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Summarizing by Shane Ramsey

Gupta v. Quincy Medical Center

Case Type:
Case Status:
USCA, First Circuit, No. 15-1183 (1st Circuit, Jun 02,2017) Not Published
In short, Appellants' claims do not fit into the narrow category of matters that "have no existence outside of the bankruptcy," In re Middlesex Power Equip. & Marine, Inc., 292 F.3d at 68, or that "could only arise in the context of a bankruptcy," Stoe, 436 F.3d at 218. Hence, the bankruptcy court did not possess "arising in" jurisdiction over Appellants' claims.
Procedural context:
Gupta and Munger were senior executives at Quincy Medical Center, a hospital operated by Debtors in Quincy, Massachusetts. On June 30, 2011, Debtors signed an Asset Purchase Agreement (the "APA") whereby they agreed to sell substantially all of their assets to Quincy Medical Center. One day later, on July 1, 2011, Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code, and a motion (the "Sale Motion") under sections 363 and 365 of the Bankruptcy Code seeking bankruptcy court approval of the APA. On September 26, 2011, the bankruptcy court issued an order (the "Sale Order") approving the APA as requested in the Sale Motion. The sale closed on October 1, 2011. Six days later, Debtors filed a proposed Chapter 11 plan of reorganization (the "Plan"). The bankruptcy court thereafter confirmed the Plan (the "Confirmation Order"). The Sale Order and the Plan each contain provisions regarding the retention of jurisdiction by the bankruptcy court over any disputes arising under them. On October 7, 2011, Appellants received letters from Debtors stating that their employment was terminated effective October 1, i.e., the day the sale closed. Appellants subsequently sought severance pay from Debtors by filing motions in the bankruptcy court for allowance of administrative expenses against Debtors. The bankruptcy court denied administrative expense status to both claims. However, the court held that Appellants' motions should be treated as "seeking relief in the alternative . . . for an order directing Steward to pay the claims." The bankruptcy court found that it had subject matter jurisdiction to hear the claims against Steward pursuant to the retention of jurisdiction provisions of the Sale Order and the court's authority to interpret and enforce its own prior orders. The bankruptcy court offered Steward an opportunity to respond, and Steward filed its objections. Following a non-evidentiary hearing at which Gupta, Munger, and Steward were heard, the bankruptcy court found Steward liable to Appellants under the APA for their severance pay. Steward appealed to the district court, which concluded that the bankruptcy court lacked subject matter jurisdiction over Appellants' claims
Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code and a motion seeking bankruptcy court approval of an asset purchase agreement (APA), whereby they agreed to seek substantially all of their assets to Buyer. The bankruptcy court approved the APA through a sale order and confirmed Debtors’ proposed plan of reorganization. Appellants, senior executives of Debtor, were then informed that their employment was terminated the day the sale closed. The bankruptcy court found Buyer liable to Appellants under the APA for their severance pay. The district court vacated the judgment against Buyer, finding that Appellants’ claims against Buyer fell outside the bankruptcy court’s statutorily granted jurisdiction. The First Circuit affirmed, holding that the bankruptcy court had no jurisdiction over Appellants’ claims for severance pay from Buyer because the claims were not proceedings which “arise in” the chapter 11 bankruptcy such that they fell within the grant of jurisdiction contained in 28 U.S.C. 1334.
Zobel (Trial), Howard, Souter and Lipez, USCA-1st Circuit

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