Hankin v. Auxiliary of the Winsted Memorial Hospital (In re Winsted Memorial Hospital)

236 B.R. 556, 1999 Bankr. LEXIS 940, 34 Bankr. Ct. Dec. (CRR) 969
CourtUnited States Bankruptcy Court, D. Connecticut
DecidedJuly 23, 1999
DocketBankruptcy No. 96-23984; Adversary No. 99-2043
StatusPublished
Cited by3 cases

This text of 236 B.R. 556 (Hankin v. Auxiliary of the Winsted Memorial Hospital (In re Winsted Memorial Hospital)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Connecticut primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hankin v. Auxiliary of the Winsted Memorial Hospital (In re Winsted Memorial Hospital), 236 B.R. 556, 1999 Bankr. LEXIS 940, 34 Bankr. Ct. Dec. (CRR) 969 (Conn. 1999).

Opinion

RULINGS ON ATTORNEY GENERAL’S MOTION TO INTERVENE AND DEFENDANT’S MOTION FOR ABSTENTION

ROBERT L. KRECHEVSKY, Bankruptcy Judge.

I.

ISSUES

On March 16, 1999, Barbara L. Hankin, Esq., Trustee (“the Trustee”) of the Chapter 7 bankruptcy estate of Winsted Memorial Hospital (“the Hospital” or “the Debt- or”), filed a complaint against the Auxiliary of the Winsted Memorial Hospital (“the Auxiliary”), seeking, in the First Count, turnover of the cash funds which the Auxiliary held prior to the Hospital’s closing, as property of the Debtor’s estate. In Count Two of the complaint the Trustee seeks a judgment for an amount, equal to such cash funds, against the Auxiliary on the ground of unjust enrichment.

Before the court are two motions filed in this adversary proceeding by different movants. Richard Blumenthal, Attorney General of the State of Connecticut (“the Attorney General”), on May 5, 1999, filed the motion seeking to intervene in the proceeding, pursuant to Fed.R.Civ.P. 24, made applicable by Fed. R. Bankr.P. [558]*5587024,1 as representing the public interest in the cash funds.

On May 14, 1999, the Auxiliary filed the second motion asking this court, pursuant to 28 U.S.C. § 1334(c)(1),2 to abstain from hearing the complaint, claiming that it concerns unsettled issues of state law best left to the determination of the state court.

A hearing on both motions and the Trustee’s objections thereto was held on June 2, 1999, following which the parties submitted their memoranda of law. Because the motions share a common background the court will rule on each motion in this single opinion.

II.

BACKGROUND

The Trustee’s complaint makes the following assertions. The Hospital, founded in 1895, operated continuously in Winsted, Connecticut as a non-profit, charitable corporation, until the Hospital ceased operation on October 25, 1996. The Auxiliary is an unincorporated association “established by the women of Winsted” in 1901 to support the Hospital. The Auxiliary has tax-exempt status under the Internal Revenue Code and has solicited charitable donations of cash, clothing and other items from the public to benefit the Hospital. The Hospital supplied the Auxiliary with rent-free space and utilities to operate a Thrift Shop and a Gift Shop. From 1987 to 1990, the Auxiliary made gifts to the Hospital totaling about $525,000.

In September, 1996, due to its worsening financial condition, the Hospital sought to close in-patient service. The Attorney General filed a state-court action to prevent such closing. The state court appointed a receiver of the Hospital and directed the receiver to marshall the Hospital’s assets, including sums due from the Auxiliary. The state court authorized the receiver both to close the Hospital on October 25, 1996, and, on November 25, 1996, to file a Chapter 7 petition in this court. The Auxiliary, after demand, refused to turn over the funds it had collected prior to the Hospital’s closing (“the preclosing donations”), estimated at $200,000, either to the receiver or to the Trustee.

In the First Count of the complaint, entitled “Turnover Action,” the Trustee [559]*559claims the Auxiliary, under Connecticut statutes, holds the preclosing donations exclusively for the Hospital’s use, thereby giving the Debtor’s estate a legal and equitable interest in them. In the Second Count, entitled “Unjust Enrichment”, the Trustee alleges that the Auxiliary having obtained the preclosing donations through use of the Hospital’s name, and use of the Thrift Shop and Gift Shop premises, it would be “unjust” to permit the Auxiliary to retain such funds while the Hospital’s creditors remain unpaid.

The Trustee asserts that her action against the Auxiliary is a core proceeding pursuant to 28 U.S.C. § 157(2)(b)(A), (E) and (O).3 She demands from the Auxiliary (1) an accounting of all preclosing donations, (2) turnover of the preclosing donations, (3) turnover of all records relating to the preclosing donations, (4) damages and (5) such other relief as is just.

III.

A. MOTION TO INTERVENE

The Attorney General, in his motion to intervene, contends that under general equity principles and by statute, Conn. Gen.Stat. § 3-125,4 he is charged with representing the interests of the public, as the intended beneficiaries of funds intended for charitable purposes. His motion represents that it is timely made; that the Attorney General has a statutory interest in the funds held by the Auxiliary; that his ability to protect that interest will be impaired by the disposition of this proceeding and that his interest is not represented by the existing parties to the proceeding.

Connecticut case law has long held that the attorney general is a necessary party to any action involving the disposition of charitable funds. Copp v. Barnum, 160 Conn. 557, 558, 276 A.2d 893 (1970) (where charitable funds are at issue, attorney general is a necessary party); also see Lockwood v. Killian, 172 Conn. 496, 505, 375 A.2d 998 (1977)(same); Healy v. Loomis Institute, 102 Conn. 410, 422, 128 A. 774 (1925) (prior to enactment of statute, held that attorney general is proper party to bring action to enforce terms of charitable trust).

The Attorney General seeks to intervene as of right under Rule 24(a), and a proposed answer to the complaint accompanies the motion. The Trustee partially objects to the intervention of the Attorney General and asks that the court permit the Attorney General to intervene only under Rule 24(b) (permissive intervention) with the condition that the court exclude him from participating in the discovery process and in settlement negotiations. The Trustee contends allowing the Attorney General full intervention will unnecessarily increase the costs of litigation to the Debt- or’s estate and give the Attorney General a veto power over any settlement. The Trustee would limit the Attorney General to receiving pleadings and being heard on legal arguments within his jurisdiction. The Trustee asserts that the Attorney General has no substantive interest in the preclosing donations and has not established a basis for intervention as of right under Rule 24(a). She further notes that the Attorney General also represents the [560]*560State of Connecticut as a creditor in the Debtor’s case.

The court concludes that restricting the Attorney General’s role in the discovery and settlement process is inappropriate. The Trustee’s argument that, if the Attorney General is not so restricted, the bankruptcy estate will incur additional costs is not an argument supported by any cited decisional law, and the court finds the argument unpersuasive in light of the well-established Connecticut case law finding the attorney general a necessary party in like matters.

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Related

In Re Sw Bach & Co.
425 B.R. 78 (S.D. New York, 2010)
In Re Winsted Memorial Hospital
249 B.R. 588 (D. Connecticut, 2000)

Cite This Page — Counsel Stack

Bluebook (online)
236 B.R. 556, 1999 Bankr. LEXIS 940, 34 Bankr. Ct. Dec. (CRR) 969, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hankin-v-auxiliary-of-the-winsted-memorial-hospital-in-re-winsted-ctb-1999.