NATIONAL MEDICAL IMAGING, LLC et al v. U.S. BANK, N.A. et al

Filing 13

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE CYNTHIA M. RUFE ON 7/12/17. 7/12/17 ENTERED AND COPIES E-MAILED.(ti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
__________________________________________
:
NATIONAL MEDICAL IMAGING, LLC, et al., :
Plaintiffs,
:
v.
:
CIVIL ACTION NO.
:
16-5044
:
U.S. BANK, N.A., et al.,
:
Defendants.
:
__________________________________________:

MEMORANDUM OPINION
RUFE, J.

July 12, 2017

As compared to the thorny history underlying this case, the issue before the Court is
simple: have Plaintiffs adequately alleged that Defendant Ashland, LLC filed involuntary
bankruptcy petitions against them in bad faith pursuant to 11 U.S.C. § 303(i)(2)? 1 Plaintiffs
National Medical Imaging, LLC and National Medical Imaging Holding Company, LLC
(together, “NMI”) seek to hold ten defendants jointly and severally liable. 2 For the reasons
discussed below, the Court will deny Defendant Ashland Funding, LLC’s motion to dismiss
Plaintiffs’ Amended Complaint. 3

1

11 U.S.C. § 303(i)(2) provides that when a bankruptcy court dismisses an involuntary bankruptcy petition the court
may grant judgment “against any petitioner that filed the petition in bad faith, for—(A) any damages proximately
caused by such filing; or (B) punitive damages.”

2

Defendants U.S. Bank, Lyon Financial Services, Jane Fox (Director of Operations for Lyon), DVI Funding, DVI
Receivables XIV, DVI Receivables XVI, DVI Receivables XVII, DVI Receivables XVIII, and DVI Receivables
XIX filed an answer to the complaint, and Defendant Ashland Funding, LLC filed a motion to dismiss.
3
The Court previously granted NMI’s Motion to Withdraw the References from the Bankruptcy Court as to their §
303(i)(2) damages claims, and this action followed. Plaintiffs have filed a parallel action in Bankruptcy Court for
the Eastern District of Pennsylvania, seeking attorneys’ fees and costs under § 303(i)(1).

FACTUAL AND PROCEDURAL HISTORY 4

I.

The parties in this bankruptcy case are familiar foes, having spent over a decade litigating
the aftermath of a complex securitization transaction. In 2000, Plaintiffs were affiliated with
certain limited partnerships (the “NMI LPs”) that operated diagnostic imaging centers. The NMI
LPs entered into master leases and equipment schedules (the “Master Leases”) with DVI
Financial Services, Inc. (“DVI Financial”) to finance the purchase of medical diagnostic
equipment. The leases were secured by a limited guaranty executed by Maury Rosenberg, the
managing member of NMI, and an additional guaranty by NMI.
DVI Financial then transferred some of the Master Leases to DVI Funding, LLC, which
held them directly, and the remainder were securitized and assigned to the DVI Receivables
corporations. At the same time, DVI Funding entered into indentures with U.S. Bank, acting as
trustee of the transaction, under which notes were issued to investors with the Master Leases
serving as collateral. DVI Financial was appointed as servicer for the trustee, U.S. Bank, but
after filing for bankruptcy in 2003, DVI Financial transferred its rights as servicer to Lyon
Financial Services, a subsidiary of U.S. Bank.
A.

The First Round of Litigation and the Settlement Agreement

In December 2003, U.S. Bank Portfolio Services, a Lyon subsidiary, filed lawsuits
against the NMI LPs, NMI, and Rosenberg in Pennsylvania state court, alleging that the NMI
LPs had defaulted on their Master Lease obligations. Several of the DVI entities then filed
involuntary Chapter 11 bankruptcy petitions against NMI. On August 12, 2005, Rosenberg,
NMI, the NMI LPs, and Lyon entered into a comprehensive Settlement Agreement to resolve
these disputes. Pursuant to the Settlement Agreement, the involuntary bankruptcy petitions were
4

The following background is drawn from the Court’s September 1, 2016 Opinion granting Plaintiffs’ Motion to
Withdraw the References from the Bankruptcy Court as to their § 303(i)(2) damages claims.

2

dismissed, and Lyon agreed to restructure the repayment obligations of the NMI LPs under the
Master Leases and to release NMI from all claims except those arising under the Settlement
Agreement. In return, Rosenberg and NMI executed new guaranties of repayment and
confessions of judgment in favor of Lyon. On March 2, 2007, DVI Funding sold all of its
interests in the Master Leases to Defendant Ashland Funding, LLC (“Ashland”).
B.

Round Two: Judgment is Confessed, the Involuntary Petitions are Filed, and
the Rosenberg Bankruptcy is Adjudicated in Florida

In March 2008, Lyon notified NMI and Rosenberg that the NMI LPs had defaulted on
their repayment obligations under the Settlement Agreement, and in July 2008, Lyon filed a
confession of judgment against Rosenberg and NMI in Pennsylvania state court. In November
2008, DVI Funding, despite having no remaining interest in the Master Leases, together with
five other DVI entities, filed involuntary bankruptcy petitions against NMI and Rosenberg in the
United States Bankruptcy Court for the Eastern District of Pennsylvania. Rosenberg moved to
dismiss the involuntary petitions against him and to transfer venue to the United States
Bankruptcy Court for the Southern District of Florida, where he resides. The Rosenberg
bankruptcy proceedings were transferred to that district.
Following the transfer of venue, and while Rosenberg’s motion to dismiss the involuntary
petition was still pending, the petitioners filed a second amended petition which substituted
Ashland in place of DVI Funding. Rosenberg moved to strike the second amended petition as
improperly filed without leave of court. After a hearing on Rosenberg’s motion to dismiss the
amended involuntary petition, the Florida Bankruptcy Court issued a memorandum opinion and
order dismissing the amended involuntary bankruptcy petition against Rosenberg (“Rosenberg
I”). 5 In light of this decision, the court dismissed as moot the motion to strike the second
5

In re Rosenberg, 414 B.R. 826 (Bankr. S.D. Fla. 2009).

3

amended petition. 6 The Florida Bankruptcy Court reached five alternative holdings: (1) there
was no guaranty in favor of the DVI entities or Ashland, and therefore they were not creditors of
Rosenberg; (2) the DVI entities and Ashland were not the real parties in interest; (3) the DVI
entities were judicially estopped from filing the involuntary bankruptcy petitions because Lyon
had claimed that the Rosenberg guaranty was owed to it when filing the confession of judgment
in the Bucks County court; (4) Lyon was Rosenberg’s only creditor because the Settlement
Agreement constituted a novation; and (5) the DVI entities and Ashland held contingent claims
subject to a bona fide dispute. 7
On September 27, 2011, the United States District Court for the Southern District of
Florida issued a memorandum opinion and order substantially affirming the Florida Bankruptcy
Court’s decision (“Rosenberg II”), 8 and, on July 6, 2012, the Eleventh Circuit issued a per
curiam opinion affirming Rosenberg II in full (“Rosenberg III”). 9
C.

The Eastern District Bankruptcy Court Gives Collateral Estoppel Effect to
Rosenberg I

In the Pennsylvania bankruptcy proceedings, Ashland was added as a petitioner in the
Second Amended Petition as successor to DVI Funding, and later joined the other petitioners in
filing a Third Amended Petition. After Rosenberg I, the Bankruptcy Court for the Eastern
District of Pennsylvania dismissed the involuntary bankruptcy petitions against NMI on the basis
of the collateral estoppel effect of Rosenberg I’s holdings that (1) the DVI entities and Ashland
were not real parties in interest and (2) Lyon was the only creditor because the Settlement

6

Id. at 832 n.3.

7

Id. at 840-44.

8

Order Affirming in Part and Reversing in Part Bankruptcy Court’s Orders, DVI Receivables XIV, LLC, et al. v.
Rosenberg, No. 10-24347, Doc. No. 11 (S.D. Fla. Sept. 27, 2011).
9

In re Rosenberg, 472 F. App’x 890 (11th Cir. 2012).

4

Agreement constituted a novation. 10 The DVI entities and Ashland appealed, and this Court
affirmed the Pennsylvania Bankruptcy Court’s order. 11 The Third Circuit affirmed after Ashland
appealed this Court’s order. 12
D.

Rosenberg’s § 303(i) Adversary Proceeding

While the appeals to the Southern District of Florida and Eleventh Circuit were pending,
Rosenberg brought a § 303(i) sanctions claim in an adversary proceeding in the Florida
Bankruptcy Court. 13 Ashland moved to dismiss, and the Florida Bankruptcy Court granted its
motion, finding that because Ashland was not a petitioning creditor in the operative underlying
petition, a § 303(i) sanctions claim against it could not stand. 14 After the reference was
withdrawn from the Bankruptcy Court, the Florida District Court held a jury trial on Rosenberg’s
§ 303(i)(2) claims for damages. The jury returned a verdict in favor of Rosenberg and against
the DVI entities and U.S. Bank, and that verdict was upheld by the Eleventh Circuit. 15
E.

NMI’s § 303(i) Adversary Proceedings

On May 27, 2014, Plaintiffs brought claims for attorneys’ fees and costs under
§ 303(i)(1) and Bankruptcy Rule 9011 in two adversary proceedings in the Pennsylvania
Bankruptcy Court. Plaintiffs also filed a complaint in this Court against Defendants seeking
damages under § 303(i)(2). On March 30, 2014, this Court granted Defendants’ Motion to
Dismiss Plaintiffs’ Complaint, holding that § 303(i)(2) does not create an independent cause of

10

In re Nat’I Med. Imaging, LLC, 439 B.R. 837, 847-52 (Bankr. E.D. Pa. 2015).

11

DVI Receivables XIV, LLC v. Nat'l Med. Imaging, LLC, 529 B.R. 607, 627 (E.D. Pa. 2015).

12

Nat’l Med. Imaging, LLC v. Ashland Funding LLC, No. 15-1996, 2016 WL 1743475, at *1 (3d Cir. May 3, 2016).

13

Rosenberg v. DVI Receivables, XIV, LLC, Adv. No. 10-3812 (Bankr. S.D. Fla.).

14

Memorandum Opinion Granting Ashland’s Motion to Dismiss, Rosenberg v. DVI Receivables, XIV, LLC, Adv.
No. 10-3812, Doc. No. 168 (Bankr. S.D. Fla. Mar. 23, 2012).

15

Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1286 (11th Cir. 2016).

5

action that may be brought directly in the district court. Plaintiffs then filed Amended
Complaints in the adversary proceedings, adding claims for damages under § 303(i)(2), and
moved to withdraw the references from the Pennsylvania Bankruptcy Court as to the § 303(i)(2)
claims. The Court granted Plaintiffs’ motion on September 1, 2016.
NMI filed the instant amended complaint on September 21, 2016, in accordance with the
Order of this Court granting NMI’s request to withdraw the reference from the Bankruptcy
Court. The amended complaint seeks compensatory and punitive damages under 11 U.S.C.
§303(i)(2) arising from the involuntary bankruptcy suit brought by Defendants. 16 U.S. Bank,
Lyon Financial Services, and the DVI entities filed an answer to the amended complaint, and
Ashland moved to dismiss.
II.

STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 12(b)(6), dismissal of a complaint for failure

to state a claim upon which relief can be granted is appropriate where a plaintiff’s “plain
statement” lacks enough substance to show that he is entitled to relief. 17 In determining whether
a motion to dismiss should be granted, the court must consider only those facts alleged in the
complaint, accepting the allegations as true and drawing all logical inferences in favor of the
non-moving party. 18 Courts are not, however, bound to accept as true legal conclusions couched
as factual allegations. 19 Something more than a mere possibility of a claim must be alleged; a
plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” 20
16

NMI is also seeking attorneys’ fees and costs against Defendants under 11 U.S.C. § 303(i)(1) in the Bankruptcy
Court for the Eastern District of Pennsylvania.

17

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007).

18

ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994); Fay v. Muhlenberg Coll., No. 07-4516, 2008 WL
205227, at *2 (E.D. Pa. Jan. 24, 2008).
19

Twombly, 550 U.S. at 555, 564.

20

Id. at 570.

6

III.

DISCUSSION
Ashland argues that its dismissal from this case is warranted for the following five

reasons: (1) its dismissal from the Florida bankruptcy action compels its dismissal here; (2) NMI
has not alleged that Ashland was a “petitioner” under § 303(i)(2); (3) NMI has not sufficiently
pleaded that Ashland acted in bad faith; (4) NMI has failed to plead that its damages were
proximately caused by Ashland filing the petition in bad faith; and (5) § 303(i)(2) does not
provide for joint and several liability. 21
A.

Whether the Florida Bankruptcy Holdings Have Preclusive Effect

In the amended complaint, NMI seeks to hold Defendants liable under § 303(i)(2) in light
of the aforementioned Florida judgments. Ashland’s primary argument for dismissal is that,
because it was not a petitioner at the time the Florida Bankruptcy Court dismissed the prior
petition, NMI’s amended complaint “does not support a reasonable inference that collateral
estoppel applies” to support NMI’s damages claims against Ashland. 22 By this same logic,
Ashland further argues that collateral estoppel applies to require dismissal of claims against it.
Ashland attempts to downplay the distinction between its role in the Florida bankruptcy
proceedings and its role in the Pennsylvania bankruptcy proceedings, calling the difference
“hyper-technical.” 23 The Florida Bankruptcy Court’s rationale for declining to impose sanctions
against Ashland was as follows:
Ashland Funding was not a petitioning creditor. Ashland Funding was a party to
a second amended involuntary petition that had no effect on these bankruptcy
proceedings. The Court dismissed the First Amended Petition – to which Ashland
Funding was not a party – and denied Rosenberg’s motion to strike the second

21

Doc. No. 6-1 at 8-20.

22

Id. at 8.

23

Doc. No. 11 at 2.

7

amended petition as moot. Accordingly, there exists no statutory basis under
§ 303(i) of the Bankruptcy Code to impose sanctions against Ashland Funding. 24
Here, in contrast, there is a basis under § 303(i) to impose sanctions against Ashland.
This is a crucial distinction, and one that undermines Ashland’s preclusion argument. In the
Florida proceedings, Ashland was never a petitioner by virtue of the petition being dismissed
before Ashland was substituted for DVI Funding. 25 Here, Ashland was listed as a petitioning
creditor in the petition that was ruled upon. Accordingly, Ashland’s dismissal in the Florida
Bankruptcy case does not preclude the instant suit, and the Court will not make any rulings at
this stage as to whether or not the Florida rulings establish liability.
B.

Whether NMI Has Sufficiently Pleaded that Ashland Is a Petitioner

Next, Ashland argues that NMI has not sufficiently pleaded that Ashland is a petitioner
for purposes of § 303(i)(2). According to Ashland, because Defendant Fox executed the second
and third amended petitions on behalf of Ashland without authorization, Ashland cannot be
considered a petitioner in this case. Although § 303(i) does not define “petitioner,” Ashland
urges the Court to read into the statute a requirement that a petitioner authorize the filing of an
involuntary petition. 26 The Court declines to accept Ashland’s definition of petitioner, and
Ashland’s status as a named petitioner on the second and third amended petitions is a sufficient
basis for NMI’s allegation that Ashland was a petitioner for the purposes of § 303(i)(2). 27

24

Memorandum Opinion Granting Ashland’s Motion to Dismiss, Rosenberg v. DVI Receivables, XIV, LLC, Adv.
No. 10-3812, Doc. No. 168 (Bankr. S.D. Fla. Mar. 23, 2012).

25

See Nat’l Med. Imaging, LLC v. Ashland Funding LLC, 648 F. App’x 251, 254 (3d Cir. 2016) (“[T]he Bankruptcy
Court dismissed Ashland as a party to the adversary proceeding because Ashland was not listed as a petitioning
creditor on the petition the Bankruptcy Court dismissed.”).
26

Doc. No. 6-1 at 11-12.

27

The cases cited by Ashland in support of its interpretation of the term “petitioner” are unpersuasive. See, e.g.,
Scott v. Graphic Commc'ns Int'l Union, Local 97-B, 92 F. App’x 896 (3d Cir. 2004) (non-bankruptcy case finding
international union was not vicariously liable for alleged discrimination and harassment by local union); In re
Healthtrio, Inc., No. 09-34404 HRT, 2013 WL 6500478, at *13 (Bankr. D. Colo. Dec. 11, 2013) (denying 60(b)
motion seeking reconsideration of court’s order granting summary judgment because evidence of fraud by

8

C. Whether NMI Has Adequately Alleged Bad Faith
Ashland next argues that NMI has not pleaded that Ashland acted in bad faith. Ashland
contends that NMI improperly lumps Ashland together with the other Defendants, and notes that
merely alleging bad faith by the other Defendants is not sufficient to state a claim against
Ashland. However, NMI alleges bad faith by all Defendants. NMI contends, inter alia, that
Defendants filed and prosecuted multiple involuntary bankruptcy petitions even though they
were not creditors of NMI and “lacked standing to initiate or pursue” the involuntary bankruptcy
cases, and that they did so “as a collection tactic to harass and cause embarrassment and
economic ruin to the Putative Debtors, in an effort to extract more than what was owed in
connection with a disputed debt.” 28 Courts in the Third Circuit employ a fact-intensive “totality
of the circumstances” approach to determining whether a petition was filed in bad faith:
In conducting this fact-intensive review, courts may consider a number of factors,
including, but not limited to, whether: the creditors satisfied the statutory criteria
for filing the petition; the involuntary petition was meritorious; the creditors made
a reasonable inquiry into the relevant facts and pertinent law before filing; there
was evidence of preferential payments to certain creditors or of dissipation of the
debtor's assets; the filing was motivated by ill will or a desire to harass; the
petitioning creditors used the filing to obtain a disproportionate advantage for
themselves rather than to protect against other creditors doing the same; the filing
was used as a tactical advantage in pending actions; the filing was used as a
substitute for customary debt-collection procedures; and the filing had suspicious
timing. 29
This exhaustive analysis is ill-suited to resolution at this preliminary stage. The facts
alleged in the amended complaint, taken as true, support an inference that Ashland and the other
Defendants acted in concert and in bad faith in filing the underlying involuntary petition, which
this and other courts found to lack merit.
petitioner’s lawyer not clear and convincing); In re Raymark Indus., Inc., 99 B.R. 298, 300 (Bankr. E.D. Pa. 1989)
(explaining when counsel may sign and verify involuntary petitions on creditors’ behalves).
28

Doc. No. 2 ¶ 6.

29

In re Forever Green Athletic Fields, Inc., 804 F.3d 328, 336 (3d Cir. 2015).

9

D. Whether NMI Has Sufficiently Pleaded Damages
Ashland’s fourth argument for dismissal is that NMI has not adequately pleaded that the
second and third amended petitions (as opposed to the original petition) proximately caused the
harm alleged in the amended complaint, and that any asserted damages are too speculative to
state a claim. According to Ashland, the amended complaint fails to set forth sufficient
allegations of harm caused specifically by Ashland.
As noted, § 303(i)(2) states that a court “may grant judgment . . . against any petitioner
that filed the petition in bad faith . . . for any damages proximately caused by such filing.” For
the purposes of § 303(i), courts have not made a distinction between original petitioners and
later-added petitioners. 30 Ashland joined the second amended petition; that it was not an initial
petitioner does not negate its involvement in the involuntary bankruptcy proceeding. NMI has
sufficiently alleged that the petitioners, including Ashland, caused it harm. 31 Additionally,
Ashland’s argument that the damages alleged are speculative is premature and will be more
appropriately addressed on a more complete record. 32

30

E.g., In re ELRS Loss Mitigation, LLC, 325 B.R. 604, 630 (Bankr. N.D. Okla. 2005) (“[W]hether a petitioner is
one of the original filers, or joins the petition at a later date, that petitioner undertakes significant responsibilities and
assumes the risks set forth in § 303(i).”); see also In re Promotion Dynamics, Inc., No. 92-16539S, 1992 WL
391276, at *1 (Bankr. E.D. Pa. Dec. 16, 1992) (“We believe that an award of attorneys’ fees or costs incurred in
defending an unsuccessful involuntary petition should ordinarily be granted against the petitioners from which
damages are requested under § 303(i)(1) unless cause for not doing so is established.”).
31

See Doc. No. 2 ¶ 72 (alleging that the “commencement and continued prosecution” of the involuntary bankruptcy
proceedings “(1) caused Plaintiffs to lose preferred provider status with major insurers; (2) caused physicians to lose
confidence in the Plaintiffs’ stability and to divert their patients to other providers; (3) caused lenders to cutoff the
Plaintiffs’ access to receivables, thereby creating a liquidity crisis; (4) caused vendors to put the companies on a
COD basis, thereby further eroding cash and liquidity; and (5) destroyed Plaintiffs’ reputations in the community,
and torpedoed planned acquisitions and expansion”).

32

See Clearpath Util. Sols., LLC v. US Crossings Unlimited, LLC, No. 2:15CV1620, 2016 WL 4987092, at *3
(W.D. Pa. Sept. 19, 2016) (“Plaintiff's contention that defendant's asserted entitlement to lost profit damages is too
speculative is misplaced at the motion to dismiss stage.”); In re Suboxone (Buprenorphine Hydrochloride &
Naloxone) Antitrust Litig., 64 F. Supp. 3d 665, 698 (E.D. Pa. 2014) (“[T]he Third Circuit has been reluctant to grant
motions to dismiss based on speculative or complex damages.”); Prudential Ins. Co. of Am. v. Prusky, 413 F. Supp.
2d 489, 495 (E.D. Pa. 2005) (stating that the “case lacks the necessary factual development to support a finding that
the claim for monetary damages is impermissibly speculative” at the motion to dismiss stage).

10

E. Whether § 303(i)(2) Provides for Joint and Several Liability
Finally, Ashland erroneously argues that it must be dismissed from the case because
§ 303(i) does not allow for joint and several liability. Whether joint and several liability is
available is within the discretion of the Court, and it is to be determined based on the totality of
the circumstances. 33 Thus, joint and several liability is possible under § 303(i), and it would be
premature to hold that NMI may not pursue it.
IV.

CONCLUSION
For the reasons stated above, Ashland’s Motion to Dismiss will be denied. An

appropriate Order will be entered.

33

E.g., In re Maple-Whitworth, 556 F.3d 742, 746 (9th Cir. 2009) (stating that a “bankruptcy court has discretion to
hold all or some petitioners jointly or severally liable for costs and fees, to apportion liability according to
petitioners’ relative responsibility or culpability, or to deny an award against some or all petitioners, depending on
the totality of the circumstances”); In re Rosenberg, No. 09-13196-BKC-AJC, 2012 WL 3990725, at *8 (Bankr.
S.D. Fla. Sept. 11, 2012) (“Other courts have routinely imposed joint and several liability under Section 303(i).”).

11