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In re Genesis Health Ventures

March 31, 2005; as amended May 17, 2005

IN RE: GENESIS HEALTH VENTURES, INC., DEBTOR
GENESIS HEALTH VENTURES, INC.
v.
KELLY BEAUDIN STAPLETON, ACTING UNITED STATES TRUSTEE FOR REGION 3 (DISTRICT OF DELAWARE D.C. 01-CV-00853)
IN RE: MULTICARE AMC, INC., DEBTOR
MULTICARE AMC, INC.
v.
KELLY BEAUDIN STAPLETON, US TRUSTEE (DISTRICT OF DELAWARE D.C. 02-CV-00053) GENESIS HEALTH VENTURES, INC., MULTICARE AMC INC., APPELLANTS
IN RE: GENESIS HEALTH VENTURES, INC.; MULTICARE AMC, INC., DEBTORS
REORGANIZED DEBTORS GENESIS HEALTH VENTURES INC.
v.
KELLY BEAUDIN STAPLETON, US TRUSTEE, GENESIS HEALTH VENTURES, INC.; MULTICARE AMC INC, APPELLANTS



Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action Nos. 01-cv-00853 and 02-cv-01322) District Judge: Honorable Joseph J. Farnan, Jr.

The opinion of the court was delivered by: Ambro, Circuit Judge

PRECEDENTIAL

Argued June 29, 2004

Before: AMBRO, ALDISERT and >STAPLETON, Circuit Judges

OPINION OF THE COURT

In this bankruptcy appeal, affiliated debtors (approximately 350 in number) filed separate cases under Chapter 11 of the Bankruptcy Code but were permitted to administer their cases jointly. The Bankruptcy Court also permitted them to use a "centralized cash management system" under which a small number of debtors held bank accounts from which the expenses of all other debtors were paid.

In this context, two issues are before us. The first is whether the employment of the centralized cash management system affects the amount of quarterly bankruptcy fees each debtor would otherwise owe to the United States Trustee under 28 U.S.C. § 1930(a)(6) in the absence of such a system. This issue, a question of first impression for us, turns on the interpretation of the term "disbursement" under § 1930(a)(6). Specifically, we consider whether payments made by certain debtors on behalf of other debtors constitute disbursements of the paying debtors only or whether those payments must be attributed to the debtors on whose behalf the payments were made. The second issue relates to the duration of payments. Does the obligation for U.S. Trustee quarterly fee payments under § 1930(a)(6) continue after confirmation of the debtors' Joint Plan of Reorganization ("Reorganization Plan" or "Plan") providing in part that they are "deemed consolidated" for certain purposes?

The Bankruptcy Court held, and the District Court affirmed, that (1) each debtor was obligated to pay quarterly fees based on the payment of its respective operating expenses regardless whether it actually wrote the checks to pay for these expenses, and (2) the deemed consolidation of the debtors under the Reorganization Plan had no effect on the amount of the quarterly fees payable by each debtor in connection with its own Chapter 11 case still pending. We agree with both Courts on both issues and thus affirm.

I. Factual and Procedural Background

Genesis Health Ventures, Inc. ("Genesis"), Genesis ElderCare Corp. (known for our purposes as "Multicare"), and their affiliates are providers of healthcare and support services to the elderly. On June 22, 2000, Genesis, Multicare, and their affiliates (collectively the "Debtors" and individually a "Debtor") separately filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Debtors simultaneously moved for joint administration of their Chapter 11 cases in two groups—(1) Genesis and its affiliated debtors (the "Genesis Debtors"), and (2) Multicare and its affiliated debtors (the "Multicare Debtors"). *fn1 The Bankruptcy Court granted the Debtors' motions.

Because the Debtors planned to continue to operate their businesses as debtors in possession, *fn2 they also moved for authorization to continue their centralized cash management systems in Chapter 11—one for the Genesis Debtors, the other for the Multicare Debtors. Under the cash management system each Debtor's revenues were typically deposited into separate accounts. On a periodic basis, the funds in these separate accounts were transferred to a handful of "concentration accounts," then to several "disbursing accounts" held only by Paying Debtors. In turn, these disbursing accounts were used to pay the various financial obligations of each Debtor, such as accounts payable, payroll, and taxes. The Debtors maintained, however, inter-company balances so that each of them was able to account for its own revenues and expenses. On June 26, 2000, the Bankruptcy Court granted the Debtors' motions. In doing so, the Court directed each group of Debtors to "maintain records of all transfers within the cash management system so that all post-petition transfers and transactions shall be adequately and promptly documented in, and readily ascertainable from, their books and records, to the same extent maintained by the Debtors prior to the commencement of these [C]hapter 11 cases."

While operating under Chapter 11, the Debtors were required to pay quarterly fees to the U.S. Trustee under § 1930(a)(6). *fn3 The amount of the quarterly fees payable under § 1930(a)(6) varies depending on the total "disbursements" that a debtor makes during each quarter. The maximum fee that a debtor is required to pay each quarter is capped at $10,000 for disbursements totaling $5 million or more. Id.

In little more than a year from the Debtors' Chapter 11 filings until June 30, 2001, they collectively paid $691,250 in quarterly disbursement fees. In calculating these fees, the Debtors treated all disbursements as applicable only to those Paying Debtors who held the disbursing accounts from which they were made. Had fees been paid for the Debtors for whom the disbursements were made, the aggregate quarterly disbursement fees would have been, according to the U.S. Trustee, almost $4.4 million.

The U.S. Trustee objected to the Debtors' proposed Reorganization Plan, claiming that they still owed approximately $3.7 million in quarterly fees. *fn4 Each Debtor, the U.S. Trustee reasoned, owed its respective quarterly fees based on the disbursements attributable to that Debtor, regardless who held the accounts from which actual disbursements were made. After confirming the Reorganization Plan and reserving decision on the proper amount of quarterly fees,*fn5 the Bankruptcy Court agreed with the U.S. Trustee ...


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