In re: Peoria Regional Medical Center, LLC

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: August 2, 2019
• Docket: AZ-18-1317-LBF
• Status: Unpublished

Opinion

FILED AUG 2 2019 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. AZ-18-1317-LBF

PEORIA REGIONAL MEDICAL Bk. No. 2:17-bk-11742-SHG CENTER, LLC,

Debtor.

NAT PALANIAPPAN, a/k/a Raj Palaniappan,

Appellant,

v. MEMORANDUM*

PEORIA REGIONAL MEDICAL CENTER, LLC,

Appellee.

Argued and Submitted on July 18, 2019 at Phoenix, Arizona

Filed – August 2, 2019

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Appeal from the United States Bankruptcy Court for the District of Arizona

Honorable Scott H. Gan, Bankruptcy Judge, Presiding

Appearances: Appellant Nat Palaniappan argued pro se; Heather Macre of Aiken Schenk Hawkins & Ricciardi P.C. argued for Appellee.

Before: LAFFERTY, BRAND, and FARIS, Bankruptcy Judges.

INTRODUCTION

Appellant Nat Palaniappan entered into a prepetition employment

contract (“MOU”) with Peoria Regional Medical Center, LLC (“PRMC”) to

act as its CFO and to obtain financing to complete construction of a hospital

on real property owned by PRMC. After PRMC filed its chapter 111

petition, it terminated Mr. Palaniappan’s employment. Mr. Palaniappan

filed a claim for severance pay under the MOU. After a hearing, the

bankruptcy court entered an order disallowing Mr. Palaniappan’s claim for

severance pay and ruling that under the MOU he was entitled to

compensation of only $15.

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure.

2 Finding no error in the bankruptcy court’s interpretation of the MOU,

we AFFIRM.

FACTUAL BACKGROUND

PRMC was formed in 2007 to own real property in Peoria, Arizona

(the “Property”) on which a hospital would be built and operated. PRMC

began construction, but it ran out of money in 2012. PRMC’s management

sought outside financing to complete the construction, and PRMC’s

manager, Timothy A. Johns, M.D. engaged Mr. Palaniappan to help find

financing.

In March 2017, Mr. Palaniappan drafted, without the assistance of

legal counsel, a document entitled “AGREEMENT FOR NORTH WEST

MEDICAL CENTER DBA PEORIA REGIONAL MEDICAL CENTER.”

Dr. Johns reviewed the document and made several changes to it,

including changing the word “AGREEMENT” to “MOU” (memorandum

of understanding). Dr. Johns then initialed and dated the MOU.

The MOU provided that “CFO Mr. Palaniappan N.” would be

responsible for procuring construction financing, working capital and

equipment financing and overseeing all fiscal and fiduciary responsibilities

for the “organization.” Additionally, he was to lead the finance department

and oversee “Information Systems, Banking Relationships and Patient

Financial arrangements.”

Paragraph 1 of the MOU provided, somewhat confusingly, that

3 Mr. Palaniappan would be paid “$1 per month pre loan procurement may

be canceled with 30 days written [sic] if foreclosed by New Vision Health

or City mandate. Equity shares will be offered instead of Compensation.”

The MOU provided for “post loan funding and commencement of

construction compensation” of $100,000 annually plus health insurance, to

be increased upon the occurrence of certain events.

The MOU contained two alternative severance provisions, which

depended upon the procurement of financing and the party who procured

it. Specifically, if Mr. Palaniappan procured financing,

[a]t the end of employment? [sic] as agreed upon by the Board of Directors, Investors and Operating Manager for any reason other than malfeasance, at the time of separation, you will be provided with separation package of one year’s current salary and keep [sic] any equity shares issued to you, unless you are CFO of NWMC/PRMC plus an additional hospital where Tim Johns is manager, your severance will be one year of the current salary you are receiving for your dual role.

Alternatively, if Dr. Johns secured funding, and Mr. Palaniappan was

terminated for any reason,

severance will be the sum total of 9 months of the 185,000 or any current salary whichever is highest and any equity shares assigned to Mr. Palaniappan. N. [sic]

No financing was secured, and on August 30, 2017, the City of Peoria

issued a notice to abate code violations at the Property, setting a deadline

of September 27, 2017 for PRMC to obtain a permit to demolish the

4 partially constructed structure. As this apparently did not occur, on

October 3, 2017, the City of Peoria notified PRMC of its intent to demolish

the structure immediately. Around the same time, secured creditor Gilbert

Hospital began foreclosure proceedings on its note secured by a deed of

trust against the Property.

PRMC filed a chapter 11 petition on October 4, 2017.

Dr. Johns terminated Mr. Palaniappan’s employment with PRMC in

May 2018.2 In July 2018, PRMC filed a motion to approve a sale of the

Property to ADB Investments, LLC, subject to overbid. The terms of the

sale included a right of first offer to PRMC to rent space in the hospital

building to be constructed on the Property. Mr. Palaniappan objected to the

sale on the grounds that he was owed an administrative claim pursuant to

the MOU, specifically, a separation package, health insurance, equity

shares in the hospital, and compensation for “lost fees from not accepting

comprehensive overseas funding.” He also filed a motion for relief from

stay to permit him to go to state court to adjudicate the amount of his

claim.

At the hearing on the sale motion, the court explained to

2 The parties seem to disagree on the exact date of termination. PRMC asserts that Dr. Johns sent Mr. Palaniappan a “termination email” on May 3, 2018. In his appellate brief, Mr. Palaniappan contends he was served a formal notice of termination on August 30, 2018, and at oral argument in the bankruptcy court he disputed that he was terminated in May 2018, but in his motion for relief from stay he stated he was “terminated abruptly” in May 2018.

5 Mr. Palaniappan that the issue before the court was whether it should

approve a sale that would pay the liens and taxes on the Property and that

Mr. Palaniappan’s entitlement to payment of a claim was not a basis to

disapprove the sale. The court overruled his objection and approved the

sale. The court then stated:

What I wanted to explain is that, if you think you have a claim, which you’ve seemingly started to assert in this case, you need to file an application to be paid as an administrative expense claimant in this case. It needs to set forth not just the reasons why you think you could be paid, but also what amount you believe is an administrative expense of this estate and why. You need to file it, and you need to serve it in accordance with the rules.

Then Ms. Macre [PRMC’s counsel] will have an opportunity to object, and then we’ll set some kind of a hearing if necessary to either argue the merits or to determine what the next step will be. I would suggest that you hire someone to help you. I can’t make you go out and get someone and I don’t know whether you can financially afford it, but it would be of significant assistance to you to have someone work with you to help you prepare this and get it on file.

On September 20, 2018, Mr. Palaniappan filed a proof of claim listing

an unsecured claim of $138,750 with the notation “+ * Equity Shares in

P.R.M.C./N.W.M.C. Peoria or Proxy[.]” He listed “separation and severance

package” as the basis for the claim. He did not attach the MOU to his proof

of claim, but he did attach it to his concurrently filed “Motion to Set

6 Hearing on Severance Claim Due to Plaintiff,” asserting that the basis for

the claim was the MOU. In that motion, he requested an evidentiary

hearing “if Court felt [sic] it is necessary.”

PRMC filed an opposition, asserting that the MOU was not

enforceable, and in any event, no events had occurred that triggered the

severance provisions. Alternatively, PRMC argued that Mr. Palaniappan

was entitled under the MOU to no more than $15.

At the hearing on the severance claim, the court permitted

Mr. Palaniappan to argue at length. Mr. Palaniappan conceded that his

claim was based on the MOU, but he essentially argued that there were

terms incorporated into the MOU that were not plainly spelled out. For

example, he claimed that he was entitled to compensation for developing a

business model, dealing with the City of Peoria in requesting an extension

on the demolition deadline, and for other duties he performed as CFO. He

stated that he would bring in evidence of his dealings with the City if the

court permitted an evidentiary hearing.

He also seemed to argue that the term “funding” as required under

the MOU included selling the Property, building a hospital, and then

leasing it back, such that the sale to ADB fulfilled that definition. But the

bankruptcy court correctly observed that none of those terms appeared in

the MOU.

Ultimately, the court concluded that although the MOU met the

7 requirements of an enforceable contract under Arizona law,

under the terms of [the MOU], nothing was ever performed by [Mr. Palaniappan] or Dr. Johns that would result in the payment of a severance claim greater than the dollar a month that you’re entitled to under the original paragraph of [the MOU], which is unfortunate, but that’s the way the agreement is written.

The court also denied Mr. Palaniappan's motion for relief from stay,

finding that his claim had to be adjudicated in the bankruptcy court.

On November 6, 2018, the bankruptcy court entered an order (“Claim

Order”) finding that: (1) the MOU was a binding agreement; (2) the terms

contained in Paragraph 1 of the MOU controlled the outcome of the

severance claim; (3) Mr. Palaniappan is entitled to a claim for $1 per month

from March 6, 2017, through May 2018, for a total of $15. The order

required PRMC to pay Mr. Palaniappan $15 to satisfy the claim and

disallowed the remainder of the claim.3

On November 13, 2018, Mr. Palaniappan moved for reconsideration.

The bankruptcy court promptly denied the motion without a hearing.

Mr. Palaniappan timely appealed, referencing only the Claim Order. He

also moved for a stay pending appeal, but the bankruptcy court docket

3 It is not clear why the court apparently treated the entire amount as an administrative claim, given that part of the claim was incurred pre-petition. However, no party has raised this as an issue, and the amount at issue is de minimis.

8 does not reflect that the matter was ever set for hearing or ruled upon.4

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred in disallowing

Mr. Palaniappan’s claim for severance pay.

STANDARDS OF REVIEW

An order sustaining or overruling a claim objection “can raise legal

issues (such as the proper construction of statutes and rules) which we

review de novo, as well as factual issues (such as whether the facts

establish compliance with particular statutes or rules), which we review for

clear error.” Veal v. Am. Home Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 918

(9th Cir. BAP 2011) (citations omitted).

“De novo review requires that we consider a matter anew, as if no

decision had been made previously.” Francis v. Wallace (In re Francis), 505

B.R. 914, 917 (9th Cir. BAP 2014) (citations omitted).

Factual findings are clearly erroneous if they are illogical,

implausible, or without support in the record. Retz v. Samson (In re Retz),

606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence are

possible, the court’s choice between them cannot be clearly erroneous.

4 Mr. Palaniappan did not appeal the denial of his motion for relief from stay.

9 Anderson v. City of Bessemer City, 470 U.S. 564, 573-75 (1985).

DISCUSSION

A. We need not dismiss this appeal for Mr. Palaniappan’s failure to comply with applicable rules of appellate procedure.

PRMC requests that we dismiss this appeal based on

Mr. Palaniappan’s failure to comply with several rules of appellate

procedure. Specifically, PRMC points out that Mr. Palaniappan failed to

submit a coherent statement of issues or to sufficiently articulate error by

the bankruptcy court to permit PRMC to respond. In addition,

Mr. Palaniappan did not provide a complete record, nor did he reference

the record in his opening brief. That brief does not comply with Rule 8014,

as it lacks a jurisdictional statement, statement of issues and standard of

review, a concise statement of the case, and a certificate of compliance, and

the brief does not comply with the formatting requirements of Rule 8015,

nor does it include the certificate of interested parties or related cases

required by Ninth Circuit BAP Rule 8015(a)-1. Finally, PRMC notes that

the brief lacks a proof of service as required by Rule 8011, and that the

notice of appeal did not list PRMC or its counsel.

Pro se litigants are not excused from complying with the rules of

appellate procedure. Clinton v. Deutsche Bank Nat'l Trust Co. (In re Clinton),

449 B.R. 79, 83 (9th Cir. BAP 2011). And we have discretion to dismiss the

appeal or summarily affirm based on these rules violations. See N/S Corp. v.

10 Liberty Mut. Ins. Co., 127 F.3d 1145, 1146 (9th Cir. 1997) (striking appellant’s

brief and dismissing appeal based on numerous violations of appellate

rules); In re Clinton, 449 B.R. at 82-83 (summarily affirming bankruptcy

court’s orders due to appellant’s failure to file an adequate record to permit

meaningful review).

But we need not dismiss this appeal. We note that Mr. Palaniappan

did provide a copy of the October 25, 2018 transcript, and PRMC has

provided sufficient excerpts to complete the record and permit us to review

the bankruptcy court’s ruling. As discussed below, more problematic is

Mr. Palaniappan’s failure to address exactly how he believes the

bankruptcy court erred in its ruling. He instead attempts to reargue his

case before this Panel, presumably in the hope that we will view the matter

differently. We do not.

B. Mr. Palaniappan has not shown that the bankruptcy court erred in disallowing his severance claim.

Despite Mr. Palaniappan’s lengthy recitation of alleged facts

regarding his relationship with PRMC and Dr. Johns, this appeal turns

solely on the interpretation of the MOU Mr. Palaniappan drafted. As noted,

there were two alternative severance provisions in the MOU, neither of

which would be triggered unless Mr. Palaniappan or Dr. Johns secured

funding for PRMC. The bankruptcy court correctly found that this

condition did not occur. The sale to ADB was just that–a sale–and not the

11 procurement of financing. And the granting to PRMC of a right of first

offer to rent space in the new hospital building did not transform the sale

into financing, despite Mr. Palaniappan’s argument that this was the

“business model” employed with other hospital properties in which he and

Dr. Johns had been involved.

Mr. Palaniappan agreed that his claim was based on the MOU, but

his arguments were focused on matters outside the contract, such as

Dr. Johns’ transactions with officers of other hospitals and how those other

hospitals obtained funding. Under Arizona law, however, if a contract is

not reasonably susceptible to the interpretation offered by a party to the

contract, that party may not introduce extrinsic evidence contradicting the

written language. Birdsell v. Fort McDowell Sand & Gravel (In re Sanner), 218

B.R. 941, 945 (Bankr. D. Ariz. 1998) (citing Taylor v. State Farm Mut. Auto.

Ins. Co., 854 P.2d 1134, 1139 (Ariz. 1993)). In any event, Mr. Palaniappan’s

assertions are barely comprehensible, and even if they were plausible, there

is no evidence that PRMC agreed to any terms other than what was

contained in the MOU.

Nevertheless, Mr. Palaniappan argues that he should have been

granted an evidentiary hearing and that his due process rights were

violated when that did not occur. But the bankruptcy court carefully

considered Mr. Palaniappan’s filings and patiently permitted him to

present his arguments, none of which raised any relevant issue of material

12 fact sufficient to require an evidentiary hearing regarding the

interpretation of the MOU.

Mr. Palaniappan’s remaining arguments on appeal are difficult to

discern, but appear to be completely irrelevant to whether the bankruptcy

court erred in interpreting the MOU to disallow his severance claim. As he

did in the bankruptcy court, Mr. Palaniappan recites his history of working

with Dr. Johns at other hospitals. He alleges that Dr. Johns used the

business model Mr. Palaniappan developed to obtain a sale agreement

with ADB. His argument seems to be that the definition of “funding” as

used in the MOU included an investor commitment to complete the

hospital, then lease it to Dr. Johns or PRMC, and that ADB is committed to

doing so. But the MOU did not reflect that this was what the parties

intended when executing the MOU. Moreover, as the bankruptcy court

pointed out, ADB is not committed under the sale agreement to leasing the

Property to PRMC; rather, as noted, PRMC has the right of first offer to

lease space in the new building. And, as PRMC points out, the sale

agreement does not require ADB to complete construction of a hospital at

all.

Mr. Palaniappan also recites numerous tasks he performed in his

capacity as CFO of PRMC and points out that he had some discussions

regarding financing with an overseas investor. But, as the bankruptcy court

found, the plain language of the MOU limits Mr. Palaniappan’s

13 compensation to $1 per month “pre loan procurement” if no financing is

obtained. Although this figure seems shockingly low, that is what the

contract–which was drafted by Mr. Palaniappan–provides. The bankruptcy

court did not err in so concluding.

Finally, Mr. Palaniappan complains that the bankruptcy court “took

no time to deny his reconsideration request,” but he did not include the

order on reconsideration in his notice of appeal. Although this does not

necessarily preclude our review of the order on reconsideration, see United

States v. Arkison (In re Cascade Roads, Inc.), 34 F.3d 756, 761-62 & n.5 (9th Cir.

1994), Mr. Palaniappan did not present any argument as to how the

bankruptcy court failed to properly apply the standard for

reconsideration.5 Accordingly, we need not consider the matter. See Jodoin

v. Samayoa (In re Jodoin), 209 B.R. 132, 143 (9th Cir. BAP 1997) (“We ‘will not

ordinarily consider matters on appeal that are not specifically and

distinctly argued in appellant’s opening brief.’” (citing Miller v. Fairchild

Indus., 797 F.2d 727, 738 (9th Cir. 1986))).6

5 Reconsideration under Civil Rule 59(e), applicable via Rule 9023, is appropriate only if the moving party demonstrates (1) manifest error of fact; (2) manifest error of law; or (3) newly discovered evidence. Hansen v. Moore (In re Hansen), 368 B.R. 868, 878 (9th Cir. BAP 2007) (citing Hale v. U.S. Trustee (In re Basham), 208 B.R. 926, 934 (9th Cir. BAP 1997), aff'd, 152 F.3d 924 (9th Cir. 1998) (table). 6 Mr. Palaniappan requests as alternative relief that we lift the automatic stay to permit him to go to state court. But we have no jurisdiction to provide this relief, even if we believed it was warranted. Moreover, to the extent he is arguing that the bankruptcy (continued...)

14 CONCLUSION

For these reasons, we AFFIRM.

6 (...continued) court erred in denying stay relief, we have no jurisdiction over that order as it was not timely appealed.