KEVIN McNULTY, U.S.D.J.:
This is an appeal from orders of Judge Vincent F. Papalia of the U.S. Bankruptcy Court for the District of New Jersey. The debtor, a hospital, was sold free and clear in bankruptcy after due notice to creditors, including the plaintiff, who then remained silent but now seeks to assert her claims against the purchaser. Three orders are relevant:
Ms. Denunzio appeals from the second and third orders. For the reasons stated herein, the appeal is denied, and the Sale Enforcement Order and the Reconsideration Order are affirmed.
The facts, which are not substantially in dispute, are as follows:
On May 28, 2014, East Orange General Hospital, Inc. and Essex Valley Healthcare, Inc. (collectively, "Debtors") entered into an asset purchase agreement with Prospect EOGH, Inc ("original APA").
Over a year later, on August 19, 2015, Ms. Denunzio, Appellant here, was terminated from her employment with Debtor East Orange Hospital. (Compl. ¶ 6). She had been working as a laboratory aide and department administrative assistant in the Hospital's Pathology Department since March 1968. (Id. at ¶¶ 4-6).
The next month, "[o]n September 16, 2015, the Debtors received approval of a Certificate of Need from the New Jersey Department of Health for the sale of the Hospital's assets to Prospect [EOGH, Inc.], subject to certain conditions." (Bankruptcy ECF No. 57 at ¶ 10). See also (Compl. ¶ 30). Then, on October 7, 2015, the proposed sale was approved by New Jersey Acting Attorney General John J. Hoffman pursuant to the Community Health Care Assets Protection Act. (Bankruptcy ECF No. 57 at ¶ 10). The proposed sale was also approved by the Superior Court of New Jersey on October 28, 2015. (Id.) The original APA did not close, however. (Id. at ¶ 11).
Nearly three months after Ms. Denunzio's termination from the Hospital, on November 10, 2015, East Orange General Hospital filed for relief under Chapter 11 of the Bankruptcy Code. (ECF No. 1 of Bankruptcy Case No. 15-31232). On that same date, Essex Valley Healthcare, which is the parent company of East Orange General Hospital, also filed for relief under Chapter 11. (ECF No. 1 of Bankruptcy Case No. 15-31233). On November 13, 2015, Judge Papalia ordered the Chapter 11 cases of East Orange General Hospital and Essex Valley Healthcare to be "consolidated for procedural purposes only and jointly administered under lead Case No. 15-31232." (ECF No. 22 of Bankruptcy Case No. 15-31232, ¶ 2); (ECF No. 4 of Bankruptcy Case No. 15-31233, ¶ 2). Judge Papalia also issued an Order authorizing Debtors to retain and appoint Prime Clerk LLC ("Prime Clerk") as the claims and noticing agent for the Debtors. (Bankruptcy ECF No. 25).
On November 20, 2015, the Debtors as sellers and Prospect EOGH, Inc. as buyer entered into an Amended and Restated Asset Purchase Agreement ("APA").
On November 25, 2015, Prime Clerk served Ms. Denunzio and her counsel via First Class Mail with a copy of the Notice of Commencement of Chapter 11 Bankruptcy Cases and the Meeting of Creditors ("Notice of Commencement") (Bankruptcy ECF No. 83). See Affidavit of Service, Exh. B (Bankruptcy ECF No. 89 at 43) (listing "Roseann Denunzio" and "Roseann Denunzio v. EOGH, et al.").
On December 9, 2015, East Orange General Hospital filed a list of all creditors.
Six days later, on December 15, 2015, the Bankruptcy Court entered an Order approving the bidding procedures and form and manner of notices, and setting a sale hearing date ("Bidding Procedures Order"). (Bankruptcy ECF No. 171).
The next day, on December 16, 2015, East Orange Hospital filed its Schedules of Assets and Liabilities (Bankruptcy ECF No. 175), and Statement of Financial Affairs (Bankruptcy ECF No. 176).
On December 18, 2015, Prime Clerk served Ms. Denunzio, through her counsel, via first class mail with a copy of the Notice of Sale of Certain Assets at Auction ("Sale Notice").
On January 19, 2016, the Bankruptcy Court issued an Order establishing, inter alia, deadlines to file proofs of claim "(as defined in section 101(5) of the Bankruptcy Code), including but not limited to all claims of setoff or recoupment and claims arising under section 503(b)(9) of the Bankruptcy Code, against the Debtors that arose on or prior to the Petition Date." (Bankruptcy ECF No. 313 at 2-3). The deadline for all creditors (except governmental units) was set for February 26, 2016 at 5:00 p.m. (Id. at 2-3).
After a hearing on January 20, 2016, the Bankruptcy Court entered its Order authorizing the Debtors to (a) sell substantially all of their assets free and clear of liens, claims, and encumbrances, and (b) assume and assign certain executory con
In particular, the Sale Order addressed successor liability. Paragraph 13 of the Order provided as follows:
(Id. at ¶ 13).
(Id. at ¶ 33).
The Sale Order also permanently enjoined all entities from seeking to enforce successor liability claims against Prospect. It provided that:
(Id. ¶ 38). Accordingly, the Order also provided, in part, that it is "binding in all respects" upon "all creditors" and "all holders of any Interests or Claims (whether known or unknown) against any Debtor, [and] any holders of Claims and Interests against or on all or any portion of the Purchased Assets." (Id. at ¶ 58).
Furthermore, under the APA, which was incorporated in the Sale Order, Prospect assumed only the "Assumed Liabilities" and not the "Excluded Liabilities."
(Bankruptcy ECF No. 330-1 at Section 2.4(x)).
On that same day, Prime Clerk served Denunzio, through counsel, via first class mail, with a copy of the "Order (i) Establishing Procedures for Compliance by the Official Committee of Unsecured Creditors for East Orange General Hospital, Inc., and (ii) Authorizing the Retention of Prime Clerk as Information Agent for the Official Committee of Unsecured Creditors Effective as of November 23, 2015," (Bankruptcy ECF No. 300). See also Affidavit of Service (Bankruptcy ECF No. 356, Exh. A at 21) (listing "Roseann Denunzio v. EOGH, et al.").
The next day, on January 22, 2016, Prime Clerk served DeNunzio and her counsel via first class mail with a copy of the Notice of Deadline for Filing Proofs of Claim Against the Debtors ("Bar Date Notice") and a proof of claim form. See Affidavit of Service (Bankruptcy ECF No. 364 at 68) (listing "Roseann Denunzio" and "Roseann Denunzio v. EOGH, et al.").
The closing date of the sale was March 1, 2016. (Bankruptcy ECF No. 836 at ¶ 7).
About three months after the sale closed (and nine months after being terminated from the Hospital), on June 9, 2016, Ms. Denunzio filed a one-count lawsuit against the purchaser, Prospect, in the Superior Court of New Jersey, Law Division, Essex County. That state court complaint alleged age discrimination, in violation of the New Jersey Law Against Discrimination ("NJLAD"), N.J. Stat. Ann. § 10:5-1, et seq.
The Complaint alleged that the successor Prospect entities, jointly and severally, were her employer and were subject to successor liability under the NJLAD. (Id. at ¶ 14). It further alleged that those entities were not "mere successors" to the Hospital "because they were sufficiently connected to the culpable conduct that terminated [Ms. Denunzio] in violat[ion] of her rights under the LAD." (Id. at ¶ 15). According to Ms. Denunzio, as of August 2015, Mr. Krouse, the individual who terminated her employment on the 19
Ms. Denunzio's NJLAD Complaint alleged that on January 28, 2014, Prospect Medical Holdings, Inc. issued a Letter of Intent regarding its purchase of the Hospital's assets and liabilities. (Id. at ¶ 26). By that date, and thereafter, Prospect allegedly exercised control and/or direction over the Hospital's operations and employees in preparation for purchasing its assets. (Id. at ¶¶ 26-27). Ms. Denunzio further alleged that a few months later, on May 1, 2014, Prospect Medical Holdings, Inc. submitted a Certificate of Need application to the New Jersey Department of Health for the transfer of ownership of the Hospital from Essex Valley Healthcare and its subsidiary East Orange General Hospital to Prospect EOGH, Inc. (Id. at ¶ 28). That application was approved on September 16, 2015. (Id. at ¶ 30). According to Ms. Denunzio, the Certificate "evidenced" Prospect's "continuation of and identity with" the Hospital. (Id. at Section B., p. 4). Moreover, the Complaint alleges, the November 20, 2015 APA incorporated the New Jersey Department of Health's Certificate approval. (Id. at ¶ 32).
In Bankruptcy Court, on June 28, 2016, the debtors filed a joint plan of liquidation (Bankruptcy ECF No. 690), and accompanying disclosure statement (Bankruptcy ECF No. 691).
On July 13, 2016, after holding a hearing, the Bankruptcy Court filed an Order conditionally approving the disclosure statement for solicitation purposes only ("Conditional Approval Order"). (Bankruptcy ECF No. 715).
On the next day, July 14, 2016, Prime Clerk served Ms. DeNunzio and her counsel via first class mail with a copy of the Notice of (a) Conditional Approval of Disclosure Statement, (b) Combined Hearing on Final Approval of Disclosure Statement and Confirmation of the Plan, and (c) Procedures and Deadline for Voting on the Plan, among other plan-related documents (the "Plan Confirmation Hearing Notice").
Eleven days later, on July 25, 2016, counsel for Prospect sent a cease-and-desist letter to Ms. Denunzio's counsel. (Bankruptcy ECF No. 836-4). Relying on New Jersey Court Rule 1:4-8, Prospect stated that the letter constituted notice and demand that Ms. Denunzio voluntarily dismiss the State Court action against Prospect with prejudice. (Id. at 1, 5). According to Prospect, Ms. Denunzio's claim was barred by the Bankruptcy Court's Sale Order. (Id. at 1). A copy of the Sale Order was attached to the letter. See (id.)
The next month, on August 23, 2016, the Bankruptcy Court conducted a hearing to consider whether the disclosure statement should be approved and whether the plan should be confirmed ("Confirmation Hearing"). (Bankruptcy ECF No. 794 at 5). Two days later, on August 25, 2016, the Court issued an Order approving the disclosure statement and confirming the joint plan of liquidation ("Confirmation Order"). (Bankruptcy ECF No. 794).
On August 29, 2016, in New Jersey State Court, Prospect moved to dismiss the State Court action on the grounds that Ms. Denunzio's claims failed as a matter of law under New Jersey Court Rule 4:6-2(e). See (Bankruptcy ECF Nos. 836 ¶ 21, 850-1 at 25-41).
On September 9, 2016, Prime Clerk served Ms. DeNunzio and her counsel via first class mail with a copy of the Notice of (I) Entry of Confirmation Order and (II) Effective Date ("Notice of Effective Date") (Bankruptcy ECF No. 803). See Affidavit of Service (Bankruptcy ECF No. 807 at 29, 79) (listing "Roseann Denunzio" and "Roseann Denunzio v. EOGH, et al.").
Later that month, on September 30, 2016, the Superior Court Presiding Judge, Dennis F. Carey, III, denied Prospect's motion to dismiss. (Bankruptcy ECF No. 850-1 at 19-20). About two weeks later, on October 14, 2016, Prospect filed a second motion to dismiss, arguing lack of subject matter jurisdiction or in the alternative requesting a stay pending a ruling by the Bankruptcy Court on Prospect's action to enforce the Bankruptcy Court's Sale Order. (Bankruptcy ECF No. 836-5). Prospect asserted that it intended to file that application with the Bankruptcy Court within the next few weeks. (Id. at 9).
While that motion was pending before the New Jersey Superior Court, on October 26, 2016, Prospect filed a motion ("Motion
On November 4, 2016, Judge Carey denied the second motion to dismiss, in its entirety. (Bankruptcy ECF No. 850-1 at 22-23).
On November 15, 2016, in Bankruptcy Court, Ms. Denunzio filed her opposition to Prospect's motion. (Bankruptcy ECF No. 850). She argued that Prospect's motion should be denied because her State Court action was not within the Bankruptcy Court's jurisdiction. (Id. at 3-5). Ms. Denunzio also maintained that Prospect's motion for sanctions should be denied, and requested leave to file a motion for the award of attorney's fees. (Id. at 6). On the next day, November 16, 2016, Prospect filed its reply brief. (Bankruptcy ECF No. 851).
On November 22, 2016, Bankruptcy Judge Papalia heard oral argument on Prospect's motion and issued an oral ruling granting it. (Transcript of Nov. 22, 2016 Hearing, Bankruptcy ECF No. 874). The next day, on November 23, 2016, Judge Papalia issued an Order granting Prospect's Motion to enforce the Sale Order and denying the parties' applications for sanctions ("Sale Enforcement Order," Bankruptcy ECF No. 867). He found that "[t]he claims and causes of action asserted against the Prospect Entities in the State Court Action constitute Excluded Liabilities (as defined in the Sale Order), that were not assumed by the Prospect Entities under the Asset Purchase Agreement and were therefore enjoined and barred against the Prospect Entities by the Sale Order." (Id. at ¶ 4).
The Sale Enforcement Order also barred Ms. Denunzio from continuing to prosecute the state court NJLAD action:
(Id. at ¶¶ 7-8).
Nine days later, on December 2, 2016, pursuant to Federal Rule of Bankruptcy Procedure 9024, Ms. Denunzio filed a motion for reconsideration, requesting that Bankruptcy Judge Papalia vacate the Sale Enforcement Order and remand the State Court action to the New Jersey Superior Court pursuant to the mandatory abstention doctrine contained in 28 U.S.C. § 1334(c)(2) ("Motion for Reconsideration"). (Bankruptcy ECF No. 871). Prospect filed its opposition on December 21, 2016. (Bankruptcy ECF No. 885), and Ms. Denunzio filed her reply on January 3, 2017. (Bankruptcy ECF No. 889).
On March 8, 2017, Ms. Denunzio filed a Notice of Appeal to this Court. (ECF No. 1). Pursuant to Rule 8003(a)(3)(B) of the Federal Rules of Bankruptcy Procedure, she attached a copy of the Reconsideration Order. (ECF No. 1-1). Ms. Denunzio now asks this Court to reverse and vacate both the Bankruptcy Court's Sale Enforcement Order and Reconsideration Order. (Appellant Br. at 39). She also seeks to have her NJLAD case "remanded" to the New Jersey Superior Court. (Id.)
This District Court has jurisdiction to hear appeals of final judgments and orders of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1). In general, a district court reviews "`the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof.'" In re American Pad & Paper Co., 478 F.3d 546, 551 (3d Cir. 2007) (quoting In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (quotation and citation omitted)). A district court must separately analyze mixed findings of fact and conclusions of law, and appropriately apply the applicable standards — clearly erroneous or de novo — to each component. Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir. 1992) (citing In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989) and Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102-03 (3d Cir. 1981)).
Prospect contends that only the Reconsideration Order is properly on appeal.
Under Bankruptcy Rule 8003(a)(1), "[a]n appeal from a judgment, order, or decree of a bankruptcy court to a district court or BAP under 28 U.S.C. § 158(a)(1) or (a)(2) may be taken only by filing a notice of appeal with the bankruptcy clerk within the time allowed by Rule 8002." Fed. R. Bankr. P. 8003(a)(1). The Notice of Appeal must "be accompanied by the judgment, order, or decree, or the part of it, being appealed." Fed. R. Bankr. P. 8003(a)(3)(B).
Ms. Denunzio's Notice of Appeal explicitly states that the February 21, 2017 Reconsideration
Appellees assert that because Ms. Denunzio's Notice of Appeal attaches only the Reconsideration Order, the scope of the appeal does not include the underlying Sale Enforcement Order.
Because Federal Rule of Bankruptcy Procedure 8003(a)(3) is nearly identical to Federal Rule of Appellate Procedure 3(c)(1), I take case law interpreting the latter as a guide. See 10 Collier on Bankruptcy ¶ 8003.06 (16th ed.). Notices of appeal filed under Federal Rule of Appellate Procedure 3 are construed liberally. Witasick v. Minnesota Mut. Life Ins. Co., 803 F.3d 184, 190 (3d Cir. 2015) (citing Smith v. Barry, 502 U.S. 244, 112 S.Ct. 678, 116 L.Ed.2d 678 (1992)).
Gov't of Virgin Islands v. Mills, 634 F.3d 746, 751-52 (3d Cir. 2011) (internal citations omitted).
Therefore, the Third Circuit has held that it "can exercise jurisdiction over orders not specified in the Notice of Appeal if: (1) there is a connection between the specified and unspecified orders; (2) the intention to appeal the unspecified order is apparent; and (3) the opposing party is not prejudiced and has a full opportunity to brief the issues." Sulima v. Tobyhanna Army Depot, 602 F.3d 177, 184 (3d Cir. 2010) (internal quotation marks and citation omitted).
In Matute v. Procoast Nav. Ltd, for example, the plaintiff filed a Notice of Appeal in which he designated the order denying a motion for reconsideration and did not designate the underlying dismissal order. 928 F.2d 627, 629 (3d Cir. 1991). The Court nevertheless considered the appeal as relating to both:
Id. at 629-30 (emphasis in original).
Applying Matute and construing Ms. Denunzio's Notice of Appeal liberally, 1 find that the three-part Sulima standard is satisfied. First, there is undoubtedly a connection between the Reconsideration Order and the underlying Sale Enforcement Order; Ms. Denunzio's reconsideration motion was a request that the Court reverse the Sale Enforcement Order's bar to her state NJLAD lawsuit. It is frankly difficult to consider one without considering the other. Second, because review of the Reconsideration Order is intertwined with the Sale Enforcement Order, I infer that Ms. Denunzio intended her appeal to include the underlying Sale Enforcement Order. Ms. Denunzio's other filings also indicate an intention to appeal from that Order. Third, and finally, there is no prejudice to Prospect. Ms. Denunzio's counsel inquired about appeal deadlines and gave every indication that he intended to appeal the Sale Enforcement Order (Transcript of Nov. 22, 2016 Hearing, Bankruptcy ECF No. 874 at 61:5-:19). Prospect had a full opportunity to, and did, address the Sale Enforcement Order in its appellate brief. (See Appellees Br. at 22-28).
I therefore conclude that this appeal encompasses both the Bankruptcy Court's Sale Enforcement Order and its Order denying Ms. Denunzio's Motion for Reconsideration.
Ms. Denunzio argues that the Bankruptcy Court had no jurisdiction over the State Court action, and therefore lacked the power to order Ms. Denunzio to dismiss it without prejudice.
Ms. Denunzio's jurisdictional arguments depend on 28 U.S.C. § 1334, which vests bankruptcy jurisdiction in the district courts, and 28 U.S.C. § 157, which governs core and non-core proceedings within the bankruptcy courts. I first (
Section 1334 of title 28 of the United States Code "describes the jurisdictional boundaries of a district court over bankruptcy cases and proceedings but, by itself, does not vest any authority in the bankruptcy courts." In re Seven Fields Dev. Corp., 505 F.3d 237, 253 (3d Cir. 2007). Under that Section, District Courts have "original and exclusive jurisdiction of all cases under title 11." 28 U.S.C. § 1334(a). The District Courts also have "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Id. § 1334(b). (emphasis added). The District Court "in which a case under title 11 is commenced or is pending" has exclusive jurisdiction "of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate," and "over all claims or causes of action that involve construction of section 327 of title 11. United States Code, or rules relating to disclosure requirements under section 327." Id. § 1334(e).
Notably, Section 1334 distinguishes between a "case" and a "civil proceeding." Subsection (a) applies to "cases under title 11," id. § 1334(a), while subsection (b) applies to "civil proceedings arising under title 11, or arising in or related to cases under title 11," id. § 1334(b). The Third Circuit explained the distinction in In re Combustion Eng'g, Inc., 391 F.3d 190 (3d Cir. 2005):
391 F.3d at 226 n.38 (citations omitted).
The term "case" is an overall term for the bankruptcy matter:
1 Collier on Bankruptcy ¶ 3.01.
"Proceeding" is an "inclusive" term for matters that occur in the course of a case. Id. "[A]nything that occurs within a case is a proceeding," including "contested matters, adversary proceedings, and plenary actions." Id. (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 445 (1977)).
Section 157(a) gives District Courts the discretionary power to refer "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11" to the Bankruptcy Courts. 28 U.S.C. § 157(a).
The first three categories are considered "core" proceedings, whereas the fourth category, "related to" proceedings, are considered "non-core" proceedings. In re Resorts, 372 F.3d at 162. See also 28 U.S.C. § 157(b)(2) (providing a non-exhaustive list of examples of core proceedings). "A bankruptcy court may hear both core and non-core matters, see 28 U.S.C. §§ 157(b) and (c), and `[w]hether a particular proceeding is core represents a question wholly separate from that of subject-matter jurisdiction.'" In re Allegheny Health Educ. & Research Found., 383 F.3d 169, 175 (3d Cir. 2004)(quoting In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 266 (3d Cir. 1991)).
Section 157(b)(1) addresses "core" proceedings:
28 U.S.C. § 157(b)(1) (emphasis added).
Section 157(c)(1), on other hand, addresses "non-core" proceedings:
Id. § 157(c)(1)(emphasis added).
The distinction "is crucial in bankruptcy cases because it defines both the extent of the Bankruptcy Court's jurisdiction, and the standard by which the District Court reviews its factual findings." Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999). See also In re Allegheny Health, 383 F.3d at 175. As explained by the Third Circuit in Halper,
164 F.3d at 836 (internal citations and footnote omitted). See 28 U.S.C. §§ 157(b)(1), (c)(1). See also In re Exide Techs., 544 F.3d 196, 205-06 (3d Cir. 2008).
Ms. Denunzio maintains that in issuing the Sale Enforcement Order and ordering her to dismiss her State court NJLAD action against Prospect, a non-debtor, the Bankruptcy Court erroneously exercised jurisdiction over that State court action. First, she argues that the Bankruptcy Court had no jurisdiction at all under Section 1334. (Appellant Br. at 16-17). Her NJLAD action, she says, includes "separate and distinct claims over which the Bankruptcy Court did not have jurisdiction." (Id. at 17). Second, she argues that even if the Bankruptcy Court had jurisdiction, it did not have the power to issue the Sale Enforcement Order in the NJLAD action, a state law personal injury tort action which was at best a "non-core" proceeding under 28 U.S.C. § 157(b)(2)(O).
Ms. Denunzio's arguments are misplaced. As recognized by Bankruptcy Judge Papalia, the proceeding before the Bankruptcy Court was not the State court action itself. Rather, the proceeding before
The Bankruptcy Court possessed jurisdiction over proceedings to enforce the Sale Order; indeed, the motion to enforce the Sale Order was a "core" proceeding. Section 157(b)(1) provides that "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 ... and may enter appropriate orders and judgments." 28 U.S.C. § 157(b)(1).
I start from the premise, not really contested on this appeal, that entry of the Sale Order itself was a core proceeding within the jurisdiction of the Bankruptcy Court. Such a sale order is authorized by the Code, 11 U.S.C. § 363. Under that Section, "[t]he trustee or debtor-in-possession may sell property free and clear of an interest in the property provided that one or more of the provisions under Section 363(f) is satisfied." In re Messina, 687 F.3d 74, 77 n.4 (3d Cir. 2012). Such a sale order is listed as a core proceeding in 28 U.S.C. § 157(b)(2)(N). The injunctive provision and successor liability provisions within the Sale Order were likewise within the Bankruptcy court's core jurisdiction. See In re Motors Liquidation Co., 428 B.R. 43, 57 (S.D.N.Y. 2010) (citing cases and stating that "courts have characterized the injunctive authority of bankruptcy courts as `core' when the rights sought to be enforced by injunction are based on provisions of the Bankruptcy Code, such as the "free and clear" authority of section 363(f).").
First, Judge Papalia found that the motion fell within the scope of the core proceedings enumerated in 28 U.S.C. §§ 157(b)(2)(A), (N), and (O). (Transcript of Nov. 22, 2016 Hearing at 33:3-:9. See also Transcript of Feb. 7, 2017 Hearing at 14:14-16, 23:16-20.) I agree. Section 157(b)(2)(A) identifies core proceedings as "matters concerning the administration of the estate";
Second, Judge Papalia applied the holding of In re Allegheny, 383 F.3d at 176, and by this alternative route arrived at the conclusion that "a motion to enforce an order approving a sale under 363(f) is a core proceeding." (Transcript of Nov. 22, 2016 Hearing at 44:24-45:7). In Allegheny, 383 F.3d at 176, the Third Circuit held "that the bankruptcy court correctly determined that the suit was a core proceeding because it required the court to interpret and give effect to its previous sale orders."
Third, Judge Papalia held in the alternative that a motion to enforce a sale order is a core proceeding, either "arising in"
Once again, I find the reasoning correct. Prospect moved to enforce a Sale Order issued pursuant to 11 U.S.C. § 363 — Use, sale, or lease of property. Accordingly, the proceeding "arises under" Section 363 of the Bankruptcy Code. See also 1 Collier on Bankruptcy ¶ 3.01 (stating that sales free and clear of liens are an example of civil proceedings "arising under title 11"). In deciding that motion, Judge Papalia was not taking over a state-law tort case; he was enforcing his Sale Order, a matter of bankruptcy administration that arose in and could only occur in a bankruptcy case.
Fourth, Judge Papalia found that even absent statutory jurisdiction under 28 U.S.C. § 1334, he would have inherent or ancillary jurisdiction to enforce his own Sale Order. (Transcript of Feb. 7, 2017 Hearing at 46:20-47:6) (citing In re Chateaugay Corp., 201 B.R. 48, 62 (Bankr. S.D.N.Y. 1996), aff'd in part, 213 B.R. 633 (S.D.N.Y. 1997)). See also Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) (recognizing that "the Bankruptcy Court plainly had jurisdiction to interpret and enforce its own prior orders"); In re Chateaugay Corp., 201 B.R. at 62 (stating that "[b]ankruptcy courts have inherent or ancillary jurisdiction to interpret and enforce their own orders wholly independent of the statutory grant of jurisdiction under 28 U.S.C. § 1334."). Within the Sale Order itself was a provision explicitly retaining jurisdiction to enforce the order. (Sale Order ¶ 56) (stating, in part, that the Bankruptcy Court "shall retain exclusive jurisdiction to, among other things, interpret, implement, and enforce the terms and provisions of this Order and the Agreement"). Such enforcement was within the court's inherent authority.
I agree with the Bankruptcy Judge's reasoning in support of entry of the Sale Enforcement Order. Judge Papalia reiterated his jurisdiction-related findings at the hearing on Ms. Denunzio's Motion for Reconsideration, and properly denied that motion based on that reasoning. (Transcript of Feb. 7, 2017 Hearing at 23:16-24:14). For the above-mentioned reasons, the Bankruptcy Judge properly determined both originally and on reconsideration that he had jurisdiction to grant Prospect's Motion to Enforce the Sale Order and to enforce it by enjoining pursuit of the state court NJLAD action. I agree, and affirm.
In a related point, Ms. Denunzio argues that the Bankruptcy Judge erred in finding that the United States Supreme Court's decision in Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), authorized the entry of an injunction under 11 U.S.C. § 105(a).
In Celotex, a money judgment against Celotex was stayed pending appeal, and the stay was secured by a supersedeas bond. Id. The Court of Appeals affirmed, and on the same day, Celotex filed a voluntary chapter 11 petition in bankruptcy. The Bankruptcy Court issued an injunction under 11 U.S.C. § 105(a) which "stayed all proceedings involving Celotex `regardless of ... whether the matter is on appeal and a supersedeas bond has been posted by [Celotex].'" Id. at 303, 115 S.Ct. 1493. The judgment creditors then went to federal court in another district, and that district court granted them leave to execute against the surety on the supersedeas bond, despite the bankruptcy court's injunction. Id. at 305, 115 S.Ct. 1493.
The United States Supreme Court held that the bankruptcy court had possessed jurisdiction to enjoin proceedings to execute on the bond, because those proceedings were "at least `related to'" Celotex's bankruptcy within the meaning of Sections 1334(b) and 157(a). Id. at 307, 309-10, 115 S.Ct. 1493. It also held that the judgment creditor could not collaterally attack the Bankruptcy Court's injunction in another district court:
Id. (internal citations omitted).
The extent to which Celotex bore on Judge Papalia's analysis is frankly unclear. In its Motion to Enforce the Sale Order, Prospect cited Celotex and characterized Ms. Denunzio's NJLAD action as "an impermissible collateral attack" on the Sale Order. (Bankruptcy ECF No. 836 at 13). During oral argument, the Bankruptcy Judge summarized Celotex and later explained that he brought up Celotex because under that case, Ms. Denunzio was required to raise her pre-closing claims and any issues regarding her "ability to pursue them before the Court that issued the injunction." (Transcript of Nov. 22, 2016 Hearing, Bankruptcy ECF No. 874 at 29:15-:18). In the course of ruling, the Bankruptcy Judge stated that he relied on Celotex "for the reasons previously stated." (Id. at 56:14-:16). He particularly pointed out that the judgment creditor in Celotex, instead of participating in the bankruptcy case, had filed a collateral motion in federal district court. (Id. at 57:2-:5).
Here we do not have the Celotex situation. Ms. Denunzio appeared in the bankruptcy case, opposed Prospect's motion, and attempted to persuade the Bankruptcy Judge to limit the scope of his order. Thus
386 F. App'x at 204 n.2.
In short, Prospect asked the Bankruptcy Court to enforce its Sale Order, and Ms. Denunzio opposed that motion before the Bankruptcy Court. The result was the Sale Enforcement Order and Reconsideration Order now under review. Accordingly, I do not find that Celotex affects the issues here.
Section 363(f) of the Bankruptcy Code permits a sale of property "free and clear" of an "interest in such property." 11 U.S.C. § 363(f). In particular, it imposes five conditions, at least one of which must be satisfied for a sale free and clear of interest to occur:
Id. Here, the Sale Order provides, in part, that "[t]he conditions of Section 363(f) of the Bankruptcy Code have been satisfied in full; therefore, the Debtors may sell the Purchased Assets free and clear of any interest in such property[.]" (Sale Order ¶ 15). It also permanently enjoins all "litigation claimants, employees and former employees" who were "holding Claims and Interests against the Debtors of the Purchased Assets arising under or out of, in connection with, or in any way relating to, the Assets or the transfer of the Assets to Buyer"
(Id. at ¶ 38).
In addressing the merits of Prospect's Motion to Enforce the Sale Order and ultimately granting it, the Bankruptcy Judge ruled as follows: The court, he said, "has jurisdiction, had jurisdiction to enter the injunction, the sale order with the injunction and now has jurisdiction to enforce it and the enforcement extends to the claims made by the plaintiff in this case based on activity that was undisputably prepetition and pre-closing." (Transcript of Nov. 22, 2016 Hearing at 54:3-:8). In so ruling, the Bankruptcy Judge relied in part on the Third Circuit's "analogous and controlling" decision in In re Trans World Airlines, Inc. ("TWA"), 322 F.3d 283 (3d Cir. 2003). (Id. at 47:13-:15).
On appeal, Ms. Denunzio asserts that the Judge erred in relying on In re TWA because that case 1) did not involve the NJLAD and 2) "arose from [that plaintiff's] federal employment discrimination claims against bankruptcy debtor TWA." Ms. DeNunzio, by contrast, "asserted no claims against the bankruptcy debtor." (Appellant Br. at 18-19). These distinctions, I find, do not make a difference.
In TWA, the Third Circuit considered whether a sale under 11 U.S.C. § 363(f) precluded the purchaser's liability for discrimination claims stemming from the debtors' conduct before the sale. In that case, the Bankruptcy Court had entered an Order approving the sale of Trans World Airlines ("TWA") to American Airlines ("American"). 322 F.3d at 286. That sale order extinguished the liability of American, as successor to TWA, for 1) employment discrimination claims against TWA, and 2) a Travel Voucher Program, both of which existed prior to TWA's filing in Chapter 11
The EEOC and the flight attendant/voucher holders objected to the sale, but the court approved the Sale Order. Id. It "determined that there was no basis for successor liability on the part of American and that the flight attendants' claims could be treated as unsecured claims." Id. Accordingly, the Sale Order "extinguished successor liability on the part of American," and "enjoined all persons from seeking to enforce successor liability claims against American." Id. at 287.
Affirming, the Third Circuit held that "[b]ecause section 363(f) of the Bankruptcy Code permits a sale of property `free and clear' of an `interest in such property' and because the claims against TWA here were connected to or arise from the assets sold, we affirm the Bankruptcy Court's order approving the sale `free and clear' of successor liability." Id. at 285.
The first component of the TWA decision was the conclusion that the claims in that case constituted an "interest in ... property" within the meaning of Section 363(f):
Id. at 289-90.
The second component of the TWA decision was the conclusion that the voucher and EEOC claims were within the scope of the fifth requirement of Section 363(f) — i.e., that the airline "could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest." 11 U.S.C. § 363(f)(5). The Court agreed with the Bankruptcy Court's finding that both the EEOC claims and the travel voucher program were subject to monetary valuation. 322 F.3d at 291.
Id. at 292-93. The Third Circuit affirmed the Bankruptcy Court's authorization of the sale of TWA's assets to American free and clear of the voucher and EEOC claims. Id. at 293.
Ms. Denunzio points out that in TWA, the discrimination claims were originally filed against the bankruptcy debtor, whereas her NJLAD claims were filed against the purchaser, Prospect. To the extent our case is distinguishable, it is a fortiori. The whole point of TWA is that such later assertions of purchaser/successor liability may be barred by a sale order.
Fourth, and finally, the Bankruptcy Court adopted the TWA Court's policy-related rationale that where the court has worked out a comprehensive plan and sale for the benefit of creditors, individual unsecured creditors cannot be permitted to sit out the process and then seek 100 cents on the dollar from the asset purchaser:
(Transcript of Nov. 22, 2016 Hearing at 50:15-:21). Noting that Ms. Denunzio had opted to forgo recovery from the estate, the Court appropriately held her to that choice:
(Id. at 53:20-54:2) (emphasis added). Successor liability under these circumstances, then, would not merely be unauthorized; it
Ms. Denunzio contends that the Bankruptcy Judge failed to consider New Jersey case law governing her NJLAD claims against the non-debtor Prospect. (Appellant Br. 20-22). She maintains that New Jersey's successor liability doctrine authorizes tort damages against purchaser/successors like Prospect. (Id. at 21) (citing Lefever v. K.P. Hovnanian Enterprises, Inc., 160 N.J. 307, 734 A.2d 290 (1999)). The Judge, says Ms. Denunzio, "erroneously marginalized and failed to address Lefever by citing to only its dissent." (Id. at 22, 27). Ms. Denunzio's reliance on the New Jersey Supreme Court's 4-3 decision in Lefever is misguided; the Bankruptcy Judge correctly ruled that Lefever presented a different issue, and that, in any event, its holding does not survive the later-decided TWA case.
In Lefever, the Court considered the product-line exception to the general rule of corporate-successor liability. Under New Jersey law, an acquiring company is generally not liable for the liabilities of the seller, with certain exceptions.
The majority in Lefever held that the product-line exception could apply to impose strict product liability for injuries cause by a defective forklift, even where the successor had purchased the predecessor's assets at a bankruptcy sale. For purposes of a Section 363(f) sale, the majority concluded, the tort claim would be a mere right to payment, not an "interest in property." See 11 U.S.C. § 363(f)(1).
Justice Stewart Pollock, joined by two others, dissented. True, he wrote, the plan had not "dealt with" the plaintiff's tort claim, but that was only because the duly-notified plaintiff "decided not to file a claim." Id. at 328, 330, 734 A.2d 290. The Court, he wrote, could not validly weigh the policies underlying state law without
Id. at 330-31, 734 A.2d 290 (Pollock, J., dissenting) (internal citations omitted).
Justice Pollock's view, as it turned out, prevailed when it came time for the Third Circuit to consider the issue. As recognized by the Judge Papalia, the Third Circuit's binding decision in TWA expressly rejected the legal premise of the Lefever majority's analysis of section 363(f): that the term "interest" did not encompass a mere right to payment. Rather, Justice Pollock's dissent "effectively anticipated the Third Circuit's ruling in TWA" that it did. (Transcript of Feb. 7, 2017 Hearing at 33:18-:19). Ms. Denunzio's claim, which arose pre-petition, was indeed an "interest" in property within the meaning of Section 363(f). In addition, the Bankruptcy Court did indeed "deal with" Ms. Denunzio's claim in Justice Pollock's sense that it would have done so but for her decision not to pursue it. Ms. Denunzio was a contingent creditor of the Hospital. Both she and her counsel received numerous notices, including notice of the deadline for filing a proof of claim, but no proof of claim was ever filed. She asserts that her claim is against non-debtor Prospect, rather than debtor East Orange Hospital, but that formulation simply begs the antecedent question of whether the Sale order could legitimately cut off Prospect's successor liability.
At oral argument for Prospect's motion to enforce the Sale Order, the Bankruptcy Judge succinctly rejected that argument:
(Transcript of Nov. 22, 2016 Hearing at 49:25-50:10). See also (id. at 40:8-:11) (stating that "certainly whether she filed a proof of claim or not, Ms. DeNunzio is the holder or was the holder of a claim against
In sum, Ms. Denunzio mistakenly claims that the "product line" question in Lefever controls the issues in this case, and also fails to grapple with the Third Circuit's contrary interpretation of section 363(f) in TWA. (Transcript of Nov. 22, 2016 Hearing, Bankruptcy ECF No. 874 at 14:9-:10). Even if successor liability would theoretically have attached as a matter of state law, we never got to that issue. Under TWA, "the claims are barred or enjoined pursuant to the sale order." (Id. at 27:16-:17). It is of course true, as Denunzio says, that on the motion for reconsideration the Judge placed emphasis on the dissent, not the holding, of Lefever. (Transcript of Feb. 7, 2017 Hearing, Bankruptcy ECF No. 920 at 32:3-36:10). That was proper because, as it turned out, TWA adopted the view of the law stated in Justice Pollock's dissent, and rejected the majority's view. The Third Circuit's later interpretation of federal bankruptcy law in TWA of course binds this Court, just as it bound the Bankruptcy Court, which therefore did not err in its rejection of Lefever.
Ms. Denunzio asserts that the Bankruptcy Court erred in rejecting her argument that the mandatory abstention doctrine barred the Bankruptcy Court from enjoining the state action. (Appellant Br. 31). I disagree.
Mandatory abstention
28 U.S.C. § 1334(c)(2). The Third Circuit in Stoe broke down the requirements of mandatory abstention as follows:
436 F.3d at 213 (emphasis in original). Notably, given that mandatory abstention applies only to civil proceedings that are "related to a case under title 11," i.e., non-core proceedings, "[m]andatory abstention does not apply where the proceeding is `core.'" In re Midstate Mortg. Inv'rs, Inc., 105 F. App'x 420, 422 (3d Cir. 2004) (citing In re Donington, 194 B.R. 750, 757 (D.N.J. 1996)).
On her motion for reconsideration, Ms. Denunzio argued that the Bankruptcy Court's decision granting Prospect's Motion to Enforce the Sale Order was erroneous because, inter alia, her NJLAD claims were subject to mandatory abstention. (Transcript of Feb. 7, 2017 Hearing at 19:18-:23). See (Bankruptcy ECF No. 871-1). The Bankruptcy Judge concluded that Ms. Denunzio did not satisfy her initial burden for reconsideration under Federal Rule of Bankruptcy Procedure 9024 or Federal Rule of Civil Procedure 60(b).
In addressing mandatory abstention and Ms. Denunzio's reliance on Stoe, Judge Paplia made the general observation that Denunzio's argument was based on her continuing misapprehension of the issue before the court:
(Id. at 26:22-27:4). Judge Papalia then considered the five requirements of mandatory abstention and found that the first three were not satisfied. (Id. at 27:12-28:10). As to the first requirement, the Judge found that the proceeding was not "based on a state law claim or cause of action." (Id. at 27:15-:16). Radier, the proceeding was one to enforce a § 363 Sale Order, which is a "core" bankruptcy proceeding. (Id. at 27:16-:18). As to the second requirement, he pointed out that mandatory abstention applies only to "related to" cases. (Id. at 27:19-:21). This Sale order enforcement proceeding, however, is not merely "related to" the bankruptcy case; "it is a matter that arises under and arises in a case under Title 11." (Id. at 27:21-:24). Finally, as to the third requirement, he noted that the § 363 sale motion was one that could only be brought in bankruptcy court. (Id. at 28:1-:3). Because all five requirements must be met, the Bankruptcy Judge concluded that mandatory abstention did not apply. (Id. at 36:11-:13).
On appeal, Ms. Denunzio primarily relies on Stoe, 436 F.3d at 209, but the case is distinguishable. There, the Third Circuit addressed mandatory abstention in the context of an action for unpaid wages under Pennsylvania law. 436 F.3d at 209. The Stoe plaintiff brought suit in state court against former and current officers of his previous employer, but did not sue the employer itself, which was shielded by its bankruptcy filing under Chapter 11. The defendants removed the case to federal district court pursuant to 28 U.S.C. § 1452(a). The district court held, inter alia, that mandatory abstention did not apply.
On appeal, the United States Court of Appeals for the Third Circuit considered the mandatory abstention question.
Ms. Denunzio argues that her case, like the one in Stoe, meets the first requirement of being "based on a state law claim or cause of action." Stoe, 436 F.3d at 213. But Judge Papalia was not, as in Stoe, considering a state law case removed from state court. Rather, he was enforcing a sale order entered in the bankruptcy case. (Conversely, Stoe was not considering the effect of a free-and-clear sale order.)
As to the second requirement, Ms. Denunzio maintains that her state-law NJLAD case, like the action for back wages in Stoe, was "related to" the bankruptcy case.
Assuming the mandatory abstention doctrine applied at all to this core proceeding, at least two of its critical requirements were not met. I affirm the Bankruptcy Court and find that the mandatory abstention provision was inapplicable.
For the reasons stated above, the Bankruptcy Court's Sale Enforcement Order and Reconsideration Order are affirmed. An appropriate order follows.
The schedules, summary of schedules, and statement of financial affairs were subsequently amended by the debtors. However, the amendments did not involve the listing of Ms. Denunzio's claim. See (Bankruptcy ECF Nos. 289, 290, 322-23, and 328).
11 U.S.C. § 101(5). See In re Grossman's Inc., 607 F.3d 114, 125 (3d Cir. 2010) (holding that "a `claim' arises when an individual is exposed pre-petition to a product or other conduct giving rise to an injury, which underlies a `right to payment' under the Bankruptcy Code."). The terms "unliquidated" and "contingent" are not defined in the Bankruptcy Code. Black's Law Dictionary defines "unliquidated claim" as "[a] claim for which a specific value has not been determined." Black's Law Dictionary 282 (10th ed. 2014). Moreover, it defines "contingent claim" as "[a] claim that has not yet accrued and is dependent on some future event that may never happen." Id. See 2 Collier on Bankruptcy P 101.05 (16th ed. 2018) (explaining that "[t]ort claims constitute claims, and thus are payable out of the estate, and constitute dischargeable debts ... Under the Code, the fact that the tort claim may be unliquidated or disputed does not mean that it is not a claim.").
I note in passing that Ms. Denunzio's NJLAD cause of action, if asserted, would have been a "claim" under the Bankruptcy Code because it was reducible to money damages and was therefore asserting a "right to payment." See In re Kaiser Aluminum Corp., 386 F. App'x 201, 205 (3d Cir. 2010) (recognizing "the injunctive power of the Bankruptcy Court is limited to enjoining causes of action that actually violate that injunction," and vacating the judgment of the District Court and remanding for further proceedings because the Third Circuit could not "discern" whether the Bankruptcy Court considered each individual cause of action asserted in a lawsuit "to determine whether it was barred by the Plan injunction.").
(Sale Notice at 4)(emphasis in original). It also stated:
(Id. at 6) (emphasis in original).
(Id. at ¶ 39).
(Bankruptcy ECF No. 364, Exh. B at 5). See 11 U.S.C. § 1111(a); Fed. R. Bankr. P. 3003(c)(2)(requiring that a creditor in a Chapter 11 case whose claim is scheduled as disputed, contingent, or unliquidated must file a proof of claim).
Id. at 175 (footnote omitted). Here, for the reasons stated above, the enforcement of the Sale Order did arise in and under the bankruptcy case. "Related to" jurisdiction over strangers to the bankruptcy case was not at issue.
Here, the Bankruptcy Court emphasized that in TWA, similar to the case at hand, there were "pre-petition dealings between TWA and American Airlines" as to "the potential acquisition," and those dealings "resulted in an asset sale that was consummated through the bankruptcy court." (Transcript of Nov. 22, 2016 Hearing at 47:24-48:4. See also Transcript of Feb. 7, 2017 Hearing at 32:10-:21.)
160 N.J. at 310, 734 A.2d 290 (citing 15 William & Fletcher, Cyclopedia of the Law of Corporations § 7122, nn. 9-15 (1990)). In her state-court NJLAD action, Ms. Denunzio sought to establish Prospect's liability based on a "mere continuation" theory. Neither that nor any other successor liability theory will apply, however, if the bar of the Sale Order is effective.
Ms. Denunzio did not originally Invoke abstention, but raised it for the first time in her Motion for Reconsideration. See (Bankruptcy ECF No. 871-1 at 4). She explained that mandatory abstention was not raised before because "there was no jurisdiction that was asserted by any federal court over Ms. DeNunzio's case until November 23
Recognizing the barriers to reconsideration, I nevertheless give plenary review to the Bankruptcy Court's interpretation the law. "The decision to deny a Motion for Reconsideration is within the discretion of the District Court, but `if the court's denial was based upon the interpretation and application of a legal precept, review is plenary.'" Le v. Univ. of Pa., 321 F.3d 403, 405-06 (3d Cir. 2003)(quoting Koshatka v. Philadelphia Newspapers, Inc., 762 F.2d 329, 333 (3d Cir. 1985)).
The state court complaint, however, asserts a second theory of liability. Prospect, it says, exercised de facto authority at East Orange General Hospital even before the sale took place, and in that role was somehow directly responsible for Denunzio's dismissal. (See p. 64-65, supra.) Such a claim — based strictly on Prospect's own actions, as opposed to its liability as successor-by-purchase to East Orange General Hospital — might conceivably be pursued without impinging on the legitimate scope of the Sale Order and Sale Enforcement Order. That issue was not presented to the Bankruptcy Judge, however, and is not pressed on this appeal. At most, Denunzio referred in passing to the relevant allegation in her state-court complaint.
I express no view, of course, on the merits. At the time of the dismissal, East Orange General Hospital was Denunzio's employer, and it had not yet been sold to Prospect (although an abortive, first asset purchase agreement was pending, see pp. 57-58, supra). Thus to demonstrate that Prospect was directly responsible for Denunzio's allegedly discriminatory dismissal might not be possible. The narrow issue to which I refer here, however, is whether such a claim, whatever its plausibility, might legitimately be excepted from the scope of the litigation bar in the Sale Enforcement Order. Any suggested clarification or modification of the injunction against litigation should be presented to the Bankruptcy Judge in the first instance.
