In re First American Health Care of Georgia, Inc.

288 B.R. 598, 2002 Bankr. LEXIS 1670, 2002 WL 31938723
CourtUnited States Bankruptcy Court, S.D. Georgia
DecidedAugust 2, 2002
DocketNos. 96-20188 to 96-20218
StatusPublished
Cited by1 cases

This text of 288 B.R. 598 (In re First American Health Care of Georgia, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re First American Health Care of Georgia, Inc., 288 B.R. 598, 2002 Bankr. LEXIS 1670, 2002 WL 31938723 (Ga. 2002).

Opinion

MEMORANDUM AND ORDER ON ROBERT J. MILLS’S APPLICATION FOR REIMBURSEMENT

LAMAR W. DAVIS, Jr., Bankruptcy Judge.

This matter, a core proceeding within the jurisdiction of this Court under 28 U.S.C. § 157(b)(1) & (2)(A) & (B), involves a dispute as to who should receive monies remaining in a fund established to pay creditors in accordance with a confirmed Chapter 11 plan of reorganization. There are two contenders: the successors to the debtor corporation, who are entitled to receive any undistributed monies left in the fund at the time the case is closed, and a former officer of the debtor corporation, who has applied for reimbursement of certain legal expenditures to which he believes he is entitled under indemnity agreements or provisions of the plan.

In accordance with Bankruptcy Rule of Procedure 7052(a), I make the following Findings of Fact and Conclusions of Law.

[600]*600 FINDINGS OF FACT

Robert J. Mills (“Mills”) was the CEO of First American Health Care of Georgia (“First American”), which filed a Chapter 11 case on February 21,1996. Its plan for reorganization (“the Plan”) was confirmed on October 4, 1996. Prior to confirmation, First American filed a motion seeking court approval of a settlement agreement between Mills and First American regarding numerous issues (“the Motion”). The Motion recited that the settlement reflected the best interests of debtors, creditors, and parties in interest because litigation of those issues might prevent or delay confirmation of the Plan and completion of the anticipated merger with Integrated Health Services (“IHS”). See Ex. 5 (Motion ¶ 6). The Motion also recited that among the numerous claims against First American were unspecified “other financial obligations and future indemnification claims,” id. ¶ 4. On October 3, 1996, the Court approved the settlement “on the terms and conditions set forth within the omnibus settlement agreement” (“the Omnibus Agreement”), Ex. 5 (Order Approving Settlement), and the Plan was confirmed immediately thereafter.

Mills’s claim arose out of two lawsuits. One, the “Broussard Litigation,” was filed pre-petition in 1992 in Texas and the other, the “Towne Litigation,” was a 1995 prepetition suit brought in Georgia. The lawsuits, which asserted breach of contract, fraud, and similar causes of action, arose out of alleged breach of acquisition agreements whereby First American acquired local home health care agencies under a contract that provided for certain financial consideration and/or employment contracts for the key employees of the acquired organizations. Mills and First American were named as defendants in both suits.

First American’s by-laws provided for indemnification of its officers in the event that they were sued for acts they committed in the course of their employment. In accordance with that provision, First American undertook, in addition to its own defense, Mills’s defense in both lawsuits. It continued to provide for Mills’s defense after filing its Chapter 11 case and to pay Mills’s legal expenses as they were incurred.

Pursuant to the Plan, First American established an escrow account, designated as “Creditor Payment Fund,” which was funded in an amount determined at confirmation by this Court to be sufficient to pay the allowed claims of Class 4 creditors. Class 4 claims consisted of

unsecured claims against any Debtor not otherwise classified or treated in this Plan (whether or not liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, absolute, accrued, unaccrued, legal, or equitable), including without limitation, ... any claims for indemnification, reimbursement, or contribution by any officers, directors, agents, or employees on account of any claims made against any such person arising out of any facts or conduct occurring prior to the Filing Date .... Each holder of a claim in this class is not deemed to be filed pursuant to § 1111(a) ... must file a proof of claim with regard to such claim on or before the Claims Bar Date (it being understood that an indemnification, reimbursement, or contribution claim may be preserved with respect to acts, omissions, events or circumstances occurring or existing prior to the Filing Date, even if actual or potential claims, losses, liabilities or expenses have not yet been identified, asserted or incurred, only by expressly stating same in a properly and timely filed proof of claim).

Ex.l (Plan ¶ 3.04) (emphases added).

The Plan incorporated paragraph 10 of the Omnibus Agreement, which provided in relevant part:

[601]*601Future Indemnification. Except as expressly provided otherwise in the Merger Agreement, and subject to the terms and conditions of this Agreement, the Company agrees to accept responsibility for any liability of the Company (including legal fees and expenses, settlement amounts, and damages, as applicable) incurred in any action in which the Principal Shareholder(s) are made a party to a proceeding solely because he or she was an officer, director or agent of the Company acting on behalf of the Company in a manner he or she believed in good faith to be in the best interests of the Company, so long as such litigation does not result from any action or omission of either Principal Shareholder which could reasonably be found to constitute a crime or fraud and does not pertain to any personal benefit either Principal Shareholder improperly received. The Company shall have the exclusive right to manage and control the defense, settlement or other disposition, payment or discharge of all such matters for which indemnification is provided. The Principal Shareholders will agree to any settlement proposal by the Company and will fully cooperate, at the Company’s expense (for out-of-pocket costs thereby incurred) in the defense or prosecution of any such claim. If the Principal Shareholders choose to employ their own counsel to participate in the defense of such matters, they may do so only at their own expense ....

Ex. 4 (Omnibus Agreement ¶ 10).

At confirmation or shortly thereafter, First American merged with IHS, as contemplated in the Plan. IHS subsequently merged with or was acquired by other entities which ultimately became a part of a company known as “Medshares.” Each of these “successor companies,” as they are collectively referenced herein, initially assumed Mills’s defense and paid some, but not all, the bills tendered by the two counsel involved. Ultimately, however, the successor companies ceased participating in Mills’s defense, first in the Broussard case in the spring of 2000 and then in the Towne litigation in the spring of 2001. The relevant facts of each of the actions are set out below.

1. The Towne Litigation

The Towne case was filed in September 1995. At its inception, First American hired counsel to represent its interests and those of Mills. After confirmation, its successor hired Austin Catts as counsel to continue its and Mills’s defense and paid Mills’s attorney fees in October 1998. Ex. 6. In February 1999 Medshares communicated to Catts that it was assuming the defense. Ex. 7. Catts provided status reports to Medshares from time to time and kept it informed at all times as to the status of the litigation. See Exs. 9, 10, 11.

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288 B.R. 598, 2002 Bankr. LEXIS 1670, 2002 WL 31938723, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-first-american-health-care-of-georgia-inc-gasb-2002.