In re Quincy Med. Ctr., Inc.

• Decision Date: 25 September 2012
• Docket Number: No. 11–16394–MSH, 11–16395–MSH, 11–16396–MSH.,11–16394–MSH, 11–16395–MSH, 11–16396–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

479 B.R. 229

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

No. 11–16394–MSH, 11–16395–MSH, 11–16396–MSH.

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

Sept. 25, 2012.

[479 B.R. 230]

John Morrier, Casner & Edwards, LLP, Boston, MA, for Quincy Medical Center, Inc.

Charles Bennett, Murphy & King, P.C., Boston, MA, for Victor Munger.

Bruce Gladstone, Cameron & Mittleman LLP, Providence, RI, for Apurv Gupta.

James D. McGinley, Edwards Wildman Palmer LLP, Boston, MA, for Quincy Medical Center, a Steward Family Hospital, Inc.

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 Center, Inc. (“QMC”), filed substantively similar motions seeking allowance of administrative expense claims under Bankruptcy Code § 503(b)(1), 11 U.S.C. § 503(B)(1), for severance pay due them under QMC's Executive Severance Policy dated January 1, 2011. After an initial hearing, I denied the executives' motions as to QMC but determined that the motions also sought relief in the alternative against Quincy Medical Center, a Steward Family Hospital, Inc. (“Steward”), which purchased substantially all of QMC's assets.

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In re Quincy Medical Center, Inc., 466 B.R. 26, 32 (Bankr.D.Mass.2012) (“ QMC I ”). After giving Steward time to respond to the motions, I conducted a second non-evidentiary hearing at the conclusion of which I solicited additional memoranda and affidavits from the parties and ordered QMC to file an affidavit regarding certain schedules to the asset purchase agreement between QMC and Steward referred to during the hearing. Upon receipt and review of the additional materials I took the matter under advisement. For the reasons set forth below I will grant Dr. Gupta's and Mr. Munger's motions as to Steward.

Facts

QMC I contains a thorough recitation of the background and facts concerning the relationship among QMC, Steward and the executives. Only those facts which are relevant to the issues presently before me are reprised here.

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 QMC's 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. The policy 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.

On June 30, 2011, QMC and its affiliates signed an Asset Purchase Agreement (the “APA”) whereby they agreed to sell substantially all of their assets to Steward. The APA provides that it is governed by Massachusetts law. On July 1, 2011, QMC and certain affiliates commenced this case by filing voluntary petitions under chapter 11 of the Bankruptcy Code. A motion to sell the debtors' assets to Steward was filed the same day and the motion was subsequently allowed by order dated September 26, 2011. The order approving the sale made the APA as well as the order itself binding on Steward and QMC, including QMC's employees, officers and directors. The sale was consummated on October 1, 2011.

Among the assets not purchased by Steward and for which the APA states Steward assumed no liability are those assets defined in the APA as “Excluded Assets.” The Excluded Assets include contracts identified on schedule 2.2(b) to the APA. Schedule 2.2(b) was not attached to the copy of the APA filed with the court. ¹ Steward, however, provided an unverified and undated copy of schedule 2.2(b) in connection with its objection to the Munger and Gupta motions. No party has asserted that the copy of schedule 2.2(b) submitted by Steward is not what it purports to be. That schedule includes a section entitled “Excluded Medical Staff Agreements.” Listed as item 18 in that section is the “Employment Agreement between Quincy Medical Center and Dr. Apurv Gupta to serve as Quincy's Senior Vice President for Medical Affairs/Chief

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Medical Officer, effective October 1, 2009.” Mr. Munger's employment contract, which the parties refer to as a “letter agreement,” does not appear anywhere on schedule 2.2(b).

Section 9.1 of the APA provides:

Not later than ten (10) Business Days prior to the Closing, Purchaser shall offer employment by Purchaser to each of the Employees who remain employed by Seller as of a recent date, as specified by Seller to Purchaser at least three Business Days in advance of Purchaser commencing delivery of such offers of employment, such employment to commence immediately following the Closing. Seller shall deliver to Purchaser with such listing of Employees as of such date a reconciliation of such list with the list of Employees delivered to Purchaser pursuant to Section 5.14 [that is, a document reconciling the list of Employees with those who gave notice of their intention not to become employed by Steward]. Purchaser shall likewise deliver as soon as practicable such an offer to any individual not included on the list but who is an Employee as of the Closing Date. Each such offer of employment shall be at the same salary or hourly wage rate and position in effect immediately prior to the Closing. Such individuals who accept such offer of employment are hereinafter referred to as the “Transferred Employees.”

As required by section 9.1 of the APA, at least three business days before Steward was to make offers of employment to the QMC employees, QMC was to provide Steward with a list of its employees reconciled to remove the names of any employee who chose not to become employed by Steward. According to the Declaration of Robert E. Annas, a managing director of Navigant Capital Advisors, LLC (“Navigant”), which had been employed by QMC to assist in the sale transaction (the “Annas Affidavit”), Navigant maintained an electronic data room containing “due diligence” information relevant to QMC and available for review by qualified potential purchasers, including Steward. According to the Annas Affidavit the names of both Dr. Gupta and Mr. Munger appear consistently on QMC employee lists which were posted to the electronic data room on the March 28, 2011, September 13, 2011 and September 15, 2011.

Section 9.2(a) of the APA provides:

Purchaser shall provide, or cause to be provided, for a period ending not earlier than the end of the third month following the Closing Date or such longer period of time required by applicable Law, to each of the Transferred Employees, base wage and salary levels provided to such Employees immediately prior to the Closing. Purchaser shall provide each Transferred Employee with employee benefits consistent with similarly-situated employees of Purchaser (provided that nothing in this Section 9.2 shall require Purchaser to pay severance to any Transferred Employee).

Under section 5.14(c) of the APA Steward was responsible for the severance pay or other payments to any individual employed by QMC as of the closing date in the event that Steward terminated the employment of such employee at or following the closing date. That section provides:

Except as set forth in Section 5.14(c) of the Seller Disclosure Schedule [that is, a document reconciling the list of Employees with any who gave notice of their intention not to become employed by Steward] no Employee has given as of the date hereof notice of intention to leave Seller's employ before or after the Closing, and upon Purchaser's termination of the employment or engagement

[479 B.R. 233]

of any employees or consultants of Seller at or following the Closing, Purchaser shall be liable to any such persons for severance or retention pay or any other payments otherwise due them as employees of or consultants for Seller (including accrued salary or vacation in accordance with normal policies).

Both Dr. Gupta and Mr. Munger were QMC employees in good standing on October 1, 2011, the date of the closing. Neither was offered employment by Steward.²

QMC sent each of Dr. Gupta and Mr. Munger letters dated October 7, 2011 stating that each was terminated effective October 1, 2011. Each letter gave the same reason for the termination, namely, that QMC, having sold its assets to Steward, was no longer operating a hospital and no longer had a need for the services each provided. The letters also noted that under the APA Steward was to offer employment to all employees of QMC.

Mr. Munger asserts a claim against Steward 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 and then fired him.

In a supplemental pleading [# 609] filed after his representation in court that he would do so, Dr. Gupta amended his original claim to seek from Steward $234,000, consisting of a severance claim of $156,000, equal to six months' salary, and a claim of $78,000, representing three months' salary.³

Positions of the Parties

Dr. Gupta, Mr. Munger and QMC argue that the APA is clear: Steward was required to offer...