquidating trustee's ninth omnibus claims objection argued that Wassmann's claim was "barred by the applicable statute of limitations [§ 95.11]," and that Wassmann's June 13 state-court complaint was void as filed in violation of the automatic stay.[17] In response, Wassmann argued that he received a 90-day extension to file his state-law claim and that the automatic stay did not apply to Wassmann's claim because § 362(a)(1) applies only to a claim "that was or could have been commenced before the commencement of the case under this title," and Wassmann could not bring his claim before the petition date as a result of the debtors' alleged withholding of medical records.[18]
The liquidating trustee now brings this motion for summary judgment, asking this Court to disallow Wassmann's claim under 11 U.S.C. § 502(b)(1). First, the liquidating trustee argues that any actions taken in violation of the automatic stay are void ab initio. As a result, Wassmann's June 13 complaint is considered a nonevent for purposes of bankruptcy law. Second, because Wassmann's June 13 complaint is void, no valid complaint was actually filed in state court prior to the September 8, 2019 deadline. Consequently, the liquidating trustee argues, it is now too late; the statute of limitations on Wassmann's claim has lapsed, and the proof of claim must therefore be disallowed.
The liquidating trustee acknowledges that 11 U.S.C. § 108(c)(2) extends the period by which creditors may bring non-bankruptcy actions against a debtor where the statute of limitations on their claims had not expired prior to the petition date. Under this provision, the holder of such a claim has an additional 30 days after notice of the expiration of the automatic stay to file suit against a debtor in a nonbankruptcy court. Even with the extension provided by § 108(c)(2), however, the liquidating trustee argues that Wassmann would have had to initiate his state-court suit by November 1, 2020.[19] Because no suit was filed, the liquidating trustee maintains that § 108(c) cannot save Wassmann's claim.
The liquidating trustee's motion was set for argument on March 21, 2023.[20]Wassmann, who was represented by counsel at earlier stages of the bankruptcy case, is now proceeding pro se, via his mother, Connie Wassmann.[21] Wassmann did not respond to the liquidating trustee's motion for summary judgment. The Court nevertheless issued an order, in advance of the March 21 hearing, asking that counsel for the liquidating trustee be prepared to address whether, in the context of the § 502(b) claims allowance process, the fact that Wassmann filed a timely proof of claim was sufficient reason to deny the motion for summary judgment, assuming the claim was valid as a matter of substantive state law.[22]
This claims allowance dispute arises under 11 U.S.C. § 502 and is therefore within the district court's subject-matter jurisdiction set forth in 28 U.S.C. § 1334(b). As a case within the district court's bankruptcy jurisdiction, this matter has been referred to this Court under 28 U.S.C. § 157(a) and the district court's standing order of reference.[23]
At the March 21 hearing, the liquidating trustee made an argument about the Court's subject-matter jurisdiction over personal-injury tort claims. The Court understands the liquidating trustee's point to be that various provisions of 28 U.S.C. § 157 limit the role of the bankruptcy court in adjudicating personal-injury tort claims. As described below, the liquidating trustee points to these provisions in support of his merits argument. The contention is that because these provisions require the claim to be liquidated outside of the bankruptcy court in any event, it only makes sense to require the claimant to file a timely lawsuit in another court.
The Court does not understand the liquidating trustee, however, to dispute this Court's subject-matter jurisdiction over the instant motion for summary judgment. In any event, as the Court will explain in Part II, subject-matter jurisdiction over bankruptcy matters is granted in 28 U.S.C. § 1334. While 28 U.S.C. § 157 allocates that jurisdiction between the district judges and the bankruptcy judges (who are a "unit" of the district court),[24] none of the rules set out in § 157 are "jurisdictional" rules as that term is properly understood. Accordingly, this Court has subject-matter jurisdiction over the liquidating trustee's motion.
I. A creditor who has filed a proof of claim that was timely as of the petition date is not required to initiate a non-bankruptcy proceeding to preserve its claim.
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