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In re Healthcare Real Estate Partners, LLC

United States Court of Appeals, Third Circuit

October 22, 2019

IN RE: HEALTHCARE REAL ESTATE PARTNERS, LLC, Debtor
v.
SUMMIT HEALTHCARE REIT, INC.; JOHN JACOB SPECKMANN; ARNOLD GOLDENBAUM; MARK SAULIC; BRYAN TAYLOR; RICHARD G. PETERS, AS TRUSTEE OF RICHARD & DARLENE PETERS TRUSTS; LEROY J. BLAKE, AS TRUSTEE OF LEROY J. BLAKE & LINDA J. BLAKE FAMILY TRUST; ROXIE M. BYBEE, AS TRUSTEE OF ROXIE M. BYBEE TRUST, DATED JULY 5, 2012; JAMES D. FRANKLIN, AS TRUSTEE OF JAMES D. FRANKLIN TRUST; JOHN BAIKIE, AS TRUSTEE OF JOHN THOMAS BAIKIE REVOCABLE TRUST HEALTHCARE REAL ESTATE PARTNERS, LLC, Appellant

          Argued June 27, 2019

          On Appeal from the United States District Court for the District of Delaware (D.C. Civ. No. 1-17-cv-01555) Honorable Malachy E. Mannion, District Judge.

          Robert P. Goe Goe & Forsythe, Christopher D. Loizides [Argued] Loizides, Counsel for Appellant.

          Stuart M. Brown R. Craig Martin [Argued] DLA Piper, Counsel for Appellees.

          BEFORE: CHAGARES, GREENAWAY, JR., and GREENBERG, Circuit Judges.

          OPINION

          GREENBERG, CIRCUIT JUDGE.

         I. INTRODUCTION

         This matter comes on before this Court on an appeal by appellant Healthcare Real Estate Partners, LLC, ("Healthcare") challenging the District Court's order affirming a bankruptcy court's dismissal under Fed.R.Civ.P. 12(b) of Healthcare's adversary proceeding filed under 11 U.S.C. § 362(k) seeking damages for violation of the automatic stay that arose by reason of the institution of the bankruptcy proceedings. See 11 U.S.C. § 362(a). Healthcare contends that neither the District Court nor the bankruptcy court had a valid reason to dismiss its § 362(k) action without addressing its merits. For the reasons stated below, we agree with Healthcare, and thus we will reverse the District Court's order and remand the case to that Court to reinstate Healthcare's § 362(k) action.

         II. FACTUAL BACKGROUND

         We rely on the District Court's recitation of the facts in its opinion affirming the order of the bankruptcy court dismissing the § 362(k) action. See Healthcare Real Estate Partners, LLC v. Summit Healthcare Reit, Inc., No. 17-1555, 2018 WL 4500880, at *1-2 (D. Del. Sept. 19, 2018) ("HREP"). Nevertheless, we summarize the relevant facts. Healthcare was the manager of certain investment funds. On September 16, 2015, the investors in the funds, petitioning creditors in the bankruptcy court, filed an involuntary bankruptcy petition against Healthcare with the intention of seeking its removal as the fund manager. Because Healthcare had not been served with process in the bankruptcy case, it did not receive notice of the filing of the petition which consequently was uncontested and the bankruptcy court entered an order for relief on the petition. Subsequently, Healthcare was removed as the fund manager, and the investors installed Summit Healthcare Reit, Inc. ("Summit") as the new fund manager. Summit then dissolved the funds. The petitioning creditors and Summit are the appellees on this appeal.[1]

         About a month later, obviously having learned what had transpired, Healthcare filed a motion with the bankruptcy court, seeking to vacate the bankruptcy court's order for relief on the petition due to the faulty service of process on it. The bankruptcy court held an evidentiary hearing on the motion which it then granted, vacating its prior order for relief. Then, having achieved their objective, appellees moved to voluntarily dismiss the petition. Healthcare opposed dismissal asserting that it had claims for damages against appellees under 11 U.S.C. § 303(i) because it contended that the petitioning creditors had filed the petition in bad faith.[2] The bankruptcy court granted the motion for voluntary dismissal, but retained jurisdiction in the order of dismissal in which it included a provision stating that "nothing herein shall limit [Healthcare's] right to seek damages, including without limitation, fees and costs, pursuant to 11 U.S.C. § 303(i) or otherwise." HREP at *2. The court, however, did not explain what it meant by "or otherwise." The parties treat the meaning of this term as the major issue on this appeal though, as will be seen, we take a different approach.

         Thereafter, Healthcare filed a motion in the bankruptcy court seeking § 303(i) damages. It also instituted an adversary proceeding against appellees asserting § 362(k) claims for violation of the automatic stay that arose in the bankruptcy proceedings when the petition was filed because of the removal of Healthcare as the fund manager and the installation of Summit in that role without an order of the court. The appellees moved to dismiss the § 362(k) action, arguing that it was outside of the scope of the bankruptcy court's order dismissing the petition which they asserted allowed Healthcare to seek only § 303(i) damages. The bankruptcy court agreed, stating that "the Court [has] authority to limit you for what you can bring after dismissal of the case, and that's what I intended to do." HREP, 2018 WL 4500880, at *5. That court made clear that when it dismissed the petition its intent was to allow Healthcare to bring a claim for damages only under § 303(i). Therefore, the court dismissed the § 362(k) action on October 19, 2017, and, on Healthcare's appeal, the District Court affirmed on September 19, 2018, largely by adopting the bankruptcy court's reasoning. This appeal followed.

         III. DISCUSSION

         In dismissing Healthcare's § 362(k) action, the bankruptcy court, and thus the District Court in reliance on the bankruptcy court's reasoning held that (1) the bankruptcy court lacked jurisdiction over the § 362(k) claims because when it dismissed the petition, it retained jurisdiction only over the § 303(i) claims, and (2) even if it could have retained jurisdiction over the § 362(k) claims, it had discretion to ...


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