The Bottom Line
In a decision addressing the reaches of bankruptcy court subject matter jurisdiction, a First Circuit Panel, including retired Supreme Court Justice Davis Souter sitting by designation, ruled that the bankruptcy court’s subject matter jurisdiction did not extend to determining contractual rights under an asset purchase agreement, even where the sale order approving the sale pursuant to sections 363 and 365 of the Bankruptcy Code contained express provisions regarding the retention of jurisdiction by the bankruptcy court over any disputes arising thereunder.
What Happened?
In Gupta v. Quincy Med. Ctr., 2017 U.S. App. LEXIS 9814, 2017 WL 2389407 (1st Cir. Mass. June 2, 2017), the Debtors, Quincy Medical Center, signed an Asset Purchase Agreement (the “APA”) in which they agreed to sell substantially all of their assets to Quincy Medical Center, a Steward Family Hospital, Inc. f/k/a Steward Medical Holdings Subsidiary Five (the “Purchaser”). The following day, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code, as well as a motion seeking court approval of the APA. On September 26, 2011, the bankruptcy court entered the Sale Order which contained a provision providing that the bankruptcy court retained jurisdiction over any disputes arising under the APA and the Sale Order. The Sale Order stated that:
It is necessary and appropriate, in order to ensure the validity of the sale of the Assets to Steward and to ensure compliance with this Order, for this Court to retain jurisdiction to: (a) interpret and enforce the provisions of the APA, the Assigned Agreements, the Sale Motion and this Order; (b) protect Steward and any of the Assets against any Lien or Claim; (c) resolve any disputes arising under or relating to the APA, the Assigned Agreements, the Sale Motion and this Order; and (d) determine the validity, extent and priority of asserted pre-Closing Liens or Claims on, and the disposition of the gross proceeds of sale of, the Assets.
The asset sale closed six days later on October 1, 2011. The approved Plan also included a retention of jurisdiction clause and that clause was incorporated into the Confirmation Order.
Sections 5 and 9 of the APA dealt with the employment of the Debtors’ former employees. Pursuant to those sections, the Purchaser would offer employment to all employees who remained employed by the Debtors as of an established date. Each of the employees would receive the salary that was provided to the employees immediately prior to closing for at least three months. Additionally, if the Purchaser terminated any of the employees following closing, the Purchaser would be responsible for any severance payments due.
Shortly after the sale closed, the appellants, Apurv Gupta and Victor Munger, both senior executives of the Debtors, received letters from the Debtor that their...
