United States v. Vanguard Healthcare, LLC

565 B.R. 627, 2017 WL 959356, 2017 U.S. Dist. LEXIS 35466
CourtDistrict Court, M.D. Tennessee
DecidedMarch 13, 2017
DocketNo. 3:16-02380
StatusPublished

This text of 565 B.R. 627 (United States v. Vanguard Healthcare, LLC) is published on Counsel Stack Legal Research, covering District Court, M.D. Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Vanguard Healthcare, LLC, 565 B.R. 627, 2017 WL 959356, 2017 U.S. Dist. LEXIS 35466 (M.D. Tenn. 2017).

Opinion

MEMORANDUM

KEVIN H. SHARP, UNITED STATES DISTRICT JUDGE

Contemporaneously with the filing of a 268-paragraph, 59-page Complaint, Plaintiffs, the United States of America and the State of Tennessee, filed a “Joint Motion for an Order That Their Pending False Claims Act Civil Action is Legally Excepted From the Automatic Stay in Bankruptcy” (Docket No. 2). Defendants oppose that Motion (Docket No. 18). Also pending is Defendants’ “Motion to Stay Response to Plaintiffs’ Complaint” (Docket No. 10), which Plaintiffs do not oppose (Docket No. 18). Both Motions will be granted.

I. Background

As the title of Plaintiffs Motion suggests, this is primarily a False Claims Act case brought pursuant to 31 U.S.C. §§ 3729-3733. In its simplest form, Plaintiffs allege that five nursing homes operated by Defendants knowingly billed Medicare and TennCare for grossly substandard services that resulted in improper care and severe physical and emotional harm to the nursing home residents. Plaintiffs also allege that four of those nursing homes and another one submitted pre-admission evaluations to TennCare that contained forged and/or photocopied signatures.

The allegations were investigated by the Tennessee Bureau of Investigation and the United States Department of Health and Human Services. Plaintiffs claim that, after conversations with counsel for most of the Defendants, a formal meeting was scheduled in which Plaintiffs intended to present their findings. However, that meeting did not take place because the corporate Defendants filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.'

II. Discussion

“As a general rule, the filing of a bankruptcy petition operates to stay, among other things, the continuation of a judicial proceeding against the debtor that was commenced before the petition.” Dominic’s Rest. of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012). It also operates to stay “the commencement ... of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy] case ... or to recover a claim against the debt- or that arose before the commencement of the bankruptcy case.” 11 U.S.C. § 361(a)(1).

“The purpose of the automatic stay is to ‘give[] the debtor a breathing spell from his creditors.’ ” In re Robinson, 764 F.3d 554, 559 (6th Cir. 2014) (citation omitted). Thus,

[i]t stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

Id. “In effect, the stay offers debtors a ‘new opportunity’ to organize their financial affairs, ‘unhampered by the pressure and discouragement of pre-existing debt.’ ” Id. (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934)).

[631]*631“But the automatic stay protection does not apply in all cases; there are statutory exemptions, and there are non-statutory exceptions.” Dominic’s Rest., 683 F.3d at 760. Thus, while the automatic stay “ ‘repelfe] ... many prepetition collection actions, [s]ome governmental attacks on the estate ... penetrate the barrier.’ ” In re Robinson, 764 F.3d at 569 (quoting In re Javens, 107 F.3d 359, 363 (6th Cir. 1997)).

One such exception for a governmental attack, and the one on which Plaintiffs rely, deals with the enforcement of police or regulatory powers. More specifically, the Bankruptcy Code provides that the filing of a petition does not operate as a stay of

the commencement or continuation of an action or proceeding by a governmental unit or any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, opened for signature on January 13, 1993, to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power[.]

11 U.S.C. § 362(b)(4).

The inclusion of the language relating to chemical weapons and their destruction seems a bit odd because the statute can arguably be read as applying only to governmental units exercising their authority under the convention. In fact, at least one court appears to have read the language that way. See, In re Finley, 237 B.R. 890, 894 (Bankr. N.D. Miss. 1999) (stating that 11 U.S.C. § 362(b)(4), as amended, “is applicable to governmental units or any organizations exercising authority under the Convention^] .,. which would not include the Mississippi Department of Public Safety under the factual circumstances of this proceeding”).

However, it has been cogently explained — based.upon the statute’s legislative history — -that when Congress amended § 362(b) in 1998, it combined former subsections (b)(4) and (b)(5) into a single new subsection — § 362(b)(4) — and intended to expand the scope of the statute, not curtail it. United States v. Federal Resources Corp., 525 B.R. 759, 763-64 (D. Idaho 2015). In fact, “[without referring to the legislative history surrounding the 1998 amendment, circuit court of appeals have continued to analyze the § 362(b)(4) police or regulatory powers exception in exactly the same manner as before.” Id. at 764-65 (collecting cases); see also United States ex rel. Fullington v. Parkway Hosp., 351 B.R. 280, 290 (E.D.N.Y. 2006) (“Apart from actions brought by a ‘governmental unit,’ § 362(b)(4) also applies to actions brought by an action or proceedings commenced by an organization exercising authority under the Convention[.]”); In re PMI-DVW Real Estate Holdings, L.L.P., 240 B.R. 24, 30 (Bankr. D. Ariz. 1999) (“[T]he Court finds and concludes that Congress did not amend the statute in such a way to only include enforcement of violations of the Convention ... as the only police or regulatory power exception to the automatic stay[.]”); In re Mohawk Greenfield Motel Corp., 239 B.R. 1, 6 (Bankr. D. Mass. 1999) (observing that “commentators agree that given the lack of significant departure from the former Code sections, the case law that developed under former § 362(b)(4) and (5) remains as viable guidance in interpreting this new provision”).

For its part, the Sixth Circuit appears to have addressed Section 362(b)(4) on three [632]*632occasions since the amendment, see In re Leonard, 644 Fed.Appx. 612 (6th Cir. 2016), Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374 (6th Cir. 2001), and Associated Gen.

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Bluebook (online)
565 B.R. 627, 2017 WL 959356, 2017 U.S. Dist. LEXIS 35466, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-vanguard-healthcare-llc-tnmd-2017.