Kitron; Angello v. Valley Health System (In re Valley Health System)

Citation:
Kitron, et al. v. Valley Health System (In re Valley Health System), BAP No. CC-11-1100-DPaTa (BAP 9th Cir. Feb. 24, 2015)
Tag(s):
Ruling:
The BAP for the 9th Circuit affirmed the ruling of the bankruptcy court dismissing under Rule 12 suit commenced by creditors against chapter 9 debtor and other parties. BAP agreed that appellants' suit failed to state claim upon which relief could be granted, and agreed that bankruptcy court did not abuse discretion in electing not to grant appellants' leave to amend complaint, and in denying motion for reconsideration. Appellants did not respond to debtor's motion to dismiss, and filing amended complaint on eve of dismissal hearing was insufficient and failed to comply with rules. Bankruptcy court's additional grounds for dismissal without leave to amend, and denial of motion to reconsider were sufficient, i.e., appellants' failure, despite adequate notice, to file claim in bankruptcy, object to plan, or participate in bankruptcy in any way. Bankruptcy court properly found that leave to amend would serve no purpose where appellants could not state facts that would cure Rule 12 defects. Further, the BAP agreed with bankruptcy court's findings that debtor's retirement plan was a contract, and not a proper party in interest.
Procedural context:
After debtor confirmed chapter 9 plan, appellants (former employees of debtor) filed petition for writ of mandamus in state court against debtor and others seeking to enforce alleged rights under retirement plan. Debtor removed case to bankruptcy court, and filed motion to dismiss for failure to state claim, which bankruptcy court granted without leave to amend. Appellants filed a motion for reconsideration, which bankruptcy court denied. Appellants appealed both the order of dismissal and the denial of the motion to reconsider. BAP reversed bankruptcy court, finding that bankruptcy court had no subject matter jurisdiction over dispute. Debtor appealed to 9th Circuit, and 9th Circuit reversed BAP's finding of lack of subject matter jurisdiction, and remanded to BAP to address merits of appellant's appeal of dismissal and denial of motion to reconsider. On remand, BAP affirmed bankruptcy court's dismissal of appellants' suit for failure to state a claim, and affirmed denial of motion to reconsider.
Facts:
Debtor, a health care district in California, filed a chapter 9 petition and then confirmed a plan for adjustment of debts. Among other things, the chapter 9 plan provided for discharge of debtor's prepetition debts and enjoined claimants from pursuing any action or proceeding on account of such debts. Appellants, (former employees of debtor) filed petition for writ of mandamus in state court against debtor and others seeking to enforce alleged rights under retirement plan. Debtor's chapter 9 plan specifically addressed debtor's obligations under retirement plan and expressly enjoined Appellants' claims and pursuit of such claims in any forum. Retirement claimants were classified as unimpaired and not entitled to vote on plan. Appellants were served with notice of claims bar date, approval of disclosure statement, disclosure statement, plan, and confirmation hearing. Appellants filed no claim, and did not object to confirmation, or otherwise participate in bankruptcy case. After confirmation, appellants commenced suit in state court, seeking writ of mandamus to compel enforcement of debtor's prepetition retirement obligations. Debtor removed case to bankruptcy court, and filed motion to dismiss for failure to state claim, which bankruptcy court granted without leave to amend. Appellants filed a motion for reconsideration, which bankruptcy court denied. Appellants appealed both the order of dismissal and the denial of the motion to reconsider. BAP reversed bankruptcy court, finding that bankruptcy court had no subject matter jurisdiction over dispute. Debtor appealed to 9th Circuit, and 9th Circuit reversed BAP's finding of lack of subject matter jurisdiction, and remanded to BAP to address merits of Appellant's appeal of dismissal and denial of motion to reconsider. On remand, BAP affirmed bankruptcy court's dismissal of Appellants' suit for failure to state a claim, and affirmed denial of motion to reconsider.
Judge(s):
Dunn, Pappas, Taylor

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