Roanoke Bankruptcy Dismissal

IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF ALABAMA In re ROANOKE HEALTHCARE AUTHORITY, Debtor.

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Case No. 11-80502-11-WRS Chapter 11 Proceeding

MOTION TO DISMISS CHAPTER 11 CASE AND REQUEST FOR EXPEDITED HEARING Regions Bank ("Regions"), by and through its undersigned counsel, files this Motion To Dismiss Chapter 11 Case and Request for Expedited Hearing (the "Motion"). In support thereof, Regions asserts that the Roanoke Healthcare Authority ("Roanoke Authority" or the "Debtor") is ineligible for relief under Chapter 11 and that therefore this Chapter 11 case (the "Case") must be dismissed. Regions further requests that this Motion be heard on an expedited basis in order to address the threshold issue of eligibility and avoid the waste of judicial resources. The Roanoke Authority's motion to use cash collateral [Docket #19] (the "Cash Collateral Motion") and motion for sale of property under Section 363(b) [Docket #51] (the "363 Sale Motion") are currently before this Court. Because this Motion requests dismissal of this case based on the Roanoke Authority's ineligibility for relief under Chapter 11, significant issues may result if the Cash Collateral Motion and 363 Sale Motion were to be heard and decided prior to a decision on the instant Motion. Furthermore, the relief requested in the instant Motion would eliminate the need for a determination with respect to the Cash Collateral Motion and 363 Sale Motion.

Accordingly, Regions respectfully requests that this Motion be heard on an expedited basis.

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I.

BACKGROUND

1.

The Roanoke Authority is incorporated as a health care authority pursuant to Ala.

Code § 22-21-311 et seq. The Roanoke Authority is a political subdivision of the State of Alabama pursuant to Ala. Code § 22-21-318(c)(2) and numerous court opinions.

2.

On April 4th 2011, the Roanoke Authority filed its petition for relief under

Chapter 11 of the Bankruptcy Code.

3.

Regions is a creditor of the Roanoke Authority and a party in interest pursuant to

that certain indenture between the Roanoke Health Care Authority and Regions Bank dated as of April 9, 2008 (the "Indenture"). The Indenture was approved by Resolution of the Randolph County Commission on February 11, 2008, and separately by the Board of Directors of the Roanoke Authority.

4.

The court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and

1334. This is a core proceeding pursuant to 28 U.S.C § 157.

II.

LEGAL STANDARDS

On April 4, 2011, the Roanoke Authority filed for relief under Chapter 11 of the Bankruptcy Code. Eligibility to file for bankruptcy relief under Title 11 of the United States Code (the "Bankruptcy Code") is governed by § 109 of the Bankruptcy Code. Section 109 of the Bankruptcy Code provides individual requirements for eligibility for relief under Chapter 11 (109(d)), which is derivative of the requirements of Chapter 7 (109(b)), which is in turn dependent on the definition of person contained in § 101(41), governmental unit in § 101(27) and municipality in § 101(40).

A. Statutory Interpretation of Chapter 11 Eligibility Section 109(d) provides in relevant part that only a person who may be a debtor under Chapter 7 of this title may be a debtor under Chapter 11 of this title. Section 109(b) provides -2B MAM01 971291 v2 1039340-000093 05/05/20111

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that a person may be a debtor under chapter 7 of this title on if such person is not a railroad, insurance company, bank, or various other persons. Thus, in order to be eligible to be a debtor under Chapter 7, and thus under Chapter 11, Roanoke must meet the definition of a person as defined in ยง 101(41).

Section 101(41) provides that the "term person includes individual,

partnership, and corporation, but does not include a governmental unit" (except for the limited purposes of ยง 1102).

Thus person does not include a governmental unit, and a governmental unit is thus not eligible to file for relief under Chapter 11. Section 101(27) defines the term governmental unit by stating that governmental unit "means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government." Thus, a State or municipality, or department, agency, or instrumentality of a municipality or State are not eligible for relief under Chapter 11. Section 101(40) defines a municipality as a "political subdivision or public agency or instrumentality of a State."

B.

The Roanoke Authority is an Agency or Instrumentality of the City of

Roanoke.

The Roanoke Authority was formed by authorization of the City of Roanoke as a public Healthcare Authority under Article 11 as found in Title 22 Section 21 of the Code of Alabama.

Article 11 provides for the operation and regulation of "publicly-owned" hospitals. The City of Roanoke and the City Council of the City of Roanoke adopted a resolution authorizing such incorporation under Article 11 of Title 22 Section 21 of the Code of Alabama on the 12th day of September 2005. See Exhibit A. In ยง 22-21-319, the Alabama Legislature provided that "each authority, when exercising its powers hereunder with respect to the operation and management of -3B MAM01 971291 v2 1039340-000093 05/05/20111

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health care facilities, acts as an agency or instrumentality of its authorizing subdivisions and as a political subdivision of the state." Ala. Code ยง 22-21-319 (1975). Thus, the Roanoke Authority is deemed by statute to be an agency or instrumentality of the City of Roanoke.

C.

The Roanoke Authority is an Agency or Instrumentality of the County

The Roanoke Authority was authorized by resolution of the Randolph County Commission on February 11, 2008 to operate the hospital and related facilities, to enter into the Indenture, and to pledge the Special Tax Proceeds. See Exhibit B.

As an agency or

instrumentality of the County, Roanoke Authority was authorized to erect, purchase, construct, or acquire public hospitals as agent of the County. The Roanoke Authority was also designated as the recipient of certain ad valorem taxes collected by the County, and authorized to pledge those Special Tax Proceeds to secure indebtedness incurred in purchasing and constructing hospital facilities.

This authorization by the Randolph County Commission designated the

Roanoke Authority as an agency or instrumentality of Randolph County.

D.

The Roanoke Authority is a Political Subdivision of the State

The Roanoke Authority was created pursuant to a resolution of the City of Roanoke as a public authority pursuant to Article 11 Section 22-21-310 et seq. of the Alabama Code. The Roanoke Authority received a pledge of Special Tax Proceeds from ad valorem taxes collected

by Randolph County, and in turn pledged those Special Tax Proceeds under the Indenture.

Pursuant to ยง 22-21-319 of the Alabama Code, the Roanoke Authority is considered a "political subdivision of the state."

III.

LEGAL ARGUMENT

The Roanoke Authority is expressly defined as an agency or instrumentality of a municipality and a political subdivision of the State of Alabama by statute. The principle that a health care authority such as the Roanoke Authority is an agency or instrumentality of the -4B MAM01 971291 v2 1039340-000093 05/05/20111

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authorizing governmental entity and is therefore a political subdivision of the State has been affirmed by the Alabama Supreme Court. The Alabama Supreme Court has further explained that these authorities are entitled to sovereign immunity. As an agent or instrumentality of a municipality, the Roanoke Authority is excluded from the definition of a person under ยง 101(41), and thus the Roanoke Authority is not eligible for relief under Chapter 11.

A.

The Roanoke Authority is a Government Entity or an Agency or

Instrumentality Thereof.

The Roanoke Authority is an agency or instrumentality of the City of Roanoke and Randolph County and is a political subdivision of the state. Ala. Code Section 22-21-318(c)(2).

See Askew v. DCH Regional Health Care Authority, 995 F.2d 1033 (11th Cir. 1993) (holding that a health-care authority is a "political subdivision of the state") and Health Care Authority for Baptist Health v. Kay E. Davis 2011 Ala. Lexis 17 (Ala. 2011) ("HCA act specifically states that a health care authority established thereunder 'acts as an agency or instrumentality of its authorizing subdivisions and as a political subdivision of the state.'").

In Health Care Authority for Baptist Health v. Kay E. Davis, the Alabama Supreme Court looked to the applicable enabling legislation in determining that the health care authority in question was an agency or instrumentality of the University of Alabama Board of Trustees and a political subdivision of the State for purposes of sovereign immunity. Health Care Authority, 2011 Ala. Lexis at 37. Accord In re Greene County Hosp., 59 B.R. 388, 389 (Bankr. S.D. Miss.

1986) (finding that a county hospital was a municipality for purposes of chapter 9 eligibility based on applicable state enabling legislation). As in Health Care Authority, the entity at issue here (the Roanoke Authority) was created pursuant to Ala. Code Section 22-21-318(c)(2).

The Roanoke Authority is also considered a governmental entity. See Todorov v. DCH Healthcare Authority, 921 F.2d 1438 (11th Cir. 1991) ("It is apparent from this Act that the -5B MAM01 971291 v2 1039340-000093 05/05/20111

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Alabama legislature made any hospital organized pursuant to the Act a local governmental entity, labeling such a hospital a political subdivision of the state. DCH, as a hospital so organized, clearly qualifies as a local governmental entity"); Mangieri v. DCH Healthcare Authority, (N.D. Ala. 2002) ("The Authority is a local government entity and, thus, is subject to § 1983 liability.").

B.

Municipalities and Agencies and Instrumentalities of the Municipalities are

not eligible for Chapter 11 Based on the statutory definitions discussed in Section II.A above, an entity cannot be simultaneously eligible for Chapter 11 and Chapter 9. Section 109(d) provides in relevant part that only a person who may be a debtor under Chapter 7 of this title (and railroad and state banking institution) may be a debtor under Chapter 11 of this title.

A "municipality" is

specifically excluded from the definition of a "person" eligible for Chapter 7 (and thus for Chapter 11). Obversely, to be an eligible chapter 9 debtor, an entity must be a “municipality” as that term is defined in section 101(40) of the Bankruptcy Code. If an entity is a municipality, then it may be eligible for a chapter 9 filing (assuming it meets the other filing requirements under section 109(c) of the Bankruptcy Code), but it is not eligible to initiate a chapter 11 proceeding because it is not a “person” under the Bankruptcy Code. Alternatively, if an entity is not a municipality, it may be eligible for a chapter 11 filing even though such entity can not seek chapter 9 protection. See Lawrence P. King, 6 COLLIER ON BANKRUPTCY (“COLLIER”) ¶900.02[2] at 900-9 (15th ed. Rev. 2008) (“a municipality that is eligible for relief under chapter 9 cannot be a debtor under any other chapter of the Bankruptcy Code”); see also In re Westport Transit Dist., 165 B.R. 93, 95 (Bankr. D. Conn. 1994) (“Chapter 9 is the sole avenue of relief for municipalities under the Bankruptcy Code.”). As a result, chapter 9 and chapter 11 eligibility are

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not alternatives to each other, but, instead, are mutually exclusive. See COLLIER ¶900.02[2] at 900-9.

C.

The Roanoke Authority's Chapter 11 Petition Should be Dismissed Due to

the Ineligibility of the Petitioner Bankruptcy courts have limited jurisdiction under 28 U.S. C. §1334. Celotex Corp. v.

Edwards, 514 U.S. 300, 307 (1995). With respect to a petition for bankruptcy relief, the Court has jurisdiction only over “cases arising under title 11.” 28 U.S.C. §1334(b). A court lacks jurisdiction over a petition for relief filed by an entity ineligible for protection under the Bankruptcy Code. Id. Courts, interpreting section 109(d) of the Bankruptcy Code in accordance with its plain meaning, have routinely dismissed chapter 11 cases where the debtor did not constitute a person” as defined by section 101(41) of the Bankruptcy Code. See In re C-TC 9th Ave. Partnership, 113 F.3d 1304, 1309 (2d Cir. 1997) (affirming dismissal, in part, because the debtor as not a “person” as defined by the Bankruptcy Code); In re Estate of Medcare HMO, 998 F.2d 436, 447 (7th Cir. 1993) (affirming dismissal for lack of jurisdiction over debtor’s chapter 11 petition because the entity was not an eligible “person” under section 109(d) of the Bankruptcy Code); Hunt v. TRC Properties (In re Hunt), 160 B.R. 131, 135-36 (B.A.P. 9th Cir. 1993) (affirming dismissal of the bankruptcy case because a non-business trust is not a “person” under section 109(d) of the Bankruptcy Code and not entitled to chapter 11 protection); In re Sung Soo Rim Irrevocable Intervivos Trust, 177 B.R. 673, 679 (Bankr. C.D. Cal. 1995); N. Fork Bank v.

Abelson, 207 B.R. 382, 390 (E.D.N.Y. 1997) (noting that if an entity fails to qualify as a debtor because it is not a “person” under the Bankruptcy Code, a bankruptcy court lacks subject matter jurisdiction); Merrill v. Allen (In re Universal Clearing House Co.), 60 B.R. 985, 991 (D. Utah 1986) (if a debtor is ineligible for relief under the Bankruptcy Code, “then the statutory source of -7B MAM01 971291 v2 1039340-000093 05/05/20111

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the bankruptcy court’s exercise of jurisdiction is lacking and the case must be dismissed”).1 The Roanoke Authority’s ineligibility as a chapter 11 debtor justifies dismissal on jurisdictional grounds,2 or alternatively, for “cause” pursuant to section 1112(b) of the Bankruptcy Code.3 Therefore, if the Roanoke Authority qualifies as a “municipality” under the Bankruptcy Code (which, as discussed above, it does), it is not eligible to be a chapter 11 debtor. In such a circumstance, this Court will lack jurisdiction over the Roanoke Authority’s chapter 11 petition, and consequently, this chapter 11 Case must be dismissed under 28 U.S.C. §1334 and section 109(d) of the Bankruptcy Code, or, alternatively, should be dismissed for cause pursuant to section 1112(b) of the Bankruptcy Code.

IV.

CONCLUSION

1 Other Courts have held that the threshold issue of eligibility is not jurisdictional. See In re Wenberg, 94 B.R. 631, 637 (9th Cir. BAP 1988) aff’d Wenberg v. FDIC (In re Wenberg), 902 F.2d 768 (9th Cir. 1990) (noting that Section 109 eligibility is not jurisdictional); In re First Assured Warranty Corp., 383 B.R. 502, 518-19 (Bankr. D. Colo.

2008) (the issue of whether the debtor is eligible for relief is not jurisdictional, dismissal for failure to meet the requirements for filing a petition is a core issue).

2 Section 1112(b) of the Bankruptcy Code typically governs the dismissal or conversion of a chapter 11 case: . . . on request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall. . . convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, . . . if the movant establishes cause. 11 U.S.C. §1112(b). Lack of eligibility to file is cause for dismissal of a chapter 11 case. See In re C-TC 9th Ave. Partnership, 113 F.3d 1304, 1309 2d. Cir. 1997). Because the Roanoke's lack of eligibility to be a debtor is a jurisdictional issue, the Court should dismiss this case under 28 U.S.C. § 1334 and 11 US.C. § 109(d) without considering the application of section 1112(b) of the Bankruptcy Code. See In re Estate of Medcare HMO, 998 F.2d at 447 (affirming dismissal of debtor’s chapter 11 petition for lack of jurisdiction due to debtor’s ineligibility under section 109(d) of the Bankruptcy Code without considering section 1112(b) of the Bankruptcy Code; In re Gurney’s Inn Corp. Liquidating Trust, 215 B.R. 659, 669 (Bankr. E.D.N.Y. 1997) (same); In re Sung Soo Rim Irrevocable Intervivos Trust, 177 B.R 673, 679 (same).

3 Alternatively, the Court should dismiss the Chapter 11 Case for cause pursuant to section 1112(b) of the Bankruptcy Code, as the Roanoke Authority is not eligible to be a debtor under chapter 11. As set forth in section 301 of the Bankruptcy Code, a voluntary case is commenced by the filing of a petition “under such chapter by an entity that may be a debtor under such chapter.” A petition filed by an ineligible debtor, therefore, does not commence a case. See, Wyttenbach v. Comm’n Internal Revenue, 382 B.R. 726, 730 (S.D. Tex. 2008)(failure to comply with section 109(h) of the Bankruptcy Code precludes commencement of a bankruptcy case).

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The Roanoke Authority's chapter 11 petition should be dismissed because the Roanoke Authority is not an entity eligible for protection under chapter 11. In accordance with precedent from the 11th Circuit and the Supreme Court of Alabama, as a public healthcare authority formed pursuant to Title 22 Section 21 of the Code of Alabama, the Roanoke Authority is specifically deemed to be an agency or instrumentality of the City of Roanoke and Randolph County. As such, The Roanoke Authority is a municipality under the Bankruptcy Code and excluded by definition from the category of entities eligible for chapter 11 relief.

WHEREFORE, premises considered, Regions Bank requests this Court issue an order dismissing this case and for such other and further relief to which it is entitled.

THIS, the 6th day of May, 2011.

Respectfully Submitted, BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ, P.C. /s/ Max A. Moseley______ Timothy M. Lupinacci Max A. Moseley Bill D. Bensinger 420 North 20th Street 1600 Wachovia Tower Birmingham, AL 35203 Telephone: (205) 205.328.0480 Fax: (205) 205.322.8007 E-mail: tlupinacci@bakerdonelson.com mmoseley@bakerdonelson.com bbensinger@bakerdonelson.com

Attorneys for Regions Bank

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CERTIFICATE OF SERVICE I hereby certify that the foregoing has been served on the Master Service List and any additional parties listed below by electronic noticing or other means as therein indicated on this the 6th day of May, 2011.

/s/ Max A. Moseley OF COUNSEL

__________

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