In re: Promise Healthcare Group, LLC, et al.,

Filing 7

MEMORANDUM Signed by Judge Colm F. Connolly on 3/11/2024. (nmf)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
In re PROMISE HEALTHCARE
GROUP, LLC, et al.,

Chapter 11
Case No. 18-12491 (CTG)
(Jointly Administered)

Reorganized Debtors.
Robert N. Michaelson, Liquidating Trustee
of the Promise Healthcare Group
Liquidating Trust,
Appellant,

Misc. No. 23-255 (CFC)

v.
Patrick Wassmann,
Appellee.
MEMORANDUM

At Wilmington on this Eleventh day of March in 2024:
Before the Court is a motion for leave (D.I. 1) ("Motion for Leave"), filed by
Robert N. Michaelson, solely in his capacity as liquidating trustee and debtor
representative of the Promise Healthcare Group Liquidating Trust {"Trustee"), as
appointed in the chapter 11 cases of Promise Healthcare Group, LLC and its
affiliated debtors ("Debtors"), seeking leave to appeal the Bankruptcy Court's
interlocutory order dated April 20, 2023 (B.D.I. 2961) 1 ("Order"), and
accompanying memorandum opinion, In re Promise Healthcare Group, LLC, 2023

1

The docket of the chapter 11 case, captioned In re Promise Healthcare Group,
LLC, No. 18-12491 (CTG) (Bankr. D. Del.), is cited herein as "B.D.I. _."
1

WL 3026715 (Banlcr. D. Del. Apr. 20, 2023) ("Opinion"), pursuant to 28 U.S.C. §
158(a)(3) and Federal Rule of Bankruptcy Procedure 8004. The Order denied the
Trustee's motion for summary judgment (B.D.I. 2908) seeking disallowance of
Patrick Wassmann's proof of claim pursuant to 11 U.S.C. § 502(b) on the basis
that the claim was unenforceable against the estate under "applicable law."
Specifically, the Trustee asserted that Mr. Wassmann's claim was unenforceable
because, although Mr. Wassmann filed a timely proof of claim in the chapter 11
cases, he did not file a timely complaint in state court, and thus his claim was
barred under the applicable statute of limitations. The Bankruptcy Court denied
summary judgment, reasoning that, pursuant to § 502(b)(1 ), the validity of a claim
is determined as of the petition date, and the statute of limitations on Mr.
Wassmann' s claim had not expired as of the Petition Date in the chapter 11 cases.
The Motion for Leave is fully briefed. D.I. 1, 5, 6. No party requested oral
argument.
Background

1.

Debtors operated various short and long term hospital and nursing

facilities throughout the country. On November 5, 2018 (the "Petition Date"), each
Debtor filed its respective chapter 11 case. On January 4, 2019, Mr. Wassmann
filed a $10,000,000 proof of claim based on "damages and injuries [allegedly]
caused by the [Debtors' allegedly] negligent care of [Mr. Wassmann], between
March 15, 2017 and June 9, 2017," while Mr. Wassmann was a resident at Promise
2

Hospital of Lee, Inc., one of the Debtors' Florida facilities (Proof of Claim# 370)
(the "Claim"). D.I. 1-4. Mr. Wassmann alleges that this negligent care resulted in
"severe and permanent injuries, including brain damage and quadriplegia." D.I. 5
at 1. Mr. Wassmann's Claim was filed well before the May 31, 2019 bar date for
claims set by the Bankruptcy Court in the chapter 11 cases. B.D.I. 984.
2.

In addition to his proof of claim, Mr. Wassmann also filed a post-

petition lawsuit against Debtor Promise Hospital of Lee, Inc. in Florida state court
(D.I. 1-5) (the "State Court Complaint"). Under Florida law, all medical
malpractice claims must be brought "within 2 years from the time the incident
giving rise to the action occurred." Fla. Stat. Ann.§ 95.11(4)(b). This gave Mr.
Wassmann an outside date of June 9, 2019 to bring his state-law claim against the
Debtors. On March 11, 2019 (four months into the bankruptcy case), Mr.
Wassmann filed a petition in state court to extend the statute of limitations on his
claim for 90 days, giving him until September 8, 2019 to file his claim. Fla. Stat.
Ann.§ 766.104(2). On June 13, 2019, two months before the expiration of the
applicable statute of limitations, Mr. Wassmann initiated his state-court action by
filing the State Court Complaint.
3.

On September 17, 2020, the Bankruptcy Court entered an order

(B.D.I. 2072) (the "Confirmation Order") confirming the Modified Second
Amended Joint Plan of Liquidation (the "Plan"). The effective date of the Plan
occurred on October 1, 2020 (B.D.I. 2102) (the "Effective Date").
3

4.

The Trustee objected to Mr. Wassmann's Claim, arguing that it was

"barred by the applicable statue of limitations [Fla. Stat. Ann. § 95.11]." (B.D.I.
2655-2 at 6). The Trustee filed a motion for summary judgment, in which he
argued (i) the State Court Complaint was void ab initio because it was filed in
violation of the automatic stay, and (ii) because the State Court Complaint was
void, no valid complaint was actually filed in state court prior to the September 8,
2019 deadline, or within the 30-day extension to the limitations period provided in
§ 108(c) of the Bankruptcy Code. 2 (See B.D.I. 2908). In the Trustee's view,
because the statute of limitations on that claim had lapsed, Mr. Wassmann's Claim
should be disallowed as "unenforceable against the debtor" under "applicable law,"
pursuant to§ 502(b). (See id.)

2

Under § 108(c) of the Bankruptcy Code, if applicable non-bankruptcy law fixes a
period for commencing or continuing a civil action in a court other than a
bankruptcy court on a claim against the debtor, and such period has not expired
before the date of the filing of the petition, then such period does not expire until
30 days after notice of the termination or expiration of the stay under section 362,
922, 1201, or 1301 with respect to such claim. 11 U.S.C. § 108(c). In accordance
with the Confirmation Order, the automatic stay under 11 U.S.C. § 362 was
terminated on the Effective Date of the Plan, October 1, 2020. (B.D.I. 2072, Plan
at 39). The Trustee argues that pursuant to§ 108(c)(2) Mr. Wassmann had until
November 1, 2020 to file a medical malpractice action against the Debtors prior to
the expiration of the statute of limitations. See 11 U.S.C. § 108(c)(2) (providing 30
days from expiration of automatic stay to take such action). In the Trustee's view,
because the State Court Complaint was void ab initio, and no additional complaint
was filed by November 1, 2020, the statute of limitations has lapsed, and the Claim
must be disallowed as "unenforceable against the debtor" under "applicable law,"
pursuant to § 502(b).
4

5.

On April 20, 2023, the Bankruptcy Court issued its Order and

accompanying Opinion denying the Trustee's motion for summary judgment. The
Bankruptcy Court held that a creditor who has filed a proof of claim that was
timely as of the petition date is not required to initiate a nonbankruptcy proceeding
to preserve its claim. See In re Promise Healthcare Grp., 2023 WL 3026715, at
*3-4. In reaching this decision, the Court applied§ 502, the section of the
Bankruptcy Code that addresses the allowance of claims. See id. Section 502(a)
provides:
A claim or interest, proof of which is filed under section
501 of this title, is deemed allowed, unless a party in
interest ... objects.
11 U.S.C. § 502(a). Section 502(b)(l) provides in relevant part:
[I]f such objection to a claim is made, the court, after
notice and a hearing, shall determine the amount of such
claim in lawful currency of the United States as of the
date of the filing of the petition, and shall allow such
claim in such amount, except to the extent that ... such
claim is unenforceable against the debtor and property
of the debtor, under ... applicable law. "
11 U.S.C. § 502(b)(l) (emphasis added).
6.

Based on its analysis of the language and structure of§ 502(b), the

Bankruptcy Court ruled that the validity of a claim is determined as of the petition
date. See In re Promise Healthcare Grp., 2023 WL 3026715, at *4. According to
the Bankruptcy Court, this reading of§ 502(b) comports with longstanding

5

bankruptcy practice and policy. See id. at *4-5. In particular, the Bankruptcy
Court found that determining the validity of a claim as of the petition date
advances the underlying goal of the bankruptcy process:
"Consolidating all pre-petition claims against the debtor
in one collective proceeding." This enables a court to
"exercise its power under section 502(b) of the
Bankruptcy Code to establish the validity and amount of
claims against the debtor," and prevent "a chaotic and
uncontrolled scramble for the debtor's assets in a variety
of uncoordinated proceedings in different courts."

Id. at *6 (quoting Maritime Electric Co. v. United Jersey Bank, 959 F.2d
1194, 1207 (3d Cir. 1991) (citations omitted)). The Bankruptcy Court rejected the
Trustee's argument that "creditors whose claims are valid as of the petition date
but have upcoming statutes of limitations would be required to seek stay relief to
file lawsuits in state or federal court outside of bankruptcy in order to preserve
their right to payment," finding that such a requirement would "operate to create
one of the very problems that bankruptcy is intended to solve." Id. The
Bankruptcy Court further noted that
On the liquidating trustee's theory, then, in most chapter
11 bankruptcy cases claimants whose statutes of
limitations would have expired in the period between the
petition date and the time of confirmation would be
required, within 30 days of confirmation, to assert their
claims in courts outside of bankruptcy. And in cases in
which those claims were otherwise subject to a discharge,
such action would require the claimants to seek and
obtain relief from any injunction issued in connection
with the plan and/or by§ 524(a)(2).

6

Id. at *7. The Bankruptcy Court concluded that "because§ 502(b)(l) asks the
court to determine the validity of the claim as it existed as of the petition date,
there is no reason for a creditor to file a complaint outside of bankruptcy." Id. As
a result, the Bankruptcy Court ruled that Mr. Wassmann's claim is not barred by
the Trustee's asserted state law statute of limitations defense because Mr.
Wassmann filed a timely proof of claim, and the statute of limitations on his Claim
had not expired as of the Petition Date. Id. "Consequently, Wassmann's claim is
not barred by state law and therefore not subject to disallowance under§
502(b)(l)." Id.
7.

The Trustee appealed the Order and sought leave to take interlocutory

appeal pursuant to 28 U.S.C. § 158(a)(3) (allowing interlocutory appeals of
bankruptcy court orders "with leave of the court").
Direct Appeal

8.

In the normal course, a party's appeal from a bankruptcy court's order

is heard by the district court. 28 U.S.C. § 158(a). Under§ 158(d)(2)(A), the court
of appeals has the discretion to exercise jurisdiction over an appeal taken directly
from a bankruptcy court's order if"the district court, ... acting on its own motion
or on the request of a party," certify that
(i)
the ... order ... involves a question of law as to
which there is no controlling decision of the court of
appeals for the circuit or of the Supreme Court of the
United States, or involves a matter of public
importance;
7

(ii) the ... order ... involves a question of law
requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the ... order ... may .
materially advance the progress of the case or
proceeding in which the appeal is taken.
28 U.S.C. § 158(d)(2)(A)(i)-(iii). And under§ 158(d)(2)(B), the district court
must make this certification if, either "on its own motion or on the request of a

party," the court determines that any one of the circumstances specified in
§ 158(d)(2)(A)(i)-(iii) exist. See 28 U.S.C. § 158(d)(2)(B) ("If ... the district
court ... on its own motion or on the request of a party, determines that a
circumstance specified in[§ 158(d)(2)(A)] exists[,] ... the district court ... shall
make the certification described in subparagraph (A).") (emphasis added). 3
Discussion

9.

The question of law presented is whether a personal injury tort

claimant's cause of action is time barred when the claimant (i) files a timely proof
of claim in the bankruptcy case, but (ii) fails to file a complaint (a) before the
expiration of the applicable state law limitations period or (b) before the expiration
3A

district court may certify an interlocutory appeal under 28 U.S.C.
§ 158(d)(2)(A). See, e.g., Homaidan v. Sallie Mae Inc., 3 F.4th 595 (2d Cir. 2021)
("We have jurisdiction over this interlocutory appeal pursuant to 28 U.S.C.
§ 158(d)(2)(A) [which] gives us jurisdiction to review an interlocutory order from
a bankruptcy court if: (1) the district court certifies (inter alia) that the order
involves a question of law for which no controlling precedent exists; and (2) this
Court authorizes the appeal.") (citing Weber v. United States, 484 F.3d 154, 157
(2d Cir. 2007)).
8

of the 30-day extension to the limitations period provided in§ 108(c) of the
Bankruptcy Code.
10.

In denying the Trustee's summary judgment motion, the Bankruptcy

Court rejected the Trustee's argument that, pursuant to§ 502(b), a claim must be
disallowed where it is "unenforceable against the debtor" under "applicable law"here, the applicable statute of limitations. The Bankruptcy Court concluded that its
determination of a claim's validity is made as of the petition date, and the statute of
limitations on Mr. Wassmann' s claim had not expired as of the Petition Date in
these cases. See In re Promise Healthcare Grp., 2023 WL 3026715, at *4.
11.

Neither the Supreme Court nor the Third Circuit has addressed

whether the determination of the claim's validity is made as of the petition date.
12.

As the Trustee notes, the Bankruptcy Court's decision conflicts with

the decisions of three courts of appeals and a district court within this Circuit. See

Bennet v. U.S. Lines, Inc., 64 F.3d 62, 66-67 (2d Cir. 1995) (finding that the
applicable statute of limitations barred a tort claimant's claim where a complaint
was not filed within thirty days of the termination of the stay, even where the
claimant had filed a timely proof of claim in the bankruptcy case); Mamer v. Apex

R.E. & T., 59 F.3d 780, 783 (8th Cir. 1995) (same); McKinney v. Waterman
Steamship Corp., 925 F.2d 1, 6 (1st Cir. 1991) (same); In re C & G Excavating,
Inc., 217 B.R. 64, 66 (Bankr. E.D. Pa. 1998) (same), aff'd Rhodes v. C & G
Excavating, Inc., No. Civ. A. 98-6274, 1999 WL 820204, at* 1 (E.D. Pa. Sept. 29,
9

1999) ("[It] a complaint is irrelevant following the filing of a proof of claim, then §
108(c) is purely statutory surplusage. The Court is not free to so lightly disregard
the plain language of a statute."). The Bankruptcy Court itself acknowledged that

C & G Excavating "does indeed support the trustee's position and is not factually
distinguishable in any material way." In re Promise Healthcare Grp., 2023 WL
3026715, at* 10.
13.

Whether the determination of a claim's validity is made as of the

petition date is, of course, a question of law. And, because the Bankruptcy Court
denied the Trustee's motion for summary judgment based on its answer to that
question, the Court's Order dated April 20, 2023 "involves a question of law as to
which there is no controlling decision of' the Third Circuit or Supreme Court. 28
U.S.C. § 158(d)(2)(A)(i). Certification of the Order for an appeal to the Third
Circuit is therefore required under§ 158(d)(2)(B).
14.

Additionally, were the Order reversed on appeal, Mr. Wassmann's

Claim would be disallowed, ending any further litigation of a large and complex
personal injury claim. See Navient, 522 F. Supp. 3d at 115 ("[s]hould the Third
Circuit find that equitable tolling is unavailable to save the CFPB' s action from
dismissal where the ratification comes after the statute of limitations has run, this
action would be subject to dismissal"). Thus, "an immediate appeal from the ...
order ... may materially advance the progress of the case or proceeding in which

the appeal is taken,"§ 158(d)(2)(A)(iii), a circumstance also requiring certification
of the Order for direct appeal pursuant to§ 158(d)(2)(B).
Conclusion

15.

Pursuant to 28 U.S.C. § 158(d)(2)(A)(i) and§ 158(d)(2)(A)(iii), the

Court will certify the Order for direct appeal to the Third Circuit. The Court will
deny the Motion for Leave without prejudice to renew the request should the Third
Circuit decline to accept the direct appeal.
16.

The Court will issue an Order consistent with this Memorandum.

UNITED STATES DISTRICT

11