RICHARD G. ANDREWS, District Judge.
Before the Court is the Emergency Motion for Stay Pending Appeal (D.I. 1) ("Emergency Motion") filed by appellant, the United States, on behalf of Alex M. Azar, II, Secretary of the United States Department of Health and Human Services, and Seema Verma, Administrator for the Centers for Medicare and Medicaid Services (together "CMS"), and the Defense Health Agency ("DHA") of the U.S. Department of Defense (together with CMS, the "Government"), seeking a stay pending appeal of the Bankruptcy Court's November 27, 2019 order approving the above-captioned Debtors' disclosure statement and confirming the Debtors' proposed chapter 11 plan of liquidation (B.D.I. 531)
1.
2. On August 29, 2019, the Bankruptcy Court issued a memorandum opinion granting THD's motion for preliminary injunction and entered the Payment Order. In re THG Holdings LLC, 604 B.R. 154 (Bankr. D. Del. 2019). The Bankruptcy Court rejected the Government's argument that the Bankruptcy Court lacked jurisdiction to enforce the automatic stay and enjoin the Government from continuing to withhold Medicare payments during the bankruptcy because THD had not exhausted its administrative remedies under the Medicare statute. See id. at 158-59. The Bankruptcy Court also held that THD's right to receive Medicare payments was "indisputably" property of its bankruptcy estate under 11 U.S.C. § 541(a), and the Government's withholding of such payments after THD's bankruptcy filing was a violation of the automatic stay under 11 U.S.C. § 362(a). See id. at 160. The Bankruptcy Court rejected the Government's contention that withholding Medicare payments to THD fit within the narrow police power exception to the automatic stay under 11 U.S.C. § 362(b)(4). See id. at 161. The Bankruptcy Court entered an order requiring that "to the extent not already remitted to True Health, [the Government] shall, within five (5) business days of entry of this Order Enforcing the Automatic Stay, deliver to True Health one hundred percent (100%) of all funds Defendants have withheld from True Health on and after the Petition Date." (Adv. D.I. 28 (referred herein as the "Ordered Payments")).
3. Two weeks after the entry of the Payment Order, the Government sought a stay pending appeal of the Payment Order in the Bankruptcy Court. (See Adv. D.I. 33). The Bankruptcy Court denied the Government's request for a stay pending appeal, finding that the Government "ha[s] not established a likelihood of success on the merits given the Third Circuit's opinion in University Medical Center,[
4. Thereafter, the Government sought a stay pending appeal of the Payment Order in this Court. This Court agreed with the Bankruptcy Court that the Government failed to demonstrate a likelihood of success on appeal to warrant a stay and failed to establish any irreparable harm to the Government in the absence of a stay. (See Azar v. True Health Diagnostics, LLC, Civ. No. 19-1714-RGA, D.I. 31, 10/16/19 Hr'g Tr. at 38:13-18).
5. Thereafter, the Bankruptcy Court approved sales of substantially all of the Debtors' business on September 20, 2019 and October 30, 2019. (See B.D.I. 271, 432). In connection with winding down the Debtors' estates, the Debtors engaged in negotiations with their secured lenders and the official committee of unsecured creditors appointed by the Office of the United States Trustee to formulate terms of a liquidating chapter 11 plan. (B.D.I. 508). After interim approval by the Bankruptcy Court, votes on the Plan were solicited from creditors, and the Plan was overwhelmingly accepted by all classes of claims entitled to vote. (See id.) Classes 3 and 4 in the Plan, which represent secured claims against the Debtors entitled to vote, unanimously accepted the Plan. (See id.) Class 5, which represents holders of unsecured claims, accepted the Plan by a wide margin with 94.74% in number and 94.45% in amount voting to accept the Plan. (See id.)
6. On November 26, 2019, the Bankruptcy Court held a hearing (the "Confirmation Hearing") to consider the final approval of the Debtors' disclosure statement and final confirmation of portions of the Plan to which the Government had objected.
7. Prior to the Confirmation Hearing, the Debtors and the Government entered into a stipulation governing the evidence to be admitted at the Confirmation Hearing (B.D.I. 498) (the "Stipulation"). Pursuant to the Stipulation, the Government agreed that it would not introduce any evidence challenging the Debtors' evidence that they provided valuable and necessary services in exchange for the Ordered Payments. (See Stipulation, ¶ 8). The Government also stipulated that it would not offer any evidence of misconduct by the Debtors or evidence supporting an administrative expense claim. (See id.)
8. As noted by the Bankruptcy Court, "The Government, in its closing argument, agreed that it was limiting its objections to feasibility, good faith, and the scope of the releases being provided under the terms of the Plan." (D.I. 6-2, 11/26/19 Hr'g Tr. at 75:1-4). Following oral argument, the Bankruptcy Court overruled each of the Government's remaining objections. (Id. at 75:1-81:1). On November 27, 2019, the Bankruptcy Court entered the Confirmation Order in accordance with its ruling.
9. The stay of the Confirmation Order by various Federal Rules of Bankruptcy Procedure was partially waived and set to expire on December 4, 2019 at 11:59 p.m. (Prevailing Eastern Time). (B.D.I. 531 at ¶ 43). Upon the Government's request for a hearing date on a motion for stay pending appeal, the Bankruptcy Court stated that it would deny any such motion without a hearing, thus rendering impractical the filing of any request for stay pending appeal relief in that court. (See D.I. 6-2, 11/26/19 Hr'g Tr. at 82:13-83:1). On December 1, 2019, the Government filed its Notice of Appeal (D.I. 2) with respect to the Confirmation Order together with the Emergency Motion (D.I. 1). The Court set an answering deadline of December 3, 2019 (D.I. 4) with respect to the Emergency Motion, and extended the stay contained in the Confirmation Order for an additional 24 hours to December 5, 2019 at 11:59 p.m. (Prevailing Eastern Time) (D.I. 8).
10.
11.
Revel AC, 802 F.3d at 571 (emphasis in text) (internal quotations and citations omitted).
12.
13. Underlying this appeal is the Government's argument that the Bankruptcy Court did not have jurisdiction to enforce the automatic stay and enter the Payment Order. The Government argues that because it will be successful in its appeal of the Payment Order, the Government will be entitled to a return of the Ordered Payments as an administrative claim, and the Plan does not provide for such treatment. The Government is unlikely to succeed on the merits of this argument for several reasons.
14. First, in University Medical Center, the Third Circuit held that the Bankruptcy Code provides an independent basis for a bankruptcy court to exercise jurisdiction to decide the precise issue in this case — whether the automatic stay under section 362(a) prohibits the withholding of Medicare payments to a healthcare provider in bankruptcy. University Medical Center, 973 F.2d 1065, 1072 (3d Cir. 1992). The Third Circuit concluded that this issue arises under the Bankruptcy Code, not the Medicare statute, and thus bankruptcy courts have jurisdiction to enforce the automatic stay to prevent the Government from withholding Medicare payments in bankruptcy. See id. at 1073. Here, the Bankruptcy Court and this Court followed binding precedent, finding that the Bankruptcy Court had jurisdiction to enforce the automatic stay under 28 U.S.C. §§ 157 and 1334.
15. The Government's attempt to rely on the Third Circuit case In re Denby-Peterson, 941 F.3d 115 (3d Cir. 2019), must be rejected. Denby-Peterson did not mention University Medical Center. Additionally, Denby-Peterson was not issued by an en banc panel that could overrule University Medical Center under the Third Circuit's internal guidelines. See Internal Operating Procedures of the United States Court of Appeals for the Third Circuit (2018) § 9.1. Finally, the Court is persuaded that the Bankruptcy Court aptly distinguished Denby-Peterson in its decision confirming the Plan:
11/26/19 Hr'g Tr. at 76:5-12. The Government remains unlikely to prevail on its underlying appeal of the Payment Order, as University Medical Center remains good law and binding precedent that recognizes the bankruptcy court's jurisdiction to enforce the automatic stay to prevent the Government from withholding Medicare payments from the Debtors. As the Emergency Motion is based upon an argument already rejected by this Court and the Bankruptcy Court, the argument must fail because the Government has not offered any reason to disturb the law of the case.
16. Second, the Government is unlikely to succeed on the merits of its appeal of the Confirmation Order. The Debtors have demonstrated that the Plan was proposed in good faith, and the record reflects that the Government failed to introduce evidence to the contrary. Under Third Circuit law, "good faith" requires that a "plan be `proposed with honesty, good intentions and a basis for expecting that a reorganization can be effected with results consistent with the objectives and the purposes of the Bankruptcy Code.'" In re Zenith Elecs. Corp., 241 B.R. 92, 107 (Bankr. D. Del. 1999) (quoting In re Sound Radio, Inc., 93 B.R. 849. 853 (Bankr. D.N.J. 1988)); see also In re PPI Enters. (U.S.), Inc., 228 B.R. 339, 347 (Bankr. D. Del. 1998) ("[C]ourts have held a plan is to be considered in good faith "if there is a reasonable likelihood that the plan will achieve a result consistent with the standards prescribed under the Code.").
17. While the Emergency Motion repeatedly cites the doctrines of "restitution and unjust enrichment," it fails to explain how those principles have anything to do with whether this Plan was proposed in good faith. The Government argues that "it is inconsistent with the Code's objectives for a debtor, by deliberately seeking to moot an appeal, to prevent a creditor from vindicating its property rights under the Code." (D.I. 1 at ¶ 15). However, the Government failed to introduce any evidence that the Debtors were "deliberately seeking to moot" the Payment Order Appeal. The evidence introduced at the Confirmation Hearing supports a determination that the Plan was proposed with the honest intention of maximizing value for the Debtors, their estates and their creditors. (See B.D.I. 507 (memorandum of law in support of plan confirmation); D.I. 6-3 (declaration in support of plan confirmation)). The record reflects that this evidence is uncontroverted. (See D.I. 6-3 at ¶¶ 12, 31; 11/26/19 Hr'g Tr. at 80:17-22). In particular, the Plan provides for the creation of a litigation trust that is the best chance of recovery for unsecured creditors who would otherwise receive nothing on account of their claims.
18. Moreover, despite holding the burden of proof under section 503(b) of the Bankruptcy Court, the Government fails to explain how it is entitled to the return of the Ordered Payments under the Bankruptcy Code if the Payment Order is reversed. The Bankruptcy Court recognized that the Government was attempting to circumvent the Bankruptcy Code's priority scheme and secure a finding that it would be automatically entitled to a return of the Ordered Payments if it were successful in the Payment Order appeal:
(11/26/19 Hr'g Tr. at 78:5-10). The Bankruptcy Court found that the Ordered Payments were earned by the Debtors during the bankruptcy cases, which clearly undermines the Government's theory that it would be entitled to the return of the Ordered Payments:
(11/26/19 Hr'g Tr. at 76:20-77:3). The record reflects that the only testimony at the hearing was that the Ordered Payments were made for services actually rendered. (See 11/26/19 Hr'g Tr. at 12:9-13:24, 21:7-16, 21:21-25).
19. Finally, the Government is not likely to prevail on its argument that the Plan was not feasible because it did not provide a mechanism for the return of the Ordered Payments. As noted above, the Government suggests no valid theory by which the Debtors could be ordered to return the Ordered Payments if the Government is successful in the Adversary Appeal. The Government must provide evidence that they are claims entitled to administrative expense priority. See In re FRG, Inc., 121 B.R. 451, 456 (Bankr. E.D. Pa. 1990) (the allocation of the burdens of proofs in a claim estimation is the same as in deciding objections to proofs of claim); see also In re Cook Inlet Energy LLC, 583 B.R. 494, 501 (B.A.P. 9th Cir. 2018) ("Administrative priority claims under § 503(b)(1)(A) are ... not deemed allowed as priority claims."). The record reflects that the Government did not provide any such evidence. Absent a statutory mechanism to do so, such as proving an entitlement to a secured claim or an administrative expense, the Government has no automatic right to payment if it succeeds in its appeal. While the Government may have a claim against the Debtors' estate, that claim is not entitled to priority under the Bankruptcy Code. As the Bankruptcy Court recognized in its ruling:
(11/26/19 Hr'g Tr. at 77:25-78:4). The Government is unlikely to prevail on this aspect of its appeal of the Confirmation Order because the Government did not raise any feasibility issues at the Confirmation Hearing and failed to provide any evidence or legal authority supporting its argument that the Debtors will ever have to pay the Government an administrative expense claim.
20.
21. First, the Government argues that it is unlikely to be paid, even if the Payment Order is reversed on appeal, because the Bankruptcy Court denied the Government's request to set a reserve covering the Ordered Payments in the Plan, and the Plan does not provide for administrative priority treatment of such a claim. Although the Government claims that the Debtors will be required to repay the Government if it prevails in the Adversary Appeal, as noted above, the Government does not explain which provisions of the Bankruptcy Code would require the return of the Ordered Payments. To be returned in full, the Ordered Payments would have to qualify as an administrative expense of the Debtors' estates. Unlike unsecured claims governed by section 502 of the Bankruptcy Code, "requests for payment of administrative expenses are not entitled to the presumption of correctness that is accorded claims prepetition creditors assert through proofs of claim. An entity seeking allowance of an administrative expense has the burden of proof." 4 COLLIER ON BANKRUPTCY ¶ 503.04[1] (Richard Levin & Henry J. Sommer eds., 16th ed.). The law of this district is clear, "The claimant bears the ultimate burden of establishing a valid administrative expense claim by a preponderance of the evidence." In re SRC Liquidation, LLC, 573 B.R. 537, 540 (Bankr. D. Del. 2017). Here, the Government stipulated not to offer any proof of an administrative expense claim in connection with its objection to the entry of the Confirmation Order. (See B.D.I. 498, ¶ 8). Having failed to assert a basis for administrative priority treatment in the first place, the Government cannot assert the Plan's failure to accord such treatment as irreparable harm.
22. Second, the Government argues, the Debtors will "substantially consummate" the Plan as soon as the Plan becomes effective, creating a risk that the Government might be unable even to have its arguments heard on the merits due to the doctrine of "equitable mootness." (D.I. 1 at 5). The Government is apparently arguing that the Confirmation Order would make the Payment Order appeal equitably moot. However, even if the implementation of the Confirmation Order were potentially to moot the Payment Order appeal, "the possibility that an appeal may become moot does not alone constitute irreparable harm for purposes of obtaining a stay." In re Color Spot Holdings, Inc., 2018 WL 3996938, at *3 (D. Del. Aug. 21, 2018) (citing Regal Ware, Inc. v. Global Home Prods., LLC, 2006 WL 2381918, at *1 (D. Del. Aug. 17, 2006)). Additionally, "a purely economic injury, compensable in money, cannot satisfy the irreparable injury requirement" unless "the potential economic loss is so great as to threaten the existence of the movant's business." Id. at *4.
23.
24. The record reflects that the Debtors had no post-petition funding as of December 4, 2019, and, absent the occurrence of the effective date of the Plan, the litigation trust established by the Plan to pursue creditor recoveries will not be funded. The Court concludes that any further stay of the Confirmation Order may result in harm to creditors and that this harm outweighs the potential harm to the Government.
25.
26. The Court does not doubt that the Government's motives for both appeals are entirely in line with protecting the integrity of the Medicare system and the Government's law enforcement abilities. However, "consideration of [the four] factors by the district court requires a `delicate balancing.'" Revel AC, 802 F.3d at 570 (quoting Delaware River Port Auth. v. Transamerican Trailer Transport, Inc., 501 F.2d 917, 920 (3d Cir. 1974)). In situations where, as here, "considerable injury will result from either the grant or denial of a preliminary injunction, these factors [i.e., the balance of harms and where the public interest lies] to some extent cancel each other and greater significance must be placed upon the likelihood that each party will ultimately succeed on the merits of the litigation." Delaware River Port Auth., 501 F.2d at 924. As the Court finds that the Government is unlikely to succeed on its challenges to plan confirmation or its underlying appeal of the Payment Order, the Court is not persuaded that these general public interest considerations are sufficient to outweigh the Government's weak showing regarding its likelihood of success on the merits.
27.
NOW, THEREFORE, it is HEREBY ORDERED that the Emergency Motion (D.I. 1) is DENIED.