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In re Kentuckiana Healthcare, LLC

United States District Court, W.D. Kentucky, Louisville

March 7, 2014

In the Matter of KENTUCKIANA HEALTHCARE, LLC, Chapter 11, PRN PHARMACEUTICAL SERVICES, LP, Plaintiff,
v.
BROWNSBURG HEALTHCARE LLC, et al., Defendants. Civil Action No. 3:12CV-705-S Adversary Proceeding No. 10-03100

MEMORANDUM OPINION AND ORDER

CHARLES R. SIMPSON, III, Senior District Judge.

In this Adversary Proceeding, PRN Pharmaceutical Services LP ("PRN") seeks payment for goods and services provided to various Indiana nursing homes under a series of contracts. PRN sued the owners of the nursing homes and two management companies, one of whom is the debtor, Kentuckiana Healthcare, LLC ("Kentuckiana"), for payment of allegedly unpaid bills. The defendants counter- and cross-claimed under a variety of legal theories.

This matter has an extensive history which we briefly revisit here. As noted in our earlier Order (No. 12CV-705, DN 1), this case began in Marion County, Indiana, Superior Court as a garden variety civil action. It was removed to the United States District Court for the Southern District of Indiana, and was remanded back to Marion County Superior Court for lack of diversity jurisdiction. It was then removed to the United States Bankruptcy Court for the Southern District of Indiana. This removal occurred after defendant Kentuckiana Healthcare, LLC and Paramount Healthcare Group, Inc. ("PHG"), the parent company of the two of the Paramount defendants, [1] filed petitions for Chapter 11 relief in the United States Bankruptcy Court for the Western District of Kentucky. The matter was then transferred to the United States Bankruptcy Court for the Western District of Kentucky, and became Adversary Proceeding No. 10-03100.[2] PRN, Omnicare, and the Trustee for Kentuckiana then moved this court to withdraw the reference of this matter.

Prior to entertaining the motion to withdraw the reference, we ordered the parties to brief the issue of the jurisdictional basis for this court to entertain the case. We questioned our jurisdiction over the matter, as the case is grounded entirely in state law and no diversity jurisdiction exists. Thus, this court has jurisdiction over the matter only if it arises in or relates to a bankruptcy case. 28 U.S.C. § 1334(b). Because only one of the parties, Kentuckiana, is a party to a bankruptcy proceeding, and because the relationships between the debtor and non-debtor parties were unclear, we ordered additional briefing concerning satisfaction of the jurisdictional requirement of § 1334(b).

Upon review of the briefs in which the parties unanimously urged this court to find subject matter jurisdiction, the court determined that the matter "related to" a bankruptcy and withdrew the reference only for purposes of conducting a trial by jury, finding that:

Generally, proceedings "related to" a bankruptcy include (1) causes of action owned by the debtor which become property of the estate pursuant to 11 U.S.C. § 541, and (2) suits between third parties which have an effect on the bankruptcy estate. Celotex Corp. v. Edwards, 514 U.S. 300, 307 n.5 (1995). The United States Court of Appeals for the Sixth Circuit has adopted an expansive test for determining whether a proceeding is "related to" a bankruptcy. "[T]he usual articulation of the test for
determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.'" In re Dow Corning Corp., 86 F.3d 482, 490 (6th Cir. 1996) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). According to the Court of Appeals, an action is "related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.'" Id. (quoting Pacor, 743 F.2d at 994).
All of the claims in this adversary proceeding relate to a bankruptcy proceeding. The claims by PRN against Kentuckiana and Kentuckiana's claims against PRN and Omnicare clearly relate to a bankruptcy proceeding because their resolution - whether in favor of Kentuckiana or in favor of PRN - could undoubtedly affect Kentuckiana's estate.
The claims by PRN against the Paramount Defendants and the claims by the Paramount Defendants against Omnicare relate to a bankruptcy proceeding for a similar reason. The Paramount Defendants themselves are not parties to a bankruptcy proceeding. However, the holding company that owns them, PHG, has apparently also filed for Chapter 11 relief in the bankruptcy court in this district. According to the Paramount Defendants, PHG does not operate any business on its own, so any funds to repay its creditors will necessarily come from the Paramount Defendants. Because of this, claims related to the Paramount Defendants could - and almost certainly would - have an effect on the bankruptcy estate of PHG.
Finally, the claims against the Facility Defendants relate to a bankruptcy proceeding because the Facility Defendants assert a right to indemnity from Kentuckiana. Thus, the claims against the Facilities will potentially impact Kentuckiana's liabilities, and therefore relate to the bankruptcy proceeding.

No. 3:11MC-5-S, DN 26, pp. 2-3.

On October 23, 2012, the court ordered that all pretrial motions, including dispositive motions, be heard by the Bankruptcy Court. Upon completion of discovery and determination of pretrial and dispositive motions, the matter would then come before this court for trial.

Pretrial matters thus remained pending before the Bankruptcy Court. A review of the docket sheet evidences the following:

(1) The parties have made little progress toward trial readiness in this matter. In November, 2013, over one year after the court's order concerning trial preparation, an Amended Complaint was filed. (No. 10-03100, DN 164). A Proposed Amended Scheduling Order was tendered to the Bankruptcy Court on January 8, 2014 (No. 10-03100, DN 180) which evidences that discovery remains ongoing at present. As recently as February 21, 2014, after the court's denial of a motion for protective order concerning the taking of depositions, the parties requested that the Bankruptcy Court not enter the proposed scheduling order. (No. 10-03100, 2/21/14 Hearing).

(2) Despite this court's October 23, 2012 Order, and the issuance by the Sixth Circuit three days later of the decision of Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012), cert. denied, 133 S.Ct. 1604 (2013), questions concerning the procedural posture of the case and the Bankruptcy Court's ability to resolve pretrial matters were not raised with this court until January 8, 2014 by the filing of a motion for a pretrial conference. (No. 12CV-705, DN 10). Kentuckiana also requested in that motion that the court ...


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