Springfield Hosp., Inc. v. Carranza (In re Springfield Hosp., Inc.), Case # 19-10283

• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court —District of Vermont
• Writing for the Court: Colleen A. Brown, United States Bankruptcy Judge
• Citation: 618 B.R. 70
• Parties: IN RE: SPRINGFIELD HOSPITAL, INC., Debtor-in-Possession. In re: Springfield Hospital, Inc., Plaintiff, v. Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration, Defendant. In re: Springfield Medical Care Systems, Inc., Debtor-in-Possession. In re: Springfield Medical Care Systems, Inc., Plaintiff, v. Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration, Defendant.
• Docket Number: Adversary Proceeding # 20-01003,Adversary Proceeding # 20-01004,Case # 19-10285,Case # 19-10283
• Decision Date: 22 June 2020

618 B.R. 70

IN RE: SPRINGFIELD HOSPITAL, INC., Debtor-in-Possession.

In re: Springfield Hospital, Inc., Plaintiff,
v.
Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration, Defendant.

In re: Springfield Medical Care Systems, Inc., Debtor-in-Possession.

In re: Springfield Medical Care Systems, Inc., Plaintiff,
v.
Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration, Defendant.

Case # 19-10283
Adversary Proceeding # 20-01003
Case # 19-10285
Adversary Proceeding # 20-01004

United States Bankruptcy Court, D. Vermont.

Signed June 22, 2020

618 B.R. 72

Andrew Helman, Esq., Murray, Plumb & Murray, Portland, ME, For Springfield Hospital

D. Sam Anderson & Adam R. Prescott, Esq., Bernstein, Shur, Sawyer & Nelson, P.A., Portland, ME, For Springfield Medical Care Systems

James F. Raymond, Esq., Upton & Hatfield, LLP, Concord, NH, For Mascoma Bank

Michael Tye, Esq., U.S. Department of Justice, Washington, DC, For the Defendant

Melissa A. D. Ranaldo, Esq., U.S. Attorney's Office – Vermont, Burlington, Vermont, For the Defendant

MEMORANDUM OF DECISION

GRANTING SUMMARY JUDGMENT AND PERMANENT INJUNCTION TO PLAINTIFFS ON THE § 525 CLAIMS

Colleen A. Brown, United States Bankruptcy Judge

618 B.R. 73

The Plaintiffs, Springfield Hospital, Inc. ("SH"), and Springfield Medical Care Systems, Inc. ("SMCS") (collectively, the "Plaintiffs"), have each commenced an adversary proceeding against the Defendant, Jovita Carranza, in her capacity as Administrator for the U.S. Small Business Administration (the "Defendant"). Based on the record in these adversary proceedings and bankruptcy cases, and the arguments presented at the June 10, 2020 hearing, and for the reasons set forth below, the Court grants summary judgment, and a permanent injunction, to the Plaintiffs on their 11 U.S.C. § 525(a) claims.

JURISDICTION

This Court has jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Order of Reference entered on June 22, 2012. This decision addresses a cause of action under § 525 of the Bankruptcy Code and thus is a core proceeding arising under Title 11 of the United States Code as described in 28 U.S.C. § 157(b)(2)(A), (D), and (O). The Court further finds it has constitutional authority to enter a final judgment in this consolidated proceeding.

PROCEDURAL HISTORY

On April 27, 2020, SH filed a verified complaint to commence this adversary proceeding (AP # 20-1003, doc. # 1, amended at doc. # 3) and a motion for an emergency hearing on its request for a temporary restraining order ("TRO") (AP # 20-1003, doc. # 2). Two days later, SMCS filed a similar verified complaint (AP # 20-1004, doc. # 1) and motion (AP # 20-1004, doc. # 2).¹

Pursuant to the Court's scheduling orders (AP # 20-1003, doc. # 5; AP # 20-1004, doc. # 6), the Defendant filed a response in each proceeding (AP # 20-1003, doc. # 10; AP # 20-1004, doc. # 11). The Plaintiffs each filed a supplemental memorandum of law (AP # 20-1003, doc. # 11; AP # 20-1004, doc. # 15).² The Court held an emergency hearing in each proceeding and granted the requested TROs (AP # 20-1003, doc. ## 19, 20; AP # 20-1004, doc. ## 18, 22).

The Court held a status hearing on SH's request for a preliminary injunction on May 7, 2020, at which it extended the TRO in the SH proceeding, and subsequently issued an order in both adversary proceedings, inter alia, advancing the trial on the merits and consolidating it with the preliminary injunction hearings, and declaring it would conduct a joint trial, to the extent a trial of fact was necessary, on the Plaintiffs' claims under 11 U.S.C. § 525(a),³

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extending the TRO in the SMCS proceeding, and setting a schedule for trial (AP # 20-1003, doc. # 24; AP # 20-1004, doc. # 21).

On May 11, 2020, the Court entered a written order modifying and extending the TRO in the SH proceeding through June 2, 2020 (AP # 20-1003, doc. # 27); the next day, the Court entered a similar written order modifying and extending the TRO in the SMCS proceeding through June 4, 2020 (each, the "Second TRO"), and canceling the status hearing set for May 12, 2020, on SMCS's request for a preliminary injunction (AP # 20-1004, doc. # 27), since SMCS and the Defendant addressed all open issues in the joint status report they filed on May 11, 2020 (AP # 20-1004, doc. # 26).

On May 14, 2020, pursuant to the Court's schedule for trial, the parties filed the following factual declarations and exhibits: (1) SH filed a declaration of Michael Halstead, interim chief executive officer ("CEO") of SH, with 11 exhibits (AP # 20-1003, doc. # 36); (2) SMCS filed a declaration of Joshua Dufresne, acting CEO of SMCS, with 10 exhibits (AP # 20-1004, doc. # 32); (3) the Plaintiffs filed a declaration of Dawn Morse, a paralegal employed by counsel for SH, with two exhibits (AP # 20-1003, doc. # 34; AP # 20-1004, doc. # 34); and (4) the Defendant filed a declaration of John A. Miller, Deputy Associate Administrator for Capital Access for the U.S. Small Business Administration ("SBA"), with two exhibits (AP # 20-1003, doc. # 30; AP # 20-1004, doc. # 28), along with a declaration of Michael S. Tye, counsel for the Defendant, with 12 exhibits (AP # 20-1003, doc. # 32; AP # 20-1004, doc. # 30).

On May 18, 2020, the parties filed the following statements regarding material facts in dispute: (1) SH filed responses to the declarations of John A. Miller, with three exhibits (AP # 20-1003, doc. # 39), and Michael S. Tye (AP # 20-1003, doc. # 40); (2) SMCS filed responses to the declarations of John A. Miller, with two exhibits (AP # 20-1004, doc. # 37), and Michael S. Tye (AP # 20-1004, doc. # 38); and; (3) the Defendant filed a statement identifying eight material facts in dispute, in the consolidated proceedings (AP # 20-1003, doc. # 41; AP # 20-1004, doc. # 39).

The Court held a joint status conference on May 19, 2020, at which counsel for the Plaintiffs and counsel for the Defendant each took the position there were no material facts in dispute with respect to either the § 525(a) count in the complaints, or the Plaintiffs' request for a remedy in the form of a permanent injunction. The Court entered an order on the same date determining there were no material facts in dispute, canceling the trial of fact, setting a briefing schedule, and extending the TROs in both adversary proceedings through the earlier of June 15, 2020, or the date the Court issued its decision on the § 525 claims (AP # 20-1003, doc. # 43; AP # 20-1004, doc. # 41). The next day, the Court entered a supplemental order indicating summary judgment was the appropriate procedural approach for resolution of the Plaintiffs' § 525 claims, instructing the parties to take this procedural posture into account in their memoranda of law, and scheduling oral arguments to occur on June 10, 2020, if the Court decided oral arguments were needed, after reviewing the memoranda of law it was directing the parties to file (AP # 20-1003, doc. # 44; AP # 20-1004, doc. # 42).

The parties then filed the following supplemental memoranda of law, pursuant to the Court's briefing schedule: (1) on May 29, 2020, SH filed a memorandum of law in support of its § 525 claim, with six exhibits (AP # 20-1003, doc. # 48); (2) on the same date, SMCS filed a memorandum of law in

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support of its § 525 claim, with six exhibits (AP # 20-1004, doc. # 45); (3) on June 8, 2020, Mascoma Bank ("Mascoma") filed a memorandum of law in support of its request for certain rulings in any judgment the Court entered in favor of the Plaintiffs (AP # 20-1003, doc. # 54; AP # 20-1004, doc. # 52); and (4) on the same date, the Defendant filed a memorandum of law in opposition to the Plaintiffs' § 525 claims (AP # 20-1003, doc. # 56; AP # 20-1004, doc. # 54). Neither the Plaintiffs nor the Defendant sought leave to file a response to Mascoma's memorandum of law.

On the morning of June 9, 2020, the Court entered an order (i) confirming oral arguments would proceed, (ii) indicating topics to be addressed at that hearing, and (iii) directing the Defendant to file a supplement identifying certain cases she had referenced without names or citations in her memorandum (AP # 20-1003, doc. # 57; AP # 20-1004, doc. # 55). The Defendant timely filed a supplement identifying those five cases (AP # 20-1003, doc. # 58; AP # 20-1004, doc. # 56). The Court held oral arguments on June 10, 2020, which lasted approximately two and a half hours, and then took the matter under advisement.

On June 11, 2020, the Court issued an order further extending the TROs through June 22, 2020, to provide the Court with additional time to formulate and write the instant memorandum of decision, based on the significant developments in, and germane to, these proceedings over the prior week (AP # 20-1003, doc. # 60; AP # 20-1004, doc. # 58).

ISSUES PRESENTED

The issues presented are whether summary judgment is proper and, if so, then (A) whether the Defendant is in violation of...