Mosley v. Jefferson County, Alabama

Filing 14

MEMORANDUM OPINION. Signed by Judge Inge P Johnson on 8/28/12. (ASL)

FILED
2012 Aug-28 AM 11:06
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
IN RE:
JEFFERSON COUNTY, ALABAMA

BANKRUPTCY COURT CASE
NO.: 11-05736-TBB

DEBTOR.
___________________________________________________________________
MARALYN GHOLSTON MOSLEY,
APPELLANT,
v.

CASE NO.: CV-12-J-2203-S

JEFFERSON COUNTY, ALABAMA,
APPELLEE.
MEMORANDUM OPINION
This matter is before the court as an appeal from the Bankruptcy Court,
pursuant to 28 U.S.C. § 158. The parties have filed appellate briefs, which the court
has reviewed. The court finds, in accordance in Fed.R.Bankr.P. 8012, that the facts
and legal arguments are adequately presented in the briefs and record and the
decisional process will not be significantly aided by oral argument.
The appellant appeals from the Bankruptcy Court’s Order denying relief from
the automatic stay.

Under the Federal Rules of Bankruptcy Procedure, the

Bankruptcy Court’s findings of fact will not be set aside unless they are clearly
erroneous. Fed.R.Bankr.P. 8013.

Factual Background
This appeal arises from a 2009 state court lawsuit brought by appellant against
members of the Jefferson County Commission, alleging claims on behalf of herself
and the patients of Cooper Green Mercy Hospital. She brought that state court action
as a member of a plaintiff class, each of whom are beneficiaries of the indigent care
fund. See e.g., Transcript of May 3, 2012, Bankruptcy Court hearing (doc. 1-7) at 3941. As a result of that lawsuit, the state court judge entered an Order based on the
parties’ agreement on the appellant’s then pending petition for preliminary injunction,
stating that Jefferson County would not threaten to close Cooper Green Hospital
without informing the state court and allowing the state court to hold a hearing, and
the County would keep approximately $71,000,000 in a fund accessible to Cooper
Green Hospital and separate from the County General Fund. As a result of the
parties’ agreement, as memorialized in the state court order, the plaintiff withdrew her
motion for preliminary injunctive relief and the court found the same to be moot.
Order of July 16, 2009 (doc. 1-4) at 9-10.
The appellant sought permission in the bankruptcy court to pursue her claims
against Jefferson County, Alabama, in state court, seeking to force the County to
continue funding Cooper Green Hospital.

The Bankruptcy Court denied the

appellant’s motion for relief from the automatic stay, questioning appellant’s standing

2

to pursue the claims on behalf of Cooper Green Hospital (doc. 1-2).1 The Bankruptcy
judge noted that as an arm of Jefferson County, Cooper Green was part of the county
and not a separate entity. Any standing the appellant had in the state court action
arose from her status as a taxpayer and user of the county healthcare system, which
the Bankruptcy Court found insufficient for Bankruptcy Court purposes. See exhibit
A to doc. 6-1, at 45-46.
Specifically, the Bankruptcy court commented that
With respect to the stay relief, I am going to deny the same relief as it is
requested. There are multiple issues. One is the standing. If you step
back and forget the law, Cooper Green is part of Jefferson County and
effectively you are asking me – you are basically asking me to bifurcate
Jefferson County into different entities that are not separate legal
entities. And your client in the state court action doesn’t have the
necessary standing, based on the documents I have seen, to be
representing Cooper Green even if she could, all right. It’s clear from
the complaint that her status was as a beneficiary of certain monies and
funds as a taxpayer and as a user of the healthcare system. That doesn’t
convert over to standing for the purpose that I need in this court, even
if there was some other issue.
The more problematic issue is, as I have said, is that whatever might
have happened or might happen in the future in state court can be
undone in the context of a bankruptcy case because, even if you were
right on what you call a settlement agreement, I think it was a settlement
of the injunctive aspect, preliminary injunctive aspect of that case. I

1

After that ruling was entered by the Bankruptcy Court, and after this appeal was filed,
the state court, apparently unclear as to the status of the appellant’s claim, set a status conference
in state court. At that conference, all parties agreed that the state court case was stayed by the
bankruptcy court. See exhibit B to appellant’s reply brief (doc. 7). Appellant’s representations
as to the events of that conference in her response to motion to strike (doc. 9) are simply not
supported by the transcript of that conference.
3

think, based on what I have seen at this point that that order may not be
in place anymore. I don’t have anything to show that it isn’t, but I will
accept your representation there is something else that I haven’t seen
but, for today, there is nothing that shows that order is still in force and
effect.
But the other is that part of the process that happens in the bankruptcy
is for the County to sit down and assess what things it can pay for, what
things it can’t pay for, where the monies come from. And in the context
of the Chapter 9, there are monies that are allocated for specific
purposes that I don’t think the County has indicated they have any
intention to change those allocations. And so all that happened is that
you go to state court, litigate. The County may win, your client may
win, and then you come back here and the plan may modify in toto what
happened in state court.
So it doesn’t make a lot of sense, from a practical point of view, to
modify the stay. I think you ought to do what you need to do in the
context of this case with the County at some point, but the stay
modification, given what I have in front of me, doesn’t justify me to –
there is no cause for me to modify the stay and, accordingly, I am going
to deny the motion.
Exhibit A to doc. 6-1, at 45-47.
Standard of Review
This court reviews the Bankruptcy court's findings of fact under the clearly
erroneous standard of review and conclusions of law under the de novo standard of
review. Whiting–Turner Contracting Co. v. Electric Machinery Enterprises, Inc.,
2006 WL 1679357, *1 (M.D.Fla.2006). A finding is “clearly erroneous” when, even
in the presence of supporting evidence, the reviewing court is left with the definite
and firm conviction that a mistake has been committed. Carroll v. Quinlivan, 434
4

F.3d 314, 318 (5th Cir.2005). De novo review requires the court to make a judgment
“independent of the bankruptcy court's, without deference to that court's analysis and
conclusions.” In re Sternberg, 229 B.R. 238, 244 (S.D.Fla.1998); citing Moody v.
Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir.1984). The proper construction of the
Bankruptcy Code by the bankruptcy court or by the district court is a matter of law;
accordingly, such interpretations are subject to de novo review. In re Colortex
Industries, Inc., 19 F.3d 1371, 1374 (11th Cir.1994); In re Taylor, 3 F.3d 1512, 1514
(11th Cir.1993).
Legal Analysis
The appellant’s arguments concerning when Jefferson County could or should
have appealed the state court order shows a fundamental understanding of both
Bankruptcy law and the Order of the Bankruptcy Court. The appellant’s assertion
that she can proceed as a “governmental unit” pursuant to 11 U.S.C. § 362(b)(4) lacks
merit. The court addresses each of these in turn.
I. Basic Bankruptcy Law
The fact that the plaintiff in the state court action entered a preliminary
agreement in which Jefferson County would not threaten to close Cooper Green
Hospital without informing the state court and allowing the state court to hold a
hearing, and the County would keep approximately $71,000,000 in a fund accessible
to Cooper Green Hospital and separate from the County General Fund, does not allow
5

the appellant to now proceed on behalf of Cooper Green Hospital to ensure future
funding for it. Rather, when the County filed its Chapter 9 bankruptcy, the
Bankruptcy Court gained control of county funds.
Even if $71,000,000.00 was maintained as an ongoing balance in a separate
account for the sole purpose of Cooper Green Hospital’s operations, Cooper Green
remains a department of Jefferson County, Alabama. The court has no evidence
before it that the appellant has ever been allowed by a court to proceed on behalf of
Cooper Green hospital. Rather, any standing previously recognized has been as a
user of that hospital, and as a taxpayer of Jefferson County. Neither of those bases
for standing allow the plaintiff to now proceed as a representative of Cooper Green
Hospital itself.
Upon filing for bankruptcy protection, the funds for every department of the
appellee became subject to the Bankruptcy Court’s authority. This is the purpose of
filing a Chapter 9 bankruptcy. See In re City of Stockton, Cal., – B.R. –, 2012 WL
3193588, 3 (Bkrtcy.E.D.Cal. Aug. 6, 2012) (Suspending payment of various
obligations during a case under the Bankruptcy Code is a routine aspect of the
reorganization process. “In sum, even if the plaintiffs’ benefits are vested property
interests, the shield of the Contracts Clause crumbles in the bankruptcy arena.”).

6

Given this basic tenet of bankruptcy law, the court finds nothing erroneous
about the Bankruptcy Court’s Order denying relief from the automatic stay.2 In fact,
the Bankruptcy Court tried to explain this to the appellant, when it stated:
But the other is that part of the process that happens in the bankruptcy
is for the County to sit down and assess what things it can pay for, what
things it can’t pay for, where the monies come from. And in the context
of the Chapter 9, there are monies that are allocated for specific
purposes that I don’t think the County has indicated they have any
intention to change those allocations. And so all that happened is that
you go to state court, litigate. The County may win, your client may
win, and then you come back here and the plan may modify in toto what
happened in state court.
Exhibit A to doc. 6-1, supra.
As the Bankruptcy Court tried to explain to appellant, even if the state court
case was allowed to proceed outside of the automatic stay, the funds themselves are
subject to the Bankruptcy Court. See e.g., In re County of Orange, 189 B.R. 499, 505
(C.D.Cal.1995) (holding that the bankruptcy court could order adequate protection
of lienholder’s interest); In re City of Stockton, Cal., 2012 WL 3193588, 11
(Bkrtcy.E.D.Cal.2012) (“Suspending payment of various obligations during a case
under the Bankruptcy Code is a routine aspect of the reorganization process.”). As
aptly noted by the court in In re Stockton,

2

The appellant asserts that the Bankruptcy Judge misunderstood the nature of a settlement
agreement under Alabama law and therefore refused to lift the stay. See appellant reply (doc. 7)
at 7. The court finds no such misunderstanding apparent in the record before it, not does it find
any factual basis for the assertion that the same was the rationale for not lifting the stay.
7

The core of a chapter 9 case is adjustment of the debtor-creditor
relationship. The plaintiffs here are creditors. They want two things: a
judgment that their health benefit claims are valid and an order
compelling the City to maintain payments for those benefits. Those
issues are central to the debtor-creditor relationship to be dealt with,
along with every other unhappy creditor, in the collective chapter 9
proceeding.
In re City of Stockton, Cal., 2012 WL 3193588, 12 (Bkrtcy.E.D.Cal.2012).
II. The appellant is not a “Governmental Unit”
The Bankruptcy Code excludes from the automatic stay provisions of 11 U.S.C.
§ 362(a) proceedings by “governmental units” seeking to “enforce such governmental
unit's ... police and regulatory power.” 11 U.S.C. § 362(b)(4). The appellant did not
specifically raise this argument in the Bankruptcy Court, and the Bankruptcy Court
found that the appellant was a private individual.3 This court has no basis to conclude
otherwise. It is well established that “the district court in reviewing the decision of
a bankruptcy court functions as an appellate court.” In re Colortex Industries, Inc.,
19 F.3d 1371, 1374 (11th Cir.1994). The district court is not authorized to make
independent factual findings. In re Lett, 632 F.3d 1216, 1225 (11th Cir.2011).

3

Appellant’s petition for relief from the automatic stay describes the state court action as
having been brought by “Plaintiff and a class of indigent members, users and patients of the
Jefferson County Health System.” See doc. 1-4, at ¶ 3. Of course, if plaintiff now wishes to
argue she is a “governmental unit” and not a member of the described class, the issue of her
ability to proceed as a class representative is raised. See e g., Rule 23(a), Fed.R.Civ.Pro. As
noted previously, this is factual issue not properly before this court.
Similarly problematic with appellant’s argument that she can proceed on behalf of
Cooper Green Hospital is that if appellant is recognized as a “governmental unit,” the only
government of which she could be a “unit” would be Jefferson County, whom she sues.
8

Ordinarily an appellate court does not give consideration to issues not raised below.”
Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 721, 85 L.Ed. 1037 (1941).
As another District Court has noted
It is within this Court’s discretion to resolve an issue not decided in the
Bankruptcy Court if the record thoroughly presents the issue. In re Air
Conditioning, Inc. of Stuart, 845 F.2d 293, 299 (11th Cir.1988) (citing
Pizza of Hawaii ); In re Kenitra, Inc., 64 B.R. 841, 842 (Bankr. 9th
Cir.1986). In contrast, if the record reflects an issue was presented in a
cursory manner and never properly presented to the Bankruptcy Court,
the issue is not preserved for appeal. In re Espino, 806 F.2d 1001, 1002
(11th Cir.1986); accord Air Conditioning, Inc., 845 F.2d at 299; In re
Runyan, 832 F.2d 58, 60 (5th Cir.1987); Johnson v. Fairco Corp., 61
B.R. 317, 320 (N.D.Ill.1986). In other words, it is not enough that the
record provides facts which may permit the resolution of an issue;
rather, the record must be adequately developed, to the point that the
Bankruptcy Court could have passed on the issue, even though that court
declined to do so.
In re Monetary Group, 91 B.R. 138, 140 (M.D.Fla.1988).
The appellant failed to raise the factual issue of whether she qualified as a
“governmental unit,” for purposes of avoiding the automatic stay, with the
Bankruptcy Court in the first instance. Therefore, this court will not consider this
argument for the first time on appeal.
Similarly, appellee argues as to the validity of the state court agreement, and
whether it even continues in existence. While the bankruptcy court pondered this
very question, it was not squarely before that court and this court therefore declines
to rule on it now. Rather, that merit of the appellant’s claim can be addressed with
the bankruptcy court in the first instance.
9

Conclusion
Having considered the foregoing, and being of the opinion that the decision of
the Bankruptcy Court to deny appellant relief from the automatic stay is due to be
affirmed;
It is therefore ORDERED by the court that the same be and hereby is
AFFIRMED.
DONE and ORDERED this the 28th day of August, 2012.

INGE PRYTZ JOHNSON
U.S. DISTRICT JUDGE

10