Kagan v. Saint Vincents Catholic Medical Centers (In Re Saint Vincents Catholic Medical Centers)

11-2560-bk
Kagan v. Saint Vincents Catholic Medical Centers of New York
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING
A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 15th day of October, two thousand fourteen.
Present:
ROBERT A. KATZMANN,
Chief Judge,
DENNY CHIN,
Circuit Judge,
LORETTA A. PRESKA,
Chief District Judge.*
________________________________________________
IN RE: SAINT VINCENTS CATHOLIC MEDICAL
CENTERS OF NEW YORK,
ERICA T. KAGAN,
Appellant,
v. No. 11-2560-bk
SAINT VINCENTS CATHOLIC MEDICAL CENTERS
OF NEW YORK,
Debtor-Appellee.
________________________________________________
*
The Hon. Loretta A. Preska, Chief Judge of the United States District Court for the
Southern District of New York, sitting by designation.
For Appellant: YETTA KURLAND, The Kurland Group, New York, NY.
For Debtor-Appellee: P. BRADLEY O’NEIL (Benjamin C. Wolf, on the brief), Kramer
Levin Naftalis & Frankel, New York, NY.
Appeal from the United States District Court for the Southern District of New York
(Rakoff, J.).
ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and
DECREED that the decision of the district court is AFFIRMED.
Appellant Erica T. Kagan appeals from a May 27, 2011 judgment entered by the U.S.
District Court for the Southern District of New York (Rakoff, J.), which affirmed the decision of
the bankruptcy court (Morris, Chief Bankr. J.) staying Kagan’s state court action against the
New York Department of Health (“DOH”) brought under New York’s Freedom of Information
Law (“FOIL”), N.Y. Pub. Off. Law § 87. In her state court action, Kagan sought the disclosure
of certain public records related to the closure of a Manhattan hospital owned by Debtor-
Appellee Saint Vincents Catholic Medical Centers of New York (“Saint Vincents”). The
bankruptcy court found that the purpose of Kagan’s action was to investigate claims belonging
exclusively to the bankruptcy estate and concluded that the suit was barred by the automatic stay
under 11 U.S.C. § 362(a). In the alternative, the bankruptcy court found that Kagan’s state court
suit would interfere with the bankruptcy court’s administration of the estate and therefore stayed
the suit pursuant to its equitable authority under 11 U.S.C. § 105(a). The district court affirmed.
On appeal, Kagan argues that the bankruptcy court’s factual findings were clearly erroneous, that
her state court suit does not violate the automatic stay, that the bankruptcy court lacked authority
to extend the stay under § 105(a), and that the bankruptcy court’s orders violate her
constitutional rights under the First, Fifth, Tenth, and Fourteenth Amendments. We assume the
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parties’ familiarity with the underlying facts, procedural history of the case, and issues presented
for review.
“On appeal from the district court’s review of a bankruptcy decision, we review the
bankruptcy court decision independently, accepting its factual findings unless clearly erroneous
but reviewing its conclusions of law de novo.” In re Bernard L. Madoff Inv. Sec. LLC, 740 F.3d
81, 87 (2d Cir. 2014) (quoting In re Baker, 604 F.3d 727, 729 (2d Cir. 2010)). Where the
bankruptcy court possesses equitable authority, “we review the exercise of that equitable
authority only for abuse of discretion.” Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602, 607
(2d Cir. 2007).
On our independent review of the record, we agree with the district court that the
bankruptcy court acted within its authority when it stayed Kagan’s state court action pursuant to
its equitable powers under § 105(a). A bankruptcy court has equitable authority under § 105(a)
“to assure the orderly conduct of the reorganization proceedings.” In re Baldwin-United Corp.
Litig., 765 F.2d 343, 348 (2d Cir. 1985). Here, the bankruptcy court reasonably found that the
purpose of the state court action was to investigate causes of action within the bankruptcy court’s
exclusive purview. After all, Kagan’s petition initiating the state court action attached an
affirmation containing incendiary allegations of fraud, waste, and improper transfers in
connection with the operation and closing of the hospital, which were purportedly uncovered as
part of an ongoing “investigation into the financial practices of St. Vincent’s Hospital.” App. 62.
Such claims of fraud, waste, and improper transfers clearly represent property of the bankruptcy
estate. See Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008) (per
curiam) (explaining that property of the estate includes “causes of action owned by the debtor or
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arising from property of the estate”). Indeed, at the time Kagan commenced her state court
action, these same kinds of claims were already the subject of an investigation authorized by the
official committee of unsecured creditors. In these circumstances, the bankruptcy court
reasonably determined that by placing issues within the bankruptcy court’s exclusive jurisdiction
before a state court, Kagan had invited judicial confusion and raised “the specter of direct impact
on the res of the bankrupt estate.” Picard v. Fairfield Greenwich Ltd., -- F.3d --, 2014 WL
3882481, at *9 (2d Cir. Aug. 8, 2014) (quoting In re Quigley Co., 676 F.3d 45, 58 (2d Cir.
2012)). We see no abuse of discretion in the bankruptcy court’s exercise of its equitable
authority under § 105(a).
Because we affirm the bankruptcy court’s extension of the stay under § 105(a), we need
not address whether Kagan’s state court action violated the automatic stay under § 362(a). With
respect to Kagan’s constitutional claims, which Kagan failed to raise to the bankruptcy court but
which the district court rejected on the merits, we reject Kagan’s arguments for substantially the
reasons stated by the district court in its well-reasoned opinion and order entered on May 24,
2011.
Kagan also urges us to vacate the bankruptcy court’s order in light of facts that have
arisen in the meantime, including the fact that Saint Vincents has now emerged from bankruptcy.
Because these facts were not available to the bankruptcy court when it issued its order, we will
not consider them on this appeal. However, notwithstanding our rejection of Kagan’s arguments
on appeal, nothing in this order prevents Kagan from returning to the bankruptcy court and filing
a motion for the court to lift its previously imposed stay based on changed circumstances. The
bankruptcy court in its discretion may then consider such a request and the relevance of any
changed circumstances in the first instance.
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We have considered all of the appellant’s remaining arguments and find them to be
without merit. Accordingly, for the foregoing reasons, the judgment of the district court is
AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
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