In re Gulf States Long Term Acute Care of Covington, L.L.C.
Filing
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ORDER AND REASONS granting 98 Motion to Dismiss for Lack of Jurisdiction; granting 120 Motion to Dismiss for Lack of Jurisdiction. Party Gulf States Healthcare Properties of Dallas, LLC, Gulf States Meadows, LP, Jamestown Gaming, LLC, Jamestown, Inc., New Braunfels Healthcare Properties, LLC, Breazeale, Sachse & Wilson, L.L.P. and Gregory D. Frost dismissed. Signed by Judge Jane Triche Milazzo. (ecm, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
IN RE GULF STATES LONG TERM ACUTE
CARE OF COVINGTON, L.L.C.
DAVID V. ADLER,
DISBURSING AGENT
Plaintiff
VERSUS
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CIVIL ACTION
NO: 11‐1659
SECTION “H”
GREGORY M. WALKER, et al.
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JUDGE MILAZZO
Defendants
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ORDER AND REASONS
Before the Court are the Motion to Dismiss for Lack of Jurisdiction by Defendants Gregory
D. Frost and Breazeale, Sachse & Wilson LLP (Doc. 98) and the Motion to Dismiss for Lack of
Jurisdiction by Defendants Jamestown, Inc; Jamestown Gaming, LLC; New Braunfels Healthcare
Properties, LLC; Gulf States Meadows, LP; and Gulf States Healthcare Properties of Dallas, LLC.
(Doc. 120.) For the reasons stated below, these Motions are GRANTED. Plaintiff’s claims against
Gregory D. Frost; Breazeale, Sachse & Wilson LLP; Jamestown, Inc; Jamestown Gaming, LLC; New
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Braunfels Healthcare Properties, LLC; Gulf States Meadows, LP; and Gulf States Healthcare
Properties of Dallas, LLC are DISMISSED.
BACKGROUND
This case is connected to an underlying bankruptcy and was originally filed in bankruptcy
court. Plaintiff David V. Adler is the disbursing agent for Debtor Gulf States Long Term Acute Care
of Covington, LLC. On April 20, 2009, Debtor filed for voluntary Chapter 11 bankruptcy, and on
February 22, 2010, the bankruptcy court entered an order confirming Debtor’s Third Amended Plan
of Reorganization (“the Plan”). Plaintiff filed an adversary complaint on April 18, 2011, for the
benefit of Debtor and its creditors against numerous defendants, alleging acts of misconduct
related to Debtor’s finances. The district court entered an order on August 25, 2011, withdrawing
the reference to bankruptcy court.
Defendant Gregory Frost (“Frost”) is a partner in the Baton Rouge office of the law firm
Breazeale, Sasche & Wilson (“BSW”) and specializes in health care law. Frost and the firm
represented Debtor in connection with several financial transactions prior to its bankruptcy.
Plaintiff alleges the following non‐avoidance claims against Frost and BSW: legal malpractice,
breach of fiduciary duty, breach of contract, conspiracy, and fraud. Plaintiff alleges that
Defendants conspired to develop, facilitate, and implement a scheme to deprive Debtor of its
assets, injuring Debtor and its creditors. In particular, Plaintiff claims that Frost and BSW
participated in various schemes after Debtor filed for bankruptcy to conceal, transfer, and assign
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Debtor’s remaining assets to, among others, Debtor’s post‐filing manager.
Robert A. Maurin, III, a developer in Hammond, owned or controlled Jamestown, Inc;
Jamestown Gaming, LLC; New Braunfels Healthcare Properties, LLC; Gulf States Meadows, LP; and
Gulf States Healthcare Properties of Dallas, LLC (the “Jamestown Defendants”). Maurin was also
a director of Gulf States Health Services, Inc., the parent company of Debtor. Plaintiff alleges that
Debtor’s payments to the Jamestown Defendants constitute avoidable and preferential transfers.
On January 3, 2012, Frost and BSW filed their Motion to Dismiss for Lack of Jurisdiction.
Plaintiff filed a Response in Opposition to the Motion on January 24, 2012, and Frost and BSW filed
a Reply to the Response on January 31, 2012. On January 24, 2012, Jamestown Defendants filed
their Motion to Dismiss for Lack of Jurisdiction. Plaintiff and Intervenor Plaintiff filed their
Responses in Opposition to the Motion on February 7, 2012. The Jamestown Defendants filed their
Replies to the Responses on February 9, 2012. The Court heard oral argument on the Motions on
February 15, 2012 and took the Motions under submission at that time. This Order refers to Frost,
BSW, and the Jamestown Defendants collectively as “Moving Defendants.”
LEGAL STANDARD
If at any time the court determines it lacks subject‐matter jurisdiction, the court must
dismiss the action. Fed. R. Civ. P. 12(h)(3). In determining its subject matter jurisdiction, a district
court may consider: “(1) the complaint alone; (2) the complaint supplemented by undisputed facts
evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court’s
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resolution of disputed facts.” Rodriguez v. Christus Spohn Health Sys. Corp., 628 F.3d 731, 734 (5th
Cir. 2010).
“A case is property dismissed for lack of subject matter jurisdiction when the court lacks the
statutory or constitutional power to adjudicate the case.” Krim v. pcOrder.com, Inc., 402 F.3d 489,
494 (5th Cir. 2005) (quoting Home Builders Ass’n of Miss., Inc. v. City of Madison, 143 F.3d 1006,
1010 (5th Cir. 1998)). A party seeking to invoke federal court jurisdiction must present an actual
case or controversy. See U.S. Const. art. III § 2; Flast v. Cohen, 392 U.S. 83, 94‐95 (1968). Standing
is an element of the constitutional requirement of “case or controversy,” Lang v. French, 154 F.3d
217, 222 n.28 (5th Cir. 1998), and lack of standing deprives the court of subject matter jurisdiction.
Dynasty Oil & Gas, LLC v. Citizens Bank (In re United Operating, LLC), 540 F.3d 351, 354‐355 n.1 (5th
Cir. 2008). The party seeking to invoke federal jurisdiction has the burden of establishing that it
has standing to bring claims. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560‐61 (1992); Grant
v. Gilbert, 324 F.3d 383, 387 (5th Cir. 2003).
DISCUSSION
Plaintiff brings non‐avoidance, state law claims against all Moving Defendants, as well as
avoidance claims against the Jamestown Defendants. The Court finds that the Plan failed to
reserve both the avoidance and non‐avoidance claims. Accordingly, the Motions to Dismiss are
granted, and Plaintiff’s claims against Moving Defendants are dismissed.
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I.
Plaintiff’s Non‐Avoidance Claims against Moving Defendants
Moving Defendants argue that Plaintiff lacks standing to bring its non‐avoidance claims
against them because the Debtor did not sufficiently reserve these claims in its plan of
reorganization or related disclosure statement. In contrast, Plaintiff argues that, taken together,
the language in the Plan and the disclosure statement is sufficient to reserve these claims. For the
reasons stated below, the Motions are granted as to Plaintiff’s non‐avoidance claims.
During a Chapter 11 bankruptcy case, a debtor has most of the powers of a bankruptcy
trustee to pursue claims on behalf of its estate. In re United Operating, 540 F.3d at 355 (citing 11
U.S.C. § 1107(a)). Once a reorganization plan is confirmed, however, the debtor loses its status as
debtor‐in‐possession and, unless the plan expressly retains the right to pursue such actions, loses
its authority to pursue claims as though it were a trustee. Id. Section 1123(b)(3) allows a
reorganized debtor to bring a post‐confirmation action if the debtor preserves its standing to bring
such a claim. 11 U.S.C.A. § 1123(b)(3) (West 2011). In the Fifth Circuit, the reservation of claims
must be “specific and unequivocal.” In re United Operating, 540 F.3d at 355 (citing Harstad v. First
American Bank, 39 F.3d 898, 902 (8th Cir. 1994)). Absent a sufficient reservation, the debtor lacks
standing to pursue claims that the estate owned before dissolution. Id. The purpose of this rule
is to give creditors notice of any claim the debtor wishes to pursue post‐confirmation. Id. Notice
enables creditors to make an intelligent decision as to whether to vote for or against a proposed
plan. Id.
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Courts may consider the disclosure statement in addition to the reorganization plan when
determining whether the trustee has standing to pursue a claim after confirmation of the plan.
Spicer v. Laguna Madre Oil & Gas II, LLC (In re Texas Wyoming Drilling, Inc.), 647 F.3d 547, 551‐52
(5th Cir. 2011). Courts interpret reorganization plans using “traditional tools of contractual
interpretations.” Nat’l Benevolent Ass’n of the Christian Church v. Weil, Gotshal & Manges, LLP (In
re Nat’l Benevolent Ass’n of the Christian Church), 333 Fed.Appx 822, 828 (5th Cir. 2009) (unpub.)
(quoting Advisory Comm. of Major Funding Corp. v. Sommers (In re Advisory Comm. of Major
Funding Corp.), 109 F.3d 219, 222 (5th Cir. 1997)). In the present case, the Court must decide
whether Debtor’s plan and disclosure statements specifically and unequivocally preserved the non‐
avoidance claims brought against the Moving Defendants.
Room for debate exists as to what a debtor must state in its reorganization plan to meet
the “specific and unequivocal” requirement. See Crescent Res. Litig. Trust v. Burr (In re Crescent
Res.), No. 11‐1013, 2011 WL 3022567, at *6 (Bankr.W.D.Tex. July 22, 2011). Most courts in the
Fifth Circuit addressing the issue have found that the debtor’s reorganization plan must reference
specific claims but not necessarily specific defendants. See id. at *9‐12. One court, however, has
found that the plan must reference specific claims as well as specific defendants against which
those claims will be brought. In re MPF Holding U.S. LLC, 443 B.R. 736 (Bankr.S.D.Tex. 2011).
Courts examining the issue generally agree that the Fifth Circuit intended the “specific and
unequivocal” test to be a bright‐line rule. See id. at 741‐42. This Court finds that Debtor’s
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reorganization plan failed to reference specific claims to a degree that satisfies the “specific and
unequivocal” test. Accordingly, it unnecessary for the Court to determine whether the rule
requires a plan to list specific defendants in addition to specific claims.
The Court finds that Debtor’s Plan failed to reserve its non‐avoidance claims against Moving
Defendants specifically and unequivocally. Although the Plan generally reserves “[a]ny and all
other claims and causes of action which may have been asserted by the Debtor prior to the
Effective date, other than those released by the Debtor under the terms and conditions of the
Plan,” a general, catch‐all reservation such as this one is insufficient under Fifth Circuit law to
provide Plaintiff with standing to bring its non‐avoidance claims against Moving Defendants. (Doc.
98‐2, Ex. A § 6.04.02.) Under In re United Operating, a “blanket reservation of ‘any and all claims’”
is insufficient to preserve claims. 540 F.3d at 356. Accordingly, the language in § 6.04.02 of the
Plan did not preserve Plaintiff’s non‐avoidance claims.
Likewise, the references to the pending derivative suit are insufficient to preserve Plaintiff’s
non‐avoidance claims. Plaintiff argues that inclusion in the disclosure statement and
reorganization plan of a derivative suit pending in state court at the time of the disclosure
statement is sufficient to preserve Plaintiff’s claims; however, the Court disagrees. Although the
plan documents mention the derivative suit in passing, they do not list the specific claims pending
in that suit. Additionally, the documents do not mention the derivative suit in the sections of the
documents dedicated to reserving claims. Simply identifying a pending derivative suit is not
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enough to constitute a “specific and unequivocal” reservation of potential claims arising out of the
facts set forth in the derivative suit.
Lastly, Plaintiff argues that the section of the Plan retaining the bankruptcy court’s
jurisdiction reserves its non‐avoidance claims. Specifically, the Plan retains the bankruptcy court’s
jurisdiction “[t]o hear and determine any and all applications, adversary proceedings and contested
or litigated matters that may be pending on the Effective Date or commenced thereafter.” (Doc.
98‐2, Ex. A § 8.01(5).) This language, however, is another blanket reservation of claims insufficient
to meet the Fifth Circuit standard. Accordingly, Plaintiff’s non‐avoidance claims against Moving
Defendants are dismissed.
II.
Plaintiff’s Avoidance Claims against the Jamestown Defendants
In addition to the non‐avoidance claims against Moving Defendants, Plaintiff brings
avoidance claims against the Jamestown Defendants. For the reasons stated below, the Court finds
that Debtor’s Reorganization Plan did not adequately reserve those claims, and Plaintiff’s
avoidance claims against the Jamestown Defendants are dismissed.
Although the Plan reserves “potential fraudulent conveyance actions . . . against the
Debtor’s former management and/or related parties . . .,” the Plan also provides an exclusive list
of defendants against whom those claims may be brought, and Moving Defendants are not
included in that list. (Doc. 98‐2, Ex. A § 6.04.01.) The section of the disclosure statement entitled
“Avoidance Actions and Fraudulent Transfers” is identical to the language contained in section
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6.04.01 of the Plan. Applying traditional contractual interpretation principles, the choice of the
word “namely,” indicates that the intent of the parties was that the list be an exhaustive list.
“Namely” means “by name or particular mention.” Black’s Law Dictionary (9th ed. 2009). Black’s
goes on to explain: “The term indicates what is to be included by name. By contrast, including
implies a partial list and indicates that something is not listed.” Id. (emphasis in original). As a
result, creditors reviewing the Plan would not be put on notice of potential avoidance actions
against defendants not included in this list. Accordingly, the Reorganization Plan did not specifically
and unequivocally reserve Plaintiff’s avoidance claims against the Jamestown Defendants, and
those claims are dismissed.
CONCLUSION
The Court finds that Plaintiff’s Third Amended Plan of Reorganization failed to reserve
specifically and unequivocally its claims against Moving Defendants. Accordingly, the Motions are
GRANTED. Plaintiff’s claims against Gregory D. Frost; Breazeale, Sachse & Wilson LLP; Jamestown,
Inc; Jamestown Gaming, LLC; New Braunfels Healthcare Properties, LLC; Gulf States Meadows, LP;
and Gulf States Healthcare Properties of Dallas, LLC are DISMISSED.
New Orleans, Louisiana, on this 5th day of March, 2012.
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JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE
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