In re Jefferson Cnty.

484 B.R. 427

In re JEFFERSON COUNTY, ALABAMA, a political subdivision of the State of Alabama, Debtor.

No. 11–05736–TBB.

United States Bankruptcy Court,

N.D. Alabama,

Southern Division.

Dec. 19, 2012.

James Blake Bailey, Patrick Darby, Christopher L. Hawkins, Jennifer Harris Henderson, Bradley Arant Boult Cummings LLP, Birmingham, AL, Jay R. Bender, Birmingham, AL, Whitman L. Holt, Los Angeles, CA, Samuel M. Kidder, Kenneth N. Klee, Robert J. Pfister, David M. Stern, Klee, Tuchin, Bogdanoff & Stern LLP, Los Angeles, CA, for Debtor.

Memorandum Opinion on Application of Stays of 11 U.S.C. § 362(a) & 11 U.S.C. § 922(a) to Proposed Lawsuit Regarding Cooper Green Mercy Hospital

THOMAS B. BENNETT, Bankruptcy Judge.

Before the Court are requests for (1) a determination with respect to Jefferson County's hospital property, Cooper Green Mercy Hospital, that the automatic stays of 11 U.S.C. §§ 362(a) and 922(a) (collectively, “the Automatic Stays”) do not apply to actions sought to be taken by the City of Birmingham, Alabama, William A. Bell, Sr. in his capacity as the Mayor of Birmingham, and both of them ex rel. the State of Alabama (collectively, “the City Parties”), and alternatively, (2)(a) modification of the Automatic Stays, and (b) abstention from any consideration of underlying Alabama law in making a determination of the applicability of either of the Automatic Stays and their modification. As explained in more detail below, the Court holds that (1) the City Parties lack the requisite legal injury and necessary legally recognized damage to be able to assert the claims they desire to raise under the Alabama Health Care Responsibility Act, Alabama Code §§ 22–21–290, et seq. (1975) ( “AHCRA”); (2) abstention is not appropriate with respect to this Court's determination to modify, or not, the Automatic Stays; (3) the automatic stay of 11 U.S.C. § 362(a)(3) stays the City Parties' proposed state court lawsuit; (4) the automatic stay of 11 U.S.C. § 922(a)(1) stays the commencement and maintenance of a suit against Jefferson County's Commissioners David Carrington, Jimmie Stephens, and T. Joe Knight to enforce pre-petition and certain post-petition claims against the County; (5) the police power exception of 11 U.S.C. § 362(b)(4) is not applicable to avoid the Automatic Stays; and (6) the provisions of 28 U.S.C. § 959 are inapplicable to a municipal debtor such as Jefferson County, Alabama, and do not permit, without modification of the Automatic Stays, the bringing of a suit in an Alabama court challenging the Jefferson County Commission's decision to end emergency room and inpatient care at Cooper Green Mercy Hospital. Accordingly, the Automatic Stays preclude the actions sought to be brought in Alabama's courts by the City Parties, and relief from the Automatic Stays is denied.

I. The Genesis and an Outcome—Cooper Green's Plight Precipitated by Alabama

Cooper Green Mercy Hospital (“Cooper Green”) is owned by Jefferson County, Alabama, and functions as one of its departments. The Jefferson County Commission has authority to direct, control, and maintain property of the County, including Cooper Green. Cooper Green has a storied history of caring for Jefferson County residents who are unable to pay for medical care. The subject of this opinion that will add to Cooper Green's history is a portion of a dispute between the City Parties and Jefferson County, Alabama, along with three of its county commissioners (hereinafter, Jefferson County, Alabama and the three commissioners are collectively referred to as “Jefferson County” or “the County”). The dispute revolves around Cooper Green's provision of inpatient and emergency room medical care for indigent residents of the County. Along with providing indigent care, Cooper Green has for a number of years also provided medical care for non-indigents and received payment for this care from either or both the patients and third parties such as private health insurers, Medicare, or Medicaid. Although Cooper Green is the beneficiary of a designated portion of sales tax revenues for payment of indigent care—in the most recent year an amount exceeding forty million dollars—Cooper Green has routinely lost substantial sums of monies. In fiscal year 2011, the losses exceeded ten million dollars and in prior, recent fiscal years the losses were of the same relative magnitude.

Contrary to what many have written and what others have assumed was the sole impetus for Jefferson County's bankruptcy filing—its sewer system indebtedness—a major cause was actually beyond the County's control. In part, the financial decline of Jefferson County and the necessity of its having to file a Chapter 9 bankruptcy case was the decrease in cash flow occasioned by the loss of a tax of approximately one-half of one percent on the gross wages of some of those working in Jefferson County. This revenue source was one of the few not earmarked for other purposes by statute or otherwise that could be used to finance Cooper Green's perpetual over-budget spending and its losses. By mid–2011 when an Alabama court's ruling striking down the occupation tax became final, the largest single source of unearmarked dollars available to the County fully evaporated.

Evaporation occurs over time. The loss of the occupation tax has been no different. The completion of the process was the culmination of years of prior actions. The initiating act was the Alabama Legislature's elimination of a virtually identical tax that had been in place for a number of years and working as designed (“the Original Tax”). Alabama's Legislature repealed this tax in 1999 and enacted another one. The replacement statute for the occupation tax allocated to each member of the delegation of legislators from Jefferson County a portion of the tax revenues for purposes and uses the individual legislators deemed appropriate. The Jefferson County Employees' Association challenged the legality of this occupation tax (“the First Reenacted Tax”) and prevailed. Subsequently, the Alabama Legislature enacted another occupation tax (“the Second Reenacted Tax”), which did not permit local legislators to allocate tax money and had a slightly lower tax rate than that of the Original Tax and the First Reenacted Tax. The lower rate was occasioned, in part, by expanding the tax to earnings of those who previously were not subject to the occupation tax, such as lawyers, doctors, and dentists. Unfortunately for the County, the Second Reenacted Tax was challenged in Alabama's courts by some of the taxpayers not previously subject to the tax, and it, too, was determined to be wanting as a valid law of Alabama. The loss of this unencumbered revenue source was rooted in the inability of the State of Alabama and its Legislature to properly enact a statute. It was improperly noticed.

During and following the appeals process for the Second Reenacted Tax, Jefferson County has sought the assistance of Alabama and its Legislature to enact a replacement occupation tax or other source of unearmarked revenue. The necessity of this legislative action by the County is due to the fact that the State of Alabama has not delegated to Jefferson County the authority to enact various and sundry taxes. Over the extended time these replacement tax activities were ongoing, the County put off filing a Chapter 9 bankruptcy case. Ultimately and as in a business reorganization case, an imbalance between cash inflows and outflows and approaching the point where one may run out of cash is often what often triggers a bankruptcy filing. This triggering point is no different for a municipal debtor.

Both before and after filing its Chapter 9 case, the County's revenue-seeking activities with Alabama have been to no avail. The State has not enacted another occupation tax or other source of revenues for the County to replace the lost occupation tax monies. This is part of what determined when Jefferson County filed its Chapter 9 case.

Along with the disappearance of this source of general revenue funds has been its immediate impact: the County's inability to fund numerous activities including the continued funding of Cooper Green's deficits. A consequence is Jefferson County having to make difficult decisions on the where, when, and how the reduced unearmarked monies it still receives are to be spent. It has made such determinations across all activities of the County including those at Cooper Green.

With respect to Cooper Green, one decision was to prospectively close its emergency room along with ending inpatient hospital services. This determination has not been popular with various segments of the County Commission's constituencies including, among others, patients, the varying, approximately five hundred (500) to seven hundred (700) employees servicing, on average, about forty inpatients in a facility with the capacity for around three hundred (300) inpatients, and the City of Birmingham and its mayor. This is the genesis of the challenges by the City Parties to the County's actions regarding Cooper Green's operations.

As will become apparent, the fight is not truly over Jefferson County's financial responsibility for certain of its indigent residents' medical treatments. Rather, it is about those with no pecuniary interest in the financial responsibility for Jefferson County's indigent residents trying to dictate how the County decides to meet its indigent care payment obligations. At its heart, it is about requiring the County to keep operating both emergency room and inpatient care facilities at the same level and scope where they were when Cooper Green failed to operate within its budget. Should the City Parties prevail, the outcome will be a diversion of monies to Cooper Green's inpatient and emergency room services from other necessary purposes. All of this will take place at a facility that is surrounded by a massive health care infrastructure operated by numerous other...