Ronald L. Glass, in His Capacity of Hutcheson Med. Ctr., Inc. v. Miller & Martin, PLLC (In re Hutcheson Med. Ctr., Inc.)
| Decision Date | 06 October 2017 |
| Docket Number | ADVERSARY PROCEEDING NO. 16-4091-PWB,CASE NO. 14-42863-PWB |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
| Parties | IN RE: HUTCHESON MEDICAL CENTER, INC., et al., Debtor. RONALD L. GLASS, in his capacity as Chapter 11 Trustee of Hutcheson Medical Center, Inc. and its affiliated debtors, Plaintiff, v. MILLER & MARTIN, PLLC, Defendant. |
IT IS ORDERED as set forth below:
Ronald Glass, in his capacity as Chapter 11 Trustee for Hutcheson Medical Center, Inc. ("HMC"), seeks to recover damages related to legal services that Miller & Martin, PLLC, provided to HMC prior to its bankruptcy filing. Miller & Martin seeks to transfer venue of this proceeding to the Eastern District of Tennessee on the ground that a forum selection clause contained in the parties' engagement letter requires the lawsuit to proceed there; the Trustee opposes the transfer.
This proceeding relates to the Chapter 11 bankruptcy case of Hutcheson Medical Center, Inc. As such, the District Court for the Northern District of Georgia has jurisdiction of it under 28 U.S.C. § 1334(b).
Pursuant to 28 U.S.C. § 157(a) and LR 83.7, ND Ga., the District Court has referred this proceeding to the Bankruptcy Court. This proceeding involves a claim for damages under nonbankruptcy law and is not a "core proceeding"within the meaning of 28 U.S.C. § 157(b)(2)(B). It is, therefore, a non-core proceeding.
Under 28 U.S.C. § 157(c), this Court has authority to hear, but not to determine, a non-core proceeding, unless all of the parties consent to this Court's determination of it under 28 U.S.C. § 157(c)(2). Miller & Martin has not consented and has expressly objected.
In a non-core proceeding, 28 U.S.C. § 157(c)(1) instructs this Court to submit proposed findings of fact and conclusions of law to the District Court for its de novo review and requires the District Court to enter "any final order or judgment." Some courts have ruled that a bankruptcy court has authority to enter an order on a motion to transfer venue in a non-core adversary proceeding.1 An opposite view is that a bankruptcy judge cannot decide a venue transfer motion.2
The Court concludes that the appropriate approach in a non-core proceeding is for the Court to submit proposed findings of fact and conclusions of law to the District Court for its de novo review and entry of an order on the motion.3 This procedure is consistent with the general concept of 28 U.S.C. § 157(c) that district courts determine non-core matters. In addition, it insures the availability of effective - and more expeditious - district court review of this Court's action.4
Accordingly, this Order constitutes the Court's proposed findings of fact and conclusions of law that this Court submits to the District Court for its de novo review and entry of an appropriate order.
The venue issue is a legal one. The Court's analysis begins with a statement in Part I of the facts and procedural background relating to the parties' dispute. Part II discusses the applicable law with regard to transfer ofvenue in bankruptcy proceedings, and Part III states the positions of the parties. Part IV contains the Court's analysis of the venue issue.
Based on the Court's findings of fact and conclusions of law as proposed below, Miller & Martin's motion to transfer should be granted.5
In 1947, the governing authorities of Walker, Dade and Catoosa Counties, Georgia, established the Hospital Authority of Walker, Dade and Catoosa Counties ("Hospital Authority") created under the Georgia Hospital Authorities Law, O.C.G.A. § 31-7-70. In 1995, the Hospital Authority created Hutcheson Medical Center ("HMC") to provide hospital services, medical care, and other health-related services in the Northwest Georgia region. HMC operated a medical center in Fort Oglethrope, Georgia known as Hutcheson Medical Center that included a 179 bed hospital, a nursing home, and a child care facility. All facilities were located in Georgia.
The Hospital Authority owned most of the land and buildings that comprised Hutcheson Medical Center (the "Medical Center Property"). HMC, however, operated and controlled the Medical Center Property under a lease with the Hospital Authority. Under the lease, substantially all of the assets and liabilities (other than land and buildings) related to the medical center, nursing home, and child care facility, were transferred to HMC. The lease provided that HMC would have the right of first refusal to buy the land and buildings; that any sale to a third party could only be made expressly subject to the lease; and that the Hospital Authority could not encumber any of the Medical Center Property (including the nursing home and child care facility) without HMC's express written permission.
After experiencing financial difficulties for some time, 2011, the Hospital Authority and HMC in 2011 sought proposals from entities experienced in managing hospitals. The Chattanooga-Hamilton County Hospital Authority d/b/a Erlanger Health System ("Erlanger") submitted a proposal to provide capital and to take over management of Hutcheson Medical Center pursuant to a management agreement to be negotiated among the counties, the Hospital Authority, HMC and Erlanger.
On February 16, 2011, HMC retained Miller & Martin to represent it in the negotiations and drafting of the management agreement and related documents.The Trustee contends that Miller & Martin had previously represented Erlanger in unrelated matters and that it was aware of the interdependent relationship between HMC and the Hospital Authority.
As part of the deal to take over management of Hutcheson Medical Center, Erlanger agreed to provide the Hospital Authority and HMC with a $20 million line of credit to be used for working capital, debt service and expenses. The parties agreed that certain parts of the Medical Center Property would secure HMC's repayment obligation and negotiated over which properties would be included as collateral.
On March 3, 2011, negotiations began about which properties would be collateral for the loan. Erlanger wanted as much collateral as possible, but by March 14, Erlanger agreed to take only the main hospital campus. Ward Nelson, a Miller & Martin partner, advised a fellow partner to revise the documents accordingly. This message, in turn, was forwarded to a paralegal with instructions to revise the legal documents.
Thus, according to the Trustee, by March 14, 2011, all parties understood that Erlanger would receive a deed to secure debt on the hospital campus, but not on the nursing home or child care facility.
The deed to secure debt recorded on April 26, 2011, in Catoosa and Walker Counties, Georgia, however, included not only the hospital campus but also the nursing home and child care facility as collateral in its legal descriptions. The Trustee contends that HMC did not give express permission to include these parcels and that Miller & Martin did not advise HMC of its intention to do so.
In early 2014, HMC, through the Hospital Authority, sought additional financing to keep the facility operating. Regions Bank agreed to provide a $4,000,000 loan secured by a deed to secure debt on the nursing home.
On February 27, 2014, Erlanger filed suit against the Hospital Authority and HMC in the United States District Court of the Northern District of Georgia, 4:14-cv-00040-HLM, to recover all principal, interest and late fees due on the line of credit note.
In March 2014, before the Regions Bank loan closed, the Trustee alleges HMC and the Hospital Authority learned for first time that the nursing home and child care facility had been encumbered in the Erlanger transaction. Because of Erlanger's prior encumbrance on the nursing home, Regions Bank refused to make the loan.
On November 20, 2014, HMC filed its chapter 11 petition.
The Trustee contends that the erroneous encumbrance of certain properties had the end result of reducing the value of the Debtor's estate.
As matters progressed in HMC's Chapter 11 case, HMC as the actual beneficial owner of all of the assets involved in its medical facilities ended up with the right to sell the assets for the benefit of the estate. Erlanger's lien on the nursing home and child care center enabled it to receive $1.39 million from the sale of those assets pursuant to a negotiated settlement among the parties. If the deed to secure debt had been properly prepared, the Trustee alleges, HMC's estate would not have been required to pay Erlanger $1.39 million.
The Trustee asserts claims for damages against Miller & Martin for legal malpractice, breach of fiduciary duty, and expenses of litigation. The Trustee alleges that, contrary to the intent of the parties, Miller & Martin wrongfully included the nursing home and the child care facility in the April 26, 2011 security deed to Erlanger. As a result, the Trustee contends Miller & Martin caused HMC damages because (1) it could not obtain funding from Regions Bank to pay its bills and prevent its "death spiral;" and (2) HMC received $1.39 million less that it should have from the sale.
Both the Trustee and Miller & Martin have made a jury demand. [Docs. 3, 8]. In addition, Miller & Martin "expressly withholds its consent to conduct the jury trial before the Bankruptcy Court." [Doc. 8].
Three months after the filing of the complaint and after the District Court denied the motion to withdraw the reference, Miller & Martin filed motions to transfer venue and to dismiss this action.6
Miller & Martin contends that venue in the Northern District of Georgia is improper and that this action must be transferred to the Eastern District of Tennessee based upon a forum selection clause contained in its engagement letter with HMC. The provision provides [...
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