In re St. James Nursing & Physical Rehab. Ctr., Inc.

645 B.R. 220

IN RE: ST. JAMES NURSING & PHYSICAL REHABILITATION CENTER, INC., Debtor.

Case No. 16-42333

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed October 14, 2022

Patrick A. Foley, Jennifer D. Larson, John R. Foley, P.C., Dearborn, Michigan, Attorneys for Movant, Chiman Patel.

Michael G. Latiff, Ashley J. Jericho, McDonald Hopkins PLC, Bloomfield Hills, Michigan, Attorneys for Kevin English, Receiver.

Ryan D. Heilman, Wernette Heilman PLLC, Bloomfield Hills, Michigan, Attorney for Debtor.

Leslie K. Berg, Detroit, Michigan, Attorney for Andrew R. Vara, United States Trustee.

OPINION REGARDING PENDING MOTIONS

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

The motions now before the Court in this Chapter 11 case require the Court to decide whether this Court has subject matter jurisdiction to decide a dispute that has arisen long after the confirmation of the Debtor's plan of reorganization. For the reasons stated in this Opinion, the Court concludes that it lacks subject matter jurisdiction.

II. Background

This case is before the Court on two motions:

A. The motion filed by Chiman Patel ("Patel"), entitled "Motion To Appoint A Trustee For The Investigation And Administration Of Debtor's Assets" (Docket # 188, the "Patel Motion"); and

B. The motion filed by Kevin English, Receiver ("English" or the "Receiver"), entitled "Motion Of Kevin English, Receiver Over St. James Nursing And Physical Rehabilitation Center, Inc., For Entry Of An Order (I) Abstaining From Hearing Chiman Patel's Motion To Appoint A Trustee For The Investigation And Administration Of Debtor's Assets, (II) Closing The Bankruptcy Case, And (III) Granting Related Relief" (Docket # 191, the "Abstention Motion").

Objections to the Patel Motion were filed by the Debtor, English, and the United States Trustee. An objection to the Abstention Motion was filed by Patel. The Debtor filed a response concurring in the Abstention Motion.

The Court held a telephonic hearing on the motions. Attorneys for each of the following parties appeared at the hearing: Patel; the Debtor; the United States Trustee; and English, and English also personally appeared at the hearing. Confirming certain action taken during the hearing, and for the reasons stated by the Court on the record during the hearing, the Court entered an order regarding further proceedings.¹ The Court ordered certain additional briefing and the filing of certain supplemental exhibits.

The Court has reviewed and considered all of the briefs and other documents filed by the parties, both before and after the hearing, and the arguments of the parties made during the hearing. For the reasons stated in this Opinion, the Court will deny the Patel Motion, for lack of subject matter jurisdiction, and the Court will deny the Abstention Motion, as moot.

III. Facts and arguments of the parties

This dispute arises out of Patel's efforts to collect a debt he says is owed to him by the reorganized Debtor, St. James Nursing & Physical Rehabilitation Center, Inc. ("St. James"). Patel claims the debt is owed under a written settlement agreement that was entered into by Patel, St. James, and others (the "Settlement Agreement"), several months after the confirmation of St. James's Chapter 11 Plan. The Settlement Agreement was not contemplated by or included in St. James's Chapter 11 Plan or the Court's order confirming that Plan. Nor was St. James's confirmed Plan ever modified to incorporate the Settlement Agreement.

The Court will state in detail the facts and arguments of the parties bearing on the pending motions. All of the facts are undisputed.

A. Pre-petition litigation involving St. James

Before St. James filed this bankruptcy case, it was involved in state court litigation, along with Cadillac Nursing Home, Inc. d/b/a St. Francis Nursing Center "("St. Francis"), and other entities owned and/or controlled and/or managed by H. Roger Mali and Bradley Mali (collectively, the "Mali Family Entities"). The litigation was against Patel, Rajesh Patel; Amee Patel, Amee V. Patel Revocable Living Trust, u/a/d/ Sept. 26 2007; Devenhummar Patel a/k/a Devan Patel; Reliance Pharmacy, Inc.; VPH Pharmacy, Inc.; and other entities owned and/or controlled and/or managed by Patel and members of his family (the "Patel Family Entities"). In the litigation, the Patel Family Entities sought to collect amounts owed to them by the Mali Family Entities under various agreements for pharmacy services. While the litigation was still pending, some of the Mali Family Entities, including St. James, filed voluntary Chapter 11 petitions.

B. St. James's bankruptcy case

On February 22, 2016, the Debtor St. James filed a voluntary petition for relief under Chapter 11, commencing this case.²

Patel was not a creditor in the St. James bankruptcy case. St. James did not list Patel as a creditor on its schedules,³ and although Patel was provided notice of the St. James bankruptcy case, he never filed a proof of claim in the case. The deadline to file proofs of claim, for non-governmental entities, was June 21, 2016.⁴

On June 9, 2016, Patel, VPH Pharmacy, Inc., Reliance Pharmacy, Inc., and Rajesh Patel (collectively, the "Patel-Related Entities"), filed a motion for the appointment of a Chapter 11 Trustee (the "Trustee Appointment Motion").⁵ The Patel-Related Entities argued in that motion that it was necessary to appoint a Chapter 11 trustee because St. James and affiliated debtors in other bankruptcy cases "had all been grossly mismanaged by insiders and affiliates for years ... leading to severe – and increasing – tax delinquencies and a total of eight chapter 11 petitions among them;" St. James had "failed and refused to seek outside management or engage in a real process to address their situation;" and "the plans are to transfer the bulk of assets to the same insider who has been mismanaging them for years."⁶

On July 8, 2016, St. James filed an amended combined plan and disclosure statement (the "Plan"),⁷ and the Court entered an order granting preliminary approval of the disclosure statement.⁸ The Plan contemplated that certain exhibits to the Plan would be "modified, amended, or supplemented."⁹

On August 12, 2016, St. James filed a notice that it was supplementing the Plan with additional exhibits (the "Plan Supplement").¹⁰ The Plan Supplement provided that "[t]he documents contained in this Plan Supplement are integral to and part of the Plan, and if the Plan is confirmed, shall be approved in the order confirming the Plan ."¹¹ St. James reserved its "right to alter, amend, modify or supplement any document in the Plan Supplement as provided by the Plan[.]"¹² The Plan proposed that St. James would reorganize its debts and continue to operate its skilled nursing care facility.

Also on August 12, 2016, the Patel-Related Entities filed an objection to confirmation of the Plan (the "Patel Entities Objection"), arguing, in relevant part, that the Plan and the Disclosure Statement did not provide "adequate information" within the meaning of 11 U.S.C. § 1125(a)(1) regarding St. James's "operations, how it came to experience significant tax problems and uncollectible accounts receivable and how its future operations will not suffer from the same problems."¹³ The Patel-Related Entities argued that such "information [was] necessary to assess whether there are adequate means for the Debtors to comply with the Plan, as well as determine the feasibility of the Plan & Disclosure Statement."¹⁴ The Patel-Related Entities argued that "the Plan described is facially unconfirmable as it provides neither adequate means for its implementation nor feasibility."¹⁵

On August 19, 2016, St. James filed its final report on tabulation of votes cast by the creditors of the Plan.¹⁶

On August 24, 2016, the Court held a hearing on the confirmation of the Plan. As the Court later stated, by the end of the August 24, 2016 confirmation hearing, it was clear that the Patel Entities Objection

boiled down to two arguments: namely, that the Debtors have not demonstrated that the Plan meets the feasibility requirement of 11 U.S.C. [§] 1129(a)(11) ; and that the Debtors have not proposed the plan in good faith, as required by 11 U.S.C. § 1129(a)(3). And the latter objection, lack of good faith, is based on the alleged fact that the Debtors are proposing a plan lacking feasibility.¹⁷

The August 24, 2016 confirmation hearing was continued for an evidentiary hearing.

On August 25, 2016, the Court entered an order for further proceedings regarding confirmation of the Plan.¹⁸ The August 25, 2016 Order noted: "Many parties filed objections to confirmation [of the Plan], all of which reportedly have been resolved by agreement, except the objections of the Wayne County Treasurer; and the joint objections of VPH Pharmacy, Inc.; Reliance Pharmacy, Inc.; Rajesh Patel; and Chiman Patel (collectively the ‘Patel-Related Entities’)."¹⁹ The August 25, 2016 Order, in relevant part, scheduled a further hearing on confirmation of the Plan and on the Trustee Appointment Motion for September 13, 2016, and granted the Patel-Related Entities and the Wayne County Treasurer "leave to conduct discovery, limited to the issue of feasibility [of the Plan.]"²⁰

On September 13, 2016, the Court held and concluded an evidentiary hearing on the confirmation of the Plan, and took the matter under advisement. The Court stated that the Trustee Appointment Motion would await further proceedings after the Court issued a written opinion regarding confirmation of the Plan.

On September 14, 2016, all of the objecting parties, except the Patel-Related Entities and Rehab Solutions, Inc. ("Rehab Solutions"), an unsecured creditor that filed a " ‘concurrence’ in" the Patel Entities Objection,²¹ signed and filed a stipulation for entry of an order confirming the Plan (the "OCP Stipulation").²² Attached to the OCP Stipulation was a proposed order confirming the Plan (the "Confirmation Order"). The...