In re: Healthcare Real Estate Partners, LLC

Filing 26

MEMORANDUM OPINION. Signed by Judge Malachy E. Mannion on 9/19/18. (Sempa, Barbe)

UNITED STATES DISTRICT COURT
DISTRICT OF DELAWARE
HEALTHCARE REAL ESTATE
PARTNERS, LLC,

:
:

Appellant,

CIVIL ACTION NO. 1:17-1555
:

v.

(JUDGE MANNION)

:
SUMMIT HEALTHCARE REIT, INC.,
et al.,
:
Appellees.

:
MEMORANDUM

Pending before the court is the bankruptcy appeal of appellant
Healthcare Real Estate Partners, LLC (“HCRE Partners”).1 HCRE Partners
seeks the reversal of an Order of the Bankruptcy Court granting a Rule 12(b)
motion to dismiss filed by appellees, Petitioning Creditors and Summit, with
respect to HCRE Partners’ adversary complaint against them seeking
damages for alleged violations of the automatic stay pursuant to 11 U.S.C.
§362(k). The Bankruptcy Court construed its Order dismissing the underlying
Involuntary Bankruptcy Petition filed against HCRE Partners as limiting HCRE
Partners’ available remedies to damage claims under 11 U.S.C. §303(i).
HCRE Partners essentially contends that the Bankruptcy Court’s
interpretation of its own Dismissal Order of the underlying bankruptcy case
was not reasonable under the circumstances.

1

The court uses the same abbreviations for the parties and the same
definitions specified in appellant’s brief, (Doc. 13), and shall not repeat them
herein.

Based on the foregoing, the Order of the Bankruptcy Court will be
AFFIRMED and HCRE Partners’ appeal will be DENIED.

I.

BACKGROUND
On September 16, 2015, Petitioning Creditors and Summit filed an

Involuntary Bankruptcy Petition under Chapter 7 against HCRE Partners.2
HCRE Partners contends that the petition was filed to remove it as manager
of the Funds since Petitioning Creditors had invested in the Funds. The
alleged attempt to remove HCRE Partners was based on a clause in the
Funds’ operating agreements which allowed for the removal of HCRE
Partners if it ever became a debtor under the Bankruptcy Code. HCRE
Partners did not timely respond to the Involuntary Bankruptcy Petition since
it claimed that it did not receive proper notice of the Involuntary Petition. An
Order for Relief was entered by the Bankruptcy Court on October 9, 2015.
After the Bankruptcy Court issued its Order for Relief, the Petitioning
Creditors removed HCRE Partners as manager of the Funds and elected
Summit as the new manager of the Funds. Summit then decided to cancel the
Funds.
On October 23, 2015, HCRE Partners filed a motion for relief, pursuant
to Rules 55(c) and 60(b), from the Bankruptcy Court’s Order for Relief entered
in the Chapter 7 case. Petitioning Creditors objected to HCRE Partners’
2

The Involuntary Bankruptcy Petition under Chapter 11 filed against
HCRE Partners was docketed under case number 15-11931.
2

motion for relief on November 6, 2015. The Bankruptcy Court granted HCRE
Partners’ motion for relief after conducting an evidentiary hearing on January
6, 2016, and vacated its October 9, 2015 Order for Relief.
The Chapter 7 Involuntary Bankruptcy Petition filed against HCRE
Partners was then reinstated. On March 4, 2016, Petitioning Creditors and
Summit filed a motion to dismiss the Involuntary Petition against HCRE
Partners. HCRE Partners opposed the motion to dismiss stating that it was
reserving all its claims, and that it intended to seek “all damages caused
by the involuntary petition and punitive damages pursuant to §§303(i) and
105(a).” HCRE Partners did not state in its objection that it would also seek
damages under §362(k).
The Bankruptcy Court conducted a hearing on the dismissal motion on
April 7, 2016. HCRE Partners did not consent to the dismissal of the
Involuntary Petition and sought to reserve its rights and remedies, by stating
on the record “just to be clear, we’re reserving all of our rights, whatever they
may be.” The Bankruptcy Court granted the motion to dismiss and then
dismissed the Involuntary Petition pursuant to an Order dated on April 18,
2016.The Order dismissing the Involuntary Petition (“BK Dismissal Order”)
stated, “Any motion made by Debtor [i.e., HCRE Partners] under 11 U.S.C.
§303(i) shall be filed no later than 30 days after entry of this Order.” In the
preface of the BK Dismissal Order, it stated, in part, that “Debtor [i.e., HCRE
Partners] having not consented to dismissal of the case and Debtor [i.e.,
HCRE Partners] not waiving its rights to seek judgment for all available
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damages pursuant to §303(i)”. The BK Dismissal Order also stated, in part,
“that nothing herein shall limit Debtor’s [i.e., HCRE Partners] right to seek
damages, including without limitation, fees and costs, pursuant to 11 U.S.C.
§303(i) or otherwise.” In its Order, the Bankruptcy Court further stated that it
“shall retain jurisdiction with respect to any matters related to or arising from
or related to the implementation, enforcement or interpretation of this Order.”
(Doc. 16-11).
HCRE Partners then claimed that it was still owed over a $1,000,000 in
past and future compensation as former manager of the Funds. HCRE
Partners also contended that the stated actions of Petitioning Creditors and
Summit occurred while the automatic stay was in effect with respect to the
Involuntary Petition and that their actions violated the automatic stay under
§362
Subsequently, on May 18, 2016, HCRE Partners initiated two
proceedings, after the bankruptcy case was dismissed, against Petitioning
Creditors and Summit. First, HCRE Partners filed a motion for damages under
11 U.S.C. §303(i) against Petitioning Creditors and Summit for actual and
punitive damages due to the alleged bad faith filing of the Involuntary
Bankruptcy Petition against it (the “303 Motion”). Second, HCRE Partners
filed a complaint against the Petitioning Creditors and Summit for alleged
violations of the automatic stay, pursuant to 11 U.S.C. §362(k), (the “362

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Complaint”), during the pendency of the Involuntary Bankruptcy Petition. The
362 Complaint commenced an adversary proceeding.3 (Doc. 16-13).
On July 28, 2017, Petitioning Creditors and Summit filed a motion to
dismiss the 362 Complaint under Fed.R.Civ.P. 12(b). They asserted two
arguments, to wit: (1) the Court’s [BK Dismissal Order] specified that HCRE
Partners could only seek relief for alleged damages under 11 U.S.C. §303(i)
and, thus the doctrine of the law of the case precluded HCRE Partners from
seeking damages for any alleged violations of the automatic stay; and (2)
based on “the pendency of state court litigation between the parties and their
affiliates pending in California [See Doc. 16-18] the Court should exercise its
discretion under 28 U.S.C. §1334(c)(1) to permissively abstain from
considering any alleged claims under Section 362(k) or any other relief
outside of Section 303(i).” (Doc. 16-17). The motion to dismiss of Petitioning
Creditors and Summit was then briefed.
The Bankruptcy Court conducted a hearing on September 27, 2017
regarding the motion to dismiss of Petitioning Creditors and Summit. (Doc.
16-22). On October 19, 2017, the Bankruptcy Court granted the motion to
dismiss of Petitioning Creditors and Summit and entered a final order
dismissing HCRE Partners’ §362 adversary Complaint with prejudice. (Doc.
16-23). The Bankruptcy found that its prior order dismissing the Involuntary

3

HCRE Partners’ adversary complaint was docketed under case number
16-50981.
5

Bankruptcy Petition limited HCRE Partners’ available remedies to damage
claims under §303(i).
On November 1, 2017, HCRE Partners timely filed the instant appeal
challenging the Bankruptcy Court’s October 19, 2017 Order dismissing its 362
Complaint. (Doc. 1). On January 6, 2018, HCRE Partners filed its opening
brief, (Doc. 13), and its appendix of the record, (Doc. 16). On February 26,
2018, Appellee Summit filed its brief in opposition and an appendix of exhibits.
(Docs. 22 & 23). On March 13, 2018, HCRE Partners filed a reply brief. (Doc.
25).

II.

LEGAL STANDARDS
This court has appellate jurisdiction over the Bankruptcy Court’s

October 19, 2017 Order dismissing HCRE Partners’ §362 adversary
Complaint with prejudice.4 28 U.S.C. §158(a)(1) (The district court has
“jurisdiction to hear appeals from final judgments, orders, and decrees” of a
bankruptcy court). When a district courts sits as an appellate court over a final
order of a bankruptcy court, it reviews the bankruptcy court’s legal
determinations de novo, its findings of fact for clear error, and its exercise of
discretion for abuse of discretion. In re Trans World Airlines, Inc., 145 F.3d
124, 131 (3d Cir. 1998). “[I]f a bankruptcy court’s decision is a mixed question

4

HCRE Partners’ §362 adversary proceeding was a core proceeding
pursuant to 28 U.S.C. §157(b), the Bankruptcy Court’s dismissal order is final.
See 28 U.S.C. §157(b)(1).
6

of law and fact,” “[t]he court should ‘apply a clearly erroneous standard to
integral facts, but exercise plenary review of the court’s interpretation and
application of those facts to legal precepts.’” Shovlin v. Klaas, 555 B.R. 500,
503 (W.D.Pa. July 29, 2016) (internal citations omitted). The court’s review of
the granting of a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6)5 is plenary or de novo. See Black v. Montgomery Cty., 835 F.3d 358,
364 (3d Cir. 2009).

III.

DISCUSSION
HCRE Partners essentially contends that it reserved all of its claims at

the time that the Bankruptcy Court issued its BK Dismissal Order and, as
such, it properly filed both its motion for damages under §303(i) as well as its
complaint for damages under §326. HCRE Partners asserts that the language
“or otherwise” in the Dismissal Order also allowed it to pursue any type of
claim that it deemed appropriate. It also contends that even though “the 303
Motion and 362 Complaint share relevant facts and seek identical damages,
the legal standard applicable to each claim is different.” It explains that
“[u]nder section 303(i),the Court may award HCRE Partners attorney’s fees,
costs, actual damages and punitive damages”, and that “[u]nder section
362(k), the Court shall award HCRE Partners actual damages, including
attorney’s fees and costs, and may award HCRE Partners punitive damages.”
5

See FED. R. BANKR. P. 7012(b) (applying Federal Rule of Civil
Procedure 12(b)(6) to adversary proceedings).
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(emphasis original).
The law is clear that a district court sits as an appellate court in
reviewing a final order of the bankruptcy court. In re Michael, 699 F.3d 305,
308 n. 2 (3d Cir. 2012). The court reviews “a Bankruptcy Court’s interpretation
of its own order for abuse of discretion only where the language of that order
is ambiguous.” In re Caribbean Petroleum Corp.,580 Fed.Appx. 82, 88 (3d
Cir. 2014) (citing In re Shenango Grp. Inc., 501 F.3d 338, 346 (3d Cir. 2007))
The initial inquiry of whether a Bankruptcy Court’s order is ambiguous is
subject to de novo review. Caribbean Petroleum Corp.,580 Fed.Appx. at 86
(citing Shenango, 501 F.3d at 346). If the Bankruptcy Court’s order is
ambiguous, the court will review the reasonableness of the Bankruptcy
Court’s interpretation and should defer to this interpretation unless it is
unreasonable under the circumstances. Id.; see also Shenango, 501 F.3d at
346. The Third Circuit also stated that “where the plain terms of a court order
unambiguously apply, ... they are entitled to their effect.” Id. (quoting Travelers
Indem. Co. v. Bailey, 557 U.S. 137, 150, 129 S.Ct. 2195 (2009)). Thus, if the
Bankruptcy Court’s order is unambiguous, the court’s review will be de novo
to determine whether the Bankruptcy Court correctly interpreted its order. Id.
at 88.
The Bankruptcy Court’s challenged order is its October 19, 2017 Order
granting the motion to dismiss of Petitioning Creditors and Summit with
respect to HCRE Partners’ 362 Complaint which was based on the Court’s
interpretation of its own Dismissal Order. HCRE Partners argues that the
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Bankruptcy Court’s BK Dismissal Order was unambiguous and that it provided
“nothing herein shall limit [HCRE Partners’] right to seek damages ....” Here,
the court finds that the Bankruptcy Court’s BK Dismissal Order is ambiguous
to the extent that it stated “nothing herein shall limit Debtor’s [i.e., HCRE
Partners] right to seek damages, including without limitation, fees and costs,
pursuant to 11 U.S.C. §303(i) or otherwise.” The court finds that Bankruptcy
Court’s BK Dismissal Order is ambiguous since, read in its entirety, it is fairly
susceptible of different constructions. Despite the language cited by HCRE
Partners, the BK Dismissal Order specifically referred to HCRE Partners’ right
to pursue all available damages pursuant to only §303(i) three times. Not
once was a §362 complaint mentioned in the Order. Thus, the Bankruptcy
Court’s interpretation of its own Dismissal Order, reserving HCRE Partners’
right to seek damages under §303(i), will be reviewed for an abuse of
discretion.
Construed against the backdrop of the history of this case, the
Bankruptcy Court’s interpretation of its Dismissal Order was not an abuse of
its discretion. The court also finds that the Bankruptcy Court’s interpretation
of its BK Dismissal Order is reasonable when read in the context of this
case’s history.
The Bankruptcy Court specifically held that HCRE Partners agreed to
language in the BK Dismissal Order which only allowed it to pursue any relief
under §303(i). The “or otherwise” language in the Dismissal Order, (Doc. 1611), was found to mean that any claims HCRE Partners sought to raise had
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to have a connection to claims under §303(i). The Bankruptcy Court found
that it was simply interpreting the language of its BK Dismissal Order in
granting Petitioning Creditors and Summit’s motion to dismiss HCRE
Partners’ 362 Complaint. The Court also explained that based on HCRE
Partners’ allegations in its 303(i) motion, including its allegations of bad faith
that Summit and Petitioning Creditors conspired to remove HCRE Partners
as manager of the Funds by filing the Involuntary Petition against HCRE
Partners, removing HCRE Partners as manager of the Funds, and electing
Summit as the new manager of the Funds, HCRE Partners could pursue all
of the damages it was seeking against Petitioning Creditors and Summit in its
303(i) motion. Thus, the Court found that HCRE Partners’ 362 Complaint was
not even needed. However, HCRE Partners states that different legal
standards apply regarding its 303(i) motion and its 362 Complaint and that
“the Court’s discretion in awarding relief [under each section] is dramatically
different.”6 In any event, even though HCRE Partners argues that Petitioning

6

To the extent that HCRE Partners argues in its brief the merits of its
claim that Petitioning Creditors and Summit willfully violated the automatic
stay by removing HCRE Partners as manager of the Funds “based upon an
unenforceable ipso facto clause”, citing to 11 U.S.C. §365(e)(1)(B), and
claiming that “provisions in executory contracts based upon the filing of a
bankruptcy case are unenforceable postpetition”, the court does not consider
this contention since it is beyond the purview of this appeal. As Petitioning
Creditors and Summit state in their brief, “the issue on appeal relates solely
to the propriety of the Bankruptcy Court’s order dismissing the [362]
Complaint.”
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Creditors and Summit willfully violated the automatic stay after they filed the
Involuntary Petition against it and removed it as manager of the Funds, it is
not without recourse to seek damages against Petitioning Creditors and
Summit. Moreover, HCRE Partners should have included language
specifically permitting it to seek damages under §362 in the proposed BK
Dismissal Order which the parties agreed to and submitted to the Bankruptcy
Court. HCRE Partners is basically now trying to rectify its own failure to
specifically preserve its remedies to pursue damages post-dismissal.
In reviewing the record of the Bankruptcy Court, it is clear that the
Court’s intent was to limit the scope of any claims that HCRE Partners could
bring to claims under §303(i). During the hearing on September 27, 2017, the
Bankruptcy Court stated that “the only purpose I retained jurisdiction [in the
BK Dismissal Order] was to allow [HCRE Partners] the opportunity to assert
any 303(i) claim that [it] thought [it] might have.” (Doc. 16-22). The Bankruptcy
further stated during the hearing that counsel for HCRE Partners “didn’t ask
for me to retain jurisdiction for any other purpose.” Counsel for HCRE
Partners responded during the hearing as follows: “That is true, Your Honor.
And at the time I’m not -- I don’t know that we were necessarily -- well, we
were aware of this issue,” [meaning the 362 issue], “but I don’t know that at
that time, you know, we were necessarily thinking about bringing an adversary
action. So you know, I don’t think we even had a thought that in terms of that
precise procedural issue.” Thus, the Bankruptcy Court found that counsel for
HCRE Partners was well aware of an issue regarding the filing of an
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adversary action under §362 when it was issuing its April 18, 2016 BK
Dismissal Order, which Order the Court noted was agreed to by the parties,
but that he was not thinking of bringing such an action under §362.
The Bankruptcy Court also stated that the broad interpretation which
HCRE Partners was attempting to read its Dismissal Order would have
allowed it to file any type of action and that this interpretation was clearly not
the intent of the Court.
HCRE Partners contends that the Bankruptcy Court failed to address
the case law which it alleges holds that a bankruptcy court retains jurisdiction
to decide stay violation claims after dismissal of a bankruptcy case. HCRE
Partners also states that a stay violation claim is a core proceeding within the
exclusive jurisdiction of the bankruptcy court. HCRE Partners argues that the
BK Dismissal Order did not have to specifically state that the Court would
retain jurisdiction over a §362(k) claim since the court always retains
jurisdiction over such a claim even after a bankruptcy case is dismissed, citing
to, In re Rodriguez, 2012 Bankr. LEXIS 699, *2 (Bankr. D.N.J. Feb. 22, 2012)
(“Courts within the Third Circuit have held that a bankruptcy court retains
jurisdiction over a proceeding under 11 U.S.C. §362(k) even after dismissal
of the underlying bankruptcy case.”).
The Bankruptcy Court addressed these issues at the hearing on
Petitioning Creditors and Summit’s motion to dismiss. In particular the
Bankruptcy Court found that even if had jurisdiction to hear the stay violation
claims, “that doesn’t mean the Court is without authority to limit you for what
12

you can bring after dismissal of the case, and that’s what I intended to do.” In
particular, the Bankruptcy Court stated that it could still limit HCRE Partners
as to what type of claims it could raise post-dismissal, and explained:
when I dismissed the case, what I was to allow you to do was to
bring a motion for 303(i) damages and nothing else. That was my
intention, I will tell you, and I made that clear several times both
at the hearing I referred to in June of last year [2016] and to the
hearing that was held earlier this year, about a year after that,
saying basically the same thing.
HCRE Partners misses the point of the Bankruptcy Court’s decision
dismissing its 362 Complaint. The Court was not suggesting that the
Bankruptcy Code requires the dismissal of a §362 proceeding when the
bankruptcy case is closed or that the court was required to specifically state
that it was retaining jurisdiction over a §362(k) adversary proceeding when it
dismissed the bankruptcy case. Rather, the Bankruptcy Court was interpreting
its BK Dismissal Order in light of the history of the case and it found that its
intent was to allow HCRE Partners to pursue its damages claims in its
pending 303(i) motion and that this motion afforded HCRE Partners an
adequate remedy.
Moreover, as Petitioning Creditors and Summit point out in their brief,
bankruptcy courts have held that they are not divested of jurisdiction over a
§362 proceeding alleging a stay violation which is pending at the time the
bankruptcy case is dismissed. Petitioning Creditors and Summit state that the
cases relied upon by HCRE Partners are inapposite and that it “cites no
authority for its argument that, after a bankruptcy case is dismissed, a

13

bankruptcy court retains jurisdiction over alleged stay violations claims were
the bankruptcy court expressly declines to retain jurisdiction and no
proceeding was pending at the time of dismissal.” Petitioning Creditors and
Summit point out that when the Bankruptcy Court finally dismissed the
bankruptcy case, HCRE Partners did not have a §362 claim pending. Further,
they state that during the hearing regarding the dismissal of the bankruptcy
case, HCRE Partners “ was afforded the opportunity to specifically identify the
existence of an alleged stay violation claims under Section 362(k) for inclusion
within the scope of permitted post-dismissal claims, but it failed to do so.”
The court finds that the Bankruptcy Court did not err when it granted
Petitioning Creditors and Summit’s motion to dismiss HCRE Partners’ 362
Complaint. Specifically, the court finds that the Bankruptcy Court did not err
in interpreting its Dismissal Order as limiting HCRE Partners to pursue any
damages claims post-dismissal against Petitioning Creditors and Summit by
filing a §303(i) motion. As discussed, the reasonableness of the Bankruptcy
Court’s interpretation of its April 18, 2016 Dismissal Order is bolstered by a
review of the record in this case. Nor does the court find that HCRE Partners
attempt to distinguish its 362 Complaint from its §303(i) motion persuasive
since, as the Bankruptcy Court found, its §303(i) motion provides an adequate
and available remedy for HCRE Partners to pursue it claims for damages
against Petitioning Creditors and Summit for allegedly forcing it out of
business.

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IV.

CONCLUSION
Based on the above, the court finds that the Bankruptcy Court did not

commit reversible error with respect to its interpretation of its April 18, 2016
BK Dismissal Order finding that it limited HCRE Partners’ available remedies
to damages under §303(i). Thus, the court will not reverse the Bankruptcy
Court’s reasonable interpretation of its own Dismissal Order. Accordingly, the
Bankruptcy Court’s October 19, 2017 Order granting the motion to dismiss of
Petitioning Creditors and Summit with respect to HCRE Partners’ 362
Complaint and dismissing HCRE Partners’ 362 Complaint with prejudice will
be AFFIRMED. HCRE Partners’ appeal, (Doc. 1), will be DENIED. An
appropriate order will follow.

s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
Date: September 19, 2018
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