Nat'l Med. Imaging, LLC v. U.S. Bank, N.A., CIVIL ACTION NO. 16-5044
| Decision Date | 28 August 2019 |
| Docket Number | CIVIL ACTION NO. 16-5044 |
| Parties | NATIONAL MEDICAL IMAGING, LLC, et al., Plaintiffs, v. U.S. BANK, N.A., et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
This case is one chapter in the protracted litigation following the aftermath of a complex securitization transaction, and the Court writes primarily for the parties, who are familiar with the background. Plaintiffs National Medical Imaging, LLC and National Medical Imaging Holding Company, LLC (collectively "NMI") allege that Defendants1 filed involuntary bankruptcy petitions against them in bad faith in violation of 11 U.S.C. § 303. Defendants have filed motions for summary judgment, and for the reasons that follow, these motions will be granted.
NMI was a diagnostic imaging company headquartered in Philadelphia that provided management, billing, and collection services for diagnostic imaging centers. NMI was affiliated with certain limited partnerships (the "NMI LPs") that operated diagnostic imaging centers. In 2000, the NMI LPs entered into various master leases and equipment schedules ("Master Leases") with DVI Financial Services to finance the purchase of equipment for use at the centers. These Master Leases were secured by a limited guaranty executed by Maury Rosenberg, the managing member of NMI, and an additional guaranty by NMI.
DVI Financial then transferred some of the Master Leases to DVI Funding, LLC, which held them directly, and the remainder were securitized and assigned to the DVI Receivables corporations. At the same time, DVI Funding entered into indentures with U.S. Bank, acting as trustee of the transaction, under which notes were issued to investors with the Master Leases serving as collateral. DVI Financial was appointed as servicer for the trustee, U.S. Bank, but after filing for bankruptcy in 2003, DVI Financial transferred its rights as servicer to Lyon Financial Services, a subsidiary of U.S. Bank.3
In 2003, U.S. Bank declared the Master Leases to be in default and filed multiple suits in the Court of Common Pleas of Bucks County, Pennsylvania, against NMI. While those actions were pending, several DVI entities filed involuntary bankruptcy petitions against NMI, that resulted in a Settlement Agreement in August of 2005, by which the petitions were dismissed and U.S. Bank restructured the repayment obligations; in return, Rosenberg and NMI executed new guaranties of repayment and confessions of judgment in favor of U.S. Bank. On March 2, 2007, DVI Funding sold its interest in the Master Leases to Ashland Funding, LLC.
In July 2008, U.S. Bank filed a confession of judgment against NMI and Rosenberg in Bucks County for defaulting on their repayment obligations under the August 2005 Settlement Agreement. This action was stayed on August 29, 2008,4 and on November 7, 2008, despite having no remaining interest in the Master Leases, DVI Funding and five other DVI entities filed involuntary bankruptcy petitions against NMI and Rosenberg in the United States Bankruptcy Court for the Eastern District of Pennsylvania.
The proceedings against Maury Rosenberg were ultimately transferred to the Southern District of Florida, where he resides, while the bankruptcy proceedings against NMI remained in this district.5 The Florida Bankruptcy Court dismissed the involuntary bankruptcy petition against Rosenberg on August 21, 2009 (Rosenberg I),6 a decision which was affirmed by both the United States District Court Southern District of Florida and the Eleventh Circuit.
Following the dismissal of the bankruptcy proceedings in Florida, the Bankruptcy Court for the Eastern District of Pennsylvania dismissed the involuntary bankruptcy petitions against NMI on the basis of collateral estoppel; specifically, based on Rosenberg I's holdings that (1) the DVI entities and Ashland were not real parties in interest and (2) U.S. Bank was the only creditor because the Settlement Agreement constituted a novation.7 The decision was affirmed by both this Court ("Rosenberg II")8 as well as the Third Circuit ("Rosenberg III").9
Prior to the filing of the November 2008, involuntary bankruptcy petitions against it, NMI was experiencing financial difficulties that it claimed were due in part to the Deficit Reduction Act ("DRA"), which impacted the billing of medical imaging services.10 In light of these difficulties, NMI began discussions with U.S. Bank in 2008, in an effort to restructure its outstanding debt. The parties have offered conflicting characterizations of their unsuccessful attempts to negotiate such an agreement. NMI contends that U.S. Bank "had no interest in negotiating a restructuring of NMI's debt or working with NMI to find a realistic solution,"11 while Defendants assert that U.S. Bank 12
In October 2008, Rosenberg decided to close NMI's Maryland and Illinois locations, and notified Jane Fox, who was then the Director of Operations for a subsidiary of U.S. Bank, that NMI would surrender the equipment leased from U.S. Bank located in the Pennsylvania imaging centers.13 By November of 2009, NMI closed all of its locations and effectively became defunct. The parties disagree as to whether the involuntary bankruptcy petitions were a proximate cause of the business's ultimate demise.
NMI, Maury Rosenberg, and various related entities have filed a series of lawsuits in this Court and in Florida, seeking compensation for the harm they allege to have suffered as a result of the involuntary bankruptcy petitions purportedly filed in bad faith. Maury Rosenberg brought one such claim for sanctions under § 303(i)(2) in the Florida Bankruptcy Court against the petitioners of the involuntary bankruptcy petitions. A jury trial was ultimately held on these claims, resulting in a verdict in favor of Maury Rosenberg.14 Additionally, Sara Rosenberg, the Douglas Rosenberg Trust, and other entities related to Maury Rosenberg and NMI filed suit for tortious interference with contract and business relationships against the petitioners, based on the same facts, in the Southern District of Florida, which was transferred to this Court.15
In this case brought under § 303(i)(2),16 NMI seeks compensatory and punitive damages for the alleged harm to NMI arising from the involuntary bankruptcy petitions. NMI contends that Defendants filed the petitions in bad faith and as a result:
[T]he Plaintiffs' valuable businesses were destroyed because, among other reasons, the commencement and continued prosecution of the involuntary bankruptcy cases: (1) caused Plaintiffs to lose preferred provider status with major insurers; (2) caused physicians to lose confidence in the Plaintiffs' stability and to divert their patients to other providers; (3) caused lenders to cutoff the Plaintiffs' access to receivables, thereby creating a liquidity crisis; (4) caused vendors to put the companies on a COD basis, thereby further eroding cash and liquidity; and (5) destroyed Plaintiffs' reputations in the community, and torpedoed planned acquisitions and expansion.17
All Defendants have now moved for summary judgment on NMI's claim under § 303(i)(2). Defendant U.S. Bank has also moved for default judgment on its counterclaim, in which it seeks to setoff the amount due to it under a state court judgment it obtained against Plaintiffs in Bucks County, either in full or partial satisfaction of any judgment NMI obtains in this action.18
A court will award summary judgment on a claim or part of a claim where there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."19 A fact is "material" if resolving the dispute over the fact "might affect the outcome of the suit under the governing [substantive] law."20 A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party."21
In evaluating a summary judgment motion, a court "must view the facts in the light most favorable to the non-moving party," and make every reasonable inference in that party's favor.22 Further, a court may not weigh the evidence or make credibility determinations.23 Nevertheless, the party opposing summary judgment must support each essential element of the opposition with concrete evidence in the record.24 "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted."25 This requirement upholds the "underlying purpose of summary judgment [which] is to avoid a pointless trial in cases where it is unnecessary and would only cause delay and expense."26 Therefore, if, after making all reasonable inferences in favor of the non-moving party, the court determines that there is no genuine dispute as to any material fact, summary judgment is appropriate.27
Where an involuntary bankruptcy petition is dismissed other than on consent of all petitioners and the debtor, a court may grant judgment "against any petitioner that filed the petition in bad faith, for — (A) any damages proximately caused by such filing; or (B) punitive damages."28 In moving for summary judgment, Defendants contend that there is no genuine issue of material fact concerning bad faith, causation, or punitive damages.
As discussed below, the record makes clear that neither compensatory damages nor punitive damages are warranted in this case. Specifically, the record establishes that NMI's financial difficulties were caused by factors independent of the involuntary bankruptcy petitions, and thus there is no genuine dispute of material fact on the issue of proximate cause. There are limited indicia of bad faith, which preclude any determination on that issue as a matter of law, such as...
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