Twin City Hospital

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

IN RE: CHAPTER 11

TWIN CITY HOSPITAL, CASE NO. 10-64360

Debtor. JUDGE RUSS KENDIG
MEMORANDUM OF OPINION
(NOT INTENDED FOR
PUBLICATION)

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Movant, Canton Aultman Emergency Physician, Inc., filed an amended motion seeking
partial relief from the automatic stay (“motion”). The motion is opposed by Debtor; the
unsecured creditors committee (“Committee”); Wells Fargo National Association, the indenture
trustee (“Wells Fargo”); and Marge Jentes and Michael Norman (“Codefendants”). The court
held a final hearing on June 9, 2011 and the matter was taken under advisement.

The court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334 and the general
order of reference entered in this district on July 16, 1984. Venue in this district and division is
proper pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G).

This opinion is not intended for publication or citation. The availability of this opinion,
in electronic or printed form, is not the result of a direct submission by the court.

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

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FACTS

Codefendants are the former CEO and CFO of Debtor. During Codefendants’
employment with Debtor, Debtor entered into a contract with Movant to obtain emergency
physician services. Prepetition, Movant filed a state court lawsuit against Debtor and
Codefendants in the Tuscarawas County Court of Common Pleas, alleging breach of the contract.
The complaint contains claims against Codefendants for negligence and fraudulent
misrepresentation. While the case was pending, Debtor filed a chapter 11 petition. The
Common Pleas court stayed the state court case in light of Debtor’s bankruptcy. Movant now
seeks relief to proceed against the Codefendants. The motion is opposed by multiple parties.

LAW AND ANALYSIS

The obvious starting point is 11 U.S.C. § 362(a)(1). No one disputes that the state court
action is stayed against Debtor. The state court independently extended protection to
Codefendants as well and movant seeks relief from the stay to proceed against the Codefendants.
The parties agree that extension of the automatic stay to nondebtor codefendants is permissible in
“unusual circumstances.” See American Imaging Serv., Inc. v. Eagle-Picher Indus., Inc. (In re
Eagle-Picher Indus., Inc.), 963 F.2d 855 (6 Cir. 1992) (citing A.H. Robins Co., Inc. v. Piccinin
(In re A.H. Robins Co, Inc.), 788 F.2d 994 (4" Cir. 1986), cert. denied 479 U.S. 876 (1986)).

The court is not equally persuaded.

The Sixth Circuit did not adopt the Robins “unusual circumstance” analysis in the context
of a relief from stay motion, but utilized it in examining whether the irreparable harm
requirement for a preliminary injunction had been established. See Eagle-Picher, 963 F.2d at
860-61. The Sixth Circuit noted the distinction in Patton v. Bearden when it stated

It should be noted that such extensions, although referred to as
extensions of the automatic stay, were in fact injunctions issued
by the bankruptcy court after hearing and the establishment of
unusual need to take this action to protect the administration of

the bankruptcy estate.

Even if we were to adopt the unusual circumstances test, the
bankruptcy court would first need to extend the automatic stay
under its equity jurisdiction pursuant to 11 U.S.C. § 105.

8 F.3d 343, 349 (6" Cir. 1993); see also Amedisys, Inc. v. Nat’] Century Fin. Enter., Inc. (In re
Nat’l Century Fin. Enter., Inc.), 423 F.3d 567 (6" Cir. 2005).

The automatic stay must first be extended because it does not apply to codefendants: “[the
stay] does not extend, however, to separate legal entities such as corporate affiliates, partners in
debtor partnerships or to codefendants in pending litigation.’ Patton, 8 F.3d 343, 349 (citing 2

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Collier on Bankruptcy § 362.04 (15" ed. 1993) (emphasis deleted)).

The Common Pleas court’s stay of the state case created a divergence that the parties
followed. The bankruptcy stay will only protect nondebtor codefendants when the bankruptcy
court exercises its equitable powers to impose the stay as to those parties. Short of this,
codefendants are not protected by the stay. This court has not extended the stay to Codefendants,
nor has it been asked to do so. Consequently, the court finds that the automatic stay under
section 362(a)(1) does not apply to Codefendants. To the extent that the motion seeks relief from

stay against them, the relief sought is unnecessary.
An order will be issued concurrently with this opinion.

# # #

Service List:

Steven R. Hobson
John A. Polinko
Christopher Peer
Edmond J. Mack
Sherri L. Dahl

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