Schwab v. Ease Associates, Inc. (In re Saint Catherine Hospital of Pennsylvania, LLC)
Schwab v. Ease Associates, Inc. (In re Saint Catherine Hospital of Pennsylvania, LLC)
Opinion of the Court
OPINION
The Trustee of St. Catherine Hospital of Pennsylvania, LLC, William G. Schwab, has filed a Complaint to avoid a judgment lien under the strong arm provisions of the Bankruptcy Code found at 11 U.S.C. § 544
On April 9, 2012, the Debtor filed for Chapter 11 which thereafter converted to Chapter 7. On November 5, 2012, the Trustee began a lawsuit in this Court against Healthcare asking for a declaratory judgment that Healthcare was an alter ego of the Debtor. Adversary No.:5:12ap-00298. Healthcare was a limited liability corporation whose managing partner was Robert Lane. Robert Lane was in Chapter 7 bankruptcy in the State of Wyoming. Lane’s Chapter 7 Trustee and Schwab, the Debtor’s Trustee, thereafter entered into an agreement which resulted in a consent judgment in Adversary No. 5:12-ap-00298 to the effect that Debtor and Healthcare conducted a “single enterprise.” This was a virtual admission that the two companies were alter egos of each other.
Schwab now argues that, by virtue of that consent judgment, Lease Associates’ judgment against Healthcare is a voidable preference by reason of the Debtor’s filing within 90 days of judgment being entered against Healthcare by Lease Associates.
The reasons why two legal entities may be treated as one, either as a single entity or consolidated estates, are many and varied. The fact that this was a consent judgment finding a single entity existed suggests that little or no record has been made before me compelling such a finding. Nevertheless, Schwab makes a leap that, for all purposes, the two entities should be held to be one by virtue of the consent judgment. That conclusion may be overbroad. Our Circuit Court of Appeals has spoken extensively about attempts to disregard corporate forms for the so-called “benefit of creditors.” In re Owens Corning, 419 F.3d 195 (3rd Cir. 2005). As stated by that Court, the general expectation of commercial markets is that courts respect entity separateness. Owens Corning, 419 F.3d at 211. The Court warned that consolidation should be used “defensively to remedy identifiable harms, not offensively” to disadvantage a creditor.
Suffice it to say that summary disposition is inappropriate under the circumstances of this case. That is especially true in light of other remedies that this Court has at its disposal should the equities of the situation require it, such as those provided under 11 U.S.C. § 510(c).
My Order denying the Trustee’s Motion for Summary Judgment is attached.
ORDER
For those reasons indicated in the Opinion filed this date, IT IS HEREBY ORDERED that the Trustee’s Motion for Summary Judgment is denied.
. "While substantive consolidation may be used defensively to remedy the identifiable harms caused by entangled affairs, it may not be used offensively (for example, having a primary purpose to disadvantage tactically a group of creditors in the plan process or to alter creditor rights).” In re Owens Corning, 419 F.3d 195, 211 (3rd Cir. 2005).
Reference
- Full Case Name
- In re SAINT CATHERINE HOSPITAL OF PENNSYLVANIA, LLC, Debtor(s). William G. Schwab, as Chapter 7 Trustee of the Estate of St. Catherine Hospital of Pennsylvania, LLC d/b/a St. Catherine Medical Center of Fountain Springs, Plaintiff(s) v. Ease Associates, Inc., Defendant(s)
- Cited By
- 1 case
- Status
- Published