Jackson v. General Electric Capital Corp. (In re Fundamental Long Term Care, Inc.)
Jackson v. General Electric Capital Corp. (In re Fundamental Long Term Care, Inc.)
Opinion of the Court
ORDER AND MEMORANDUM OPINION ON MOTION TO SUPPLEMENT RECORD
Federal Rule of Bankruptcy Procedure 8009 permits this Court to supplement the record on appeal if anything material is omitted by mistake. Here, six probate estates appealed a final judgment in favor of Rubin Schron, which the Court entered after dismissing all the probate estates’ claims against him with prejudice. The probate estates have now asked the Court to supplement the record on appeal with a deposition transcript they relied on in objecting to entry of final judgment after the dismissal order. Because the Court never considered the deposition transcript, it would be inappropriate to include it in the record on appeal.
Background
Twelve years ago, the Probate Estates filed the first of six lawsuits against Trans Healthcare Management, Inc. (“THMI”), which managed nursing homes operated by Trans Healthcare, Inc. (“THI”) and THI of Baltimore, Inc. (“THI Baltimore”).
The claims against Rubin Schron (and others) arise out of an alleged bust-out scheme intended to divest THMI of all its assets for less than reasonably equivalent value in order to thwart THMI’s creditors. The alleged bust-out scheme worked as
After the transactions closed, Forman and Grunstein looted all of THMI’s assets and transferred them to FLTCH, which in turn transferred them to a newly created subsidiary, Fundamental Administrative Services (“FAS”).
The bust-out scheme ended up in this Court when the Jackson Estate obtained its $110 default judgment against FLTCI as part of state court proceedings supplementary and then initiated this involuntary chapter 7 case.
The Trustee and Probate Estates sued everyone involved in the transaction: THI Holdings (THI and THI Baltimore’s parent company); Ned Jannotta (a THI Holdings and THI board member); the GTCR Group (which owned THI Holdings); General Electric Capital Corporation; Ventas, Inc.; and Ventas Realty, LP (THI’s lenders); FLTCI (the sham company that acquired THMI’s stock); FLTCH (which .acquired THI Baltimore’s stock and looted THMI’s assets); THI Baltimore (the company sold to FLTCH);. FAS (the FLTCH
Initially, the Probate Estates contended that: (1) the GTCR Group, THI Holdings, and Jannotta breached their fiduciary duties to the Probate Estates by agreeing to sell THMI and THI Baltimore for less than they were worth; (2) all of the remaining Defendants aided and abetted that breach of fiduciary duty; (3) FLTCH, THI Baltimore, FAS, Forman, Grunstein, and Schron were the successors to or the alter ego of THI and THMI; (4) the GTCR Group, THI Holdings, and Jannotta were liable for THI’s and THMI’s debts under a veil-piercing theory; (5) FLTCH, THI Baltimore, FAS, Forman, Grunstein, and Schron were liable for the debts of FLTCI under a veil-piercing theory; and (6) all of the Defendants were liable for actual and constructive fraudulent transfer, as well as conspiring to commit a fraudulent transfer. The Probate Estates later asserted four new claims; abuse of process, conspiracy to commit abuse of process, negligence, and avoidance of a postpetition transfer.
In the end, the Court dismissed all of the claims against Schron with prejudice. The Probate Estates’ various complaints, which asserted thirty-two claims for relief against seventeen defendants involved in the alleged bust-out scheme, totaled nearly 300 pages and more than 1,600 allegations.
According to the Probate Estates, Schron introduced Saacks to Grunstein years before the bust-out scheme closed in March 2006;
For starters, the Court rejected the allegations that Forman and Grunstein were acting as Schron’s agents when acting to further the bust-out scheme because those allegations were contradicted by other allegations in the complaint.
Three other Defendants — General Electric Capital Corporation, Ventas Inc. and Ventas Realty — were dismissed at the summary judgment stage.
On November 4, 2015, more than sixteen months after the Court dismissed the Probate Estates’ claims against him, Schron requested the Court entered a final judgment in his favor in order to trigger the time period for the Probate Estates to appeal the dismissal order and to permit Schron to file a motion to tax costs.
One of the items of newly discovered evidence referenced in the objection was the transcript of a deposition of Harry Grunstein, which the Probate Estates say they received as part of belated discovery on September 8, 2014 — sixteen months before they objected to the proposed final judgment.
On appeal, the Probate Estates asked, the district court to supplement the record with the e-mail exchange between the Court’s law clerk and counsel, as well as the Grunstein deposition transcript. The district court determined that this Court is the appropriate forum to decide whether the Grunstein deposition transcript should be included in the record since this Court “knows best what was before it and what it considered in making its ruling.” Having been presented with the issue,
Conclusions of Law
The Court’s authority to supplement the record on appeal is set forth in Federal Rule of Bankruptcy Procedure 8009.
Here, the Court never considered the Grunstein deposition transcript. For one thing, the Probate Estates simply referenced — but did not attach — the deposition transcript in their e-mail.
Not so. For starters, the Court never prohibited the parties from filing anything in opposition to Schron’s request for a final judgment. The Court simply asked the parties to e-mail their objections for expediency. Besides, nothing prevented the Probate Estates from attaching the transcript to' their e-mail objection so the Court could consider it. Moreover, although the Probate Estates e-mailed their objection to the proposed final judgment on November 6, 2015, the Court did not overrule the Probate Estates’ objection and enter a final judgment until after the issue was discussed at a December 16, 2015 status conference.
Even assuming the Probate Estates had attached the deposition transcript to their objection, the Court would not have considered it. The Court is unaware of any authority for the proposition that a court should not enter a final judgment where all claims against one defendant have been dismissed with prejudice simply because the plaintiff has discovered new evidence. The proper procedural mechanism for raising newly discovered evidence here would have been a Rule 60(b) motion.
The Court could not have treated the Pi-obate Estates’ objection as a Rule 60(b) motion because it would have been untimely. The Probate Estates could have sought relief from the order dismissing the claims against Schron with prejudice under Rule 60(b) based on newly discovered evidence. But Rule 60 requires motions for relief from an order to be filed within a reasonable time but in no case more than one
Conclusion
In the end, the Probate Estates’ motion to supplement the record on appeal appears to be an end run around Rule 60(b).
Accordingly, it is
ORDERED:
1. The Probate Estates’ motion to supplement the record on appeal is GRANTED, in part, and DENIED, in part.
2. The e-mail exchange between the Court’s law clerk and counsel 'for the parties should be included in the record on appeal since the Court considered it. But the Grunstein deposition transcript should not be included since the Court did not consider it.
. The background section of this memorandum opinion largely comes from the complaint that the Chapter 7 Trustee and Probate Estates filed in this proceeding.
. THMI was a wholly owned subsidiary of THI, which owned and operated approximately 70 nursing homes. THI Baltimore was THI’s sister company. They were both wholly owned subsidiaries of THI Holdings, LLC. THI Holdings formed THI Baltimore to acquire 120 nursing homes from Integrated Health Services, which was in bankruptcy in Delaware. THI Baltimore, however, was outbid at the last minute by Abe Briarwood. Abe Briarwood ended up leasing the nursing homes it acquired to THI Baltimore to operate.
. Adv. Doc. No, 289 at ¶¶ 1206, 1207, 1208, 1209,
. Adv. Doc. No. 289 at ¶¶ 1212.
. Adv. Doc. No. 289 at ¶¶ 1523.
. Adv. Doc. No. 289 at ¶¶ 1213, 1214, 1216, 1217.
. Adv. Doc. No. 289 at ¶¶ 1218, 1220, 1221.
. Adv.' Doc, No. 289 at ¶¶ 1218, 1220, 1221.
. Adv. Doc. No. 289 at ¶¶ 1224, 1225, 1226, 1227;
. FLTCH rebranded THMI’s assets under its name or the name of one of its newly created subsidiaries (FAS) and used them to generate millions of dollars in profits, Adv. Doc. No. 289 at ¶¶ 1228, 129, 1230.
. Doc. No, 1.
. Doc. No. 1272. The Court’s reasoning was set out in two reported memorandum opinions. Scharrer v. Fundamental Long Term Care Holdings, LLC (In re Fundamental Long Term Core, Inc.), 500 B.R. 147 (Bankr.M.D.Fla. 2013); In re Fundamental Long Term Care, Inc., 501 B.R. 770 (Bankr.M.D.Fla. 2013).
. Adv. Doc. No. 109.
. Technically, the negligence and postpetition transfer claims were brought by the Trustee, who was also a plaintiff in this proceed- ■ ing.
. Adv. Doc. Nos. 109 & 289.
. Adv. Doc. No, 109 at ¶¶ 66, 101, 125, 137, 148, 151, 153-55, 157-60, 166-68, 334, 402-OS, 407, 408, 410, 413, 465, 512, 536; 1213; Adv. Doe, No. 289 at «1242, 1248, 1250, 1251, 1256, 1259, 1260, 1382, 1383, 1387, 1389, 1391, 1392, 1397, 1399-1405, 1419, 1514, 1520, 1522, 1524-26, 1530, 1532-35, 1538, 1539, 1544-47, 1554.
. Adv. Doc. No. 289 at ¶ 334,
. Id. at ¶¶ 1247, 1248.
. Id. at ¶¶ 1259, 1260,
. Id. at ¶ 1256.
. Id. at ¶ 1419.
. Estate of Jackson v. Gen. Elec. Capital Corp. (In re Fundamental Long Term Care, Inc.), 507 B.R. 359 (Bankr.M.D.Fla. 2014); Estate of Jackson v. Gen. Elec. Capital Corp. (In re Fundamental Long Term Care, Inc.), 512 B.R. 690 (Bankr.M.D.Fla. 2014). The closest the Probate Estates came to¡ alleging Schron benefited from the transfer of THMI’s assets was their allegation that Quality Health took title to a one-third interest in FLTCH. Adv. Doc. No. 289 at ¶ 1259, 1260. Under Bankruptcy Code § 550(a), a trustee can recover a
. Adv. Doc.-No. 109 at ¶¶ 67, 68, 70, 118, 119, 126, 300, 337, 397, 400, 401; Adv. Doc. No. 289 at ¶¶ 1252, 1253, 1254, 1379, 1380, 1393, 1394, 1395, 1535, 1536, 1537.
. For instance, the Probate Estates alleged that FLTCH, THI Baltimore, Forman, Grun-stein, and Schron transferred THI’s and THM’s assets to themselves for less than reasonably equivalent value. Adv. Doc. No. at ¶¶ 1250, 1251.
. Adv. Doc. No. 109 at ¶¶ 892, 893. The Probate Estates also claimed that FLTCH, Forman, Grunstein, and Schron improperly used FLTCI’s corporate form and dominated and controlled the entity. Adv. Doc. No. 289 at ¶¶ 1235, 1236.
. Fundamental Long Term Care, Inc., 507 B.R. at 379, 381; Fundamental Long Term Care, Inc., 512 B.R. at 695-96.
. Adv. Doc. No. 109 at ¶¶ 402-10.
. Jackson-Platts v. McGraw-Hill Cos., Inc., 2013 WL 6440203 (M.D.Fla. 2013).
. In re Fundamental Long Term Care, Inc., 512 B.R. at 707.
. Adv. Doc. Nos. 907 & 908.
. After the Court dismissed the claims set forth in the second amended complaint, the Probate Estates and Trustee filed a restated second amended complaint that included only the counts that remained pending after the Court’s rulings on the various motions to dismiss. Adv. No. 13-ap-893, Adv. Doc. No. 620.
. Adv. Doc. No. 1208-1 at 9.
. Id. at 5.
. Id. at 3-4.
. Id. at 3.
. Adv. Doc. Nos. 1211 & 1212.
. Fed. R. Bankr. P. 8009(e)(2).
. Id. The Court has serious doubts about the Grunstein transcript’s materiality. Although the transcript is somewhat ambiguous, it can be read to suggest that Schron put Grunstein in charge of thwarting negligence claims against integrated Health Services, the bankrupt entity whose assets were sold to Abe Briarwood and leased to THI Baltimore three years before the bust-out scheme. There are two problems with that evidence. First, it
. In re Ames Dept. Stores, Inc., 320 B.R. 518, 522 n. 8 (Bankr.S.D.N.Y. 2005).
. Id. at 522.
. Adv. Doc. No. 1208-1.
. Adv. Doc, No. 878.
. Adv, Doc. No. 1178 at 22-27.
. Fed. R. Civ. P. 60(c)(1).
. Based on the Court's reading of Rule 60(b), the Probate Estates could have sought relief from the final judgment, in addition to the dismissal order.
.Although the filing of a notice of appeal generally divests a bankruptcy court of jurisdiction, the Court could still issue an indicative ruling — allowing the Court to defer ruling on a Rule 60(b) motion, deny it, or state that the Rule 60(b) motion should be granted or raises a substantial issue — under Rule 8008. Fed. R. Bankr. P. 8008(a).
Reference
- Full Case Name
- IN RE: FUNDAMENTAL LONG TERM CARE, INC. and Trans Health Management, Inc., Debtors. Estate of Juanita Jackson v. General Electric Capital Corporation
- Status
- Published