In re Apex Long Term Acute Care Katy, L.P.
On September 18, 2018, P.K. Shah, M.D. and Apex Katy Physicians, LLC ("Apex
For the reasons set forth below, Shah and Apex Physicians' motion to reopen is denied.
Background
Bankruptcy Proceedings
On September 25, 2009, Apex LTAC filed a voluntary bankruptcy petition under chapter 11 of the Bankruptcy Code. (See ECF No. 1). On January 7, 2010, the Court confirmed Apex LTAC's Second Amended Chapter 11 Plan. (See ECF No. 212). The terms of the Plan created the Apex LTAC Distribution Trust (the "Trust") which received all of Apex LTAC's assets on the effective date. (ECF No. 212 at 7). On March 13, 2013, William G. West, Jr., the Distribution Trustee for the Trust, filed an expedited motion for entry of a final decree closing the chapter 11 case. (ECF No. 560 at 1-2). On March 14, 2013, the Court entered a Final Decree closing the case, finding Apex LTAC's bankruptcy estate was fully administered. (ECF No. 561 at 1).
Business Relations
In 2007, Adeel Zaidi and A.K. Chagla sought to recruit investors for the purchase of real property in northwest Houston with the end goal of building a hospital. (ECF No. 566-5 at 3). Through Prestige Consulting, Inc., a company Zaidi and Chagla owned at the time, they formed (i) Apex Physicians, (ii) Apex LTAC, and (ii) and Apex GP, which acted as Apex LTAC's general partner. (ECF No. 566-5 at 3). Apex Physicians served as Apex LTAC's landlord. (ECF No. 566-5 at 3). Prestige Consulting was hired to staff and manage Apex LTAC, and Abeer Saqer, one of Prestige's directors, was hired to serve as Apex LTAC's interim chief executive officer. (ECF No. 566-5 at 4). Shah was one of a group of initial investors recruited by Zaidi. (ECF No. 566-5 at 3). Shah ultimately served as Apex Physicians managing member, and a company owned by Shah became the majority owner of Apex Physicians. (ECF No. 566-5 at 3). The goal was to operate Apex LTAC as a long-term acute-care hospital; however, the enterprise was not a success. (ECF No. 566-5 at 3). This failure led to Apex LTAC's bankruptcy and subsequent lawsuits between the parties.
Previous Litigation
In 2009, Apex Physicians filed suit in state court against Adeel Zaidi, A.K. Chagla,
On March 31, 2016, Shah and Apex Physicians filed a third state court lawsuit, naming Remy as a defendant.
Motion to Reopen
On September 18, 2018, Shah and Apex Physicians filed a Motion to Reopen this bankruptcy case. (See ECF No. 564). Shah and Apex Physicians argue that the case should be reopened to examine allegedly fraudulent financials created by Robert Remy, Dr. Stephen Koch, Adeel Zaidi, Abeer Saqer, A.K. Chagla, and Gary Toche. (ECF No. 564 at 4). Specifically,
On October 9, 2018, Robert Remy filed his response in opposition to Shah and Apex Physicians' Motion to Reopen. (See ECF No. 565). Remy argues that the case should not be reopened because there is no evidence that Apex GP's financial statement was filed, reviewed, or relied on in this case. (ECF No. 565 at 1). In Remy's view, Shah and Apex Physicians fail to identify how the financial statement is false, and lack evidence showing that the Distribution Trustee saw or relied on the financial statement in pursuing assets of Apex LTAC's estate. (ECF No. 565 at 4). Remy insists that Sanjanlal's affidavit and testimony, relied upon by Shah and Apex Physicians to show fraud on the Court, is mischaracterized and in fact directly contradicts Shah and Apex Physicians' assertions that the financial statements are fraudulent. (ECF No. 565 at 5-8 (citing portions of the affidavit, in which Sanjanlal declares that he did not, nor was he asked to, misrepresent, mischaracterize or change the financial statements)). Remy further argues that no "cause" pursuant to
On September 9, 2018, Abeer Saqer and I-Care International, LLC filed a response in opposition to Shah and Apex Physicians' Motion to Reopen. (See ECF No. 566). Saqer and I-Care, while incorporating Remy's Response in full, also separately object to Shah and Apex Physicians' Motion on the basis that it attempts to circumvent the settlement agreement previously entered into by the parties in the Apex Hospital Project Lawsuit and upheld in the second lawsuit. (ECF No. 566 at 2). Saqer and I-Care characterize the Motion to Reopen as an attempt "to delay and impeded discovery, court orders, and a final resolution" in the pending state court matter. (ECF No. 566 at 2). Specifically, Saqer and I-Care allege that Shah and Apex Physicians filed the Motion to avoid deposition requests in the pending state court matter. (ECF No. 566 at 5). On September 9, 2018, Dr. Stephen Koch also filed a response opposing Shah and Apex Physicians' Motion to Reopen. (See ECF No. 567). Dr. Koch's response joined in the responses previously filed by Remy, Saqer, and I-Care. (ECF No. 567 at 1, 3).
On October 24, 2018, the Court ordered the parties to file additional pleadings on
Shah and Apex Physicians reason that § 1144 does not apply and therefore does not preclude reopening the case, because they do not seek to revoke the confirmation order. (ECF No. 570 at 2). Instead, Shah and Apex Physicians contend that they seek to reopen the case so that the Trustee may then pursue claims against Remy, and other parties, and "distribute the recovered assets[ ] in accordance with the confirmation order ...." (ECF No. 570 at 2) (emphasis added). Shah and Apex Physicians further argue that reopening the case is within this Court's discretion, because there exists no alternate forum given that the state court dismissed certain causes of action pursuant to this Court's jurisdiction of the claims under
Remy's response largely tracks his previous arguments. (See ECF No. 571). Remy notes that Shah and Apex Physicians have provided no evidence that the financial statements were fraudulent, nor that they were relied on "by any person or for any reason." (ECF No. 571 at 1). He highlights that Shah and Apex Physicians have failed to show "cause" as to why the case should be reopened, and further that the passage of time weighs heavily against reopening the case. (ECF No. 571 at 2). Remy insists that even if the case were to be reopened, there exists no legal basis for tolling the statute of limitations and that abandoning such claims would be improper. (ECF No. 570 at 3). Finally, Remy, contrary to Shah and Apex Physicians' argument, maintains that the allegations are a direct attack on the Court's confirmation order, and therefore barred under § 1144's 180-day limitation. (ECF No. 570 at 2). Specifically, Remy alleges that the allegations fit within the statutory goals of § 1144, "because they allege a broad conspiracy by several participants in the Debtor's plan confirmation process to mislead this Court and the Debtor's creditors." (ECF No. 571 at 11). Thus, the allegations are directed ultimately to fraud in the procurement of the confirmation order. (ECF No. 570 at 11). Dr. Koch, Saqer, and I-Care joined in Remy's response. (See ECF No. 572; see also ECF No. 573).
Jurisdiction
The District Court has jurisdiction over this proceeding pursuant to
Analysis
Shah and Apex Physicians ask this Court to reopen this bankruptcy case pursuant to Federal Rule of Bankruptcy Procedure 9024. (ECF No. 564 at 5-6). Rule 9024 incorporates Federal Rule of Civil Procedure 60 and generally applies the rule to bankruptcy cases. However, there are important exceptions written into Rule 9024. For the purposes of this Opinion, the most important exception arises under subpart 3 of Rule 9024, which states that, "a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330...." FED. R. BANKR. P. 9024.
Rule 60 generally provides courts with the authority to grant relief from judgments or orders. See
On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b):
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is not longer equitable; or
(6) any other reason that justifies relief.
FED. R. CIV. P. 60(b)(1)-(6).
Because of the third subpart of Rule 9024, a motion to revoke a confirmation order must be filed within the time frame allowed by
I. Section 1144 precludes reopening the case
Shah and Apex Physicians insist that they do not intend to revoke the Court's confirmation order through their Motion to Reopen. (ECF No. 574-1 at 4). Rather, Shah and Apex Physicians seek to "reopen the bankruptcy estate to allow the trustee to pursue [ ] claims against Remy, and possibly others ...and [subsequently] distribute the recovered assets, in accordance with the confirmation order ...." (ECF No. 570 at 2). In essence, Shah and Apex Physicians argue that they seek only to enforce the confirmation order after allegedly undisclosed assets have been discovered and recovered.
"[S]ection 1144 establishes a 180-day deadline after the date of entry to move to revoke an order confirming a chapter 11 plan, and then only if the order confirming the plan was procured by fraud." In re Renaissance Radio, Inc. , No. 03-33479-BJH,
There is no question that the claims set forth by Shah and Apex Physicians involve allegations of fraudulent conduct in procuring confirmation of the Plan. Section 1144 is squarely implicated. Shah and Apex Physicians, however, argue that the confirmation order is not implicated nor need it be revoked, given that the Motion to Reopen constitutes an independent cause of action. (ECF No. 574-1 at 4 (citing U.S. v. State St. Bank & Trust Co. ,
A claim is not independent where it is simply an attempt to redivide the pie by a disgruntled participant in the Plan. An independent cause of action can be maintained, however, at least where the alleged fraud could not have been asserted in the bankruptcy proceedings, the underlying factual claims were not actually adjudicated, and the relief sought would not upset the confirmed plan of arrangement.7
In re Genesis Health Ventures ,
Shah and Apex Physicians maintain their claim is independent of the confirmation order, given that the fraud they now allege could not have been asserted in the underlying bankruptcy proceedings since it "was not apparent until revealed through the trial testimony of Naqui Sanjanlal ...." (ECF No. 574-1 at 5). That the fraud was discovered after the expiration of the 180-day limitation, however, is not material to the inquiry.
The allegation by the plaintiffs that they had insufficient opportunity to uncover the fraud prior to the confirmation of the debtors' plan, and only discovered the alleged fraud by various means after the expiration of the six month limitation, does not alter the effectiveness of the bar ... [T]he threshold question is whether the plaintiffs' quest for money damages from the debtors and the other defendants, based on allegations of pre-confirmation fraud, constitutes a collateral attack on the confirmation order , which would be time-barred, or whether it represents a separate cause of action against the various defendants, which is not proscribed by § 1144.
Shah and Apex Physicians further maintain that their complaint is not a collateral attack on the confirmation order, because the claims were not actually adjudicated given that the assets "did not figure into the [ ] Plan" and therefore could not have been asserted in the confirmation proceedings. (ECF No. 574-1 at 5). In essence, Shah and Apex Physicians argue that the Plan did not deal with the alleged fraud claim and undisclosed assets they now seek to uncover and recover.
"Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor."
X. Vesting of Trust Assets. As of the Effective Date, except as otherwise expressly provided in the Plan, title to all Trust Assets (including, without limitation, Chapter 5 Causes of Action), shall vest in the Apex LTAC Distribution Trust.
(ECF No. 212 at 7) (emphasis added).
8.1 Vesting of Assets. Pursuant to the Apex LTAC Distribution Trust Agreement, the Distribution Trustee shall be appointed representative of the Estate for the purpose of prosecuting any and all rights, claims or causes of action, including but not limited to the Litigation Claims, whether known or unknown, asserted or unasserted , at law or equity, and whether arising pursuant to the Bankruptcy Code or other applicable law. The Distribution Trustee may prosecute, settle or dismiss rights, claims or causes of action as the Distribution Trustee sees fit ... and all proceeds there from shall be the property of the Trust, except as expressly released within this Plan.
(ECF No. 212-1 at 16) (emphasis added).
A plan "deals with" property, pursuant to § 1141(c), as required for an interest in that property to be extinguished upon confirmation of the plan, if there is a general reference in the plan that would encompass the property at issue. Frontier Insurance Group, Inc. v. Frontier Insurance Group, LLC (In re Frontier) ,
7.2 Funding of Res of Trust. Upon the Vesting Date, the Trust shall also be deemed to have taken an assignment of all rights or causes of action constituting Distributable Assets in which the Debtor may own an interest against third parties for obligations existing on the Effective Date , unless expressly released herein or by separate order of the Bankruptcy Court. Any litigation commenced after the Vesting Date in which the debtor is the plaintiff shall be commenced in the name of the Distribution Trustee as successor to the rights of the Debtor.
(ECF No. 212-1 at 15) (emphasis added).
The Plan became effective on January 26, 2010. (See ECF No. 243). As of that date, as provided for in the confirmation order and Plan, all assets, including any
The bankruptcy estate and distribution to creditors are the very core of the confirmation order and Plan. While Shah and Apex Physicians' Motion may arguably contemplate relief other than revoking the confirmation order (reopening the case to pursue claims against Remy and others), it necessarily challenges the substance of the confirmation order. The assets, including these claims, were vested in the Distribution Trust. They are no longer available for prosecution by any other party, unless the confirmation order's vesting provision is altered. That, the Court cannot do.
Even if Shah and Apex Physicians' claim could be characterized as a simple damages claim, its quest for a distribution of allegedly undisclosed assets that the plan explicitly dealt with and which may or may not add value to the estate is an undeniable attack on the confirmation order. See 8 COLLIER ON BANKRUPTCY ¶ 1144.04[2][b] (Richard Levin & Henry J. Sommer eds., 16th ed.) ("[I]f the effect of a damages award would be to alter the economic outcome of the plan, the action would be a de facto reversal of the plan and should not be allowed to proceed."). Accordingly, § 1144 precludes Shah and Apex Physicians from reopening the case pursuant to Fed. R. Civ. P. 60(b) and Fed. Bankr. R. 9024. See In re Newport Harbor Assocs. ,
II. The alleged undisclosed assets cannot be tolled or abandoned
Abandonment of Claims
In the alternative, Shah and Apex Physicians ask this Court "for a declaration that such assets and related claims have been abandoned by the bankruptcy estate such that they may be pursued" outside of the bankruptcy courts; presumably, in the pending state court litigation. (ECF No. 564 at 6). However, since the Plan was confirmed, and the bankruptcy estate was fully administered in accordance with the Plan, there is no property of the estate remaining that may be abandoned.
When a voluntary bankruptcy petition is filed, all of the debtor's property becomes property of the bankruptcy estate.
Pursuant to § 554(b), a party in interest may request that the court order abandonment of estate property that is burdensome to the estate or that is of inconsequential value and benefit. 5 COLLIER ON BANKRUPTCY ¶ 554.02[4] (Richard Levin & Henry J. Sommer eds.,16th ed.);
Shah and Apex Physicians filed this Motion over nine years after confirmation of Apex LTAC's plan. (See ECF No. 212). The Plan provides that on the effective date, title to property vested in the Apex TLAC Distribution Trust. (ECF No. 212 at 7). The Plan became effective on January 26, 2010. (See ECF No. 243). Consequently, there is no estate, as contemplated in § 554(b), now in existence and no property of the estate that the Court can order to be abandoned.
Tolling of Claims
Although Shah and Apex Physicians have also asked this Court for a declaration that any claims related to the fraudulent financial statement have been tolled, they have no standing to make this request. The owner of the claims is the Distribution Trust. Shah and Apex Physicians may not assert tolling rights on assets that do not belong to them. The Court denies the parties' request.
Conclusion
The Court will issue an Order consistent with this Memorandum Opinion.
Notes
Shah and Apex Physicians also implicate Abeer Saqer, A.K. Chagla, and Gary Toche. (ECF No. 564 at 4).
A substantial portion of this background section was written in reliance on the parties' briefing. It is included solely for background, and this background section does not constitute findings by the Court.
Apex Katy Physicians, LLC, et Al. v. Adeel Zaidi, et al. , Cause No. 2009-02578 (61st Harris County Dist. Court). The trial court in that case "rendered judgment holding the defendants and one non-party jointly and severally liable to two plaintiffs ...." Zaidi v. Shah ,
Apex Katy Physicians, LLC, Panjak K Shah and Indus Associates v. Abeer Saqer and I-Care International, LLC , Cause No. 2015-25588 (61st. Harris County Dist. Court).
P.K. Shah et al. v. Robert D. Remy , Cause No. 2016-20734 (129th Judicial District Court). Robert D. Remy is listed in Apex LTAC's "List of Creditors Holding 20 Largest Unsecured claims." (ECF No. 4 at 1).
Naqi Ali Sanjanlal "was the certified public accountant, through Shebay & Associates, for Apex Katy Physicians, LLC and Apex Katy Physicians-TMG, LLC ...." (ECF No. 565-2 at 2). Sanjanlal was personally familiar with Apex Physicians' and Apex TMG's financial statements during the period from 2007 through 2009. (ECF No. 565-2 at 2).
Courts have characterized the last of these considerations as the most important. In re Coffee Cupboard ,