In re Quincy Med. Ctr., Inc.

• Decision Date: 13 February 2012
• Docket Number: 11–16396–MSH.,11–16395–MSH,Nos. 11–16394–MSH,s. 11–16394–MSH
• Parties: In re QUINCY MEDICAL CENTER, INC., QMC Ed Physicians, Inc., Quincy Physicians Corporation, Debtors.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

466 B.R. 26
56 Bankr.Ct.Dec. 14

In re QUINCY MEDICAL CENTER, INC., QMC Ed Physicians, Inc., Quincy Physicians Corporation, Debtors.

Nos. 11–16394–MSH

11–16395–MSH

11–16396–MSH.

United States Bankruptcy Court,D. Massachusetts,Central Division.

Feb. 13, 2012.

[466 B.R. 27]

John T. Morrier, Boston, MA, for Debtors.

MEMORANDUM OF DECISION ON MOTIONS OF APURV GUPTA AND VICTOR MUNGER FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE CLAIMS MELVIN S. HOFFMAN, Bankruptcy Judge.

Apurv Gupta and Victor Munger, senior executives of the debtor, Quincy Medical

[466 B.R. 28]

Center, Inc. (“QMC”), have filed substantively similar motions seeking allowance of administrative expense claims under § 503(b)(1) of the Bankruptcy Code, 11 U.S.C. § 101 et seq.,¹ for severance pay due them under QMC's Executive Severance Policy dated January 1, 2011. QMC opposes both motions.

The salient facts are not in dispute. Both Dr. Gupta and Mr. Munger were employees in good standing of QMC on July 1, 2011, the date QMC and certain affiliates filed voluntary petitions under chapter 11 of the Bankruptcy Code in this court. QMC's primary asset was Quincy Hospital, a 196 bed acute care facility which has served the community in and around Quincy, Massachusetts since 1890. Dr. Gupta served as Senior Vice President for Clinical Affairs/Chief Medical Officer of QMC pursuant to an employment agreement effective October 1, 2009. Mr. Munger served as Senior Vice President of Human Resources pursuant to a letter agreement effective March 1, 2010. Both executives were included in QMC's executive severance policy as set forth in a memorandum dated January 1, 2011 which entitled them to, among other things, a minimum of six and a maximum of twelve months' base salary continuation upon termination of employment other than for cause. QMC's severance policy does not articulate specific guidelines or procedures for determining the circumstances under which an employee may receive in excess of the minimum six months' salary.

By letters dated October 7, 2011, QMC terminated Dr. Gupta's and Mr. Munger's employment without cause effective October 1, 2011 which was the date when substantially all the assets of QMC and its affiliates were acquired by a third party purchaser known as Quincy Medical Center a Steward Family Hospital, Inc. (“Steward”). Since that time Steward has been operating Quincy Hospital and its ancillary facilities. The cited reason for the terminations was Steward's failure to offer Dr. Gupta and Mr. Munger continued employment.

In the Asset Purchase Agreement (“APA”) entered into by Steward and QMC and its affiliates, Steward agreed to offer employment for a period of no less than three months to each employee of QMC as of the date of the sale closing at the salary and position enjoyed by such employee prior thereto. Further, in the event Steward terminated any former QMC employee, Steward agreed to honor any severance obligation based on QMC's severance policy. While Dr. Gupta and Mr. Munger were QMC employees on the sale closing date, they were not offered employment by Steward.

Mr. Munger asserts a claim for administrative expenses against QMC in the amount of $135,000, consisting of a severance pay claim of $90,000, representing six months' salary, and a claim of $45,000, representing the minimum three months' salary he would have received had Steward hired him.

Dr. Gupta asserts an administrative expense claim against QMC of $468,000, consisting of a severance claim of $312,000, equal to twelve months' salary, and a claim of $156,000, representing 180 days' salary, because QMC failed to give Dr. Gupta the requisite 180 days' prior notice of termination pursuant to his employment agreement.²

[466 B.R. 29]

QMC is unwilling to concede that any component of either claim is entitled to administrative priority treatment. Furthermore, while QMC agrees with the amount of Mr. Munger's claim it suggests the claim is properly a claim against Steward. QMC submits that had Steward employed Mr. Munger as it was obligated to under the APA, Steward would have been obliged to retain and pay him for three months and then upon termination pay him six additional months' salary under QMC's severance policy. As for Dr. Gupta's claim, without accepting any of Dr. Gupta's alternative claim amounts, QMC invites him as well to pursue Steward for recovery.

As noted previously, the claims of both executives consist of severance and non-severance components. In the case of Mr. Munger's claim, the non-severance component is $45,000 for three months' post sale compensation. There is no basis, however, for Mr. Munger's assertion that QMC should be liable for this amount. It was Steward, not QMC, who made the commitment to employ QMC's staff for a minimum of three months after the sale closing. Mr. Munger has failed to articulate any basis, nor am I aware of any, by which QMC should be held liable for Steward's failure to employ him.

Dr. Gupta's non-severance claim consists of 180 days' salary totaling $156,000 resulting from QMC's failure to give Dr. Gupta the required 180 day notice of termination under his employment agreement. But as Dr. Gupta's employment agreement was never assumed by QMC, his claim for termination damages is not a claim against QMC as debtor in possession, rather it is a textbook Bankruptcy Code § 502(b)(7) general unsecured claim. “Although during the Chapter 11 proceeding a prepetition executory contract remains in effect and enforceable against the nondebtor party to the contract, the contract is unenforceable against the debtor in possession unless and until...