DENUNZIO et al v. PROSPECT EOGH, INC.
Filing
9
OPINION. Signed by Judge Kevin McNulty on 06/27/2018. (sms)
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 1 of 48 PageID: 1177
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
In ye:
:
Civ. No. 17-1595
East Orange General Hospital,
Inc., et al.,1
OPINION
Debtors.
Bankruptcy Case No. 15-3 1232
(Jointly Administered)
Roseaun Denunzio,
Plaintiff,
V.
Ivy Holdings, Inc.; Ivy
Intermediate Holdings, Inc.;
Prospect Medical Holdings, Inc.;
Prospect New Jersey, Inc.;
Prospect Eogh, Inc.;
Defendants.
KEVIN MCNULTY, U.S.D.J.:
This is an appeal from orders of Judge Vincent F. Papalia of the U.S.
Bankruptcy Court for the District of New Jersey. The debtor, a hospital, was
sold free and clear in bankruptcy after due notice to creditors, including the
The Bankruptcy Court caption refers to two jointly administered bankruptcy
cases: Bankruptcy Case No. 15—31232, in re: East Orange General Hospttal. Inc., and
Bankruptcy Case No. 15—31233, In re: Essex Valley Healthcare, Inc.
1
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 2 of 48 PageID: 1178
plaintiff, who then remained silent but now seeks to assert her claims against
the purchaser. Three orders are relevant:
(1)
Order dated January 21, 2016, authorizing, inter alia, sale of all
the debtor’s assets free and clear of liens, claims, and encumbrances.
(“Sale Order”, Bankruptcy ECF no. 330);
(2)
Order dated November 23, 2016, granting the motion of
Prospect2 to enforce the Sale Order and ordering Ms. DeNunzio to
dismiss, without prejudice, her pending lawsuit against Prospect in the
Superior Court of New Jersey, Law Division, Essex County. (“Sale
Enforcement Order”, Bankruptcy ECF No. 867): and
(3)
Order dated February 21, 2017, denying Ms. Denunzio’s motion
for reconsideration of the Sale Enforcement Order and denying the
parties’ applications for sanctions. (“Reconsideration Order”, Bankruptcy
ECF No. 912, copy at ECF No. 1-1).
Ms. Denunzio appeals from the second and third orders. For the reasons
stated herein, the appeal is denied, and the Sale Enforcement Order and the
Reconsideration Order are affirmed.
I. Background
The facts, which are not substantially in dispute, are as follows:
On May 28. 2014, East Orange General Hospital. Inc. and Essex Valley
Healthcare, Inc. (collectively, “Debtors”) entered into an asset purchase
agreement with Prospect EOGH, Inc (“original APA”).3 (Bankruptcy ECF No. 57
The motion was Died on behalf of Prospect EOGH. Inc. and its affiliates,
including Iv Holdings. Inc.. Ivy Intermediate Holdings. Inc., Prospect Medical
Holdings, Inc., and Prospect New Jersey, Inc. (collectively, “Prospect’).
2
As explained infra, the transaction contemplated by the original APA did not
close. The parties subsequently entered into an Amended and Restated Asset
Purchase Agreement on November 20. 2015 (“APA”). (Bankruptcy ECF No. 57-2, Exh.
B).
2
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 3 of 48 PageID: 1179
at 91 9).4 See also (Bankruptcy ECF No. 330-1 at 1) (referring to the May 28,
2014 Asset Purchase Agreement as the “Original Agreement”).
Over a year later, on August 19, 2015, Ms. Denunzio, Appellant here,
was terminated from her employment with Debtor East Orange Hospital.
(Compl. 91 6). She had been working as a laboratonr aide and department
administrative assistant in the Hospital’s Pathology Department since March
1968. (Id. at ¶91 4-6).
The next month, “lo]n September 16, 2015, the Debtors received
approval of a Certificate of Need from the New Jersey Department of Health for
the sale of the Hospital’s assets to Prospect FEOGH, Inc.], subject to certain
conditions.” (Bankruptcy ECF No. 57 at 91 10). See also (Compi. ¶ 30). Then, on
October 7, 2015. the proposed sale was approved by New Jersey Acting
Attorney General John J. Hoffman pursuant to the Community Health
Care Assets Protection Act. (Bankruptcy ECF No. 57 at 91 10). The proposed
sale was also approved by the Superior Court of New Jersey on October 28,
2015. (Id.) The original APA did not close, however. (Id. at 91 ii).
Nearly three months after Ms. Denunzio’s termination from the Hospital,
on November 10, 2015, East Orange General Hospital filed for relief under
Chapter 11 of the Bankruptcy Code. (ECF No. 1 of Bankruptcy Case No. 15-
3 1232). On that same date, Essex Valley Healthcare, which is the parent
company of East Orange General Hospital, also filed for relief under Chapter
11. (ECF No. 1 of Bankruptcy Case No. 15-31233). On November 13. 2015,
Judge Papalia ordered the Chapter 11 cases of East Orange General Hospital
and Essex Valley Healthcare to be “consolidated for procedural purposes only
and jointly administered under lead Case No. 15-3 1232.” (ECF No. 22 of
Bankruptcy Case No. 15-31232, 91 2); (ECF No. 4 of Bankruptcy Case No. 15-
3 1233, 91 2). Judge Papalia also issued an Order authorizing Debtors to retain
Unless othenvise indicated, references to Bankruptcy ECF entries pertain to
Bankruptcy Case No. 15-31232 (Jointly Administered).
3
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 4 of 48 PageID: 1180
and appoint Prime Clerk LLC (“Prime Clerk”) as the claims and noticing agent
for the Debtors. (Bankruptcy ECF No. 25).
On November 20, 2015, the Debtors as sellers and Prospect EOGH, Inc.
as buyer entered into an Amended and Restated Asset Purchase Agreement
(“APR’).6 (Bankruptcy ECF No. 57-2, Exh. B). See (Bankruptcy ECE No. 57 at ¶
1 1). See also (Compl. ¶ 31). On that same date, the Debtors filed a Motion for
the entry of orders “(i) approving (a) bidding procedures, including bid
protections for the stalking horse bidder, (b) form and manner of sale notices,
and (c) sale hearing date, and (ii) authorizing and approving (a) the sale of
substantially all of the Debtors’ assets free and clear of liens, claims, and
encumbrances and (b) assumption and assignment of certain executory
contracts and unexpired leases.” (“Sale Motion”). (Bankruptcy ECF No. 57).
On November 25, 2015, Prime Clerk sewed Ms. Denunzio and her
counsel via First Class Mail with a copy of the Notice of Commencement of
Chapter 11 Bankruptcy Cases and the Meeting of Creditors (“Notice of
Commencement”) (Bankruptcy ECF No. 83). See Affidavit of Service, Exh. B
(Bankruptcy ECF No. 89 at 43) (listing “Roseann Denunzio” and “Roseann
Denunzio v. EOGH, et al.”).7
The Bankruptcy docket includes 915 entries for the time period before Ms.
Denunzio flied this appeal. I focus on the filings most relevant to the issues now before
this Court.
The APA was subsequently amended by Amendment Nos. 1 and 2. See
(Bankmptcy ECF No, 330-8 at 5-13). The Amendments were attached to the APA that
the Bankruptcy Judge attached to his January 21, 2016 Sale Order. See (fri.)
Amendment No. 1 was made effective as of December 11, 2015. (fri. at 5), and
Amendment No. 2 was made effective in January 2016. (id. at 9). The specific effective
date of Amendment No. 2 is not provided in the attached copy of the Amendment.
However, given that the Amendment was made “to reflect the modifications thereto
made at the auction that concluded on January 18. 2016.” 1 infer that the effective
date was on or after January 18, 2016. (Bankruptcy ECF No. 330-8 at 9).
The designation “Roseann Denunzio v. EOGH. et al’ presumably refers to
potential litigation between Ms. Denunzio and the debtor East Orange General
Hospital arising from the termination of her employment. There is no indication in the
record that such a lawsuit had actually been filed at that time.
4
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 5 of 48 PageID: 1181
On December 9, 2015, East Orange General Hospital flied a list of all
creditors.8 (Bankruptcy ECF No. 124). The list included Ms. Denunzio and her
counsel. (Id. at 33) (listing “Roseann Denunzio” and “Roseann Denunzio v.
EOGH, et al.”).
Six days later, on December 15, 2015, the Bankruptcy Court entered an
Order approving the bidding procedures and form and manner of notices, and
setting a sale hearing date (“Bidding Procedures Order”). (Bankruptcy ECF No.
171).
The next day, on December 16, 2015, East Orange Hospital filed its
Schedules of Assets and Liabilities (Bankruptcy ECF No. 175), and Statement
of Financial Affairs (Bankruptcy ECF No. 1 76). The Hospital’s “Schedule FCreditors Holding Unsecured Nonpdodty Claims” form listed “Roseann
Denunzio v. EOGH, et al.” as a contingent, unliquidated, and disputed
“litigation claim.” (Id. at 29).’° The “Amount of Claim” was described as
“unknown.” (Id.)
Under the Bankruptcy Code, a “creditor” is defined, in relevant part, as an
“entity that has a claim against the debtor that arose at the time of or before the order
for relief concerning the debtor.” 11 U.S.C. § 101(10). See tel. § 10l(15)(defining “entity”
as including “person, estate, trust, governmental unit, and United States trustee.”).
See also Fed. R. Banks. P. 1007(a)(1); 11 U.S.C. § 521(a)(1)(A)(requidng debtor in a
voluntary case to file a list of creditors).
8
See Fed. R. Banks. P. 1007(b)(1); 11 U.S.C. § 521(afll)(B)(requidng debtor,
unless the court orders othenvise, to file a schedule of assets and liabilities, and
statement of financial affairs).
The schedules, summary of schedules, and statement of financial affairs were
subsequently amended by the debtors. However, the amendments did not involve the
listing of Ms. Denunzio’s claim. See (Bankruptcy ECF Nos. 280, 290, 322-23, and
328).
10
Section 101(5) of the Bankruptcy Code broadly defines “claim.” The definition
states:
(A) right to payment, whether or not such right is reduced to judgment,
liquidated. unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach
gives rise to a right to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured.
5
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 6 of 48 PageID: 1182
On December 18, 2015, Prime Clerk served Ms. Denunzio, through her
counsel, via first class mail with a copy of the Notice of Sale of Certain Assets
at Auction (“Sale Notice”).1t (Bankruptcy ECF No. 208, Exh. A). See Affidavit of
Service (Bankruptcy ECF No. 208 at 47) (listing “Roseann Denunzio v. EOGH,
11 U.S.C. § 101(5). See In re Grossman’s Inc., 607 F.3d 114, 125 (3d Cir. 2010)
(holding that “a ‘claim’ arises when an individual is exposed pre-petition to a product
or other conduct giving rise to an injury, which underlies a right to payment’ under
the Bankruptcy Code.”). The terms “unliquidated” and “contingent” are not defined in
the Bankruptcy Code. Black’s Law Dictionary defines “unliquidated claim” as “[a]
claim for which a specific value has not been determined.” Black’s Law Dictionary 282
(10th ed. 2014). Moreover, it defines “contingent claim” as “Ia] claim that has not yet
accrued and is dependent on some future event that may never happen.” Id. See 2
Collier on Bankruptcy P 101.05 (16th ed. 2018) (explaining that “[t]ort claims
constitute claims, and thus are payable out of the estate, and constitute dischargeable
Under the Code, the fact that the tort claim may be unliquidated or disputed
debts.
does not mean that it is not a claim.”).
.
.
I note in passing that Ms. Denunzio’s NJLAD cause of action, if asserted, would
been a “claim” under the Bankruptcy Code because it was reducible to money
have
damages and was therefore asserting a “right to payment.” See In re Kaiser Aluminum
Corp.. 386 F. App’x 201, 205 (3d Cir, 2010) (recognizing “the injunctive power of the
Bankruptcy Court is limited to enjoining causes of action that actually violate that
injunction,” and vacating the judgment of the District Court and remanding for further
proceedings because the Third Circuit could not “discern” whether the Bankruptcy
Court considered each individual cause of action asserted in a lawsuit “to determine
whether it was barred by the Plan injunction.”).
‘I
The Sale Notice stated, in relevant part:
PLEASE TAKE FURTHER NOTICE that the Debtors have requested the
Bankruptcy Court enter an order (the “Sale Order”), which provides,
among other things, for the sale (the “Sale”) of the Acquired Assets free
and clear of all liens, claims, encumbrances and other interests, to the
extent permissible by law, including under section 363(1) of the
Bankruptcy Code to Prospect or the Successful Bidder.
(Sale Notice at 4)(emphasis in original). It also stated:
THE FAILURE OF ANY PERSON OR ENTITY TO FILE AND SERVE AN
OBJECTION BY THE SALE OBJECTION DEADLINE SHALL BE A BAR
TO THE ASSERTION BY SUCH PERSON OR ENTITY OF ANY
OBJECTION TO THE MOTION, SALE, SALE ORDER, OR THE
DEBTORS’ CONSUMMATION AND PERFORMANCE OF THE ASSET
PURCHASE AGREEMENT (INCLUDING, WITHOUT LIMITATION, THE
DEBTORS’ TRANSFER OF THE ACQUIRED ASSETS, FREE AND
ENCUMBRANCES AND OTHER
CLAIMS,
CLEAR OF LIENS,
INTERESTS TO PROSPECT OR THE SUCCESSFUL BIDDER).
(Id. at 6) (emphasis in original).
6
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 7 of 48 PageID: 1183
et al.”). The Sale Notice informed Ms. Denunzio’s counsel of the sale-related
hearing to be held on January 20, 2016 and the January 6, 2016 deadline for
objections. (Bankruptcy ECF No. 208. Exh. A at 4-6). A copy of the Bidding
Procedures Order and the Bidding Procedures was attached to the Notice. (Id.
at 1 n.2, 7-21).
On January 19, 2016, the Bankruptcy Court issued an Order
establishing. inter ala, deadlines to file proofs of claim “(as defined in section
10 1(5) of the Bankruptcy Code), including but not limited to all
claims of setoff or recoupment and claims arising under section 503(b)(9) of the
Bankruptcy Code, against the Debtors that arose on or prior to the Petition
Date.” (Bankruptcy ECF No. 313 at 2-3). The deadline for all creditors (except
governmental units) was set for February 26. 2016 at 5:00 p.m. (Id. at 2-3).
After a hearing on January 20, 2016, the Bankruptcy Court entered its
Order authorizing the Debtors to (a) sell substantially all of their assets free
and clear of liens, claims, and encumbrances, and (b) assume and assign
certain executory contracts and unexpired leases (“Sale Order”, Bankruptcy
ECF No. 330). See also Bankruptcy ECF No. 337 (copy of the transcript of the
Sale Hearing). The Sale Order, filed on January 21, 2016, included a copy of
the AYA, as amended, as Exhibit A. (Bankruptcy ECF Nos. 330-1 to -8). See
also (Sale Order ¶ 31) (providing that the Sale, including, but not limited to, the
terms and conditions of the APA and other agreements and transfers, “are
hereby authorized and approved in all respects.”).
In particular. the Sale Order addressed successor liability. Paragraph 13
of the Order provided as follows:
The Successful Bidder’2 is not a mere continuation of the Debtors.
there is not substantial continuity between the Successful Bidder
and the Debtors, and there is no continuity of enterprise and no
common identity between the Debtors and the Successful Bidder.
The Order referred to Prospect EOGH, Inc. as the “Successful Bidder” or
‘Buyer,” and collectively referred to Essex Valley Healthcare, Inc. and East Orange
General Hospital. Inc. as the “Debtors.” (Sale Order at 2).
12
7
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 8 of 48 PageID: 1184
The Successful Bidder is not holding itself out to the public as a
continuation of any Debtor. The Successful Bidder is not a
successor to any Debtor or any Debtor’s estate by reason of any
theory of law or equity, and the Sale does not amount to a
consolidation, merger, or de facto merger of Buyer and the
Debtors.
(Id. at 91 l3).’ Moreover, in accordance with Section 363(0 of the Bankruptcy
Code, paragraph 33 of the Order provided that all claims and interests, known
or unknown, would be extinguished by the sale:
lUlpon the Closing Date and pursuant to and except as otherwise
set forth in the Agreement, the Assets shall be transferred to Buyer
free and clear of all Encumbrances, Claims, interests, and liens.
liabilities related to the Internal Revenue Code, or any other
liability relating to Debtors or any of the Debtors predecessors or
Affiliates, whether known or unknown, choate or inchoate, filed or
untiled, scheduled or unscheduled, noticed or unnoticed, recorded
or unrecorded, perfected or unperfected, allowed or disallowed,
contingent or non-contingent, liquidated or unliquidated, matured
or unmatured, material or nonmatedal, direct or indirect, disputed
or undisputed, whether arising prior to or subsequent to the
Similarly, paragraph 39 of the Order provided as follows:
The transfer of the Purchased Assets to Buyer under the Asset Purchase
Agreement shall not result in (i) Buyer and its Affiliates and their
respective successors, assigns. members, partners, principals and
shareholders (or equivalent), or the Assets, having any liability or
responsibility for any claim against the Debtors or against an insider of
the Debtors. (U) Buyer and its Affiliates and their respective successors,
assigns, members, partners. principais and shareholders (or equivalent),
or the Assets, having any liability whatsoever with respect to or be
required to satisfy in any manner, whether at law or in equity, whether
by payment. setoff or othenvise, directly or indirectly, any Claims and
Interests or Excluded Liability or (Hi) Buyer and its Affiliates and their
respective successors, assigns. members, partners, principals and
shareholders (or equivalent), or the Assets, having any liability or
responsibility to the Debtors except as is expressly set forth in the Asset
Purchase Agreement. Without limiting the effect or scope of the foregoing,
as of the Closing Date, Buyer and its Affiliates and their respective
successors, assigns, members, partners, principals and shareholders (or
equivalent) shall have no successor or vicarious liabilities of any kind or
character.
(Id. at 91 39).
8
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 9 of 48 PageID: 1185
commencement of these chapter 11 cases, and whether imposed
by agreement, understanding, law, equity or otherwise, including
claims otherwise arising under doctrines of successor liability
(other than Assumed Liabilities and Permitted Liens) (collectively,
the “Claims and Interests”), with all such Claims and Interests to
attach to the cash proceeds of the Sale in the order of their
priority, with the same validity, force, and effect that they now
have as against the Purchased Assets, subject to any claims and
defenses the Debtors may possess with respect thereto.
(Id. at ¶
33)14
The Sale Order also permanently enjoined all entities from seeking to
enforce successor liability claims against Prospect. It provided that:
all entities, including all
litigation claimants, employees and
former employees, and trade or other creditors holding Claims and
Interests against the Debtors of the Purchased Assets arising
under or out of, in connection with, or in any way relating to, the
Assets or the transfer of the Assets to Buyer, hereby are forever
barred, estopped, and permanently enjoined from asserting any
Claims and Interests relating to the Assets or the transfer of the
Assets against Buyer and its Affiliates, successors, designees,
assigns, or property or the Assets including, without limitation
taking any of the following actions with respect to or based on any
Interest or Claim relating to the Assets or the transfer of the Assets
(other than Assumed Liabilities): (a) commencing or continuing in
any manner any action or other proceeding against Buyer, its
Affiliates, successors or assigns, assets or properties
.
.
.
(Id. 91 38). Accordingly, the Order also provided, in part, that it is “binding in all
respects” upon “all creditors” and “all holders of any Interests or Claims
(whether known or unknown) against any Debtor, land] any holders of Claims
and Interests against or on all or any portion of the Purchased Assets.” (Id. at ¶
58).
See also Id. 91 15 (stating, in part, that “[Ljhe conditions of Section 363(1) of the
Banknptcy Code have been satisfied in full; therefore, the Debtors may sell the
Purchased Assets free and clear of any interest in such property, with all Claims and
Interests
to attach to the cash proceeds of the Sale in the order of their priorityl.]”
and “[t]hose holders of Claims and Interests against any Seller, its estate, or any of the
Purchased Assets who did not object, or who withdrew their objections, to the Sale or
the Sale Motion are deemed to have consented thereto pursuant to section 363(fl(2) of
the Bankruptcy Code.”).
.
.
.
9
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 10 of 48 PageID: 1186
Furthermore, under the APA, which was incorporated in the Sale Order,
Prospect assumed only the “Assumed Liabilities” and not the “Excluded
Liabilities.”5 See (Bankruptcy ECF No. 330-I at Sections 2.3, 2.4; see also Sale
Order, Bankruptcy ECF No. 330 qi 41) (stating “[t]he Successful Bidder is
assuming the Assumed Liabilities, as set forth in the Agreement, and is not
assuming any obligations other than the Assumed Liabilities.”). The “Excluded
Liabilities” were specified as follows:
Notwithstanding anything herein to the contrary, Buyer is
assuming only the Assumed Liabilities and is not assuming and
shall not become liable for the payment or performance of any
other Liability of Sellers (collectively, the ‘Excluded Liabilities’). The
Excluded Liabilities are and shall remain Liabilities of the Sellers.
Without limiting the generality of the foregoing, the term ‘Excluded
Liabilities’ includes any Liability of Sellers:
(x) arising in connection with the employment by the Sellers, or
the termination of any employment by the Sellers, of any Persons,
whether as full-time employees, part-time employees, consultants
or temporary workers, and including Liabilities for compensation.
Claims’6 for workers’ compensation or OSHA, or Claims or other
grievances by Employees asserting wrongful termination, breach of
contract, tort, or other violation of Law by Sellers or any of theft
Affiliates arising from any facts, events or circumstances arising on
or prior to the Closing Date.
(Bankruptcy ECF No. 330-1 at Section 2.4(x)).
On that same day, Prime Clerk served Denunzio, through counsel, via
first class mail, with a copy of the “Order (i) Establishing Procedures for
Compliance by the Official Committee of Unsecured Creditors for East Orange
General Hospital, Inc., and (ii) Authorizing the Retention of Prime Clerk as
Information Agent for the Official Committee of Unsecured Creditors Effective
See (Bankruptcy ECF No. 330-7 at 26) (defining “liability” as “any debt, liability
or obligation (whether direct or indirect, known or unknown, absolute or contingent.
accrued or unaccmed. liquidated or unliquidated, or due or to become due), and
including all fines, penalties, costs and expenses relating thereto.”).
See Id. at 19 (defining ‘‘claim,’” in part, as ‘halving] the meaning ascribed by
Bankruptcy Code § 101(5).’).
IS
10
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 11 of 48 PageID: 1187
as of November 23, 2015,” (Bankruptcy ECF No. 300). See also Affidavit of
Service (Bankruptcy ECF No. 356, Exh. A at 21) (listing ‘Roseann Denunzio v.
EOGH, et al.”).
The next day, on January 22, 2016, Prime Clerk served DeNunzio and
her counsel via first class mail with a copy of the Notice of Deadline for Filing
Proofs of Claim Against the Debtors (“Bar Date Notice”) and a proof of claim
form. See Affidavit of Service (Bankruptcy ECF No. 364 at 68) (listing “Roseann
Denunzio” and “Roseann Denunzio v. EOGH, et al.”).’7 Ms. Denunzio did not
file a proof of claim by the specified deadline, February 26, 2016 at 5:00 p.m.,
or indeed ever. (Bankruptcy ECF No. 313 at 2-3). See also (Bankruptcy ECF
No. 850-1, Hager Cert. at ‘II 5) (acknowledging that Ms. Denunzio did not make
a claim in the Bankruptcy Court): (Appellant Br. at 3) (“[tjhere is no dispute
that Plaintiff Denunzio never filed a proof of claim.”).
The closing date of the sale was March 1, 2016. (Bankruptcy ECF No.
836 at ¶ 7).
About three months after the sale closed (and nine months after being
terminated from the Hospital), on June 9, 2016, Ms. Denunzio filed a onecount lawsuit against the purchaser, Prospect, in the Superior Court of New
Jersey, Law Division, Essex County. That state court complaint alleged age
discrimination, in violation of the New Jersey Law Against Discrimination
‘7
The Bar Date Notice stated, in relevant part:
ANY HOLDER OF A CLAIM THAT IS NOT EXEMPT’ FROM THE
REQUIREMENTS OF THIS ORDER, AS SET FORTH IN SECTION 4
ABOVE, AND THAT FAILS TO TIMELY FILE A PROOF OF CLAIM IN THE
APPROPRIATE FORM WILL BE BARRED FROM ASSERTING SUCH
CLAIM AGAINST THE DEBTORS AND THEIR CHAFFER 11 ESTATES,
FROM VOTING ON ANY CHAPTER II PLAN FILED IN THESE CASES,
AND FROM PARTICIPATING IN ANY DISTRIBUTION IN THE DEBTORS’
CASES ONACCOUNT OF SUCH CLAIM.
(Bankruptcy ECF No. 364, Exh. B at 5). See 11 U.S.C. § 1111(a): Fed. R. Bankr. P.
3003(c)(2)(requiring that a creditor in a Chapter 11 case whose claim is scheduled as
disputed, contingent, or unliquidated must file a proof of claim).
11
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 12 of 48 PageID: 1188
(“NJLAD”), N.J. Stat. Ann.
§
10:5—1. Ct seq.18 (Compl., Bankruptcy ECF No.
836-3). Ms. Denunzio’s state court complaint sought back pay, front pay,
emotional distress compensatory damages, aggravation of preexisting condition
damages. punitive damages. interest, “monetary gross up to compensate for
any negative tax consequences,” attorneys’ fees, and legal costs. Id. At 8.
The Complaint alleged that the successor Prospect entities, jointly and
severally, were her employer and were subject to successor liability under the
NJIAD. (Id. at q 14). It further alleged that those entities were not “mere
successors” to the Hospital “because they were sufficiently connected to the
culpable conduct that terminated [Ms. Denunziol in violatHoni of her rights
under the LAD.” (Id. at qi 15). According to Ms. Denunzio, as of August 2015,
Mr. Krouse, the individual who terminated her employment on the
19th
of that
month, was an upper manager employed by Prospect. (Id. at 9117).
Ms. Denunzio’s NJLAD Complaint alleged that on January 28, 2014,
Prospect Medical Holdings, Inc. issued a Letter of Intent regarding its purchase
of the Hospital’s assets and liabilities. (Id. at 91 26). By that date, and thereafter,
Prospect allegedly exercised control and/or direction over the Hospital’s
operations and employees in preparation for purchasing its assets. (Id. at ¶91
26-27). Ms. Denunzio further alleged that a few months later, on May 1, 2014,
Prospect Medical Holdings, Inc. submitted a Certificate of Need application to
the New Jersey Department of Health for the transfer of ownership of the
Hospital from Essex Valley Healthcare and its subsidiary East Orange General
Hospital to Prospect EOGH, Inc. (Id. at 91 28). That application was approved on
September 16, 2015. (Id. at ¶ 30). According to Ms. Denunzio, the Certificate
“evidenced” Prospect’s “continuation of and identity with” the Hospital. (IcL at
Section B.. p. 4). Moreover, the Complaint alleges, the November 20, 2015 APA
The case caption is: Roseann DeNunzio ii. Ivy Holdings. Inc.; Ivy Intermediate
Holdings. Inc.: Prospect Medical Holdings, Inc.; Prospect New Jersey, Inc.; Prospect
FOGH, Inc.: ABC Corporations(s) 1-5; and John and/or Jane Does 1-5, Case No. ESX-L
40 13-16.
12
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 13 of 48 PageID: 1189
incorporated the New Jersey Department of Health’s Certificate approval. (Id. at
91 32).
In Bankruptcy Court, on June 28, 2016, the debtors filed a joint plan of
liquidation (Bankruptcy ECF No. 690), and accompanying disclosure statement
(Bankruptcy ECF No. 691).’ The plan includes the proposed classification and
treatment of claims for all purposes, including voting, confirmation, and
distribution. (Bankruptcy ECF No. 690 at 16-20). It also includes an injunction
provision, exculpation provision, and release provisions, including a provision
entitled “Release by Holders of Claims and Equity Interests.”2° (Id. at 32-36). As
for the disclosure statement, it includes a $13,000,000 estimated recovery
amount for general unsecured claims, and a 39.4% estimated percentage
recovery. (Bankruptcy ECF No. 691 at 11). The recovery amount “excludes
contingent and unliquidated litigation claims totaling approximately
$9,600,000, many of which are covered by insurance.” (Id. at n.5).
On July 13, 2016, after holding a hearing, the Bankruptcy Court filed an
Order conditionally approving the disclosure statement for solicitation
purposes only (“Conditional Approval Order”). (Bankruptcy ECF No. 715).
On the next day, July 14, 2016, Prime Clerk served Ms. DeNunzio and
her counsel via first class mail with a copy of the Notice of (a) Conditional
Approval of Disclosure Statement, (b) Combined Hearing on Final Approval of
Disclosure Statement and Confirmation of the Plan, and (c) Procedures and
Deadline for Voting on the Plan, among other plan-related documents (the
See 11 U.S.C. § 1121(a) (stating that in a Chapter 11 case, “[t]he debtor may file
a plan with a petition commencing a voluntary case, or at any time in a voluntary case
or an involuntary case.”); Fed. R. Bankr. P. 30 16(b) (requiring that in a Chapter 11
case, “a disclosure statement under § 1125 of the Code or evidence showing
compliance with § 1126(b) shall be filed with the plan or within a time fixed by the
court, unless the plan is intended to provide adequate information under §
1125(9(1).”).
1
See Fed. R. Bankr. P. 30 16(c) (addressing injunctions under a plan and stating
“[i]f a plan provides for an injunction against conduct not otherwise enjoined under
the Code, the plan and disclosure statement shall describe in specific and
conspicuous language (bold, italic, or underlined text) all acts to be enjoined and
identflr the entities that would be subject to the injunction.”).
20
13
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 14 of 48 PageID: 1190
Plan Confirrnauon Hearing Notice”).2’ See Affidavit of Service (Bankruptcy ECF
No. 730, ExIi. C at 63) (listing “Roseann Denunzio” and “Roseann Denunzio v.
EOGH, et al.”).
Eleven days later, on July 25, 2016, counsel for Prospect sent a ceaseand-desist letter to Ms. Denunzio’s counsel. (Bankruptcy ECF No. 836-4).
Relying on New Jersey Court Rule 1:4-8, Prospect stated that the letter
constituted notice and demand that Ms. Denunzio voluntarily dismiss the State
Court action against Prospect with prejudice. (Id. at 1, 5). According to
Prospect, Ms. Denunzio’s claim was barred by the Bankruptcy Court’s Sale
Order. (Id. at 1). A copy of the Sale Order was attached to the letter. See ((ci.)
The next month, on August 23. 2016, the Bankruptcy Court conducted a
hearing to consider whether the disclosure statement should be approved and
whether the plan should be confirmed (“Confirmation Hearing”). (Bankruptcy
ECF No. 794 at 5). Two days later, on August 25, 2016, the Court issued an
Order approving the disclosure statement and confirming the joint plan of
liquidation (‘tonfirrnation Order”). (Bankruptcy ECF No. 794).
On August 29, 2016, in New Jersey State Court, Prospect moved to
dismiss the State Court action on the grounds that Ms. Denunzio’s claims
failed as a matter of law under New Jersey Court Rule 4:6-2(e). See
(Bankruptcy ECF Nos. 836 qj 21, 850-1 at 25-41).
On September 9, 2016, Prime Clerk sewed Ms. DeNunzio and her
counsel via first class mail with a copy of the Notice of (I) Entry of Confirmation
Order and (II) Effective Date (“Notice of Effective Date”) (Bankruptcy ECE No.
803). See Affidavit of Service (Bankruptcy ECF No. 807 at 29, 79) (listing
“Roseann Denunzio” and ‘Roseann Denunzio v. EOGH, et all.
Later that month, on September 30, 2016, the Superior Court Presiding
Judge, Dennis F. Carey, III, denied Prospect’s motion to dismiss. (Bankruptcy
The Notice included a July 13. 2016 letter from the Official Committee of
Unsecured Creditors which stated, in part, that ‘[tjhe Plan proposes to pay holders of
allowed general unsecured claims their pro rata share of available 01K Trust Funds
which, as of the filing of the Plan, total approximately $4,500,000.” (Banrkuptcy ECF
No. 730, Exh. B at 1).
21
14
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 15 of 48 PageID: 1191
ECE No. 850-1 at 19-20). About two weeks later, on October 14, 2016, Prospect
filed a second motion to dismiss, arguing lack of subject matter jurisdiction or
in the alternative requesting a stay pending a ruling by the Bankruptcy Court
on Prospect’s action to enforce the Bankruptcy Court’s Sale Order. (Bankruptcy
ECF No. 836-5). Prospect asserted that it intended to file that application with
the Bankruptcy Court within the next few weeks. (Id. at 9).
While that motion was pending before the New Jersey Superior Court, on
October 26, 2016, Prospect filed a motion (“Motion to Enforce the Sale Order”)
in Bankruptcy Court requesting that the Court 1) enforce its Sale Order by
granting injunctive relief baning Ms. Denunzio from pursuing the State Court
action, and 2) direct Ms. Denunzio to dismiss her State Court action.
(Bankruptcy ECF No. 836). It also requested that the Court assess attorney’s
fees as a sanction for Ms. Denunzio’s willful violation of the Sale Order. (Id.)
On November 4, 2016, Judge Carey denied the second motion to dismiss,
in its entirety. (Bankruptcy ECF No. 850-1 at 22-23).
On November 15, 2016, in Bankruptcy Court, Ms. Denunzio filed her
opposition to Prospect’s motion. (Bankruptcy ECE No. 850). She argued that
Prospect’s motion should be denied because her State Court action was not
within the Bankruptcy Court’s jurisdiction. (Id. at 3-5). Ms. Denunzio also
maintained that Prospect’s motion for sanctions should be denied, and
requested leave to file a motion for the award of attorney’s fees. (Id. at 6). On
the next day, November 16, 2016, Prospect filed its reply brief. (Bankruptcy
ECF No. 851).
On November 22, 2016, Bankruptcy Judge Papalia heard oral argument
on Prospect’s motion and issued an oral ruling granting it. (Transcript of Nov.
22, 2016 Hearing, Bankruptcy ECF No. 874). The next day, on November 23,
2016, Judge Papalia issued an Order granting Prospect’s Motion to enforce the
Sale Order and denying the parties’ applications for sanctions (“Sale
Enforcement Order,” Bankruptcy ECF No. 867). He found that “[t]he claims
and causes of action asserted against the Prospect Entities in the State Court
Action constitute Excluded Liabilities (as defined in the Sale Order), that were
15
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 16 of 48 PageID: 1192
not assumed by the Prospect Entities under the Asset Purchase Agreement and
were therefore enjoined and barred against the Prospect Entities by the Sale
Order.” (Id. at 91 4).
The Sale Enforcement Order also barred Ms. Denunzio from continuing
to prosecute the state court NJLAD action:
7. DeNunzio shall cease and desist from (i) prosecuting the State
Court Action and (ii) from asserting any additional claims against
the Prospect Entities or any of their affiliates that relate to, arise
from, or concern the subject matter of the State Court Action.
8. DeNunzio shall immediately dismiss the action entitled Roseann
DeNunzio us. Ivy Holdings, Inc.: Ivy Intermediate Holdings, Inc.:
Prospect Medical Holdings. Inc.: Prospect New Jersey, Inc.: Prospect
FOGH, Inc.: ABC Corporation(s) 1-5: and John and/or Jane Doe(s) 15, Docket No. ESX-L-4013-16 pending in the Superior Court of
New Jersey, Law Division, Essex County (the “State Court Action”),
without prejudice.
(Id. at 9191
78).22
Nine days later, on December 2, 2016, pursuant to Federal Rule of
Bankruptcy Procedure 9024, Ms. Denunzio filed a motion for reconsideration,
requesting that Bankruptcy Judge Papalia vacate the Sale Enforcement Order
and remand the State Court action to the New Jersey Superior Court pursuant
to the mandatory abstention doctrine contained in 28 U.S.C.
§
1334(c)(2)
(“Motion for Reconsideration”). (Bankruptcy ECF No. 871). Prospect filed its
opposition on December 21, 2016. (Bankruptcy ECF No. S85). and Ms.
Denunzio filed her reply on January 3, 2017. (Bankruptcy ECF No. 889).
Judge Papalia held a hearing on Ms. Denunzio’s reconsideration motion
on February 7, 2017 and issued an oral ruling denying that motion. (See
Transcript of Feb. 7, 2017 Hearing, Bankruptcy ECF No. 920). Two weeks later.
on February 21, 2017, the Judge issued an Order denying Ms. Denunzio’s
Judge Papaiia did not issue a written opinion. His Order “incorporated the
findings set forth a the hearing on the Motion on November 22, 2016.” (Sale
Enforcement Order 91 5).
22
16
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 17 of 48 PageID: 1193
motion for reconsideration “for the reasons set forth in the record”
(“Reconsideration Order,” Bankruptcy ECF No. 912).23
On March 8, 2017, Ms. Denunzio filed a Notice of Appeal to this Court.
(ECF No. 1). Pursuant to Rule 8003(a)(3)(B) of the Federal Rules of Bankruptcy
Procedure, she attached a copy of the Reconsideration Order. (ECF No. 1-1).
Ms. Denunzio now asks this Court to reverse and vacate both the Bankruptcy
Court’s Sale Enforcement Order and Reconsideration Order. (Appellant Br. at
39). She also seeks to have her NJLAD case “remanded” to the New Jersey
Superior Court. (Id.)
Standard of Review
U.
This District Court has jurisdiction to hear appeals of final judgments
and orders of the Bankruptcy Court pursuant to 28 U.S.C.
§
158(a)(1), In
general, a district court reviews “the bankruptcy court’s legal determinations
de novo, its factual findings for clear error and its exercise of discretion for
abuse thereof.” In re American Pad & Paper Co., 478 F.3d 546, 551 (3d Cir.
2007) (quoting In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir.
2005) (quotation and citation omitted)). A district court must separately
analyze mixed findings of fact and conclusions of law, and appropriately apply
the applicable standards—clearly erroneous or de novo—to each component.
Meridian Bank a Alten, 958 F.2d 1226, 1229 (3d Cir. 1992) (citing In re Sharon
Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989) and Universal Minerals, Inc. v.
C.A. Hughes & Co., 669 F.2d 98, 102-03 (3d Cir. 1981)).
IN.
Scope of Appeal
Prospect contends that only the Reconsideration Order is properly on
appeal.21 Ms. Denunzio maintains that both the Sale Enforcement Order and
Judge Papalia did not issue a written opinion. His Order “incorporated” the
findings and legal conclusions set forth at the Februan’ 7, 2017 hearing.
(Reconsideration Order 911).
23
For clarity, I reiterate that on January 21, 2016, the Bankruptcy Court issued a
Sale Order, granting Prospect’s Motion and thereby authorizing the Debtors to (a) sell
substantially all of their assets free and clear of liens, claims, and encumbrances, and
(b) assume and assign certain executory contracts and unexpired leases. (Bankruptcy
21
17
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 18 of 48 PageID: 1194
the Reconsideration Order are on appeal. I agree with Ms. Denunzio that,
despite the lack of clarity in her notice of appeal, this appeal should be
construed to encompass both orders, which are intertwined.
Under Bankruptcy Rule 8003(a)(1), “[a]n appeal from a judgment, order,
or decree of a bankruptcy court to a district court or BAP under 28 U.S.C.
§
158(a)(1) or (a)(2) may be taken only by filing a notice of appeal with the
bankruptcy clerk within the time allowed by Rule 8002.” Fed. R. Banks. P.
8003(a)(1). The Notice of Appeal must “be accompanied by the judgment, order,
or decree, or the part of it, being appealed.” Fed. R. Banks. P. 8003(a)(3)(B).
Ms. Denunzio’s Notice of Appeal explicitly states that the February 21,
2017 Reconsideration Order is the subject of the appeal. (ECF No. 1;
Bankruptcy ECF No. 916). As required by Rule 8003(a)(3)(B), it attaches a copy
of the Reconsideration Order. In her briefing to this Court, however, Ms.
Denunzio seeks to reverse and vacate both the Sale Enforcement Order and the
Reconsideration Order. (Appellant Br. 17-20, 33, 39).
Appellees assert that because Ms. Denunzio’s Notice of Appeal attaches
only the Reconsideration Order, the scope of the appeal does not include the
underlying Sale Enforcement Order.25 (Appellees Br. at 2-3) (citing Browder z.’.
Director of Dep’t of Corrections, 434 U.S. 257, 263 n.7 (1978) (“an appeal from
denial of Rule 60(b) relief does not bring up the underlying judgment for
review”); Erie
ii
Cty.
of Crawford, 161 F. App’x 227, 228; Wells Fargo Bank v.
Alexander (In reAlexander), 05-2467 (MLC), 2006 U.S. Dist. LEXIS 16564, at
*21 (D.N.J. Mar. 22, 2006)). Therefore, according to Prospect, “the sole issue on
ECF No. 330). On November 23, 2016, the Court issued a Sale Enforcement Order,
granting Prospect’s Motion to enforce the Sale Order and denying the parties’
applications for sanctions. (Bankruptcy ECF No. 867). Then, on February 21, 2017,
the Court issued a Reconsideration Order, denying Ms. Denunzio’s Motion for
Reconsideration of the Sale Enforcement Order. (Bankruptcy ECF No. 912).
Accordingly, Prospect’s substantive arguments focus on the Bankruptcy Court’s
denial of the motion for reconsideration. (Appellees Br. at 14-22). In the alternative,
however, Prospect does address the Sale Enforcement Order and contends that it was
was correct. (Ed. at 22-28).
25
18
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 19 of 48 PageID: 1195
review is whether the Bankruptcy Court abused lits] discretion” to grant
reconsideration. (Id. at 3) (citing Alexander, 2006 U.S. Dist. LEXIS 16564, at
*21. Page v. Schweilcer, 786 F.2d 150, 152 (3d Cir. 1986)).
Because Federal Rule of Bankruptcy Procedure 8003(a)(3) is nearly
identical to Federal Rule of Appellate Procedure 3(c)(1), I take case law
interpreting the latter as a guide. See 10 Collier on Bankruptcy 91 8003.06
(16th ed.). Notices of appeal filed under Federal Rule of Appellate Procedure 3
are construed liberally. Witasick v. Minnesota Mitt. Life Ins. Co., 803 F.3d 184,
190 (3d Cir. 2015) (citing Smith
ii.
Barry, 502 U.S. 244 (1992)).
The purpose ‘of a notice of appeal, of course, is to notify the court
of appeals and the opposing party that an appeal is being taken.’
Courts employ a commonsense, purposive approach to determine
whether a notice of appeal complies with the rules. Thus, the
Supreme Court has said that ‘imperfections in noticing an appeal
should not be fatal where no genuine doubt exists about who is
appealing, from what judgment, to which appellate court.’
Gov’t of Virgin Islands ix Mills, 634 F.3d 746, 75 1—52 (3d Cir. 2011) (internal
citations omitted).
Therefore, the Third Circuit has held that it “can exercise jurisdiction
over orders not specified in the Notice of Appeal if: (1) there is a connection
between the specified and unspecified orders; (2) the intention to appeal the
unspecified order is apparent; and (3) the opposing party is not prejudiced and
has a full opportunity to brief the issues.” Sulima
ix
Tobyhanna Army Depot,
602 F.3d 177, 184 (3d Cir. 2010) (internal quotation marks and citation
omitted).
In Matute v. Procoast Nay. Ltd. for example, the plaintiff filed a Notice of
Appeal in which he designated the order denying a motion for reconsideration
and did not designate the underlying dismissal order. 928 F.2d 627, 629 (3d
Cir. 1991). The Court nevertheless considered the appeal as relating to both:
[I]n the absence of a showing of prejudice by [defendant], it
appears that [plaintiffl’s mistake in failing to state specifically that
he was appealing from the underlying dismissal should be viewed
as harmless error and not a jurisdictional bar to his appeal.
19
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 20 of 48 PageID: 1196
Indeed, [plaintiff] did mention the Order of Dismissal in his notice
of appeal; the intent to appeal from that Order, thus, can be
inferred fairly from the notice.
Id. at 629-30 (emphasis in original).26
Applying Matute and construing Ms. Denunzio’s Notice of Appeal
liberally, I find that the three-part Sulima standard is satisfied. First, there is
undoubtedly a connection between the Reconsideration Order and the
underlying Sale Enforcement Order; Ms. Denunzio’s reconsideration motion
was a request that the Court reverse the Sale Enforcement Order’s bar to her
state NJLAD lawsuit. It is frankly difficult to consider one without considering
the other. Second, because review of the Reconsideration Order is intertwined
with the Sale Enforcement Order, 1 infer that Ms. Denunzio intended her
appeal to include the underlying Sale Enforcement Order. Ms. Denunzio’s other
filings also indicate an intention to appeal from that Order. Third, and finally,
there is no prejudice to Prospect. Ms. Denunzio’s counsel inquired about
appeal
deadlines
Enforcement
and
Order
gave
every
(Transcript
indication
of Nov.
22,
that
2016
he
intended
Hearing,
to
appeal
Bankruptcy
the
Sale
ECF
No.
See also Harrison v. Colcer. 587 F. App’x 736, 739 n.3 (3d Cir. 2014) (noting that
the plaintiffs “listed only the court’s denial of their motion for reconsideration in the
notice of appeal. but they make arguments in their briefs regarding the court’s
dismissal and its denial of their motion for summary judgment.” and finding that
jurisdiction over all
because the Sulima factors were met, the Court would
three orders.); LeBoon, 503 F.3d at 225 n.6 [citing Matute, 928 F.2d at 629—30)
(finding that an appeal from a motion for reconsideration order rather than the
underlying order on the summary judgment motions was a “technical inadequacy”
[hat “does not in itself deprive [the Third Circuit] of jurisdiction over the appeal from
See also 16A Wright &
the underlying order on the summary judgment
Miller, Federal Practice and Procedure. § 3949.4 (4th ed.flfootnote omitted) (recognizing
that “[wlhen the notice of appeal references a later-in-time order and the appellant
desires to challenge a prior order or judgment as well, there maybe a better chance
that the notice will be read to encompass the earlier order, at least if the referenced
decision denied reconsideration of the earlier one” and “one aggrieved both by an
appealable interlocutory order and by a denial of reconsideration of that order would
be prudent to file notices of appeal from both, though courts have been willing to
interpret a notice naming the order denying reconsideration
initial order as well.”).
26
exercise
motions.”).
as
20
encompassing
the
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 21 of 48 PageID: 1197
874 at 6 1:5-: 19). Prospect had a full opportunity to, and did, address the Sale
Enforcement Order in its appellate brief. (See Appellees Br. at 22-28).
1 therefore conclude that this appeal encompasses both the Bankruptcy
Court’s Sale Enforcement Order and its Order denying Ms. Denunzio’s Motion
for Reconsideration.27 I will now address the merits of this appeal.
IV.
Bankruptcy Court Jurisdiction
Ms. Denunzio argues that the Bankruptcy Court had no
jurisdiction over the State Court action, and therefore lacked the power to
order Ms. Denunzio to dismiss it without prejudice.28 (Appellant Br. 16-30).
She also argues (id. at 3 1-38) that by (in effect) entering a ruling in the State
Court action, the Bankruptcy CourI violated the mandatory abstention
doctrine. See 28 U.S.C.
§
1334(c)(2).29 I consider those arguments in turn.
Ms. Denunzio’s jurisdictional arguments depend on 28 U.S.C.
§
1334,
which vests bankruptcy jurisdiction in the district courts, and 28 U.S.C.
§
157,
which governs core and non-core proceedings within the bankrupLcy courts. I
first (I, H) survey those two provisions and case law interpreting them, and
Nothing in this discussion implies, however, that the appeal does or could
encompass the original Sale Order. Despite receiving notice, Ms. Denunzio never
objected to the sale or sought appeal of the Sale Order. Rather, she allowed approval of
the sale to become final. See 11. U.S.C. § 363(m) (explicitly requiring a stay of a sale
order pending appeal and providing that a reversal or modification of an order
approving a sale under section 363(b) or (c) “does not affect the validity of Lthej sale
such property in good faith.
under such authorization to an entity that purchased
whether or not such entity knew of the pendency of the appeal, unless such
aLLthonzation and such sale were stayed pending appeaL”): In re Abbotis Dairies of
Pennsylvania. Inc.. 788 F.2d 143, 147 (3d Cir. 1986) (internal quotation marks and
citation omitted) (stating that Section 363(m) “reflects the salutary policy of not only
affording finality to the judgment of the bankruptcy court, but particularly to give
finality to those orders and judgments upon which third parties rely.”); In re Pursuit
Capital Mgmt.. USC. 874 F.3d 124, 135 (3d Cir. 2017)(quoting Krebs ChryslerPlymouth. Inc. a Valley Motors, Inc.. 141 F.3d 490, 499 (3d Cir. 1998)) (explaining that
Section 363(m) moots a challenge to a sale if”’(1) the underlying sale or lease was not
stayed pending the appeal. and (2) the court, if reversing or modi(ving the
authorization to sell or lease, would be affecting the validity of such a sale or lease.’”).
27
...
This argument mainly relates to the Sale Enforcement Order. However, it was
also raised and addressed in the motion for reconsideration.
28
29
This argument was raised only at the stage of the motion for reconsideration.
21
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 22 of 48 PageID: 1198
then (iii) apply them to the facts. Finally (iv), I consider the applicability of
Celotex Corp. a Edwards, 514 U.S. 300 (1995), to the jurisdictional question.
i.
28 U.S.C.
§ 1334
Section 1334 of title 28 of the United States Code “describes the
jurisdictional boundaries of a district court over bankruptcy cases and
proceedings but, by itself, does not vest any authority in the bankruptcy
courts.” In re Seven Fields Dcv. Corp., 505 F.3d 237, 253 (3d Cir. 2007). Under
that Section, District Courts have “original and exclusive jurisdiction of all
cases under title 11.” 28 U.S.C.
§ 1334(a). The District Courts also have
“original but not exclusive jurisdiction of all civil proceedings arising under title
11, or arising in or related to cases under title 11.” Id.
§ 1334(b). (emphasis
added). The District Court “in which a case under title 11 is commenced or is
pending” has exclusive jurisdiction “of all the property, wherever located, of the
debtor as of the commencement of such case, and of property of the estate,”
and “over all claims or causes of action that involve construction of section 327
of title 11, United States Code, or rules relating to disclosure requirements
under section 327.” Id.
§ 1334(e).
Notably, Section 1334 distinguishes between a “case” and a “civil
proceeding.” Subsection (a) applies to “cases under title 11,” id.
§ 1334(a), while
subsection (b) applies to “civil proceedings arising under title 11, or arising in
or related to cases under title 11,” Id.
the distinction in In re
§ 1334(b). The Third Circuit explained
Combustion Eng’g, Inc., 391 F.3d 190 (3d Cir. 2005):
‘LC]ases under Title 11.’ as used in 28 U.S.C. § 1334(a), ‘refers
merely to the bankruptcy petition itself.’ The term ‘proceeding,’ on
the other hand, as used in 28 U.S.C. § 1334(b), refers ‘to the steps
within the ‘case’ and to any subaction within the case that may
raise a disputed or litigated matter.’
391 F.3d at 226 n.38 (citations omitted).
The term “case” is an overall term for the bankruptcy matter:
[The “case”] is the umbrella under which all of the proceedings that
follow the filing of a bankruptcy petition take place. The filing of a
constitutes
voluntary or involuntary,
petition for relief,
22
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 23 of 48 PageID: 1199
commencement of the title 11 case. From that beginning follow all
of the civil proceedings, whether called administrative matters,
controversies, adversary proceedings, contested matters, suits,
actions or disputes, that will occur as the case under the
Bankruptcy Code unfolds.
1 Collier on Bankruptcy 91 3.01.
“Proceeding” is an “inclusive” term for matters that occur in the course of
a case. Id. “[A]nything that occurs within a case is a proceeding,” including
“contested matters, adversary proceedings, and plenary actions.” Id. (quoting
H.R. Rep. No. 595, 95th Cong., 1st Sess. 445 (1977)).
ii.
28 U.S.C.
§
157
Section 157(a) gives District Courts the discretionary power to refer “any
or all cases under title 11 and any or all proceedings arising under title 11 or
arising in or related to a case under title 11” to the Bankruptcy Courts. 28
U.S.C.
§
157(a).3° Pending referral from the District Court, under Section 157,
“Bankruptcy jurisdiction extends to four types of title 11 matters: (1) cases
‘under’ title 11; (2) proceedings ‘arising under’ title 11; (3) proceedings ‘arising
in’ a case under title 11; and (4) proceedings ‘related to’ a case under hUe 11.”
Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir. 2006), as amended (Mar. 17, 2006)
(citing In re Combustion Eny’g, 391 F.3d at 225). See 28 U.S.C.
§
157(b)(1),
(c)(1).’
The first three categories are considered “core” proceedings, whereas the
fourth category, “related to” proceedings, are considered “non-core”
proceedings. In reResorts, 372 F.3d at 162. See also 28 U.S.C.
§
157(b)(2)
A referral to the Bankruptcy Court is also permitted pursuant to the Standing
Order of Reference by the United States District Court for the District of New Jersey,
entered on July 23, 1984 and amended on September 18, 2012. See Standing Order of
Reference 12—1 (Sept. 18. 2012), available at www.njd.uscourts.gov/sites/njd/flles/
StandingOrderl2-1.pdf. See also 28 U.S.C. § 151 (referring to the bankruptcy court as
a “unit” of the district court).
See also In re Resorts Int’l, Inc., 372 F.3d 154, 161 (3d Cir. 2004)(quoting United
States Brass Corp. v. Travelers Ins. Group, Inc. (In re United States Brass Corp.), 301
F.3d 296, 303 (5th Cir. 2002)) (recognizing that “[tihe source of the bankruptcy court’s
jurisdiction is 28 U.S.C. § 1334 and 157.”).
23
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 24 of 48 PageID: 1200
(providing a non-exhaustive list of examples of core proceedings). “A
bankruptcy court may hear both core and non-core matters, see 28 U.S.C.
§
157(b) and (c), and ‘[w]hether a particular proceeding is core represents a
question wholly separate from that of subject-matter jurisdiction.’” In re
Allegheny Health Educ. & Research Found., 383 F.3d 169, 175 (3d Cir.
2004)(quoting In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 266 (3d Cir.
1991)).
Section 157(b)(1) addresses “core” proceedings:
Bankruptcy judges may hear and determine all cases under title
11 and all core proceedings arising under title 11, or arising in a
case under title 11, referred under subsection (a) of this section,
and may enter appropriate orders and judgments, subject to review
under section 158 of this title.
28 U.S.C.
§
157(b)(1) (emphasis added).
Section 157(c)(1), on other hand, addresses “non-core” proceedings:
A bankruptcy judge may hear a proceeding that is not a core
proceeding but that is otherwise related to a case under title 11. In
such proceeding, the bankruptcy judge shall submit proposed
findings of fact and conclusions of law to the district court, and
any final order or judgment shall be entered by the district judge
after considering the bankruptcy judge’s proposed findings and
conclusions and after reviewing de novo those matters to which
any party has timely and specifically objected.
Id.
§
157(c) ( l)(emphasis added) 32
The distinction “is crucial in bankruptcy cases because it defines both
the extent of the Bankruptcy Court’s jurisdiction, and the standard by which
the District Court reviews its factual findings.” Halper v. Halper, 164 F.Sd 830,
836 (3d Cir. 1999). See also In reAllegheny Health, 383 F.3d at 175. As
explained by the Third Circuit in Halper,
See Matters of Roper. 203 BR. 326, 331 n.4 (Bankr. N.D. Ma. 1996) (noting the
similar language of Sections 1334 and 157, and concluding that the definitions of
“case” and “proceeding” under Section 1334 also apply to Section 157).
32
24
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 25 of 48 PageID: 1201
[ujpon referral, ‘js]ection 157 provides the bankruptcy court with
two levels ofjudicial power, depending upon the type of proceeding
before it.’ First, in ‘core’ proceedings, the Bankruptcy Court
assumes the role of a court of first instance with comprehensive
power to hear, decide and enter final orders and judgments.
Appellate review of the Bankruptcy Court’s judgment is available
initially in the District Court and then in the Court of Appeals.
Second, in ‘noncore’ proceedings, the Bankruptcy Court’s
adjudicatory power is limited to hearing the dispute and
submitting ‘proposed findings of facts and conclusions of law to
the district court.’ The District Court, after considering the
Bankruptcy Court’s proposed findings and conducting a de
enters
novo review of any matter objected to therein,
‘non-core’ proceedings.
judgments
in
final orders and
164 F.3d at 836 (internal citations and footnote omitted). See 28 U.S.C.
§
157(b)(1), (c)(1). See also In re Exide Techs., 544 F.3d 196, 205—06 (3d Cir.
2008).
iii. Application of 28 U.S.C.
§
1334 and 157
Ms. Denunzio maintains that in issuing the Sale Enforcement Order and
ordering her to dismiss her State court NJLAD action against Prospect, a nondebtor, the Bankruptcy Court erroneously exercised jurisdiction over that State
court action. First, she argues that the Bankruptcy Court had no jurisdiction
at all under Section 1334. (Appellant Br. at 16-17). Her NJLAD action, she
says, includes “separate and distinct claims over which the Bankruptcy Court
did not have jurisdiction.” (Id. at 17). Second, she argues that even if the
Bankruptcy Court had jurisdiction, it did not have the power to issue the Sale
Enforcement Order in the NJLAD action, a state law personal injury tort action
which was at best a “non-core” proceeding under 28 U.S.C.
§ 157(b)(2)(O).33
Ms. Denunzio’s arguments are misplaced. As recognized by Bankruptcy
Judge Papalia, the proceeding before the Bankruptcy Court was not the State
Under § 157(b)(2)(O), “core” proceedings include “other proceedings affecting the
liquidation of the assets of the estate or the adjustment of the debtor-creditor or the
equity security holder relationship, except personal injury tort or wrongful death
claims”). 28 U.S.C. § 157(b)(2)(OJ. Ms. Denunzio asserts that because a NJLAD claim is
analogous to a personal injury tort, her case is therefore a “non-core” proceeding.
(Appellant Br. 17).
25
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 26 of 48 PageID: 1202
court action itself. Rather, the proceeding before the Court was Prospect’s
Motion to Enforce the Sale Order. (Transcript of Nov. 22, 2016 Hearing,
Bankruptcy ECF No. 874 at 45:17-:21). Accordingly, the Bankruptcy Court did
not exercise jurisdiction over Ms. Denunzio’s NJLAD case; it exercised
jurisdiction over the Motion to Enforce the Sale Order.34
The Bankruptcy Court possessed jurisdiction over proceedings to enforce
the Sale Order; indeed, the motion to enforce the Sale Order was a “core”
proceeding. Section 157(b)(1) provides that “[bjankmptcy judges may hear and
determine all cases under title 11 and all core proceedings arising under title
11, or arising in a case under title 11
and judgments.” 28 U.S.C.
§
.
.
.
and may enter appropriate orders
l57(b)(1).35 In considering whether a proceeding is
“core,” courts must first look to Section 157(b)’s non-exhaustive list of “core
proceedings” to determine if the proceeding falls within that list. Halper, 164
F.3d at 836. Next, courts must apply the Third Circuit’s test for a “core”
proceeding. Id. Under that test, a proceeding is considered core if “(1) it invokes
a substantive right provided by title 11 or (2) if it is a proceeding, that by its
nature, could arise only in the context of a bankruptcy case.” Id. See In re G-I
Holdings, Inc., 278 B.R. 376, 381 (Bankr. D.N.J. 2002) (stating that
“laissuming arguendo that the instant action falls within
§
157(b), it must
The Bankruptcy Court pointed out that it was not holding that a state law
employment discrimination case is a “core” proceeding. (Transcript of Nov. 22, 2016
Hearing at 45: 19-:23). Rather, “jt]his Court finds that that is not the issue before the
Court and on this motion and is not the basis for this Court’s jurisdiction or decision.
The Court has, at best, non-core, related to jurisdiction over the claim, the state law
claim, but that really is not relevant at all to the decision.” (Id. at 45:21-:25).
3.1
As previously mentioned, whether a claim is core or non-core does not affect a
bankruptcy court’s jurisdiction to hear a case at all—only its authority to enter a final
order. See In re Seven Fields Dcv. Corp., 505 F.3d at 253—54 (distinguishing between a
bankruptcy court’s subject matter jurisdiction and its authority to determine claims
under 28 U.S.C. § 157); 28 U.S.C. § 157(c)(a) (stating that a bankruptcy court may
render proposed findings of fact and conclusions on non-core proceedings). Here, the
Bankruptcy Judge held a hearing on Prospect’s Motion and after finding that the
proceeding was “core,” he issued an Order. I will therefore focus on whether the
proceeding was “core,” i.e. whether the Judge had the authority to hear the proceeding
and enter the Order.
26
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 27 of 48 PageID: 1203
nonetheless satisfy the next step—the core test—as directed by Halper.”). See
also In re Wthstar Commc’ns, Inc., 554 F.3d 382, 405 (3d Cir. 2009); In re Exide,
544 F.3d at 206.
I start from the premise, not really contested on this appeal, that entry of
the Sale Order itself was a core proceeding within the jurisdiction of the
Bankruptcy Court. Such a sale order is authorized by the Code, 11 U.S.C.
§
363. Under that Section, “[t]he trustee or debtor-in-possession may sell
property free and clear of an interest in the property provided that one or more
of the provisions under Section 363W is satisfied.” In re Mess ma, 687 F.3d 74,
77 n.4 (3d Cir. 2012), Such a sale order is listed as a core proceeding in 28
U.S.C.
§
157(b)(2)(N). The injunctive provision and successor liability provisions
within the Sale Order were likewise within the Bankruptcy court’s core
jurisdiction. See In re Motors Liquidation Co., 428 B.R. 43, 57 (S.D.N.Y. 2010)
(citing cases and stating that “courts have characterized the injunctive
authority of bankruptcy courts as ‘core’ when the rights sought to be enforced
by injunction are based on provisions of the Bankruptcy Code, such as the
“free and clear” authority of section 363(0.9.
As for the related Motion to Enforce the Sale Order, the Bankruptcy
Judge provided numerous cogent rationales for his conclusion that it, too, was
a “core proceeding” which both (1) invoked a right under title 11 and (2) by its
nature could only arise in a bankruptcy case.
First, Judge Papalia found that the motion fell within the scope of the
core proceedings enumerated in 28 U.S.C.
§
157(b)(2)(A), (N), and (0).
(Transcript of Nov. 22, 2016 Hearing at 33:3-:9, See also Transcript of Feb. 7,
2017 Hearing at 14:14-16, 23:16-20.) I agree. Section 157(b)(2)(A) identifies
core proceedings as “matters concerning the administration of the estate”;36
subsection (N) as “orders approving the sale of property other than property
resulting from claims brought by the estate against persons who have not filed
The bankruptcy “estate,” automatically created when a bankruptcy case is filed,
includes all of a debtor’s legal or equitable interests in property as of the
commencement of the case. 11 U.S.C. § 541.
36
27
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 28 of 48 PageID: 1204
claims against the estate”; and subsection (0) as “other proceedings affecting
the liquidation of the assets of the estate or the adjustment of the debtorcreditor or the equity
security
holder relationship. except personal injury tort
or wrongful death claims,” The Sale Enforcement Order concerned estate
administration, related to an order approving the sale of property, and affected
the liquidation of the estate.
Second, Judge Papalia applied the holding of In reAllegheny. 383 F.3d at
176, and by this alternative route arrived at the conclusion that “a motion to
enforce an order approving a sale under 363W is a core proceeding.”
(Transcript of Nov. 22, 2016 Hearing at 44:24-45:7). In AlLegheny, 383 F.3d at
176, the Third Circuit held “that the bankruptcy court correctly determined
that the suit was a core proceeding because it required the court to interpret
and give effect to its previous sale orders.”37 See also (Transcript of Nov. 22,
2016 Hearing at 46:1-19); (Transcript of Feb. 7, 2017 Hearing at 14:10-: 11)
(stating that “R]he Court has jurisdiction over this matter under 28 U.S.C.
1334(b) to enforce its own orders.”). This motion to enforce required Judge
Papalia to interpret and give effect to his prior Sale Order, and was itself a core
proceeding within the meaning of Allegheny.
Third, Judge Papalia held in the alternative that a motion to enforce a
sale order is a core proceeding, either “arising in”38 or “arising under”39 the
See also In re Allegheny Health Ethic. & Research Found.. 265 B.R. 88, 100
(Bankr. W.D. Pa. 2001), subsequently affd in part. rev’d thpwz 383 F.3d 169 (3d Cir.
2004) (holding that a request to confirm or vacate a labor arbitration award that was
made within the context of an adversary proceeding brought to enforce sales orders of
the Court was a ‘core” proceeding because it was not routine and could not “have
been brought outside the confines of a bankruptcy case,” and noting that “such
request, because it is brought within the context of a proceeding to enforce sales
orders, also likely falls within the reach of 28 U.S.C. § 157(b)(2)(N) as well, making the
same a corc proceeding.”): In re Marcus Hook 943 F.2d at 267 (explaining that an
attempt to enforce a sale order is a “core” proceeding because it falls within section
157(b)(2)(N) and satisfies the Third Circuit’s two-step test).
:37
Claims that “arise in” a bankruptcy case are “claims that by their nature, not
their particular factual circumstance, could only arise in the context of a bankruptcy
case.” Stoe. 436 F.3d at 218. “Arising in” acts as the residual category of civil
proceedings. 1 Collier on Bankruptcy ¶ 3.01.
38
28
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 29 of 48 PageID: 1205
bankruptcy case, and therefore gives rise to jurisdiction under 28 U.S.C.
§
1334(b). (Transcript of Nov. 22, 2016 Hearing at 45:8-: 12) (citing In re Christ
Hosp., 502 B.R. 158, 180 n.25 (Bankr. D.N.J. 2013), affd, No. CIV.A. 14-472
ES, 2014 WL4613316 (D.N.J. Sept. 12, 2014); In reFormTechlndus., TIC, 439
B.R. 352, 357 (Bankr. D. Del. 2010)). (See alsoTranscript of Feb. 7,2017
Hearing at 24:24-25:3).
Once again. I find the reasoning correct. Prospect moved to enforce a
Sale Order issued pursuant to 11 U.S.C.
§
363—Use, sale, or lease of property.
Accordingly, the proceeding “arises under” Section 363 of the Bankruptcy
Code. See also 1 Collier on Bankruptcy 91 3.01 (stating that sales free and clear
of liens are an example of civil proceedings “arising under title 11”). In deciding
that motion, Judge Papalia was not taking over a state-law tort case; he was
enforcing his Sale Order, a matter of bankruptcy administration that arose in
and could only occur in a bankruptcy case.
Fourth, Judge Papalia found that even absent statutory jurisdiction
under 28 U.S.C.
§
1334, he would have inherent or ancillary jurisdiction to
enforce his own Sale Order. (Transcript of Feb. 7, 2017 Hearing at 46:20-47:6)
(citing In re Chateaugay Corp., 201 B.R. 48, 62 (Bankr. S.D.N.Y. 1996), affd in
part, 213 B.R. 633 (S.D.N.Y. 1997)). See also Travelers Indem. Co. v. Bailey,
557 U.S. 137, 151 (2009) (recognizing that “the Bankruptcy Court plainly had
jurisdiction to interpret and enforce its own prior orders”); In re Chateaugay
Corp.. 201 B.R. at 62 (stating that “lb)ankruptcy courts have inherent or
ancillary jurisdiction to interpret and enforce their own orders wholly
independent of the statutory grant ofjurisdiction under 28 U.S.C.
§
1334.”).
Within the Sale Order itself was a provision explicitly retaining jurisdiction to
enforce the order. (Sale Order 91 56) (stating, in part. that the Bankruptcy Court
“shall retain exclusive jurisdiction to, among other things, interpret,
“Whether a proceeding is a ‘core’ proceeding that ‘arises under’ title 11 depends
upon whether the Bankruptcy Code creates the cause of action or provides the
substantive right invoked.” Stoe, 436 F.3d at 217 (citing Halper, 164 F.3d at 836. 836—
37 n.7).
29
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 30 of 48 PageID: 1206
implement, and enforce the terms and provisions of this Order and the
Agreement”). Such enforcement was within the court’s inherent authority.
I agree with the Bankruptcy Judge’s reasoning in support of entry of the
Sale Enforcement Order. Judge Papalia reiterated his jurisdiction-related
findings at the hearing on Ms. Denunzio’s Motion for Reconsideration, and
properly denied that motion based on that reasoning. (Transcript of Feb. 7,
2017 Hearing at 23:16-24:14). For the above-mentioned reasons, the
Bankruptcy Judge properly determined both originally and on reconsideration
that he had jurisdiction to grant Prospect’s Motion to Enforce the Sale Order
and to enforce it by enjoining pursuit of the state court NJLAD action. I agree,
and affirm.
iv.
Celotex and bankruptcy court injunctions
In a related point, Ms. Denunzio argues that the Bankruptcy Judge erred
in finding that the United States Supreme Court’s decision in Celotex Corp. v.
Edwards, 514 U.S. 300 (1995), authorized the entry of an injunction under 11
U.S.C.
§
105(a).40 Unlike this case, she says, Celotex “involved a federal tort
action and issues of how the claimants’ execution on a supersedeas appeal
bond ‘related to’ the debtor corporation’s bankruptcy.” (Appellant Br. 20). I
agree that Celotex is distinguishable. Notwithstanding that distinction,
however, I find that the Bankruptcy Judge correctly held that Ms. Denunzio
was required to comply with the Sale Order and that pursuant to that Order,
she was properly barred from pursuing her NJLAD case. In short, Celotex is a
non-issue.
Section 105(a) of the Bankruptcy Code provides that “[tihe court may issue any
order, process, or judgment that is necessary or appropriate to carry out the
provisions of this title.” 11 U.S.C. § 105(a).
4°
30
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 31 of 48 PageID: 1207
In Celotex, a money judgment against Celotex was stayed pending
appeal, and the stay was secured by a supersedeas bond. Id. The Court of
Appeals affirmed, and on the same day, Celotex filed a voluntary chapter 11
petition in bankruptcy. The Bankruptcy Court issued an injunction under 11
U.S.C.
§
105(a) which “stayed all proceedings involving Celotex ‘regardless of
whether the matter is on appeal and a supersedeas bond has been posted by
[Celotex].” Id. at 303. The judgment creditors then went to federal court in
another district, and that district court granted them leave to execute against
the surety on the supersedeas bond, despite the bankruptcy court’s injunction.
Id. at 305.
The United States Supreme Court held that the bankruptcy court had
possessed jurisdiction to enjoin proceedings to execute on the bond, because
those proceedings were “at least ‘related to” Celotex’s bankruptcy within the
meaning of Sections 1334(b) and 157(a). Id. at 307, 309-10. It also held that
the judgment creditor could not collaterally attack the Bankruptcy Court’s
injunction in another district court:
We have made clear that ‘[i)t is for the court of first instance to
determine the question of the validity of the law, and until its
decision is reversed for error by orderly review, either by itself or by
a higher court, its orders based on its decision are to be respected.’
If respondents believed the Section 105 Injunction was improper,
they should have challenged it in the Bankruptcy Court, like other
similarly situated bonded judgment creditors have done. If
dissatisfied with the Bankruptcy Court’s ultimate decision,
respondents can appeal ‘to the district court for the judicial district
and then to the
in which the bankruptcy judge is sewing,’
Respondents chose
Court of Appeals for the Eleventh Circuit
not to pursue this course of action, but instead to collaterally
attack the Bankruptcy Court’s Section 105 Injunction in the
federal courts in Texas. This they cannot be permitted to do
without seriously undercutting the orderly process of the law.
.
.
.
.
.
.
Id. (internal citations omitted).
The extent to which Celotex bore on Judge Papalia’s analysis is frankly
unclear. In its Motion to Enforce the Sale Order, Prospect cited Celotex and
characterized Ms. Denunzio’s NJIAD action as “an impermissible collateral
31
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 32 of 48 PageID: 1208
attack” on the Sale Order. (Bankruptcy ECF No. 836 at 13). During oral
argument, the Bankruptcy Judge summarized Celota and later explained that
he brought up Celotex because under that case, Ms. Denunzio was required to
raise her pre-closing claims and any issues regarding her ‘ability to pursue
them before the Court that issued the injunction.” (Transcript of Nov. 22, 2016
Hearing, Bankruptcy ECF No. 874 at 29:15-: 18). In the course of ruling, the
Bankruptcy Judge stated that he relied on Celotex “for the reasons previously
stated.” (Id. at 56:14-:l6). He particularly pointed out that the judgment
creditor in Celotex, instead of participating in the bankruptcy case, had filed a
collateral motion in federal district court. (Id. at 57:2-:5).
Here we do not have the Celotex situation. Ms. Denunzio appeared in the
bankruptcy case, opposed Prospect’s motion, and attempted to persuade the
Bankruptcy Judge to limit the scope of his order. Thus the vice of a collateral
attack did not manifest itself here. In In re KaiserAlumthum Corp., the Third
Circuit distinguished Celotex on similar grounds:
Celotex involved a true collateral attack: the attack on the
injunction proceeded through the federal courts in a different
district and circuit (the Northern District of Texas and the Fifth
Circuit) from the issuing court (the Bankruptcy Court for the
Middle District of Florida). Here, while the [lawsuit filed in the
United States District Court for the Northern District of California]
is separate from the injunction’s issuing court, we are reviewing a
motion for enforcement of the injunction filed in its issuing court.
Accordingly, it is not a collateral attack because the issuing court,
not the collateral court, was asked to determine the scope of the
injunction.
Had the California District Court attempted to determine the scope
of the injunction, it would have been improper under Cetotat The
proper course of action for the California District Court would be to
stay the matter pending a ruling by the Banlcruptcy Court issuing
the injunction. See, e.g., Aqualine Assocs. L.P. v. Genesis Health
Ventures. Inc., 96 Fed. Appx. 132 (4th Cir. 2004) (unpublished).
386 F. Appx at 204 n.2.
In short, Prospect asked the Bankruptcy Court to enforce its Sale Order,
and Ms. Denunzio opposed that motion before the Bankruptcy Court. The
32
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 33 of 48 PageID: 1209
result was the Sale Enforcement Order and Reconsideration Order now under
review. Accordingly, I do not find that Celotav affects the issues here.2’
V. Section 363(f) Sale and Successor Liability Under the Code
Section 363W) of the Bankruptcy Code permits a sale of property “free
and clear” of an “interest in such property.” 11 U.S.C.
§
363(0. In particular, it
imposes five conditions, at least one of which must be satisfied for a sale free
and clear of interest to occur:
The trustee may sell property under subsection (N or Cc) of this
section free and clear of any interest in such property of an entity
other than the estate, only if—
(1) applicable nonbankruptcy law permits sale of such property
free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to
be sold is greater than the aggregate value of all liens on such
property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable
proceeding, to accept a money satisfaction of such interest.
Ms. Denunzio also points to the Third Circuit’s discussion of Celotex in
In re W.R. Grace & Co., 591 F.3d 164 (3d Cir. 2009). It is not relevant to this situation.
There, the debtor filed a motion to expand a Section 105 preliminary injunction to
include new claims against a new party in Montana state courts. 591 F.3d at 168. The
Third Circuit agreed that “related to” subject matter jurisdiction was wholly lacking:
41
If it were the case that a bankruptcy court’s jurisdiction over an
adversary proceeding was sufficient in and of itself to give it jurisdiction
the Supreme Court’s entire analysis of relatedto enjoin third parties
to jurisdiction in Celotex would have been superfluous. Clearly it was
not. The Supreme Court undertook the analysis it did because a
bankruptcy court may not enjoin proceedings between third parties
unless those proceedings wise in or under or are related to the
underlying bankruptcy.
Id. at 175 (footnote omitted). Here, for the reasons stated above, the enforcement of
the Sale Order did arise in and under the bankruptcy case. “Related to” jurisdiction
over strangers to the bankruptcy case was not at issue.
.
.
.
33
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 34 of 48 PageID: 1210
Id. Here, the Sale Order provides, in part, that “[t]he conditions of Section
363(0 of the Bankruptcy Code have been satisfied in full; therefore, the Debtors
may sell the Purchased Assets free and clear of any interest in such property[.]”
[Sale Order 9115). It also permanently enjoins all “litigation claimants,
employees and former employees” who were “holding Claims and Interests
against the Debtors of the Purchased Assets arising under or out of, in
connection with, or in any way relating to, the Assets or the transfer of the
Assets to Buyer”
from asserting any Claims and Interests relating to the Assets or
the transfer of the Assets against Buyer and its Affiliates,
successors, designees. assigns, or property or the Assets including,
without limitation taking any of the following actions with respect
to or based on any Interest or Claim relating to the Assets or the
transfer of the Assets (other than Assumed Liabilities): (a)
commencing or continuing in any manner any action or other
proceeding against Buyer, its Affiliates, successors or assigns,
assets or properties
.
.
*
(Id. at 91 38).
In addressing the merits of Prospect’s Motion to Enforce the Sale Order
and ultimately granting it. the Bankruptcy Judge ruled as follows: The court,
he said, “has jurisdiction, had jurisdiction to enter the injunction, the sale
order with the injunction and now has jurisdiction to enforce it and the
enforcement extends to the claims made by the plaintiff in this case based on
activity that was undisputably prepetition and pre-closing.” (Transcript of Nov.
22, 2016 Hearing at 54:3-:8). In so ruling, the Bankruptcy Judge relied in part
on the Third Circuit’s “analogous and controlling” decision in In re Trans World
Airlines, Inc. (“TWA”), 322 F.3d 283 (3d Cir. 2003). (Id. at 47:13-: 15).
On appeal, Ms. Denunzio asserts that the Judge erred in relying on In re
TWA because that case 1) did not involve the NJLAD and 2) “arose from Ithat
plaintiffsj federal employment discrimination claims against bankruptcy debtor
TWA.” Ms. DeNunzio, by contrast, “asserted no claims against the bankruptcy
debtor.” (Appellant Br. at 18-19). These distinctions, I find, do not make a
difference.
34
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 35 of 48 PageID: 1211
In TWA, the Third Circuit considered whether a sale under 11 U.S.C.
§
363W precluded the purchaser’s liability for discrimination claims stemming
from the debtors’ conduct before the sale. In that case, the Bankruptcy court
had entered an Order approving the sale of Trans World Airlines (“TWA”) to
American Airlines (“American”). 322 F.3d at 286. That sale order extinguished
the liability of American, as successor to TWA, for 1) employment
discrimination claims against TWA, and 2) a Travel Voucher Program, both of
which existed prior to TWA’s filing in Chapter 1142 and the sale to American.
Id. at 285-86. In particular, pursuant to a class action settlement with female
flight attendants who had alleged sex discrimination in violation of Title VII of
the Civil Rights Act of 1964, TWA had issued travel vouchers to eligible class
members. Id. at 285. Additionally, as of March 2, 2001, twenty-nine charges of
discrimination had been filed against TWA with the Equal Employment
Opportunity Commission (EEOC) and state or local agencies, alleging violations
of numerous federal employment discrimination statutes. Id. at 285—86.
The EEOC and the flight attendant/voucher holders objected to the sale,
but the court approved the Sale Order. Id. It “determined that there was no
basis for successor liability on the part of American and that the flight
attendants’ claims could be treated as unsecured claims.” Id. Accordingly,
the Sale Order “extinguished successor liability on the part of American,” and
“enjoined all persons from seeking to enforce successor liability claims against
American.” Id. at 287.
TWA and American had pre-petition dealings regarding the potential
acquisition. “Throughout 2000, ThVA held intermittent discussions with American
concerning the possibility of a strategic partnership. On January 3, 2001, American
contacted TWA with a proposal to purchase substantially all of TWA’s assets. On
January 9, 2001, American agreed to a purchase pian subject to an auction and
Bankruptcy Court approval.” In re TWA, 322 F.3d at 286.
42
Here, the Bankruptcy Court emphasized that in TWA, similar to the case at
hand, there were “pre-petition dealings between TWA and American Airlines” as to “the
potential acquisition,” and those dealings “resulted in an asset sale that was
consummated through the bankruptcy court.” (Transcript of Nov. 22, 2016 Hearing at
47:24-48:4. See also Transcript of Feb. 7, 2017 Hearing at 32:10-:21.)
35
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 36 of 48 PageID: 1212
Affirming, the Third Circuit held that “Iblecause section 363W of the
Bankruptcy Code permits a sale of property ‘free and clear’ of an ‘interest in
such property’ and because the claims against TWA here were connected to or
arise from the assets sold, we affirm the Bankruptcy Court’s order approving
the sale ‘free and clear’ of successor liability.” Id. at 285.
The first component of the TWA decision was the conclusion that the
claims in that case constituted an “interest in
...
property” within the meaning
of Section 363W:
Here the Airlines correctly assert that the Travel Voucher and
EEOC claims at issue had the same relationship to ‘RVA’s assets in
the § 363W) sale, as the employee benefits did to the debtors’ assets
in un re Leckie Smokeless Coal Co., 99 F.3d 573 (4th Cir. 1996)1. In
each case it was the assets of the debtor which gave rise to the
claims. Had TWA not invested in airline assets, which required the
employment of the EEOC claimants, those successor liability
claims would not have arisen. Furthermore, TWA’s investment in
commercial aviation is inextricably linked to its employment of the
Knox-Schillinger claimants as flight attendants, and its ability to
distribute travel vouchers as part of the settlement agreement.
While the interests of the EEOC and the Knox-Schillinger class in
the assets of TWA’s bankruptcy estate are not interests in property
in the sense that they are not in rem interests, the reasoning of
Leckie and [Folger Adam Sec., Inc. v. DeMatteis/MacGregor, JV, 209
F.3d 252 (3d Cir. 2000)1 suggests that they are interests in
property within the meaning of section 363(1) in the sense that they
arise from the property being sold.
Indeed, to equate interests in property with only in rem interests
such as liens would be inconsistent with section 363(0(3), which
contemplates that a lien is but one type of interest.
Id. at 289—90.
The second component of the TWA decision was the conclusion that the
voucher and EEOC claims were within the scope of the fifth requirement of
Section 363(0—Le., that the airline “could be compelled, in a legal or equitable
proceeding, to accept a money satisfaction of such interest.” 11 U.S.C.
§
363(0(5). The Court agreed with the Bankruptcy Court’s finding that both the
36
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 37 of 48 PageID: 1213
EEOC claims and the travel voucher program were subject to monetary
valuation. 322 F.3d at 291.
Third, the Third Circuit evaluated “other considerations.” [ci. at 291-93. It
stated that “[ejven were we to conclude that the claims at issue are not
interests in property, the priority scheme of the Bankruptcy Code supports the
transfer of TWA’s assets free and clear of the claims”:
We recognize that the claims of the EEOC and the knox-Schillinger
class of plaintiffs are based on congressional enactments
addressing employment discrimination and are, therefore, not to
be extinguished absent a compelling justification. At the same
time, in the context of a bankruptcy, these claims are, by their
nature, general unsecured claims and, as such, are accorded low
priority. To allow the claimants to assert successor liability claims
against American while limiting other creditors’ recourse to the
proceeds of the asset sale would be inconsistent with the
Bankruptcy Code’s priority scheme.
Moreover, the sale of TWA’s assets to American at a time when
TWA was in financial distress was likely facilitated by American
obtaining title to the assets free and clear of these civil rights
claims.
Id. at 292-93. The Third Circuit affirmed the Bankruptcy Court’s
authorization of the sale of TWA’s assets to American free and clear of
the voucher and EEOC claims. Id. at 293.
Ms. Denunzio points out that in TWA, the discrimination claims were
originally filed against the bankruptcy debtor, whereas her NJLAD claims were
filed against the purchaser, Prospect. To the extent our case is distinguishable,
it is afortiorL The whole point of TWA is that such later assertions of
purchaser/successor liability may be barred by a sale order.43
Ms. Denunzio also cites footnote 4 of In re ThVA. in which, she says. the Third
Circuit explained that “successor liability might have attached to American through
the application of employment discrimination laws.” (Appellant Br. 19). Ms. Denunzio’s
characterization of the footnote is not accurate. The Court declined to address whether
there was a basis for successor liability under nonbankruptcy law, but assumed
arguendo that it existed. In re TWA, 322 F.3d at 286 n.4.
37
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 38 of 48 PageID: 1214
Fourth, and finally, the Bankruptcy Court adopted the TWA Court’s
policy-related rationale that where the court has worked out a comprehensive
plan and sale for the benefit of creditors, individual unsecured creditors cannot
be permitted to sit out the process and then seek 100 cents on the dollar from
the asset purchaser:
[Niot only was that highest and best offer made, there was
competitive bidding.
which resulted in 4.5 million being
separately set aside for unsecured creditors and as noted in the
disclosure statement will result in a substantial dividend to
unsecured creditors in this case.
.
.
(Transcript of Nov. 22, 2016 Hearing at 50:15-:21). Noting that Ms. Denunzio
had opted to forgo recovery from the estate, the Court appropriately held her to
that choice:
Having made those choices, plaintiff is not now allowed to upset
the fully noticed, the amply noticed and carefully structured sale
process after the fact, as that would allow her, and allowing her to
do so would have the direct result that the TWA Court was
concerned about and addressed in its decision and as noted above,
in chilling the sale process limiting or eliminating recoveries to
creditors and eliminating jobs.
(Id. at 53:20-54:2) (emphasis added). Successor liability under these
circumstances, then, would not merely be unauthorized; it would be
inequitable and contrary to the purposes of the bankruptcy laws.
VI.
Successor Liability under New Jersey law
Ms. Denunzio contends that the Bankruptcy Judge failed to consider
New Jersey case law governing her NJLAD claims against the non-debtor
Prospect. (Appellant Br. 20-22). She maintains that New Jersey’s successor
liability doctrine authorizes tort damages against purchaser/successors like
Prospect. (Id. at 21) (citing Lefever v. K.P. Hovnanian Enterprises, Inc., 160 N.J.
307 (1999)). The Judge, says Ms. Denunzio, “erroneously marginalized and
failed to address Lefeverby citing to only its dissent.” (Id. at 22, 27). Ms.
Denunzio’s reliance on the New Jersey Supreme Court’s 4-3 decision in Lefever
is misguided; the Bankruptcy Judge correctly ruled that Lefever presented a
38
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 39 of 48 PageID: 1215
different issue, and that, in any event, its holding does not survive the laterdecided TWA case.
In Lefever, the Court considered the product-line exception to the general
rule of corporate-successor liability. Under New Jersey law, an acquiring
company is generally not liable for the liabilities of the seller, with certain
exceptions.44 One such exception is the so-called “product-line exception.”
Under that exception, “by purchasing a substantial part of the manufacturer’s
assets and continuing to market goods in the same product line, a corporation
may be exposed to strict liability in tort for defects in the predecessor’s
products.” Id. at 310.
The majority in Lefever held that the product-line exception could apply
to impose strict product liability for injuries cause by a defective forklift, even
where the successor had purchased the predecessor’s assets at a bankruptcy
sale. For purposes of a Section 363W) sale, the majority concluded, the tort
claim would be a mere right to payment, not an “interest in property.” See 11
U.S.C.
§
363ffl(1). For purposes of a Chapter 11 reorganization, the majority
held, the claim would be barred only as to property that was “dealt with” by the
plan. Id. at 317-18 (citing 11 U.S.C.
§
1141(c)). This was not such a claim, the
court held, because, inter alia, the plaintiff was not a creditor of the bankrupt,
and he filed no claim. Id. at 320—2 1. Adding to its analysis the consideration of
44
Traditionally, there have been only four exceptions:
(1) the successor expressly or impliedly assumes the predecessor’s
liabilities; (2) there is an actual or defacto consolidation or merger of the
seller and the purchaser; (3) the purchasing company is a mere
continuation of the seller; or (4) the transaction is entered into
fraudulently to escape liability.
160 N.J. at 310 (citing 15 William & Fletcher, Cyclopedia of the Law of Corporations §
7122, nn. 9—15 (1990)). In her state-court NJLAD action, Ms. Denunzio sought to
establish Prospect’s liability based on a “mere continuation” theory. Neither that nor
any other successor liability theory will apply. however, if the bar of the Sale Order is
effective.
Appellee Prospect correctly notes that the Lefever Court’s 1999 interpretation of
Section 363(1) is inconsistent with more recent federal case law. (Appellees Br. 27). See
TWA, 322 F.3d at 290. See Section V., supra. discussing TWA.
39
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 40 of 48 PageID: 1216
the policies underlying the product-line exception, the four-member majority
held that successor liability would apply.
Justice Stewart Pollock, joined by two others, dissented. True, he wrote,
the plan had not “dealt with” the plaintiffs tort claim, but that was only
because the duly-notified plaintiff “decided not to file a claim.” Id. at 328, 330.
The Court, he wrote, could not validly weigh the policies underlying stale law
without also considering the policies of the bankruptcy laws and the powers of
the bankruptcy court:
To impose successor liability would frustrate ‘the orderly scheme of
the bankruptcy law by allowing some unsecured creditors to
recover without regard to the priority order of the bankruptcy
proceedings.’ A bankruptcy courts authority to sell assets free and
clear of existing tort claims is ‘implicit in the court’s general
equitable powers and its duty to distribute debtor’s assets.’ The
effect of subjecting the successor to the risk of liability is to
diminish the value of the assets to the extent of the cost of that
risk. That diminution in value will redound to the detriment of all
other creditors who seek to participate in the distribution of the
bankruptcy estate. Permitting a tort claimant to pursue a
successor after a bankruptcy sale would grant that claimant a
priority over other claimants who were paid in accordance with the
Bankruptcy Code and would produce a negative impact on the
trustee’s ability to sell assets of the estate at a fair price. Those
considerations should tip the scale back toward the general rule of
not imposing liability on a successor when a claimant has been
injured before the bankruptcy proceedings and provided with
notice and the opportunity to participate in the proceedings.
Id. at 330—31 (Pollock, J., dissenting) (internal citations omitted).
Justice Pollock’s view, as it turned out, prevailed when it came time for
the Third Circuit to consider the issue. As recognized by the Judge Papalia, the
Third Circuit’s binding decision in TWA expressly rejected the legal premise of
the IEfever majority’s analysis of section 363ffl: that the term interest” did not
encompass a mere right to payment. Rather, Justice Pollock’s dissent
“effectively anticipated the Third Circuit’s ruling in ThVA” that it did. (Transcript
of Feb. 7, 2017 Hearing at 33:18—:19). Ms. Denunzio’s claim, which arose pre
petition, was indeed an “interest” in property within the meaning of Section
40
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 41 of 48 PageID: 1217
363(0. In addition, the Bankruptcy Court did indeed “deal with” Ms. Denunzio’s
claim in Justice Pollock’s sense that it would have done so but for her decision
not to pursue it. Ms. Denunzio was a contingent creditor of the Hospital. Both
she and her counsel received numerous notices, including notice of the
deadline for filing a proof of claim, but no proof of claim was ever filed. She
asserts that her claim is against non-debtor Prospect, rather than debtor East
Orange Hospital, but that formulation simply begs the antecedent question of
whether the Sale order could legitimately cut off Prospect’s successor liability.
At oral argument for Prospect’s motion to enforce the Sale Order, the
Bankruptcy Judge succinctly rejected that argument:
was
LA]lthough the assertion is that the purchaser Prospect
assets and decisions at the
essentially in control of the debtor’s
time of the firing, and the plaintiff did not name the debtor in the
law suit, there is no question that the sale had not yet closed. The
asset, purchase agreement had not been, and not yet closed and
the bankruptcy petition had not yet been filed at the time that
plaintiff was terminated on August 19th, 2015. So there was, at
the vet-v least, there was debtor involvement in that event and
certainly in the normal instance, that debtor would have at least
been named as a party in these types of claims.
.
.
.
(Transcript of Nov. 22, 2016 Hearing at 49:25-50:10). See also (Id. at 40:8—:1 1)
(stating that “certainly whether she filed a proof of claim or not, Ms. DeNunzio
is the holder or was the holder of a claim against the debtors as she was
terminated while the debtors were her employer and prior to the time of the
closing of the sale.”). On reconsideration, the Judge was even more to-thepoint: to the argument that Denunzio had no claim against EOGH, he replied,
“She does have a claim. She just didn’t assert it,” (Transcript of Feb. 7, 2017
Hearing at 6:6 to
:7).46
In a related argument, Ms. Denunzio asserts that the Bankruptcy Judge
“misapplied the irrelevant notice issue” of In re Christ Hosp., 502 B.R. 158, 170
(Bankr. D.N.J. 2013), afl’d, No. CW.A. 14-472 ES, 2014 WL 4613316 (D.N.J. Sept. 12,
2014). I am not persuaded. The Bankruptcy Court appropriately observed that “given
adequate notice(,j failure to object to a 363 sale has been found to constitute consent
per 362, 363(fl(2) to a free and clear sale of the nonobjector’s interest in property being
sold.” (Transcript of Nov. 22, 2016 Hearing at 49:14-:18) (quoting In re Christ Hosp..
46
41
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 42 of 48 PageID: 1218
In sum, Ms. Denunzio mistakenly claims that the “product line” question
in Lefever controls the issues in this case, and also fails to grapple with the
Third Circuit’s contrary interpretation of section 363(1) in TWA. (Transcript of
Nov. 22, 2016 Hearing, Bankruptcy ECF No. 874 at 14:9-: 10). Even if
successor liability would theoretically have attached as a matter of state law,
we never got to that issue. Under 714/A, “the claims are barred or enjoined
pursuant to the sale order.” (Id. at 27:16-: 17). It is of course true, as Denunzio
says, that on the motion for reconsideration the Judge placed emphasis on the
dissent, not the holding, of Lefever. (Transcript of Feb. 7. 2017 Hearing,
Bankruptcy ECF No. 920 at 32:3-36:10). That was proper because, as it turned
out, TWA adopted the view of the law stated in Justice Pollock’s dissent, and
rejected the majority’s view. The Third Circuits later interpretation of federal
bankruptcy law in TWA of course binds this Court, just as it bound the
Bankruptcy Court, which therefore did not en in its rejection of Lefever.47
Successor liability under the substantive law of New Jersey, to the extent it
could apply, does not apply because it was validly cut off by the Sale Order.
VII.
Mandatory Abstention
Ms. Denunzio asserts that the Bankruptcy Court erred in rejecting her
argument that the mandaton’ abstention doctrine barred the Bankruptcy
Court from enjoining the state action. (Appellant Br. 31). 1 disagree.
502 B.R. at 174). Ms. Denunzio’s inaction was an appropriate factor to consider,
notwithstanding the superficial difference that she bypassed the process for asserting
a claim in bankruptcy, waited for the sale to go through. and filed her claim against
the successor.
Ms. Denunzio’s brief places the cart before the horse, analyzing the merits of
successor liability as if the Sale Order did not exist. (Appellant Br. at 28-3 1). Like the
Bankruptcy Court, I consider the issue to be “not the underlying merits of the state
action, but whether the state court action can proceed at all in light of the sale order
and whether the enforcement and interpretation of the sale order is a core proceeding
over which this court has plenary jurisdiction.” (Transcript of Feb. 7, 2017 Hearing at
22:22-23:2).
47
42
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 43 of 48 PageID: 1219
Mandatory abstention48 is governed by Title 28, United States Code,
Section 1334(c)(2):
Upon timely motion of a party in a proceeding based upon a
State law claim or State law cause of action, related to a case
under title 11 but not arising under title 11 or arising in a case
under title 11, with respect to which an action could not have
been commenced in a court of the United States absent
jurisdiction under this section, the district court shall abstain
from hearing such proceeding if an action is commenced, and
can be timely adjudicated, in a State forum of appropriate
jurisdiction.
28 U.S.C. § 1334(c)(2). The Third Circuit in Sloe broke down the requirements
of mandaton’ abstention as follows:
[U]pon a timely motion under § 1334(c)(2), a district court must
abstain if the following five requirements are met: (1) the
proceeding is based on a state law claim or cause of action; (2) the
claim or cause of action is “related to” a case under title 11, but
does not “arise under” title 11 and does not “arise in” a case under
title 11, (3) federal courts would not have jurisdiction over the
claim but for its relation to a bankruptcy case; (4) an action “is
commenced” in a state forum of appropriate jurisdiction; and (5)
the action can be “timely adjudicated” in a state forum of
appropriate jurisdiction.
436 F.3d at 213 (emphasis in original). Notably, given that mandatory
abstention applies only to civil proceedings that are “related to a case under
title 1 1,” i.e., non-core proceedings, “[mlandatoiy abstention does not apply
where the proceeding is ‘core.” In re Midstate Mortg. Inv’rs, Inc., 105 F. App’x
420, 422 (3d Cir. 2004) (citing In re Donthgton, 194 B.R. 750, 757 (D.N.J.
1996)).9 Because, as I held in Section IV.iii, supro the Sale Order enforcement
Permissive abstention, which is not at issue in this case, is governed by Section
1334(c)(l) of Title 28. See 28 U.S.C. § 1334(c)(1).
See Stoe, 436 F.3d at 217 (stating that “[t]he question presented here is whether
[Plaintiffs] claim ‘arises under’ title 11. ‘arises in’ a bankruptcy case, or is merely
‘related to’ a bankruptcy case. This is equivalent to the question whether [Plaintiffs]
claim is a ‘core’ proceeding or a ‘non-core’ proceeding within the meaning of 28 U.S.C.
§ 157.”); In reExide, 544 F.3d at 206 (“Whether claims are considered core or non-core
proceedings dictates not only the bankruptcy court’s role and powers but also the
availability of mandatory abstention
). See also 1 Collier on Bankruptcy ¶ 3.05
48
43
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 44 of 48 PageID: 1220
proceeding was a “core” proceeding, mandatory abstention is inapplicable.
Nevertheless, for the sake of completeness, I will briefly address Ms. Denunzio’s
abstention arguments.
On her motion for reconsideration, Ms. Denunzio argued that the
Bankruptcy Court’s decision granting Prospect’s Motion to Enforce the Sale
Order was erroneous because, inter aUa, her NJLAD claims were subject to
mandatory abstention. (Transcript of Feb. 7, 2017 Hearing at 19: 18-:23). See
(Bankruptcy ECF No. 87 1-1). The Bankruptcy Judge concluded that Ms.
Denunzio did not satisfy her initial burden for reconsideration under Federal
Rule of Bankruptcy Procedure 9024 or Federal Rule of Civil Procedure 60(b).°
(Transcript of Feb. 7. 2017 Hearing at 2 1:1-22:9). He nevertheless addressed
the merits of the motion. (Id. at 22:9-23:2).
(recognizing that ‘Section 1334(c)(2) applies only to civil proceedings that are “related
to a case under title 11,” not those that arise under title 11 or arise in a case under
title 11.”).
Federal Rule of Bankruptcy Procedure 9024 incorporates, with certain
exceptions, Rule 60 of the Federal Rules of Civil Procedure. See 10 Collier on
Bankruptcy 919024.01(16th ed.). Ms. Denunzio sought relief under Federal Rule of
CMI Procedure 60(b)(1), or in the alternative. 60(b)(6). (Bankruptcy ECF No. 871-1 at
3). See Fed. R. Civ. P. 60(b)(1) (“mistake, inadvertence, surprise. or excusable neglect”);
itt 60(b)(6) (“any other reason that justifies relier).
Ms. Denunzio did not originally invoke abstention, but raised it for the first time
in her Motion for Reconsideration. See (Bankruptcy ECF No. 87 1-1 at 4). She
explained that mandatory abstention was not raised before because “there was no
jurisdiction that was asserted by any federal court over Ms. DeNunzio’s case until
November 23rt1,” when the Bankruptcy Court held a hearing and issued an Order on
Prospect’s Motion to Enforce the Sale Order, (Transcript of Feb. 7. 2017 Hearing at
1 1:12-:14). The Bankruptcy Judge stated that although he “disagreeld] with that
argument,” he would nevertheless address the merits of the mandatory abstention
argument. (Id. at 25:21-23).
Recognizing the barriers to reconsideration, I nevertheless give plenary review to
the Bankruptcy Court’s interpretation the law. “The decision to deny a Motion for
Reconsideration is within the discretion of the District Court. but ‘if the court’s denial
was based upon the interpretation and application of a legal precept. review is
plenary.” Le v. Univ. of Pa., 321 F.3d 403, 405—06 (3d Cir. 2003)(quoting Koshatka v.
Philadelphia Newspapers. Inc., 762 F.2d 329, 333 (3d Cir. 1985)).
44
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 45 of 48 PageID: 1221
In addressing mandatory abstention and Ms. Denunzio’s reliance on
Stoc, Judge Paplia made the general observation that Denunzio’s argument was
based on her continuing misapprehension of the issue before the court:
That issue is not the adjudication of the state law claims, but the
enforcement of the January 21st. 2016 sale order over which this
court has core jurisdiction. It is not based on the adjudication or
any finding as to the state law claims.
(Id. at 26:22-27:4). Judge Papalia then considered the five requirements of
mandatory abstention and found that the first three were not satisfied. (Id. at
27:12-28:10). As to the first requirement, the Judge found that the proceeding
was not “based on a state law claim or cause of action.” (Id. at 27:15-: 16).
Rather, the proceeding was one to enforce a
§
363 Sale Order, which is a “core”
bankruptcy proceeding. (Id. at 27:16-: 18). As to the second requirement, he
pointed out that mandatory abstention applies only to “related to” cases. (Id. at
27:19-:21). This Sale order enforcement proceeding, however, is not merely
“related to” the bankruptcy case; “it is a matter that arises under and arises in
a case under Title 11.” (Id. at 27:21-:24). Finally, as to the third requirement,
he noted that the
§
363 sale motion was one that could only be brought in
banlcruptcy court. (Id. at 28:1-:3). Because all five requirements must be met,
the Bankruptcy Judge concluded that mandatory abstention did not apply. (Id.
at 36:11-: 13).
On appeal, Ms. Denunzio primarily relies on Stoe, 436 F.3d at 209, but
the case is distinguishable. There, the Third Circuit addressed mandatory
abstention in the context of an action for unpaid wages under Pennsylvania
law. 436 F.3d at 209. The Stoc plaintiff brought suit in state court against
former and current officers of his previous employer, but did not sue the
employer itself, which was shielded by its bankruptcy filing under Chapter 11.
The defendants removed the case to federal district court pursuant to 28
U.S.C. § 1452(a). The district court held, inter alia. that mandaton abstention
did not apply.
45
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 46 of 48 PageID: 1222
On appeal, the United States Court of Appeals for the Third Circuit
considered the mandatory abstention question.51 It applied the five mandatory
abstention requirements, finding that plaintiff had satisfied the first four but
remanding for consideration of the fifth. Id. at 213-20.
Ms. Denunzio argues that her case, like the one in Stoe, meets the first
requirement of being “based on a state law claim or cause of action.” Stoe, 436
F.3d at 213. But Judge Papalia was not, as in Stoc, considering a state law
case removed from state court. Rather, he was enforcing a sale order entered in
the bankruptcy case. (Conversely, Stoc was not considering the effect of a freeand-clear sale order.)
As to the second requirement, Ms. Denunzio maintains that her state-law
NJLAD case, like the action for back wages in Stoe, was “related to” the
bankruptcy case.52 (Id. at 33, 36-39). Once again, the argument is beside the
point. The proceeding before the Bankruptcy Court was not the state-court
NJLAD action. It was Prospect’s motion to enforce the
§
363(0 Sale Order, a
core proceeding not just related to, but actually arising in, the bankruptcy
case.53
The Third Circuit also considered the preliminary issue of whether mandatory
abstention could apply to a removed case, disagreeing with the district court and
concluding that it could. Id. at 216. Section 1452(a) of title 28 permits the removal of
claims and causes of action pending in state or another federal court to the district
court. 28 U.S.C. § 1452(a). This removal provision applies to “related to” cases,
“arising in” cases, and “arising under” cases. The mandatory abstention provision of §
1334(c)(2) only applies to “related to” cases. See SLoe, 436 F.3d at 215. Compare 28
U.S.C. § 1452 (governing removal and remand for all claims for which there is
jurisdiction under § 1334) with 28 U.S.C. § 1334(c)(2) (stating explicitly that
mandatory abstention only applies in “related to” cases). Still, as to “related to” cases,
the two overlap; thus it cannot be said that no removed case is sub)ect to mandatory
abstention.
51
This actually represents a concession arguendo: “For purposes of this issue
only, and pursuant to 28 U.S.C. § 1334(c)(2), we utilize the Bankruptcy Court’s
November 22, 2016 ‘related to’ conclusion to demonstrate why mandatory abstention
applies. We do not otherwise concede that ‘related to’ jurisdiction exists.” (Appellant
Br. 33 n.3).
52
See Transcript of Feb. 7, 2017 Hearing at 7:14-: 15 (stating that the proceeding
was “based on the sale order, a bankruptcy order that was entered.”).
46
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 47 of 48 PageID: 1223
Assuming the mandatory abstention doctrine applied at all to this core
proceeding, at least two of its critical requirements were not met. I affirm the
Bankruptcy Court and find that the mandatory abstention provision was
inapplicable.54
VIII. Conclusion
For the reasons stated above, the Bankruptcy Court’s Sale Enforcement
Order and Reconsideration Order are affirmed. An appropriate order follows.
Dated: June 27, 2018
K yin MeNulty
United States Distri t Judg
One issue, not raised by the parties, remains. The Bankruptcy Court’s
reasoning, which I have upheld. deals with successor liability—l.a. any liability that
the purchaser, Prospect, might have taken on by virtue of the purchase. As stated
above, it was entirely proper for the Bankruptcy Court to enjoin Denunzio from
pursuing her NJLAD claim against Prospect qua purchaser/successor.
54
The state court complaint, however, asserts a second theory of liability.
Prospect, It says, exercised defacto authority at East Orange General Hospital even
before the sale took place, and in that role was somehow directly responsible for
Denunzio’s dismissal. (See p. 12, supra) Such a claim—based strictly on ProspecVs
own actions, as opposed to its liability as successor-by-purchase to East Orange
General Hospital—might conceivably be pursued without impinging on the legitimate
scope of the Sale Order and Sale Enforcement Order. That issue was not presented to
the Bankruptcy Judge, however, and is not pressed on this appeal. At most, Denunzio
referred in passing to the relevant allegation in her state-court complaint.
I express no view, of course, on the merits. At the time of the dismissal. East
Orange General Hospital was Denunzio’s employer, and it had not yet been sold to
Prospect (although an abortive, first asset purchase agreement was pending, see pp.
2—3, supra). Thus to demonstrate that Prospect was directly responsible for Denunzio’s
allegedly discriminatory dismissal might not be possible. The narrow issue to which I
refer here, however, is whether such a claim, whatever its plausibility, might
legitimately be excepted from the scope of the litigation bar in the Sale Enforcement
Order. Any suggested clarification or modification of the injunction against litigation
should be presented to the Bankruptcy Judge in the first instance.
47
Case 2:17-cv-01595-KM Document 9 Filed 06/28/18 Page 48 of 48 PageID: 1224
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?