MEDSCI DIAGNOSTICS INC v. STATE INSURANCE FUND CORPORATION

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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE: ||
MEDSCI DIAGNOSTICS, INC. | CASE NUMBER 10-04961- ESL
|| CHAPTER 11
DEBTORS ||
____________________________________||
MEDSCI DIAGNOSTICS, INC. |||
Plaintiffs || ADVERSARY PROCEEDING NUMBER:
Vs. || 10-0094
STATE INSURANCE FUND CORP., |
through its ADMINISTRATOR |
ZOIME ALVAREZ RUBIO, |
et als ||
Defendants |
____________________________________|
OPINION AND ORDER
This adversary proceeding is before the court upon the State Insurance Fund Corporation’s
(the “SIF”) motion to stay proceedings pending appeal (dkt. # 161) filed on December 8, 2010. For
the reasons set forth below the motion is hereby denied.
Decision on appeal
On November 24, 2010 the court entered an opinion and order concluding that the
CONTRACT FOR THE PROVISION OF DIAGNOSTIC TESTING AT INSTALLATIONS OF THE CORPORATION
FOR THE REGIONS OF CAROLINA, MAYAGUEZ, PONCE AND THE INDUSTRIAL HOSPITAL (the
“Contract”) between the parties was not null and void.
The court held the following:
The SIF alleges that the Contract in question is null and void as it is contrary to
Puerto Rico’s General Corporations Law and the holdings by the Supreme Court of Puerto
Rico in Rasa and Metcalf. The SIF’s position is that in order for a corporation to provide
professional services it must be organized as a professional services corporation. The SIF
submits that the only issue the court needs to address in determining whether the Contract
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is null and void is whether any of the services provided required a professional medical
license. The court does not take such a limited perspective in analyzing the issue.
The court agrees that a corporation that is not a professional services corporation may
not, as a corporation, perform professional services such as those requiring a professional
medical license. If a contract so provides, then it is null and void under Puerto Rico law.
However, a contract that allows a corporation to perform professional services through a duly
licensed professional is a valid contract. Such is the contract before the court.
A review of the scope of services that were to be provided in the original contract
between Autoridad de Acueductos y Alcantarillados and Metcalf Eddy, Inc.; Colegio de
Ingenieros y Agrimensores de Puerto Rico v. Autoridad de Acueductos y Alcantarillados de
Puerto Rico y Metcalf Eddy, Inc., 131 D.P.R. 735 (1992); differs from the ones in the
Contract between the SIF and MEDSCI. In Metcalf the contract provided for the corporation
(Mecalf) to perform, as a corporation, design and construction services, which are
professional services that must be rendered by duly licensed engineers and architects. In the
Contract before the court, the Contract envisioned the corporation to provide the services
through duly licensed professionals.
Based on the above rational the court concluded as follows:
In view of the foregoing, the court hereby denies the SIF’s motion for reconsideration
and finds that the Contract between the SIF and MEDSCI is not null and void.
Consequently, there is a valid contract between the parties and each party must comply with
its terms.
Standard Under Fed. R. Bankr. P. 8005
A motion for a stay pending appeal under Fed. R. Bankr. P. 8005 is determined pursuant to
the four-part test for granting preliminary relief, that is,
(1) there is a likelihood of success on the merits of the appeal;
(2) the movant will suffer irreparable harm if a stay is not granted;
(3) the harm to the movant if the stay is not granted is greater than the injury to the opposing
party if the stay is granted; and
(4) the public interest would not be affected by the issuance of the stay.
Pye v. Excel Case Ready, 238 F.3d 69 (1 Cir. 2001); In re Alfaro, 221 B.R. 927 (B.A.P. 1 Cir.st st
1998).
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A motion for stay pending appeal is an extraordinary remedy and requires a substantial
showing on the part of the movant. In re Lickman, 301 B.R. 739 (Bankr. M.D. Fla. 2003). In order
to grant the motion for stay pending appeal all four prongs must be satisfied. In re Handel, 242 B.R.
789, 791 (Bankr. D. Mass. 1999). Failure to meet the four prongs dooms the motion. Eck v. Dodge
Chemical Co. (In re Power Recovery Sys., Inc.) 950 F. 2d 798, 804).
Discussion
To find that there is a likelihood that the SIF will prevail on appeal based on the same
arguments presented to the court would essentially mean that we should vacate the order as being
decided erroneously. The court is not so moved. There may be a different reading of the law, but
this court finds that there is a difference between a contract wherein a corporation provides
professional services as a corporation (null contract) and a contract that provides for a corporation
to provide professional services through duly licensed professionals (valid contract). The same
situation would apply to corporate entities providing pharmaceutical services, mechanical services
or any service that may require a government license. See list of professionals and workers who
require a license in Puerto Rico enumerated in Diaz Olivo, La Corporación Profesional, 68 Rev. Jur.
U.P.R. 31, 53. Such a limited reading is not adopted by this court.
In the appealed order the court stated that:
4. The 1995 amendments to the Puerto Rico General Corporations Law authorized
for the first time the exercise of professional services through a professional services
corporation. 34 L.P.R.A. § 3401 - 3417. For an excellent analysis of the professional
services corporation under the laws of Puerto Rico see: Diaz Olivo, La Corporación
Profesional, 68 Rev. Jur. U.P.R. 31 (1999).”
The court notes that the correct cite is 14 L.P.R.A. § 3401 - 3417. These sections were
derogated by Law number 164 of December 16, 2009. The same are now codified in 14 L.P.R.A.
§ 3921 - 3938. The existing sections mirror the ones in the 1995 amendments.
The stated legislative intent is “to provide for the incorporation of an individual, or group of
individuals, who render the same professional service to the public for which service such
individuals are required by law to obtain a license or other legal authorization.” 14 L.P.R.A. § 3401.
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The historical precedent shows that the driving forces leading to professional corporations statutes
were the limited liability of corporations and tax advantages. 68 RJUPR 33. A professional
corporation practices a profession. A private corporation seeks to accumulate capital and obtain a
return on investment. 68 RJUPR 37 fn19, citing from State ex rel. Wise v. Basinger, 561 N.E. 2d
559, 562 (Ohio Ct. App. 1988). A professional corporation may, as a corporation, render
professional services. A private corporation may provide professional services through licensed
professionals but may not, as a corporation, render professional services. ABC Hospital Corp. may
contract physicians, nurses, pharmacists, radiology technicians, and any duly licensed professional
to perform professional services, but may not perform the professional services in its corporate
capacity.
The SIF will not suffer any harm, much less irreparable harm, if the stay pending appeal is
not granted. The services for which the SIF must pay are being rendered. Moreover, the SIF has not
established that its legal remedies are inadequate. Ross-Simon of Warwick, Inc. V. Baccarat, Inc.,
102 F.3d 12, 15 (1 Cir. 1996).st
The balancing of harm also favors the Debtor/MEDSCI. If the stay is granted the debtor’s
source of revenue ceases, as well as its existence. On the other hand, the services now being
provided by MEDSCI would have to be provided by some other person, a professional services
corporation as the SIF now contends. Thus, the SIF’s expense or harm is far outweighed by
Debtor’s harm.
Public interest is not a critical issue as this court does not find a legal breach.
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CONCLUSION
In view of the foregoing, the SIF’s motion for stay pending appeal is hereby denied.
SO ORDERED.
In San Juan, Puerto Rico, this 16 day of December 2010.th
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