Friday, November 13, 2009

Judge keeps VHS out of state court — for now

Bankruptcy Judge Peter Carroll sympathized with the parties seeking to file a state court suit to stop the sale of Valley Health System (VHS) , but he ruled for the hospital district.

Although he ruled that there was essentially no evidentiary basis to permit lifting a stay that blocks litigation based on action before the bankruptcy filing, he left the door slightly ajar by ruling without prejudice.

“The judge's ‘without prejudice’ statement means that the moving parties can bring the same motion at a later date, although they would have to demonstrate that something has changed, for example, new facts or new law since the court's ruling,” explained Gary Klausner, VHS’ bankruptcy attorney, on Friday morning “The moving parties may not go to state court; the judge expressly found that the "automatic stay" applies to the proposed new law suit, so, absent the court's permission — the relief from stay — they may not proceed in state court.”

Basically, Carroll felt the arguments presented to him did not satisfy any of the normal 12 criteria bankruptcy courts in this district apply in order to lift the stay and permit litigation to proceed.

Marc Rappel, attorney representing the parties requesting relief from the stay, had argued that case law supported this action, but Carroll was not sufficiently convinced.

The hearing opened with brief arguments from both sides before Judge Carroll began dissecting Nathan Smith’s declaration in support of the motion for relief from the stay.

Carroll threw out many of Smith’s statements and comments about VHS board members concealing possible conflicts of interest. Carroll felt most were made without any personal knowledge or were simply unfounded assumptions that Smith’s clients believed.

After listening to both sides for nearly an hour, Smith took a recess to consider the cases both sides referenced and then returned with his ruling.

“When the judge stated talking and said he sympathized with the movant's position, I had a feeling he was going to say ‘but’,” Klausner said. “But until he did, I was holding my breath.”

Rappel was not happy with the decision and replied, “We have other options,” when asked if the ruling precluded a state court filing on Friday.

“We were very please with the decision. We're not sure what to expect regarding any further litigation,” Klausner added.

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