Saint Catherine Hosp. of Ind., LLC v. Ind. Family & Soc. Servs. Admin.

• Decision Date: 28 August 2015
• Docket Number: Nos. 14–2420,14–2546.,s. 14–2420
• Citation: 800 F.3d 312
• Parties: SAINT CATHERINE HOSPITAL OF INDIANA, LLC, Plaintiff–Appellant, v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

800 F.3d 312

SAINT CATHERINE HOSPITAL OF INDIANA, LLC, Plaintiff–Appellant

v.INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Defendant–Appellee.

Nos. 14–2420

14–2546.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 21, 2015.

Decided Aug. 28, 2015.

James Edwin McGhee, III, Seiller Waterman LLC, Louisville, KY, for Plaintiff–Appellant.

Heather Marie Crockett, Maricel Elaine Skiles, Office of the Attorney General, Indianapolis, IN, for Defendant–Appellee.

Before BAUER, FLAUM, and WILLIAMS, Circuit Judges.

Opinion

WILLIAMS, Circuit Judge.

St. Catherine Hospital had to pay a Hospital Assessment Fee (“HAF”) as part of an Indiana program designed to increase Medicaid reimbursements to eligible hospitals. St. Catherine was required to pay its HAF in two installments, but after it failed to pay its HAF, the Indiana Family and Social Services Administration (“FSSA”) began withholding Medicaid reimbursements. On June 19, 2012, St. Catherine filed for bankruptcy under Chapter 11. After this date, FSSA continued to withhold reimbursements in satisfaction of St. Catherine's HAF debt.

St. Catherine filed an adversary complaint against FSSA claiming that the HAF was a pre-petition claim subject to the automatic stay. The bankruptcy court granted St. Catherine summary judgment on this claim, ruling the HAF was an “act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case” pursuant to 11 U.S.C. § 362(a)(6) and was subject to the automatic stay. FSSA was ordered to repay St. Catherine the full amount it had withheld. FSSA appealed to the district court, which reversed the bankruptcy court's judgment as to the HAF for fiscal year 2013 (the “2013 HAF”). St. Catherine now appeals, arguing the 2013 HAF, like the 2012 HAF, is a pre-petition claim subject to the automatic stay. We agree and reverse the decision of the district court.

I. BACKGROUND

St. Catherine is a regional health care facility in Charlestown, Indiana. The hospital is classified as a general acute care facility, which treats Medicare and Medicaid patients. Like other hospitals in the state, it receives reimbursement from the state and federal governments for its treatment of Medicaid patients. Specifically, the U.S. Department of Health and Human Services Center for Medicare and Medicaid Services (“CMS”) provides two dollars of funding for every one dollar provided by the state government.

On April 29, 2011, Indiana's General Assembly adopted Public Law 229 2011, Section 281 (“Section 281”), a measure designed to facilitate increased reimbursement for hospitals providing care to Medicaid patients. The law provided that an assessment—known as the Hospital Assessment Fee (“HAF”)—would be levied on eligible Indiana hospitals to create a fund from which the state would reimburse those hospitals for their treatment of Medicaid patients. Under the law, all eligible hospitals were to be assessed during the “fee period” running from between July 1, 2011 to June 30, 2013. This fee was calculated one time, but hospitals were required to pay their fee in two installments—one for fiscal year 2012 and the other for fiscal year 2013. The amount each individual hospital was to contribute to the fund was determined based upon the hospital's cost reports from May 1, 2010 to April 30, 2011, and other financial information on file as of February 28, 2012.

Collection of the HAF could not commence until the program received approval from the federal government. CMS issued its approval of Section 281 on May 21, 2012. The next day, FSSA issued Provider Bulletin BT201217 to all Indiana hospitals informing them of the timeline that would govern the HAF assessments and the agency's collection methods.¹ Thereafter, FSSA began assessing the HAF on hospitals, retroactively dated to July 1, 2011.

St. Catherine was subject to a HAF. Based on the hospital's cost reports, the FSSA determined that it owed $1,107,038.51 for fiscal year 2012 and roughly the same amount for fiscal year 2013. On May 29, 2012, FSSA sent St. Catherine the bill for fiscal year 2012. FSSA then began withholding Medicaid reimbursements from St. Catherine to recover the approximately $1.1 million that St. Catherine owed retroactive to July 1, 2011.

On June 19, 2012, St. Catherine filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. After this date, FSSA continued its withholdings in service of St. Catherine's fiscal year 2012 HAF debt for two more weeks. On July 28, 2012, FSSA issued St. Catherine a bill for fiscal year 2013, totaling $1,127,296.44. Again, the hospital did not pay. As a result, after July 1, 2013, FSSA began withholding Medicaid reimbursements in satisfaction of this debt as well. All told, FSSA withheld $989,738.78 in satisfaction of the fiscal year 2013 HAF. These withholdings were made after St. Catherine had filed its bankruptcy petition.

On March 14, 2013, St. Catherine filed an adversary complaint against FSSA seeking an injunction against further collection of the HAF and recovery of sums withheld by FSSA both before and after its Chapter 11 filing. The bankruptcy court granted St. Catherine's motion for a preliminary injunction and issued an order enforcing the automatic post-petition stay. St. Catherine then moved for summary judgment, seeking recovery of the $615,912.64 withheld by FSSA before its bankruptcy petition in service of the fiscal year 2012 HAF and the $989,738.78 withheld post-petition in service of the fiscal year 2013 HAF. The bankruptcy court ultimately granted St. Catherine summary judgment on all of its claims, ruling that the pre-petition withholdings constituted preference payments under 11 U.S.C. § 547 and were not subject to the exemption for payments made in the ordinary course of business. As to the post-petition withholdings, the court concluded that both the 2012 and 2013 HAFs constituted “act[s] to collect, assess, or recover a claim against the debtor that arose before the commencement of the case” pursuant to 11 U.S.C. § 362(a)(6), and were thus subject to the automatic stay. FSSA was ordered to repay St. Catherine the full amount it had withheld. FSSA appealed to the district court, which affirmed as to other causes of action, but reversed the bankruptcy court's judgment as to the fee imposed for fiscal year 2013, deeming it a post-petition claim. This appeal followed.

II. ANALYSIS

A. The Automatic Stay and the Conduct Test

The “automatic stay” is a statutory injunction against efforts outside of bankruptcy to collect debts from a debtor who is under the protection of the bankruptcy court. 11 U.S.C. § 362. It bars any “act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.” Id. at § 362(a)(6). At issue in this appeal is whether the 2013 HAF constitutes a “claim” against St. Catherine that arose prior to the commencement of its bankruptcy, and is therefore subject to the automatic stay.² We review the district court's finding on this question de novo. In re Davis, 638 F.3d 549, 553 (7th Cir.2011).

There is no dispute that the 2013 HAF is a “claim.” The Bankruptcy Code (the “Code”) defines a “claim” as any “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(A). What we must determine then is the date on which the 2013 HAF arose for purposes of classifying it as a pre- or post-petition claim. To make this determination, virtually all courts now apply some version of the “conduct test.” Under this approach, the date of a claim is determined by the date of the conduct giving rise to the claim. See Watson v. Parker (In re Parker), 313 F.3d 1267, 1269 (10th Cir.2002) (ruling malpractice claim arose on date malpractice allegedly occurred); Grady v. A.H. Robins Co., 839 F.2d 198, 203 (4th Cir.1988) (ruling tort claim arose on date tortious conduct allegedly occurred). By contrast, under the outmoded “accrual theory,” the date of a claim was determined pursuant to the state law under which liability for the claim arose. See In re Grossman's Inc., 607 F.3d 114, 119–121 (3d Cir.2010) (overruling accrual test under which “the existence of a valid claim depends on: (1) whether the claimant possessed a right to payment; and (2) when that right arose as determined by reference to the relevant non-bankruptcy law”) (citations omitted).

Because the conduct test includes both contingent and unmatured claims, it is thought to be in accordance with the broad definitions of “debt” and “claim” in the Code. See Parker, 313 F.3d at 1269 (adopting conduct test over accrual test as “the one more in tune with the plain language and the policy underlying the Bankruptcy Code”); Grady, 839 F.2d at 202 (“[T]he legislative history shows that Congress intended that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in bankruptcy.”); see also 11 U.S.C. § 101(12) (defining “debt” as “liability on a claim”); id. at § 101(5)(A). Some courts, however, expressing concern that the conduct test may be overly broad, require a “prepetition relationship” between the parties, “such as contact, exposure, impact, or privity, between the debtor's prepetition conduct and the claimant.” In re Piper Aircraft Corp., 162 B.R. 619, 627 (Bankr.S.D.Fla.1994)aff'd, 168 B.R. 434 (S.D.Fla.1994), aff'd as modified sub nom. Epstein v. Official Comm. of Unsecured Creditors of Estate of Piper Aircraft Corp., 58 F.3d 1573 (11th Cir.1995). This pre-petition relationship requirement “ameliorates the problem often attributed to the conduct test—that a bankruptcy proceeding cannot identify and afford due process to claimants” with unmatured or contingent claims. In re Grossman's, 607 F.3d at 123 (citing Barbara J. Houser, Chapter 11 as a Mass Tort Solution, 31 Loy. L.A. L.Rev. 451, 465 (1998) ). Whi...