Nat'l Med. Imaging, LLC v. U.S. Bank, Nat'l Ass'n (In re Nat'l Med. Imaging, LLC)

• Decision Date: 22 February 2021
• Docket Number: Adv. 20-0219,Bky. No. 20-12618 ELF (Jointly Administered)
• Parties: IN RE: NATIONAL MEDICAL IMAGING, LLC, et al. Debtor National Medical Imaging, LLC, National Medical Imaging Holding Company, LLC, Plaintiffs v. U.S. Bank, National Association, Defendant
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

627 B.R. 73

IN RE: NATIONAL MEDICAL IMAGING, LLC, et al. Debtor

National Medical Imaging, LLC, National Medical Imaging Holding Company, LLC, Plaintiffs

v.U.S. Bank, National Association, Defendant

Bky. No. 20-12618 ELF (Jointly Administered)

Adv. 20-0219

United States Bankruptcy Court, E.D. Pennsylvania.

Signed February 22, 2021

Steven M. Coren, Kaufman, Coren & Ress, P.C., Aris J. Karalis, Robert W. Seitzer, Karalis PC, Philadelphia, PA, for Plaintiffs.

Steven J. Adams, Stevens & Lee, Reading, PA, Peter H. Levitt, Shutts & Bowen, LLP, Miami, FL, for Defendant.

ORDER

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

AND NOW , upon consideration of U.S. Bank, National Association's Motion to Dismiss Complaint, the Plaintiffs' response thereto, and for the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:

1. The Motion is GRANTED IN PART AND DENIED IN PART as set forth in the Table below.

 Claim Disposition
                First Claim, ¶ 121(a): determination that             MOTION GRANTED. Claim dismissed
                  U.S. Bank may not share in § 303(i) proceeds     without prejudice
                First Claim, ¶ 121(b): determination that             MOTION DENIED
                  U.S. Bank may not setoff its claim against
                  any § 303(i) liability
                  First Claim, ¶ 121(c): determination that             MOTION GRANTED. Claim dismissed
                  U.S. Bank may not interfere with Debtors'             without prejudice
                  prosecution of their § 303(i) claims
                  First Claim, ¶ 121(d): determination that             MOTION GRANTED. Claim dismissed
                  U.S. Bank may not receive a distribution              without prejudice
                  against any § 303(i) liability it may have
                  First Claim, ¶ 121(e): determination that in          MOTION GRANTED. Claim dismissed
                  any chapter 11 plan, U.S. Bank must be                without prejudice
                  separately classified from the claims of all
                  other creditors, identified as junior in priority
                  to all other classes of claims, and prohibited
                  from sharing in any recovery from the
                  Debtors' § 303(i) claims, even if such
                  recovery is sufficient to pay all the Debtors'
                  other creditors in full.
                  Second Claim: determination that any lien             MOTION DENIED.
                  U.S. Bank hold on property of the bankruptcy
                  estate is invalid.
                  Third Claim: equitable subordination of U.S.          MOTION GRANTED. Claim dismissed.
                  Bank's claim below the rights of all other
                  creditors
                

2. The Plaintiffs are GRANTED LEAVE to file an Amended Complaint on or before March 8, 2021 .

3. If the Plaintiffs do not timely file an Amended Complaint, the Defendant shall file an Answer to the Complaint on or before March 15, 2021; otherwise the Defendant shall file its response to the Amended Complaint with twenty-one (21) days of the filing of the Amended Complaint .

[Editor's Note: The preceding image contains the reference for footnote¹ ]

MEMORANDUM

I. INTRODUCTION

II. BACKGROUND

A. Preamble

B. Factual Background

1. the involuntary bankruptcy cases

2. the history of the § 303(i) litigation

3. the Pennsylvania judgment and execution proceedings in the Fla. Trial Court

4. the fraudulent transfer proceeding in the Fla. Trial Court

III. SUBJECT MATTER JURISDICTION

A. Legal Standard : Fed. R. Civ. P. 12(b)(1)

B. Rooker-Feldman: General Principles

C. The Fla. Order

D. Discussion

IV. REQUEST FOR DISMISSAL ON THE MERITS: PRECLUSION

A. Issue Preclusion: Based on the Fla. Order - First, Second and Third Claims

1. full faith and credit

2. issue preclusion under Florida law

3. discussion

B. Claim Preclusion: Based on the District Court Opinion - First and Second Claims

1. introduction

2. the District Court Opinion and Court of Appeals' affirmance

3. federal claim preclusion: legal principles

4. categorizing/characterizing the Debtors' claims for relief

5. discussion: claims related to bankruptcy case administration

6. claims seeking a determination of the validity, priority or extent of U.S. Bank's secured status in the bankruptcy case

7. claims seeking denial of U.S. Bank setoff or execution rights

C. Issue Preclusion: Based on the District Court Opinion - Third Claim

1. federal issue preclusion: legal principles

2. equitable subordination under 11 U.S.C. § 510(c) : legal principles

3. discussion

V. OTHER GROUNDS ASSERTED FOR DISMISSAL OF THE FIRST AND SECOND CLAIMS

A. Introduction

1. distinguishing the two (2) remaining claims for relief

2. discussion re: setoff issue

3. discussion re: judgment execution issue

VI. REQUEST FOR DISMISSAL OF SECOND CLAIM: JOINDER OF NECESSARY PARTY

VII. CONCLUSION

I. INTRODUCTION

On June 20, 2020, National Medical Imaging, LLC ("NMI") and National Medical Imaging Holding Company ("NMI Holding"), (collectively, "the Debtors"), filed voluntary petitions under chapter 11 of the Bankruptcy Code. The cases are being jointly administered.

A significant and singular aspect of these bankruptcy cases is that the Debtors' sole assets are its claims against U.S. Bank National Association ("U.S. Bank") under 11 U.S.C. § 303(i)(1) and (2). These claims arise from the filing and subsequent dismissal of an involuntary bankruptcy petition that was filed in this court in 2009.

On July 20, 2020, the Debtors commenced this adversary proceeding by filing a Complaint against Defendant U.S. Bank.

In the Complaint, the Debtors assert the following claims:

First Claim: for declaratory relief to determine the effect of the parties' competing claims against each other generally (e.g, whether the claims are subject to setoff or the Debtors' claims are subject to judgment execution by U.S. Bank), and in the context of a future chapter 11 plan distribution to creditors;

Second Claim: framed as a request for the determination of the extent, priority and validity of U.S. Bank's asserted liens against the Debtors' assets, liens that the Debtors dispute, but in reality, a request that U.S. Bank's lien on the Debtors' assets be invalidated based on bankruptcy policy underlying 11 U.S.C. § 303(i) ; and

Third Claim: for equitable subordination of U.S. Bank's allowed claim in connection with the anticipated distribution to creditors in this bankruptcy case.

On August 24, 2020, U.S. Bank filed a motion to dismiss the Debtors' Complaint ("the Motion").

U.S. Bank's asserted grounds for dismissal fall into three (3) procedural categories:

1. lack of subject matter jurisdiction, see Fed. R. Civ. P. 12(b)(1) ;

2. failure to state a claim, see Fed. R. Civ. P. 12(b)(6) ; and

3. failure to join an indispensable party, Fed. R. Civ. P. 12(b)(7).²

In connection with the Motion, U.S. Bank raises a host of arguments, most notably: the Rooker-Feldman doctrine, claim preclusion, issue preclusion and the federal Anti-Injunction Act, 22 U.S.C. § 2283.

The parties completed their briefing of the issues on October 29, 2020 and the matter is ready for decision.³

For the reasons stated below, the Motion will be granted in part and denied in part with respect to the First Claim, denied with respect to the Second Claim. and granted with respect to the Third Claim.

All of the dismissed claims in the First Claim are dismissed without prejudice. The Third Claim is dismissed on the merits.

II. BACKGROUND

A. Preamble

Before dipping my toe (metaphorically speaking) into the background of the present adversary proceeding, a couple of observations are in order.

The disputes giving rise to this adversary proceeding emanate from a commercial relationship that ended in November 2009, when the Debtors ceased their business activities. (See Complaint ¶ 85); see also National Medical Imaging, LLC v. U.S. Bank N.A., 2019 WL 4076768, at *3 (E.D. Pa. Aug. 28, 2019), aff'd on rehearing, 818 Fed. App'x. 129 (3d Cir. 2020). (The district court decision just cited is pivotal in resolving the present Motion; I will refer to it in this Memorandum as "the District Court Opinion" and the court that issued that decision as "the District Court").

Since 2009, the volume of litigation between the parties is truly epic, and considering the length of time that has already passed and the potential for ongoing litigation, a comparison to the iconic, fictional case of Jarndyce v. Jarndyce comes to mind.⁴

In 2016, in an appeal in the Third Circuit, the court described the dispute before it as:

but one fragment of more than a decade of ongoing litigation between Maury Rosenberg and his medical imaging centers on the one side and U.S. Bank and its affiliated entities on the other. By our estimate, that litigation has produced 27 written opinions at almost every level of the federal judiciary.

Rosenberg v. DVI Receivables XVII, LLC, 835 F.3d 414, 416 (3d Cir. 2016).

The Third Circuit's observation requires supplementation.

In addition to their clashes in federal courts, Rosenberg/the Rosenberg entities and U.S. Bank also have litigated disputes in the Pennsylvania and Florida state courts. And, since the Third Circuit's 2016 commentary, the parties have conducted additional litigation in several federal courts, including this bankruptcy court, the District Court and the Third Circuit. Soon, we can expect at least some U.S. Supreme Court involvement as well.⁵

This Memorandum will not attempt to provide a comprehensive, encyclopedic review of this litigation history. However, it is necessary to delve into some of this litigation history because U.S. Bank raises jurisdictional and finality arguments that are based on certain prior court rulings.

Of the numerous rulings, the two (2) most important for present purposes (and the ones that will be scrutinized later in this Memorandum) are:

(1) the District Court Opinion; and

(2) Lyon Financial Services, Inc. v. Nat'l Med. Imaging, LLC, No. 2015-023495-CA-01, 2020 WL 8835432 (Corrected Order dated April 28, 2020) ("the Fla. Order"), appeal pending, No. 3D 20-0730 (Fla. Ct. App., 3rd Dist.).⁶

B. Factual Background

1. the involuntary bankruptcy cases

Debtor NMI was a diagnostic imaging company headquartered in Philadelphia, Pennsylvania that provided management, billing, and collection services for diagnostic imaging centers. NMI was affiliated with certain...