In re Saint Vincents Catholic Medical Centers of New York, Lead Case No. 10-11963 (CGM), Jointly Administered (Bankr. S.D.N.Y. 5/14/2010)

• Decision Date: 14 May 2010
• Docket Number: Lead Case No. 10-11963 (CGM), Jointly Administered.
• Parties: In re: SAINT VINCENTS CATHOLIC MEDICAL CENTERS OF NEW YORK, et al., Chapter 11, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

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In re: SAINT VINCENTS CATHOLIC MEDICAL CENTERS OF NEW YORK, et al., Chapter 11, Debtors.

Lead Case No. 10-11963 (CGM), Jointly Administered.

United States Bankruptcy Court, S.D. New York.

May 14, 2010.

Kramer Levin Naftalis & Frankel LLP, New York, NY, Kenneth H. Eckstein, Adam C. Rogoff, Paul B. O'Neill, Attorneys for Debtors.

U.S. Department of Justice, U.S. Trustee's Office, New York, NY, Serene K. Nakano, Susan D. Golden, Attorneys for United States Trustee.

Office of the New York State Attorney General New York, NY, Neal 3S. Mann, Attorneys for the New York State Department of Health.

Neubert, Pepe & Monteith, P.C. New Haven, CT, Mark I. Fishman, Attorney for Patient Care Ombudsman.

Akin, Gump, Strauss, Hauer & Feld, LLP, New York, NY, David H. Botter, Attorney for Official Committee of Unsecured Creditors.

Kurland, Bonica & Associates, P.C. New York, NY, Yetta G. Kurland, Thomas D. Shanahan, P.C. New York, NY, Thomas D. Shanahan, Attorneys for Richard Leon Stack and other similarly situated individuals.

MEMORANDUM DECISION

CECELIA G. MORRIS, Bankruptcy Judge

Plaintiffs in a New York State court proceeding (hereafter, "State Court Plaintiffs") titled Stack, et al v. New York State Department of Health, et al., Index Number 105114/10, (hereafter, the "State Court Action") faxed a letter to the Chambers of the Hon. Cecelia G. Morris on April 20, 2010. The letter requested, inter alia, an immediate conference call with the Court and counsel for the Debtors. The letter was docketed by the Court on April 21, 2010, with a notation denying the requests made therein. (ECF Doc. No. 100; hereafter, the "Letter"). On April 21, 2010, an Emergency Application for Ex Parte Relief for Declaratory Judgment and Amended Interim Order was filed by State Court Plaintiffs seeking a declaratory judgment that the State Court Action may continue in state court or alternatively lifting the stay pursuant to 11 U.S.C. § 362 only with respect to the State Court Action; amending the Interim Order entered by this Court on April 16, 2010 (ECF Doc. No. 53, hereafter "Interim Closure Order") authorizing the Debtors to continue the implementation of a plan of closure for the Debtors' Manhattan Hospital and Certain Affiliated Outpatient Clinics and Practices to stay any closing activity of St. Vincent's Hospital until May 6, 2010 and to allow parties aggrieved by state claims or parties outside the jurisdiction of federal bankruptcy court to seek relief in New York State Court or the courts of most competent jurisdiction. (ECF Doc. No. 101; hereafter, the "Order to Show Cause"). On April 21, 2010, the Debtors filed a Motion to Impose Automatic Stay/Motion of Debtors for Entry of an Order Enforcing the Interim Closure Order and the Automatic Stay seeking the Court to enforce the Interim Closure Order and enforce the automatic stay by enjoining the continued prosecution of the State Court Action. (ECF Doc. No. 104; hereafter, the "Motion to Enforce the Stay"). On April 21, 2010, State Court Plaintiffs filed an objection to the Motion to Enforce the Stay. (ECF Doc. No. 109; hereafter, the "Opposition to Motion to Enforce the Stay"). On April 21, 2010, Debtors filed opposition to the Order to Show Cause. (ECF Doc. No. 110; hereafter, the "Opposition to Order to Show Cause"). On April 22, 2010, State Court Plaintiffs filed a Reply to Motion for Declaratory Judgment and Amended Interim Order. (ECF Doc. No. 112).

A hearing was held on April 22, 2010 (hereafter, the "April 22, 2010 Hearing") to consider the Order to Show Cause, Motion to Enforce the Stay and all related filings Counsel for State Court Plaintiffs and Counsel for Debtors appeared at the April 22, 2010 Hearing. Following the April 22, 2010 Hearing the Court entered an Order, inter alia, enforcing the Interim Closure Order, enjoining the State Court Action, directing the State Court Plaintiffs to present any argument in opposition to the closure of Saint Vincent's Hospital and affiliated Debtors at the Court's May 6, 2010 hearing. (ECF Doc. No. 115). On May 5, 2010, the State Court Plaintiffs filed an objection to entry of the Final Order Authorizing Debtors to Continue Implementation of Plan of Closure. (ECF Doc. No. 189, hereafter "Objection to Final Closure Order").

At the May 6, 2010 hearing (hereafter, the "May 6, 2010 Hearing" and reference thereto "Transcript at"), after considering the opposition by the State Court Plaintiffs, the Court denied the State Court Plaintiffs' Objection to the Final Closure Order and granted the Debtors' final order with respect to the plan of closure.

For the reasons stated at the May 6, 2010 Hearing and more fully explained below, the State Court Plaintiffs are enjoined from proceeding in the State Court Action and their Objection to Final Closure Order is overruled.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated July 10, 1984. Adjudication of the Motion constitutes a core proceeding within the meaning 28 U.S.C. § 157(b)(2). Venue of the captioned cases in this District is proper pursuant to 28 U.S.C. §§ 1408 and 1409. These motions deal with the Court's statutory power pursuant to sections 362 and 105(a) of title 11 of the United States Code (the "Bankruptcy Code" or alternatively the "Code").

BACKGROUND

The Court finds the facts as stated by Debtors in the Motion to Enforce the Stay to be complete and incorporates them by reference. Unless otherwise noted, the following discussion constitutes the Court's finding of facts and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

Saint Vincent's Catholic Medical Centers of New York ("SVCMC") and certain of its affiliates, as Chapter 11 debtors and debtors in possession (each a "Debtor" and collectively, the "Debtors")¹ filed for bankruptcy on April 14, 2010. (ECF Doc. No. 1). As is routine in many Chapter 11 cases, the Debtors made a number of first-day motions including, inter alia, a Motion of the Debtors for Entry of Interim and Final Orders Pursuant to Sections 105(a), 363, and 1108 of the Bankruptcy Code (A) Authorizing the Debtors to Continue the Implementation, in Accordance With New York State Law of a Plan of Closure for the Debtors' Manhattan Hospital (hereafter, the "Hospital" or "St. Vincent's Hospital") and Certain Affiliated Outpatient Clinics and Practices; and (B) Scheduling a Final Hearing. (ECF Doc. No. 10, hereafter the "Closure Motion"). A hearing was held on April 15, 2010, and the Closure Motion was granted on an interim basis with a final hearing to be held on May 6, 2010. The Interim Closure Order was entered by the Court on April 16, 2010 retaining jurisdiction over the closure and authorizing the Debtors to continue to implement the closure on an interim basis until the final hearing. Interim Closure Order ¶ 2-4.

On April 16, 2010, the United States Trustee pursuant to its duties imposed by 28 U.S.C. § 586(a), 11 U.S.C. § 333(a)(2), Rule 2007.2(c)and an April 16, 2010 Order of this Court appointed a Patient Care Ombudsman. (ECF Doc. No. 63). Daniel T. McMurray of Focus Management Group was appointed to, inter alia, monitor the quality of patient care provided to patients of the debtor. 11 U.S.C. § 333(b). On April 21, 2010 the United States Trustee pursuant to its duties imposed by 11 U.S.C. § 332 and an April 16, 2010 Order of this Court appointed a Consumer Privacy Ombudsman. (ECF Doc. No. 108). Alan Chapell of Chapell & Associates, LLC was appointed Consumer Privacy Ombudsman to monitor the Debtor's privacy policies and potential consequences of Debtor's actions with respect to privacy issues. 11 U.S.C. § 332.

On April 6, 2010, before the Bankruptcy petition was filed, the Board of Directors of SVCMC voted to approve the closure of the Hospital and the transfer or closure of the outpatient programs and clinics associated with and operated by the Hospital. Motion to Enforce the Stay ¶ 7. The Debtors submitted a plan of Closure to the New York State Department of Health on April 9, 2010. Id. The Debtors worked under the supervision and with the active participation of the New York State Department of Health to implement the closure plan. Id. The Closure Motion indicated that the Debtors would continue to work with the Department of Health and other government agencies to "prevent disruption of patient care and ensure a smooth transition of the Debtors' patients to new care providers." Closure Motion ¶ 31. The Closure Motion also noted that the dire financial position of the Debtors required the commencement of the closure process before the Department of Health ("DOH") had granted final approval of the closure motion. Closure Motion ¶ 28.

The State Court Action was commenced in New York State Supreme Court, New York County on or about April 19, 2010,² five days after the Bankruptcy petition was filed. Motion to Enforce the Stay ¶ 10. The State Court Plaintiffs sought a court order "permanently enjoining any further actions by the [DOH] to close the Hospital, including but not limited to the approval of a closure plan, pending further order of this Court." State Court Action Complaint at ¶ 74.³ The State Court Plaintiffs sought a temporary restraining order against the Department of Health from "taking any further actions to facilitate the closure of Saint Vincent's Hospital or approving the closure plan submitted by Saint Vincent's Hospital." State Court Action Order to Show Cause.⁴ A hearing regarding the State Court Action was held before the Hon. Marilyn G. Diamond, a New York State Supreme Court Judge, on April 20, 2010. Motion to Enforce the Stay ¶ 11. The Debtors appeared at the State Court Action April 20, 2010 hearing and argued that the bankruptcy stay and the Interim Closure Order prevented the state court from hearing these matters. Motion to Enforce the Stay ¶ 11. Judge Diamond...