Buridi v. KMC Real Estate Investors, LLC (KMC Real Estate Investors, LLC)

531 B.R. 758
CourtUnited States Bankruptcy Court, S.D. Indiana
DecidedMay 8, 2015
DocketNo. 4:13-cv-00179-SEB-WGH
StatusPublished

This text of 531 B.R. 758 (Buridi v. KMC Real Estate Investors, LLC (KMC Real Estate Investors, LLC)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Buridi v. KMC Real Estate Investors, LLC (KMC Real Estate Investors, LLC), 531 B.R. 758 (Ind. 2015).

Opinion

ORDER ON BANKRUPTCY APPEAL

SARAH EVANS BARKER, District Judge.

Appellant Abdul G. Buridi appeals the Bankruptcy Court’s approval of the final confirmation orders entered in the chapter 11 cases of debtors KMC Real Estate Investors, LLC (“KMC”) and its affiliate Kentucldana Medical Center, LLC (“Ken-tuckiana”). For the following reasons, the [761]*761Bankruptcy Court’s approval of the confirmation orders is AFFIRMED.

Factual Background

General Background

Between 2005 and 2007, Cardiovascular Hospitals of America, LLC (“CHA”) and Kentuckiana Investors, LLC (“KI”) formed KMC to develop and operate a new hospital facility in Clarksville, Indiana. CHA and KI each owned 49% of KMC and the membership interests of KI were held by approximately thirty (80) physicians who practiced in the greater Louisville, Kentucky, area, including Dr. Buridi. In order to obtain financing for the KMC project, CHA, KI, and the physician-members of KI guaranteed various loans and other financial obligations of KMC to lenders and equipment providers. Unfortunately, KMC immediately encountered financial difficulties when its construction loan proceeds and working capital were exhausted before the hospital was completed and stabilized.

Concurrently with the formation of KMC, many of the physician-members of KI invested in and acquired membership interests in KMCREI, which purchased the real estate and financed construction of the hospital facility through a $21 million loan from Branch Banking & Trust Company (“BB & T”). There was no requirement that the physician-members of KI acquire membership interests in KMCREI, however. KMCREI’s membership interests were divided proportionately, not equally, among the physicians who did choose to invest. Dr. Buridi owned a 1.03% membership interest in KI and a 1.65% membership interest in KMCREI. As owner of the hospital building, KMCREI depended entirely on its sole tenant, KMC, for its revenues, and therefore when KMC encountered financial issues, KMCREI also suffered.

Chapter 11 Filings

On September 19, 2010, KMC filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code and KMCREI similarly filed under chapter 11 on April 1, 2011. Although both debtors continued to lose significant amounts of money after their bankruptcy cases were filed, they managed to reach tenuous agreements with several key creditors that enabled them to continue operating.

From the outset of KMC’s bankruptcy, it became clear that the only way in which the hospital could become financially viable would be through a cash infusion of millions of dollars to complete construction of the hospital and purchase required equipment. In June 2012, KMC and KMCREI each obtained confirmation of their respective plans of reorganization but were unable to consummate the plans when their investor refused to fund the reorganization. Instead, both debtors remained in Bankruptcy Court and continued to solicit new investments while continuing to accrue substantial post-petition liabilities through normal business operations. By June 2013, KMC and KMCREI carried a combined debt load of more than $31 million in secured claims, $6 million in post-petition administrative claims, and $5 million in unsecured claims.

The Confirmed Plans of Reorganization

. Prior to commencement of KMCREI’s chapter 11 case, RLBB Financial, LLC (“RLBB”)1 acquired the KMCREI construction loan originally advanced by BB & T. After KMC’s and KMCREI’s failures to consummate their original plans of reorganization, they engaged in extensive negoti[762]*762ations with RLBB in the months prior to June 2013 to develop the framework for each debtor’s Third Amended Plan of Re- v organization. The KMC Plan called for RLBB or its affiliate, as “Exit Investor,” to provide approximately $10 million to complete the hospital and pay claims against KMC. The KMCREI Plan provided for the restructuring of RLBB’s $20 million secured loan and cash payments to satisfy past due real estate taxes.

Under the KMC Plan, KMC’s secured liabilities were significantly restructured, holders of administrative claims received 20% of their claims in cash and notes payable over five years, and holders of unsecured claims received cash payments equal to their pro rata share of a $500,000 pool of funds, in most cases equal to a fraction of their overall indebtedness. All pre-confirmation equity membership interests in. KMC were cancelled on the effective date of the KMC Plan, and the Exit Investor acquired 100% of the new membership interests in KMC.

Under the KMCREI Plan, only the secured claims owed to RLBB and the real estate tax lienholder were to be satisfied through distribution of money or property. All unsecured claims against KMCREI were to be discharged pursuant to 11 U.S.C. § 1141(d), and all membership interests in KMCREI were cancelled. The KMCREI Plan originally provided that 80% of the new membership interests in reorganized KMCREI would be issued to the Exit Investor while the remaining 20% of the new membership interests were to be issued to Drs. Christodulos Stavens, Eli Hallal, Jeffrey Campbell, and Renato La-Rocca, four of the physician-owners of KI “in consideration of their ongoing commitment to the hospital and importance to the feasibility of [the KMCREI Plan] and the KMC Plan.” Dkt. No. 2 at 8. These four physicians comprised the KI contingent on KMC’s board of managers (the remaining board members consisted of representatives of CHA). Dr. Stavens served as KMC’s Chief Executive Officer as well as the manager of KI. These four physicians were also responsible for admitting 70-80% of all patients to the hospital during the time period relevant to this litigation.2

Drs. Stavens, Hallal, and Campbell asserted Allowed Administrative Claims pursuant to 11 U.S.C. § 503(b)(1)(A) for salary and on-call services earned but not paid during the KMC bankruptcy case. Dr. LaRocca acquired an Allowed Secured Claim against KMC by assignment, which enabled KMC to retain operating room and anesthesiology equipment for its continued operations during the bankruptcy case. According to KMC, the 20% distribution of KMCREI’s equity interests was in consideration of the four physicians’ compromise - of their respective Allowed Administrative Claims against KMC.

As described below, however, the Bankruptcy Court ultimately ordered that the 20% that was to go to Drs. Stavens, Hallal, Campbell, and LaRocca could not be transferred if that transfer would violate applicable federal healthcare laws. In that [763]*763case, RLBB would hold 100% of the new equity in the reorganized KMCREI following confirmation of the plan.

Appellant’s Objections to Confirmation

On July 26, 2018, Dr. Buridi, among others, filed objections to confirmation of the KMC and KMCREI Plans (“the Plan Objections”). The Plan Objections raised four arguments in opposition to confirmation of the plans: (1) that the proposed distribution of 20% of the equity interests in KMCREI to Drs. Stavens, Hallal, Campbell, and LaRocca violated 11 U.S.C. § 1129

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Cite This Page — Counsel Stack

Bluebook (online)
531 B.R. 758, Counsel Stack Legal Research, https://law.counselstack.com/opinion/buridi-v-kmc-real-estate-investors-llc-kmc-real-estate-investors-llc-insb-2015.