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Healthcare Real Estate Partners, LLC v. Summit Healthcare Reit, Inc.

United States District Court, D. Delaware

September 19, 2018

HEALTHCARE REAL ESTATE PARTNERS, LLC, Appellant,
v.
SUMMIT HEALTHCARE REIT, INC., et al., Appellees.

          MEMORANDUM

          MALACHY E. MANNION UNITED STATES DISTRICT JUDGE.

         Pending before the court is the bankruptcy appeal of appellant Healthcare Real Estate Partners, LLC (“HCRE Partners”).[1] HCRE Partners seeks the reversal of an Order of the Bankruptcy Court granting a Rule 12(b) motion to dismiss filed by appellees, Petitioning Creditors and Summit, with respect to HCRE Partners' adversary complaint against them seeking damages for alleged violations of the automatic stay pursuant to 11 U.S.C. §362(k). The Bankruptcy Court construed its Order dismissing the underlying Involuntary Bankruptcy Petition filed against HCRE Partners as limiting HCRE Partners' available remedies to damage claims under 11 U.S.C. §303(i). HCRE Partners essentially contends that the Bankruptcy Court's interpretation of its own Dismissal Order of the underlying bankruptcy case was not reasonable under the circumstances.

         Based on the foregoing, the Order of the Bankruptcy Court will be AFFIRMED and HCRE Partners' appeal will be DENIED.

         I. BACKGROUND

         On September 16, 2015, Petitioning Creditors and Summit filed an Involuntary Bankruptcy Petition under Chapter 7 against HCRE Partners.[2]HCRE Partners contends that the petition was filed to remove it as manager of the Funds since Petitioning Creditors had invested in the Funds. The alleged attempt to remove HCRE Partners was based on a clause in the Funds' operating agreements which allowed for the removal of HCRE Partners if it ever became a debtor under the Bankruptcy Code. HCRE Partners did not timely respond to the Involuntary Bankruptcy Petition since it claimed that it did not receive proper notice of the Involuntary Petition. An Order for Relief was entered by the Bankruptcy Court on October 9, 2015. After the Bankruptcy Court issued its Order for Relief, the Petitioning Creditors removed HCRE Partners as manager of the Funds and elected Summit as the new manager of the Funds. Summit then decided to cancel the Funds.

         On October 23, 2015, HCRE Partners filed a motion for relief, pursuant to Rules 55(c) and 60(b), from the Bankruptcy Court's Order for Relief entered in the Chapter 7 case. Petitioning Creditors objected to HCRE Partners' motion for relief on November 6, 2015. The Bankruptcy Court granted HCRE Partners' motion for relief after conducting an evidentiary hearing on January 6, 2016, and vacated its October 9, 2015 Order for Relief.

         The Chapter 7 Involuntary Bankruptcy Petition filed against HCRE Partners was then reinstated. On March 4, 2016, Petitioning Creditors and Summit filed a motion to dismiss the Involuntary Petition against HCRE Partners. HCRE Partners opposed the motion to dismiss stating that it was reserving all its claims, and that it intended to seek “all damages caused by the involuntary petition and punitive damages pursuant to §§303(i) and 105(a).” HCRE Partners did not state in its objection that it would also seek damages under §362(k).

         The Bankruptcy Court conducted a hearing on the dismissal motion on April 7, 2016. HCRE Partners did not consent to the dismissal of the Involuntary Petition and sought to reserve its rights and remedies, by stating on the record “just to be clear, we're reserving all of our rights, whatever they may be.” The Bankruptcy Court granted the motion to dismiss and then dismissed the Involuntary Petition pursuant to an Order dated on April 18, 2016.The Order dismissing the Involuntary Petition (“BK Dismissal Order”) stated, “Any motion made by Debtor [i.e., HCRE Partners] under 11 U.S.C. §303(i) shall be filed no later than 30 days after entry of this Order.” In the preface of the BK Dismissal Order, it stated, in part, that “Debtor [i.e., HCRE Partners] having not consented to dismissal of the case and Debtor [i.e., HCRE Partners] not waiving its rights to seek judgment for all available damages pursuant to §303(i)”. The BK Dismissal Order also stated, in part, “that nothing herein shall limit Debtor's [i.e., HCRE Partners] right to seek damages, including without limitation, fees and costs, pursuant to 11 U.S.C. §303(i) or otherwise.” In its Order, the Bankruptcy Court further stated that it “shall retain jurisdiction with respect to any matters related to or arising from or related to the implementation, enforcement or interpretation of this Order.” (Doc. 16-11).

         HCRE Partners then claimed that it was still owed over a $1, 000, 000 in past and future compensation as former manager of the Funds. HCRE Partners also contended that the stated actions of Petitioning Creditors and Summit occurred while the automatic stay was in effect with respect to the Involuntary Petition and that their actions violated the automatic stay under §362.

         Subsequently, on May 18, 2016, HCRE Partners initiated two proceedings, after the bankruptcy case was dismissed, against Petitioning Creditors and Summit. First, HCRE Partners filed a motion for damages under 11 U.S.C. §303(i) against Petitioning Creditors and Summit for actual and punitive damages due to the alleged bad faith filing of the Involuntary Bankruptcy Petition against it (the “303 Motion”). Second, HCRE Partners filed a complaint against the Petitioning Creditors and Summit for alleged violations of the automatic stay, pursuant to 11 U.S.C. §362(k), (the “362 Complaint”), during the pendency of the Involuntary Bankruptcy Petition. The 362 Complaint commenced an adversary proceeding.[3] (Doc. 16-13).

         On July 28, 2017, Petitioning Creditors and Summit filed a motion to dismiss the 362 Complaint under Fed.R.Civ.P. 12(b). They asserted two arguments, to wit: (1) the Court's [BK Dismissal Order] specified that HCRE Partners could only seek relief for alleged damages under 11 U.S.C. §303(i) and, thus the doctrine of the law of the case precluded HCRE Partners from seeking damages for any alleged violations of the automatic stay; and (2) based on “the pendency of state court litigation between the parties and their affiliates pending in California [See Doc. 16-18] the Court should exercise its discretion under 28 U.S.C. §1334(c)(1) to permissively abstain from considering any alleged claims under Section 362(k) or any other relief outside of Section 303(i).” (Doc. 16-17). The motion to dismiss of Petitioning Creditors and Summit was then briefed.

         The Bankruptcy Court conducted a hearing on September 27, 2017 regarding the motion to dismiss of Petitioning Creditors and Summit. (Doc. 16-22). On October 19, 2017, the Bankruptcy Court granted the motion to dismiss of Petitioning Creditors and Summit and entered a final order dismissing HCRE Partners' §362 adversary Complaint with prejudice. (Doc. 16-23). The Bankruptcy found that its prior order dismissing the Involuntary Bankruptcy Petition limited HCRE Partners' available remedies to damage claims under §303(i).

         On November 1, 2017, HCRE Partners timely filed the instant appeal challenging the Bankruptcy Court's October 19, 2017 Order dismissing its 362 Complaint. (Doc. 1). On January 6, 2018, HCRE Partners filed its opening brief, (Doc. 13), and its appendix of the record, (Doc. 16). On February 26, 2018, Appellee Summit filed its brief in opposition and an appendix of exhibits. (Docs. 22 & 23). On March 13, 2018, HCRE Partners filed a reply brief. (Doc. 25).

         II. ...


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