Pratt v. Ventas, Inc.

• Decision Date: 20 April 2004
• Docket Number: No. 02-5632.,No. 02-5638.,02-5632.,02-5638.
• Citation: 365 F.3d 514
• Parties: Sally PRATT, et al., Plaintiffs-Appellants/Cross-Appellees, v. VENTAS, INC., a/k/a Vencor, Inc., et al., Defendants-Appellees/Cross-Appellants, John Does, # 1 through # 5, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

365 F.3d 514

Sally PRATT, et al., Plaintiffs-Appellants/Cross-Appellees, v. VENTAS, INC., a/k/a Vencor, Inc., et al., Defendants-Appellees/Cross-Appellants John Does, # 1 through # 5, Defendant-Appellee.

No. 02-5632.

No. 02-5638.

United States Court of Appeals, Sixth Circuit.

Argued: March 18, 2004.

Decided and Filed: April 20, 2004.

COPYRIGHT MATERIAL OMITTED

Sharon K. Morris (briefed), James M. Morris (argued and briefed), Morris & Morris, Lexington, Ky, for Plaintiff-Appellant Cross-Appellee in 02-5632 and 02-5638.

John D. Dyche (briefed), David B. Tachau (argued and briefed), Tachau, Maddox, Hovious & Dickens, Louisville, Ky, for Defendant-Appellee Cross-Appellant in 02-5632 and 02-5638.

Before: COLE and GILMAN, Circuit Judges; SCHWARZER, Senior District Judge.^*

OPINION

GILMAN, Circuit Judge.

Sally Pratt and others (Plaintiffs) filed various state-law claims against a large health care provider, Vencor, Inc., which subsequently spun off a subsidiary with the same name as the parent company, and then changed the name of the parent company to Ventas, Inc. When "New Vencor," the subsidiary, filed for Chapter 11 bankruptcy in the Bankruptcy Court for the District of Delaware, Ventas agreed to make substantial financial contributions towards New Vencor's reorganization. In exchange, New Vencor's Reorganization Plan granted Ventas a full release from Plaintiffs' claims. The bankruptcy court entered a Confirmation Order approving the Plan, which permanently enjoined Plaintiffs from pursuing their claims against Ventas.

Ignoring the injunction, Plaintiffs sued Ventas in the district court below, which subsequently dismissed their case for lack of subject matter jurisdiction. Plaintiffs then filed a motion to vacate the Confirmation Order in the Delaware bankruptcy court. Because Supreme Court precedent requires us to accord preclusive effect to the Delaware bankruptcy court's conclusion that it had jurisdiction over this matter, Plaintiffs are barred by res judicata from continuing their suit in this court. We therefore AFFIRM the judgment of the district court.

I. BACKGROUND

A. Factual background

Two lower court opinions, one in Delaware and the other in Kentucky, have summarized the relevant facts of the present case. See In re Vencor, Inc., 284 B.R. 79 (Bankr.D.Del.2002), and Pratt v. Ventas, Inc., 273 B.R. 108 (W.D.Ky.2002). Because the principal issues on appeal are questions of law, we abstract the following undisputed facts from the lower courts' opinions:

Prior to May, 1998, Ventas operated, inter alia, several nursing homes under the name Vencor, Inc. ("Old Vencor"). On May 1, 1998, Old Vencor changed its name to Ventas and spun off its nursing home operations to a newly incorporated entity named Vencor, Inc. ("New Vencor"). Ventas retained ownership of the real estate and became New Vencor's landlord at many of the facilities.... On September 13, 1999, New Vencor and several of its affiliates filed for relief under chapter 11 of the Bankruptcy Code.

In re Vencor, Inc., 284 B.R. at 81.

Each of the named Plaintiffs in this case had filed a state court suit against one of the Vencor entities prior to or soon after the commencement of its bankruptcy proceedings. In September 1996, Plaintiff Sally Pratt filed suit against "old" Vencor ... for age discrimination and wrongful termination. In March 1998, Plaintiff Valiza Nystrom filed suit against Vencor Hospitals Texas ... for constructive discharge. In October 1998, Mark Dayman, Executor of the Estate of Liesel Dayman, filed suit against "new" Vencor ... for negligence. In November 1999, Plaintiff Robert McCray, pursuant to a Power of Attorney for Lee Ona Lee, sued Vencor Nursing Centers East... for negligence.

Pratt, 273 B.R. at 110. Finally, Nystrom's attorney Mark Byrne filed suit against Vencor for tortious interference with his prospective contractual advantage with his client. Id. at n. 2.

After New Vencor filed for bankruptcy, it filed motions pursuant to 11 U.S.C. § 362 for an automatic stay in each of Plaintiffs' respective state-court actions. Pratt, Damon, and McCray responded by filing proofs of claim in the bankruptcy court. On December 14, 2000, a Reorganization Plan for New Vencor was proposed, and notice of the Plan was mailed to each of the Plaintiffs who had filed a proof of claim. The bankruptcy court confirmed the Plan in a Confirmation Order issued on March 19, 2001, with the Plan becoming effective on April 20, 2001. A key component of the Plan was summarized as follows:

As part of that Plan, Ventas agreed to contribute $40 million to the funding of a settlement with the United States and agreed to amendments of certain leases which it had with [New Vencor], thereby reducing [New Vencor's] rental obligations. In exchange, Ventas was given a release of [Plaintiffs' personal injury and other] claims arising from operation of the nursing homes prior to May 1, 1998.

In re Vencor, Inc., 284 B.R. at 81. The terms of the Plan thus incorporated an injunction proscribing suits against New Vencor and Ventas for "any alleged improprieties committed in connection with [New] Vencor's bankruptcy, prior to the date of confirmation." Pratt, 273 B.R. at 111.

B. Procedural background

Plaintiffs filed suit in the United States District Court for the Western District of Kentucky, alleging that Ventas obtained the releases in the Confirmation Order through fraudulent means. They argued that in overseeing New Vencor's bankruptcy proceedings, the bankruptcy court lacked jurisdiction over Plaintiffs' third-party action against Ventas. As a consequence, Plaintiffs contended that the Confirmation Order's injunction barring suit against Ventas had no preclusive effect on Plaintiffs' suit filed in the federal district court in Kentucky. Ventas responded by filing a motion to dismiss the complaint pursuant to Rules (9)(b) and 12(b)(6) of the Federal Rules of Civil Procedure.

Relying on the Supreme Court's decision in Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), the district court held that Plaintiffs were barred from collaterally attacking the Confirmation Order issued by the Delaware bankruptcy court. Pratt, 273 B.R. at 116. The district court subsequently granted Ventas's motion based upon a lack of subject matter jurisdiction. It also expressly declined to consider whether the bankruptcy court exceeded its statutory authority in granting injunctive relief to Ventas. Id. The court concluded that it could "not properly exercise appellate review over these earlier bankruptcy proceedings." Id. ((quoting 28 U.S.C. § 158(a): "An appeal ... shall be taken only to the district court for the judicial district in which the bankruptcy court is serving.") (emphasis in Pratt ))

Plaintiffs were encouraged to pursue their claim in the Delaware bankruptcy court, in the United States District Court for the District of Delaware, and if necessary, in the United States Court of Appeals for the Third Circuit. Id. The complaint was initially dismissed with prejudice, but the district court later modified the order to make it "without prejudice," presumably so that Plaintiffs could raise their claims against Ventas in the proper forum.

Each side appealed the district court's decision, but this court held both appeals in abeyance while Plaintiffs pursued the merits of their claims in the Delaware bankruptcy court. The bankruptcy court subsequently held that there was no basis for Plaintiffs' assertion that it lacked jurisdiction to grant the releases to Ventas contained in New Vencor's Plan. In re Vencor, Inc., 284 B.R. at 86. Plaintiffs did not appeal this latter decision.

On December 6, 2002, this court lifted the stay on the present appeal of the district court's decision in Pratt v. Ventas, 273 B.R. 108 (W.D.Ky.2002). This matter is now ripe for disposition.

II. ANALYSIS

A. Standard of review

This court reviews whether the district court properly dismissed a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure using a de novo standard. Sistrunk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir.1996). A motion to dismiss may be granted "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Id. (citation omitted).

B. Application of the "collateral attack" doctrine

The district court held that Plaintiffs' suit filed in the Western District of Kentucky was an impermissible collateral attack on the bankruptcy court's Confirmation Order. Pratt, 273 B.R. at 116. A "collateral attack" is a tactic whereby a party seeks to circumvent an earlier ruling of one court by filing a subsequent action in another court. Id. at 114 (citing Willy v. Coastal Corp., 503 U.S. 131, 137, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992)). As applied to the present case, the district court below believed that Plaintiffs' suit against Ventas in Kentucky was an improper attempt to circumvent the Delaware bankruptcy court's Confirmation Order that enjoined Plaintiffs from pursuing their claims against Ventas.

The district court found that the Supreme Court's decision in Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), controlled the disposition of Plaintiffs' action. In Celotex, Bennie and Joann Edwards won a judgment against Celotex in the District Court for the Northern District of Texas for asbestos-related injuries. Celotex posted a supersedeas bond to stay the execution of the judgment pending its appeal to the Fifth Circuit. Northbrook Property and Casualty Insurance Company served as surety on the bond. The Fifth Circuit affirmed the judgment for the Edwardses, but, on that very day, Celotex filed a Chapter 11 petition for reorganization in the Bankruptcy Court for the Middle District of Florida. An injunction was issued by the bankruptcy court, pursuant to 11 U.S.C. § 105(a), which stayed all actions against Celotex. The...