'Lockbox accounts'

No. 04-3365In re Nat’l Century Financial Enterprises
Page 2
1
The related entities are Amedisys Home Health, Inc. of Alabama; Clinical Arts Home Care Services, Inc.;Central Home Health Care; Togaloo Home Health Agency; North Georgia Home Health Agency; Coosa Valley HomeHealth; Amedisys Home Health, Inc. of Louisiana; Amedisys Home Health, Inc. of North Carolina; Amedisys HomeHealth, Inc. of Oklahoma; Amedisys HomeHealth, Inc. of Tennessee; Amedisys HomeHealth, Inc. of Virginia; SuperiorHome Health Care; Amedisys Northwest Home Health, Inc.; Northwest Home Health; Amedisys Specialized MedicalServices, Inc.; Precision / Amedisys Specialized Medical Services; Amedisys Alternate-Site Infusion Therapy Services,Inc.; Home Health of Alexandria, Inc.; Cornerstone Home Health; Quality Home Health Care, Inc.; PRN, Inc. d/b/aAmedisys Alternate-Site Infusion Therapy Services; and Amedisys Surgery Centers,

L.C._________________OPINION_________________ROGERS, Circuit Judge. Amedisys, Inc., and its related entities 1 appeal an order enforcingthe automatic stay in bankruptcy, 11 U.S.C. § 362(a), against a civil action in which Amedisys isthe plaintiff. National Century Financial Enterprises, Inc. (“NCFE”), the debtor, before itsbankruptcy, supplied financing to the health care industry. NCFE bought accounts receivable fromhospitals and other health care providers. The arrangement shortened the providers’ waiting periodfor payment by insurance companies, Medicare, andMedicaid. Amedisysisa Louisiana corporationsupplying home nursing services. Amedisys participated in a financing plan sponsored by one ofNCFE’s subsidiaries. NCFE and its subsidiaries, including National Premier Financial Services(“NPFS”), NPF VI, and NPF XII (collectively, “the NCFE entities”), filed for Chapter 11bankruptcy in November 2002. In February 2003, Amedisys sued JP Morgan Chase ManhattanBank (“JP Morgan”) in Louisiana, seeking to recover about $7.3 million in accounts receivable heldin a JP Morgan collection account in the name of NPF VI. Upon NCFE’s motion, the bankruptcycourt applied the automatic stay in bankruptcy, 11 U.S.C. § 362(a), to the Louisiana action. Amedisys appealed this decision; the district court affirmed. Because the Louisiana action is an “actto obtain possession of property of the [bankruptcy] estate,” 11 U.S.C. § 362(a)(3), we affirm thebankruptcy court’s and district court’s conclusions that the automatic stay applies.I.The appeal hinges on the questions of (1) whether Amedisys, through the Louisiana action,seeks to obtain possession of accounts receivable funds that NPF VI, an NCFE entity, held in a JPMorgan account; and (2) whether in fact these accounts receivable constitute property of thebankruptcy estate. NCFE is an Ohio Corporation which, until its bankruptcy, was, along with itssubsidiaries, the country’s largest provider of healthcare accounts receivable financing. JA 556.The district court fully described the contractual relationship between Amedisys and the NCFEentities:Amedisys, Inc., and its corporate subsidiaries provide home nursing servicesthroughout the southeastern United States. Amedisys participated in a fundingprogram operated by [NCFE], a company that finances health care providers bypurchasing . . . their accounts receivable at a discount. NCFE purchased thereceivables with funds raised through selling notes that were backed by thereceivables themselves.NCFE created numerous wholly-owned subsidiaries, known as “programs,”for the purpose of issuing notes that were secured by pools of receivables and othercollateral. The two largest such programs were NPF VI, administered by JP MorganChase Bank as indenture trustee, and NPF XII, administered by Bank One, N.A. asindenture trustee. Under the sale and subservice agreements into which NCFEprograms and health care providers entered, receivables would be remitted directly
--------------------------------------------------------------------------------
Page 3
No. 04-3365In re Nat’l Century Financial EnterprisesPage 3into lockbox accounts and the NCFE program would advance funds to the provideron a weekly basis in payment of the receivables.Amedysis participated in the NPF VI program, and its accounts receivablewent into lockbox accounts at Huntington National Bank. The lockbox accountswere in the name of [NPFS]—an NCFE entity—and Amedisys or one of itssubsidiaries. Those funds were then swept into a Collection Account at JP Morganin the name of NPF VI. Though accounts receivable went into the CollectionAccount, NPF VI did not purchase every account receivable it collected. Section 6.1of the Sale and Subservice Agreement provided:The Purchaser and the Seller acknowledge that certain amountsdeposited in the Collection Account may relate to Receivables otherthan Purchased Receivables and that such amounts continue to beowned by the Seller. All such amounts shall be returned to the Sellerin accordance with Section 6.3.The amounts in the Collection Account representing receivables that NPF VI did notpurchase were called “overage funds.” The Trustee (JP Morgan) was supposed totransfer such funds to Amedisys on NPFS’s instruction. Amedisys states that itnormally would receive electronic notice of the amount of any overage funds onTuesdays. In late October 2002, Amedisys became concerned after hearing reports thatNCFE was experiencing financial difficulties. On the final Thursday of the month,Amedisys did not receive the overage funds it expected NPF VI would transfer to it.On November 6, 2002, the Chief Financial Officer of Amedisys performed anaccounting and determined that NPF VI owedAmedisysapproximately $7.3 million.Dist. Ct. Op. at 3–5, JA 515–517. JP Morgan’s duties as trustee of the collection accounts wereoutlined in Section 6.5 of the Sale and Subservice Agreement (“the sale agreement”), whichprovided, “On each purchase date for [Amedisys] . . ., [NPF VI] shall deliver to [JP Morgan] awritten statement setting forth the amount to be paid to [Amedisys] from the purchased account inrespect of the purchased receivables and [JP Morgan] shall make such payment in accordance with[NPF VI’s] instructions.” Supp. JA 13. JP Morgan was labeled a trustee in this arrangement onlybecause of its fiduciary duty toward holders of the notes. The bankruptcy court, in a differentdecision from the one appealed here, has determined that JP Morgan bore no fiduciary duty towardAmedisys.On November 8, 2002, Amedisys sued JP Morgan, NPF VI, NPFS, NCFE, and LancePoulsen, the president of NFP VI, in the United States District Court for the Southern District ofOhio (“the Ohio action”). In the complaint, Amedisys demanded the return of the $7.3 million inaccounts receivable held in the JP Morgan collection account. On November 18, 2002, NCFE and its subsidiaries filed for chapter 11 bankruptcy. OnDecember 19, 2002, the district court transferred the Ohio action to the bankruptcy court, as anadversary proceeding in the bankruptcy case. On January 16, 2004, Amedisys filed a secondamended complaint in the bankruptcy court naming JP Morgan, NPF VI, NCFE, and NPFS asdefendants, asserting the following claims:I.Actual controversies exist between Amedisys and JP Morgan, and betweenAmedisys and NCFE, concerning Amedisys’ right to have a total of morethan $7.3 million in accounts receivable returned to it. Amedisys seeks adeclaratory judgment holding that the sale agreement and trust indenture
--------------------------------------------------------------------------------
Page 4
No. 04-3365In re Nat’l Century Financial EnterprisesPage 42The parties disagree over whether, as NCFE argues, NPF VI had earmarked the $7.3 million in accountsreceivable for purchase, and had simply not yet paid Amedisys for the accounts; or whether, as Amedisys argues, theaccounts were not designated for purchase, but had merely been swept into the JP Morgan account. See Appellant’s Br.at 28; Appellee’s Br. at 20.represent one contractual relationship among Amedisys, JP Morgan, andNCFE. II.Amedisys seeks a declaratory judgment stating that JP Morgan, as an escrowagent, owed fiduciary obligations to Amedisys and violated thoseobligations. III.The $7.3 million in accounts receivable is subject to an express trustestablished by the sale agreement.IV.Amedisys’ cash in the possession or control of the NCFE entities,approximately $7.3 million, is an unjust enrichment occurring by mistake orfraud. The funds should be impressed with a constructive trust requiring thatthe funds be returned to Amedisys. V.The $7.3 million in accounts receivable is subject to a resulting trust.VI.Amedisys is entitled to an immediate turnover of its property under 11 U.S.C.§ 542.VII.NCFE breached the Amedisys-NCFE sales agreement by failing to returntimely and properly non-purchased receivables. NCFE also breached theagreement by failing to maintain a detailed accounting record. VIII. Amedisys is entitled to specific performance of the agreement mandatingNCFE to remit $7,337,569 to Amedisys.IX.NCFE owed to Amedisys a fiduciary duty pursuant to the sale agreement toensure that Amedisys’ interests in the accounts were properly protected.NCFE breached this duty.X.NCFE repeatedly made intentional misrepresentations to Amedisys, statingthat it would ensure that Amedisys’ funds would be timely released to it.Amedisys justifiably relied on these misrepresentations and has been directlyinjured as a result of the reliance.On May 27, 2004, the bankruptcy court granted NCFE’s and JP Morgan’s motions forsummary judgment as to all counts in the adversary proceeding except for Count VII (alleging thatNCFE breached the sale agreement). The bankruptcy court determined that although NCFE did notpay for the disputed $7.3 million in accounts receivable, it “did actually purchase Amedisys’saccounts receivable.” Therefore, Amedisys would have only a “general contractual claim [againstNCFE] for nonpayment”; Amedisys’ assertions that it owned the accounts receivable at the time ofNCFE’s bankruptcy, and therefore that the $7.3 million in the JP Morgan collection account was notpart of the bankruptcy estate, were unfounded.2By joint agreement of the parties, Count VII wasdismissed on April 14, 2005. At this point, the bankruptcy court’s grant of partial summaryjudgment became a final, appealable order. Amedisys filed a notice of appeal on April 22, 2005,and the appeal is now before the United States District Court for the Southern District of Ohio.
--------------------------------------------------------------------------------
Page 5
No. 04-3365In re Nat’l Century Financial EnterprisesPage 53The parties noted at oral argument that the action has since been consolidated into a multidistrict litigation inthe United States District Court for the Southern District of Ohio. 4The motion argued, inter alia, that the Louisiana action “plainly violates section 362(a)(3) of the BankruptcyCode.” JA 576. The prayer for relief sought an order (i) finding that the automatic stay has been violated by the Louisiana action; (ii) declaring the filingof the Louisiana action to be invalid and void, as violative of the automatic stay; (iii) directing theAmedisys Entities to immediately cease and desist from any further prosecution of the LouisianaAction, absent further order of this court. . . .On February 21, 2003, Amedisys brought a state court action in Louisiana against JPMorgan, certain JP Morgan employees, and NCFE’s insurer (“the Louisiana action”). JA 559. OnMarch 24, 2003, the defendants removed the action to the United States District Court for theMiddle District of Louisiana.3Amedisys asserted the following claims in the Louisiana action: I.The sale agreement between NPF VI and Amedisys created an impliedcontract relating to the course of dealing among JP Morgan, NPF VI, andAmedisys. Amedisys seeks specific performance, including “refund of thenonpurchased receivables and overage funds.” II.Amedisys was a third-party beneficiary of the trust indenture between NPFVI and JP Morgan. JP Morgan had a duty to return to Amedisys “receivablesand overage funds that were never purchased by NPF VI in the first place.”III.JP Morgan breached its fiduciary duty to Amedisys to ensure that Amedisys’rights in the accounts at JP Morgan were adequately protected. IV.JP Morgan intentionally misrepresented the truth to Amedisys when itclaimed that it had taken all actions necessary to release the $7.3 million inaccounts receivable. V.Amedisys detrimentally relied on JP Morgan’s agreement to comply withNPF VI’s instructions to wire Amedisys’ funds to it. Amedisys is thereforeentitled to all damages attributable to JP Morgan for Amedisys’ detrimentalreliance. VI.JP Morgan wrongfully converted the funds owned by Amedisys when itrefused to remit the funds following Amedisys’ request. Amedisys is“entitled to any and all damages resulting in [sic] the conversion of itsfunds.” VII.“[T]he funds owned by the Amedisys Entities, over which [JP Morgan] hasdominion and control, are impressed with a constructive trust in favor ofAmedisys.” VIII. JP Morgan’s conduct violated the Louisiana Fair Trade Practices Act. IX.JP Morgan was unjustly enriched by its wrongful retention of the $7.3million in accounts receivable belonging to Amedisys. Complaint at 17–23, Supp. JA 22–28. On June 23, 2003, NCFE moved the bankruptcy court for an order enforcing the BankruptcyAct’s automatic stay, 11 U.S.C. § 362(a), against the Louisiana action. JA 569–580.4The motion
--------------------------------------------------------------------------------
Page 6
No. 04-3365In re Nat’l Century Financial EnterprisesPage 6JA 579-80.alleged, “The actions taken by the Amedisys Entities in connection with the commencement of theLouisiana Action plainly suggest a coordinated strategy to forum shop and to avoid the applicationof the automatic stay.” JA 575. NCFE noted that Amedisys’ claims in the Louisiana action werevirtually identical to those in the Ohio action, save for the omission of NCFE and its subsidiaries asdefendants in the Louisiana action. Id. The bankruptcy court, in an opinion dated August 19, 2003,ordered that Amedisys immediately cease and desist from any further prosecution of the Louisianaaction. The court gave two reasons. First, all of the claims in Amedisys’s complaint “require adetermination of ownership of funds alleged to be [NCFE’s] funds.” JA 564. Therefore, a findingfor Amedisys would result in the “automatic creation of liability against the debtor because of ajudgment against [JP Morgan].” Id. Second, the court found, “the involvement in the LouisianaAction effectively will act to diminish this bankruptcy estate by causing a duplication of efforts anda waste of judicial time and resources.” JA 564.Amedisys appealed the bankrupty court’s determination to the United States District Courtfor the Southern District of Ohio. The district court affirmed the bankruptcy court. The districtcourt, noting that “it is the bankruptcy court’s province to determine whether [the $7.3 million inaccounts receivable] is part of the estate,” concluded that the Louisiana action amounted to no morethan an attempt to prove that Amedisys owned the accounts at the time of NCFE’s bankruptcypetition. Assuming that Sixth Circuit precedent requires “unusual circumstances” in order to extendthe scope of the automatic stay to an action against a non-debtor, the court found that requirementmet here, because NCFE constituted the real party in interest in the Louisiana action. JA 541.Amedisys timely appealed the district court’s decision.II.Weaffirmthe decision of the district court. The bankruptcy court had jurisdiction to enforcethe automatic stay against the Louisiana action because, as Amedisys concedes in its brief, themotion to enforce constitutes a “core proceeding” as defined in 28 U.S.C. § 157(b)(2). Further, thebankruptcy court correctly concluded that the automatic stay in bankruptcy, 11 U.S.C. § 362(a),applies to the Louisiana action.A.Amedisys first argues that, in globally staying the Louisiana action, the bankruptcy courtexceeded its jurisdiction. The bankruptcy court held that it had jurisdiction to enforce the staybecause the matter was a core proceeding. JA 554. Amedisys argues that in order for jurisdictionto be proper, the bankruptcy court was required to find that the Louisiana action was “related to” thebankruptcy case. See 28 U.S.C. § 1334(b). Further, Amedisys urges, in the event of a judgmentagainst JP Morgan in the Louisiana action, JP Morgan likely would not obtain indemnity fromNCFE or its subsidiaries; therefore the Louisiana action is not related to the bankruptcy case. The bankruptcy court had jurisdiction to enforce the stay, because NCFE’s motion to enforceconstituted a core proceeding. 28 U.S.C. § 1334(b) provides exclusive district court jurisdictionover “all cases under title 11,” and concurrent jurisdiction over “civil proceedings arising under title11, or arising in or related to cases under title 11.” In turn, 28 U.S.C. § 157(a) permits district courtsto refer bankruptcy cases brought under their original jurisdiction to bankruptcy courts. Section157(b) of the samechapter defines “core proceedings arising under title 11, or arising in a case undertitle 11” to include “matters concerning the administration of the estate,” “motions to terminate,annul, or modify the automatic stay,” and “other proceedings affecting the liquidation of assets of
--------------------------------------------------------------------------------
Page 7
No. 04-3365In re Nat’l Century Financial EnterprisesPage 75Amedisys argues that in order to find that the bankruptcy court had jurisdiction, this court must analyzewhether the subject matter of the Louisiana action is “related to” the bankruptcy case. This would be the proper inquiryin evaluating whether the Louisiana action itself could be transferred to the bankruptcy court, in order for the bankruptcycourt to hear the claims and submit proposed findings of fact to the district court. 28 U.S.C. § 157(c)(1); cf. Lindsey v.O’Brien (In re Dow Corning), 86 F.3d 482, 489-91 (6th Cir. 1996) (setting forth factors to be used in determiningwhether a civil case is sufficiently “related to” the bankruptcy case to give the district court subject-matter jurisdictionover state law tort claims pending against nondebtor defendants). Here, because this appeal concerns only theenforcement of the automatic stay, and because the parties concede that a motion to enforce the stay constitutes a coreproceeding, it is unnecessary to assess the relatedness of the Louisiana action to the bankruptcy case. the estate or the adjustment of the debtor-creditor or the equity security holder relationship. . . .”28 U.S.C. § 157(b)(2)(A), (G), (O).Amedisys concedes in its jurisdictional statement,“Thismatter isa core proceeding pursuantto § 157(b)(2)(G).” Appellant’s Br. at 1. Therefore, NCFE’s motion to enforce the automatic stayby definition met a narrower jurisdictional test than the “related to” basis for jurisdiction over non-core proceedings. See In re Combustion Eng’g, Inc., 391 F.3d 190, 225-26 (3d Cir. 2004) (“Casesunder title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 arereferred to as ‘core’ proceedings; whereas proceedings ‘related to’ a case under title 11 are referredto as ‘non-core’ proceedings.”).5NCFE’s motion to enforce arose under title 11, and thebankruptcy court therefore had jurisdiction to enforce the stay.B.Amedisys argues that the Louisiana action does not fall within the automatic stay provisionsof 11 U.S.C. § 362(a). In order to enjoin the Louisiana action against JP Morgan, Amedisys argues,the bankruptcy court necessarily relied upon its equitable powers under 11 U.S.C. § 105(a) to issueorders “necessary or appropriate to carry out the provisions of [chapter 11].” Amedisys also arguesthat the bankruptcy court failed to identify “unusual circumstances” justifying a preliminaryinjunction under § 105(a), and that NCFE improperly failed to initiate an adversary proceeding toobtain an injunction under § 105(a). These arguments lack merit, because the stay fell within§ 362(a). The bankruptcy court observed the correct procedures in enforcing the stay.The courts below properly held that the Louisiana action is covered by the automatic stayin bankruptcy. Under 11 U.S.C. § 362(a), a bankruptcy petition operates as a stay, applicable to all entities, of . . . (1) the commencement orcontinuation . . . of a judicial, administrative, or other action or proceeding againstthe debtor that was or could have been commenced before the commencement of thecase under this title, or to recover a claim against the debtor that arose before thecommencement of the case under this title; . . . (3) any act to obtain possession ofproperty of the estate or of property from the estate or to exercise control overproperty of the estate.“Property of the estate” includes “all legal or equitable interests of the debtor in the property as ofthe commencement of the case.” 11 U.S.C. § 541(a)(1). The bankruptcy court also has the authorityto “issue any order, process, or judgment that is necessary or appropriate to carry out the provisionsof [the Bankruptcy Code].” Id. § 105(a).Because the Louisiana action seeks to obtain the accounts receivable held in a JP Morganaccount in the name of NPF VI, and because the accounts receivable likely constitute property ofthe bankruptcy estate, the bankruptcy court properly enforced the automatic stay under 11 U.S.C.§ 362(a)(3). The district court held that “the Louisiana complaint, though naming non-debtor JPMorgan as a defendant, seeks a determination that the money in the Debtors’ bank accounts belongs
--------------------------------------------------------------------------------
Page 8
No. 04-3365In re Nat’l Century Financial EnterprisesPage 86It is unclear whether, if Amedisys were allowed to proceed with its constructive trust claim in the Louisianaaction and prevailed on it, such a judgment would result in the exclusion of the disputed accounts receivable from thebankruptcy estate. This court has criticized constructive trust claims in the bankruptcy context as a backdoor means fora creditor to avoid waiting for ratable distribution of the estate, by characterizing common contract claims as fraud. SeeXL/Datacomp, Inc. v. Wilson (In re Omegas Group), 16 F.3d 1443, 1449-50 (6th Cir. 1994). Since constructive trustclaimsinvolve assertions of fraud, an allegedly defrauded creditor should more properly initiate an adversary proceedingto except from discharge, under 11 U.S.C. § 523, a debt procured by fraud. In re Omegas Group, 16 F.3d at 1451. Onlyif a creditor has obtained prepetition a judgment imposing a constructive trust, see In re Omegas Group, 16 F.3d at 1449,or if state law clearly gave the creditor, prepetition, a right to conveyance of the property, see In re Morris, 260 F.3d at668, may the property be excluded from the bankruptcy estate. A judgment in Amedisys’ favor in the Louisiana actionwould not fall under the former category, but could conceivably fall under the latter one. Notably, however, in neitherOmegas Group nor Morris did the creditor seek to make an end run around the bankruptcy process to obtain aconstructive trust judgment. In Omegas Group, the creditor initiated an adversary proceeding to assert the constructivetrust claim; in Morris, the creditor moved the bankruptcy court to lift the automatic stay in order for the creditor tocomplete state court proceedings on a constructive trust claim against the debtor. In re Omegas Group, 16 F.3d at 1446;In re Morris, 260 F.3d at 659. It is unnecessary to determine whether Amedisys, if it prevailed in the Louisiana action,could successfully obtain exclusion of the accounts receivable from the bankruptcy estate. A separate civil action forconstructive trust, initiated postpetition, is an inappropriate forum for Amedisys’ assertion that it has a rightful claim toto Amedisys.” JA 525. The bankruptcy court similarly concluded that Amedisys, through theLouisiana action, sought to obtain ownership rights of the disputed accounts receivable. Amedisys,on appeal, contends that these holdings were misguided, because the Louisiana action concerns onlyJP Morgan’s failure to follow NPFS’s instructions to remit $7.3 million to Amedisys. Amedisysargues that it merely seeks money damages from JP Morgan, because JP Morgan breached a dutyto transfer the property to Amedisys.This argument is unpersuasive. While NCFE is a named defendant only in the adversaryproceeding, and not in the Louisiana action, this is irrelevant, because Amedisys in both actionsseeks to obtain possession of the disputed accounts receivable. Count I of the Louisiana actionasserts that the Amedisys-NCFE sales agreement created duties in JP Morgan and seeks specificperformance of that agreement, including “refund of the nonpurchased receivables.” Supp. JA 25.Similarly, Count II avers that Amedisys is a third-party beneficiary of the JP Morgan-NCFE trustindenture, and that therefore JP Morgan has a duty to return the receivables to Amedisys. Count VIIrequests the court to impress the funds in the collection account with a constructive trust in favorof Amedisys. Supp. JA 26. The district court correctly found that while only some counts in thecomplaint pray the court to order JP Morgan to remit the disputed accounts receivable to Amedisys,every count in the complaint requires the court to adjudicate whether Amedisys had a rightful claimto that property. Further, the district court properly concluded that Amedisys’ offer voluntarily tostay prosecution of Counts I and VII of the Lousiana action, would not cure the violation of§ 362(a). As the district court aptly noted, unless Amedisys voluntarily dismissed the allegations inits complaint seeking refund of the accounts receivable, any judgment in Amedisys’ favor in theLouisiana action would potentially deplete the property of the bankruptcy estate. JA 524.The district court properly concluded that in the Louisiana action, Amedisys used aconstructive trust theory to “assert[] dominion over money in the Debtors’ accounts.” JA 523. IfAmedisys succeeded on a constructive trust theory, the value of the bankruptcy estate would bereduced. This is because property in which the debtor holds legal but not equitable title as of thecommencement of the case—for example, property impressed with a constructive trust under statelaw—is property of the estate only to the extent of the debtor’s legal title. 11 U.S.C. § 541(d); seePoss v. Morris (In re Morris), 260 F.3d 654, 666 (6th Cir. 2001) (holding that a creditor’s mereclaimof a constructive trust does not constitute an equitable interest in property otherwise belongingto the estate; instead, “state law [must have] impressed property with a constructive trust prior to itsentry into bankruptcy”);cf. Stevenson v. J.C. Bradford & Co. (In re Cannon), 277 F.3d 838, 849 (6thCir. 2002) (quoting Begier v. IRS, 496 U.S. 53, 59 (1990)) (holding that the § 541(a) definition of“property of the estate” excludes property held in trust).6Amedisys contends that its constructive
--------------------------------------------------------------------------------
Page 9
No. 04-3365In re Nat’l Century Financial EnterprisesPage 9the funds held in bank accounts owned by the NCFE entities.trust claim concerns only its prebankruptcy ownership of the disputed accounts receivable, and thatthis issue is entirely independent of whether the funds currently form part of the bankruptcy estate.This argument is meritless, because the issues are not independent. Whatever determination is madein the Louisiana action concerning the prebankruptcy ownership of the accounts receivable willnecessarily be relevant to postbankruptcy ownership as well. In the Louisiana action, Amedisysalleges that during the period of November 7-12, 2002, JP Morgan wrongfully failed to comply withNCFE’s instructions to refund to Amedisys the disputed amount. Supp. JA 20-21. The fact that thecomplaint asserts wrongs occurring before the NCFE entities filed for bankruptcy on November 18,2002, does not alter our conclusion that the complaint demands the return of funds alleged to formpart of the bankruptcy estate. See 11 U.S.C. § 541(a)(1) (property of the estate is determined as ofthe moment the debtor files for bankruptcy). Further, it appears likely that the disputed accounts receivable to which Amedisys claimsownership do formpart of the bankruptcy estate. Amedisys does not dispute that in November 2002,when the NCFE entities filed for bankruptcy, the disputed accounts receivable were located in a JPMorgan collection account held by NPF VI, an NCFE entity. Thus, presumptively, NPF VI holdslegal title to these funds. No party has made a plausible claimthat JP Morgan, rather than the NCFEentities, owns the funds. See Complaint in Louisiana Action at 8, Supp. JA 13 (“JP Morgan . . . hasno claim, title, or other interest in any nonpurchased receivables or overage funds of the AmedisysEntities now held by it.”); JP Morgan’s Application for Order Authorizing Compensation at 11, JA727 (“[T]he Amedisys receivables were owned . . . by NPF VI, which had purchased thosereceivables from Amedisys.”). Finally, the bankruptcy court, in a final order currently on appeal to the United States DistrictCourt for the Southern District of Ohio, has held that the accounts receivable held in the JP Morgancollection account form property of the bankruptcy estate. In granting summary judgment todefendants NCFE and JP Morgan on Amedisys’ claimsin the adversary proceeding, the bankruptcycourt held that the NCFE entities purchased the $7.3 million in accounts receivable fromAmedisys.The bankruptcy court found that although NCFE had never paid Amedisys for the disputed accountsreceivable, this was merely because Amedisys had waived its right under the sale agreement toimmediate payment. The bankruptcy court rejectedwith equal force the argument that either NCFEor JP Morgan held the receivables in an express or constructive trust for Amedisys. The bankruptcycourt noted that NCFE bore merely a contractual duty to pay Amedisys for purchased receivables;NCFE did not hold a fiduciary duty to transfer title in the receivables to Amedisys. Further, thecourt held, JP Morgan was not even in contractual privity with Amedisys; much less did it bear anyfiduciary duty to Amedisys.We do not purport at this time to resolve in a controlling fashion the issues raised in thatappeal. But the bankruptcy court’s determination that the accounts receivable are part of thebankruptcy estate strongly supports the conclusion that the automatic stay was properly enforced.It is the bankruptcy court’s province to identify the property of the bankruptcy estate. Thebankruptcy court, in its summary judgment decision, persuasively marshaled the complex factualrecord in this case to conclude that the accounts receivable whose ownership forms the crux of theLouisiana action, are property of the estate. Reversing the lower courts’ conclusions that theautomatic stay applies, at a time when the bankruptcy court’s determination of the ownership of theaccounts receivable remains a live issue in the summary judgment appeal, would impede thebankruptcy court’s role in managing the bankruptcy case.
--------------------------------------------------------------------------------
Page 10
No. 04-3365In re Nat’l Century Financial EnterprisesPage 107The bankruptcy court’s holding did rely on one case, C.H. Robinson Co. v. Paris &Sons, 180 F. Supp. 2d 1002(N.D. Iowa 2001), which held that a creditor is required to seek a preliminary injunction in order to expand the scopeof a § 362(a)(1) stay to cover solvent codefendants. However, like Parry, C.H. Robinson did not involve entitlement toproperty allegedly part of the bankruptcy estate. The court’s conclusion was that “the automatic stay under section362(a)(1) of the Bankruptcy Code is not truly automatic when invoked against nondebtor codefendants.” Id. at 1018.The analysis certainly does not preclude the conclusion that a stay against a nondebtor under § 362(a)(3) is trulyautomatic.C.The fact that the Louisiana action did not name NCFE as a defendant does not renderenforcement ofthe automatic stay improper. Amedisys argues that “the automatic stay under section362(a) applies only to the bankrupt debtor,” and therefore that § 362(a) did not support thebankruptcy court’s decision in this case. Appellant’s Br. at 18. To buttress this assertion, Amedisyscites two decisions of this court for the proposition that a bankruptcy court must find unusualcircumstances, justifying a preliminary injunction under 11 U.S.C. § 105(a), in order to extend thescope of a § 362(a)(1) automatic stay to encompass claims against not only a debtor defendant, butalso nondebtor codefendants. See Patton v. Bearden, 8 F.3d 343, 349 (6th Cir. 1993); Parry v.Mohawk Motors of Mich., Inc., 236 F.3d 299, 314-315 (6th Cir. 2001). These cases note that, byextending the stay beyond its statutory terms, the bankruptcy court is not acting under § 362(a), butis instead issuing an order in equity “necessary or appropriate to carry out the provisions of [theBankruptcy Code].” 11 U.S.C. § 105(a); Patton, 8 F.3d at 349. The district court, citing Parry,found that unusual circumstances were present in this case because NCFE, rather than JP Morgan,was the real party in interest in the Louisiana action. Therefore, the district court concluded, thebankruptcy court properly exercised its “necessary or appropriate” powers to issue a § 105(a)preliminary injunction. Amedisys’ argument is not persuasive. The district court appears unnecessarily to haveassumed that the bankruptcy court entered a preliminary injunction extending the automatic staybeyond its statutory terms, rather than merely enforcing the automatic stay as provided by statute.The automatic stay of § 362(a) applies by its terms not only to actions against the debtor, see§ 362(a)(1), but also to actions seeking to obtain property of the bankruptcy estate, see § 362(a)(3).In Patton and Parry, this court found insufficient basis to extendthe automatic stay beyond the termsof § 362(a)(1). In Parry, there was no contention that the automatic stay applied by its terms to anaction against non-debtors; in Patton, the court rejected such a contention because the action did notseek property of the estate. Here, unlike in Patton and Parry, the bankruptcy court determined thatthe automatic stay already covered the action. JA 563-4. As a sister circuit has held, “[A]n actiontaken against a nondebtor which would inevitably have an adverse impact upon the property of theestate must be barred by the [§ 362(a)(3)] automatic stay provision.” Licensing by Paolo, Inc. v.Sinatra (In re Gucci),126 F.3d 380, 392 (2d Cir. 1997) (citing In re 48th St. Steakhouse, Inc., 835F.2d 427, 431 (2d Cir. 1987)). This court’s decision in Patton, 8 F.3d 343, further supports thisconclusion. In Patton, this court analyzed separately the applicability of stays under § 362(a)(1)and under § 362(a)(3). As part of the § 362(a)(1) analysis, the court noted that a debtor mustdemonstrate unusual circumstances in order to extend the automatic stay to nondebtor codefendants.8 F.3d at 349. Under the § 362(a)(3) inquiry, the court merely analyzed whether a judgment againstthe solvent codefendants would actually deplete the bankruptcy estate. Id. The bankruptcy court, in its opinion, stated that it was enforcing the automatic stay, not thatit was exercising its equitable powers under § 105(a).7Further, it held that the Louisiana actionsought a determination that the disputed accounts receivable did not form part of the bankruptcyestate. JA 563. Accepting Amedisys’ argument that the bankruptcy court failed to find unusualcircumstances justifying a preliminary injunction would require an unwarranted limiting of§ 362(a)(3), a subsection that requires application ofthe automatic stay without reference to whether
--------------------------------------------------------------------------------
Page 11
No. 04-3365In re Nat’l Century Financial EnterprisesPage 11the debtor is the defendant in the stayed action. Because the Louisiana action seeks to obtainproperty of the bankruptcy estate, we affirm the order enforcing the stay. D.Amedisys’ remaining grounds for asserting that the bankruptcy court improperly stayed theLouisiana action are all rooted in the assumption that the stay constituted a preliminary injunctionunder § 105(a), expanding the automatic stay. Amedisys argues (1) that NCFE failed to initiate anadversary proceeding in order to request a preliminary injunction, and that the enforcement of theautomatic stay was invalid because of this procedural error; (2) that the bankruptcy court failed toconsider the four factors determining whether a preliminary injunction is appropriate; and (3) thatthe bankruptcy court improperly imposed a preponderance-of-the-evidence burden of proof onNCFE, rather than a clear-and-convincing-evidence burden of proof. Appellant’s Br. at 21-28.Amedisys forfeited these arguments by failing to raise them in its appeal brief before the districtcourt. See Thurman v. Yellow Freight Sys., 97 F.3d 833, 835 (6th Cir. 1996) (holding that argumentsnot raised before the district court are waived). Even if these arguments had been properlypreserved, they would nonetheless fail, because the bankruptcy court’s action was supported by theautomatic stay of § 362(a)(3). Normally, a debtor initiates an adversary proceeding in order torequest a § 105(a) preliminary injunction. See Amer. Imaging Servs. v. Eagle-Pitcher Indus., Inc.(In re Eagle-Picher Indus., Inc)., 963 F.2d 855, 857-59 (6th Cir. 1992). On the other hand, a debtoris not required to initiate an adversary proceeding in order to move the bankruptcy court to enforcethe automatic stay. In re LTV Steel Co., Inc., 264 B.R. 455, 462-63 (Bankr. N.D. Ohio 2001).Similarly, as Amedisys concedes, only when the bankruptcy court enjoins an action under § 105(a)must it consider the four preliminary injunction factors, and apply a standard of clear and convincingevidence. Because these arguments rely upon Amedisys’ assertion that § 362(a) did not support thebankruptcy court’s holding, and because we hold, to the contrary, that enforcement of the automaticstay under § 362(a)(3) was proper, the arguments fail.III.For the foregoing reasons, we AFFIRM the judgment of the district court enforcing theautomatic stay in bankruptcy, 11 U.S.C. § 362(a), against the Louisiana action.