Case 2:18-bk ER Doc 605 Filed 10/20/18 Entered 10/20/18 17:16:14 Desc Main Document Page 1 of 7

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1 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 SAMUEL R. MAIZEL (Bar No. 0) samuel.maizel@dentons.com TANIA M. MOYRON (Bar No. ) tania.moyron@dentons.com DENTONS US LLP 0 South Figueroa Street, Suite 00 Los Angeles, California 00-0 Tel: () -00 / Fax: () - Proposed Attorneys for the Chapter Debtors and Debtors In Possession In re UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA - LOS ANGELES DIVISION VERITY HEALTH SYSTEM OF CALIFORNIA, INC., et al., Debtors and Debtors In Possession. Affects All Debtors Affects Verity Health System of California, Inc. Affects O Connor Hospital Affects Saint Louise Regional Hospital Affects St. Francis Medical Center Affects St. Vincent Medical Center Affects Seton Medical Center Affects O Connor Hospital Foundation Affects Saint Louise Regional Hospital Foundation Affects St. Francis Medical Center of Lynwood Foundation Affects St. Vincent Foundation Affects St. Vincent Dialysis Center, Inc. Affects Seton Medical Center Foundation Affects Verity Business Services Affects Verity Medical Foundation Affects Verity Holdings, LLC Affects De Paul Ventures, LLC Affects De Paul Ventures - San Jose Dialysis, LLC Debtors and Debtors In Possession. Lead Case No. :-bk--er Jointly Administered With: CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk--er CASE NO.: :-bk-0-er CASE NO.: :-bk--er Chapter Cases Hon. Ernest M. Robles DEBTORS OPPOSITION TO ATTORNEY GENERAL S MOTION TO CONTINUE THE HEARING ON DEBTOR S MOTION FOR ENTRY OF (I) AN ORDER () APPROVING FORM OF ASSET PURCHASE AGREEMENT FOR STALKING HORSE BIDDER, AND (II) AN ORDER (A) AUTHORIZING THE SALE OF PROPERTY FREE AND CLEAR OF ALL CLAIMS, LIENS AND ENCUMBRANCES [DKT. NO. ] Hearing: Date: October, Time: 0:00 am Pacific Location: Courtroom

2 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 Verity Health System Of California, Inc. and the above-referenced affiliated debtors (collectively, the Debtors ), the debtors and debtors in possession in the above-captioned chapter bankruptcy cases (collectively, the Cases ), hereby file this opposition (the Opposition ) to the Motion To Continue The Hearing On Debtor s Motion For Entry Of (I) An Order () Approving Form Of Asset Purchase Agreement For Stalking Horse Bidder, And (II) An Order (A) Authorizing The Sale Of Property Free And Clear Of All Claims, Liens And Encumbrances (the Motion ) [Dkt. No. ] filed by Xavier Becerra, California Attorney General (the Attorney General ), and respectfully state as follows: I. PRELIMINARY STATEMENT Without any evidence and at the eleventh hour, the Attorney General has filed a Motion that is procedurally and substantively flawed and which threatens a sale (the Sale ) that is critical to maximizing value in these Cases. To boot, the Motion is an objection to the Sale process and not the bidding procedures (the Bidding Procedures ), which the Debtors seek approval of at the hearing this upcoming week (the Sale Procedures Motion ). Remarkably, the Attorney General seeks to halt the process mainly over one schedule to the Asset Purchase Agreement (the APA ) that is being prepared by Santa Clara County. Putting aside the absurdity of the foregoing, most troubling is the Attorney General s decision to file a two-and-ahalf page baseless Motion without contacting the Debtors and with disregard to the tremendous efforts that have been poured into the Sale process by the Debtors, Santa Clara County and the countless others who have been intimately involved in maximizing value for these estates. Based on the foregoing, and for the reasons set forth in greater detail below, the Debtors respectfully requests that the Court deny the Motion. The full title of the Sales Procedures Motion is Debtors Notice Of Motion And Motion For The Entry Of (I) An Order () Approving Form Of Asset Purchase Agreement For Stalking Horse Bidder And For Prospective Overbidders To Use, () Approving Auction Sale Format, Bidding Procedures And Stalking Horse Bid Protections, () Approving Form Of Notice To Be Provided To Interested Parties, () Scheduling A Court Hearing To Consider Approval Of The Sale To The Highest Bidder And () Approving Procedures Related To The Assumption Of Certain Executory Contracts And Unexpired Leases; And (II) An Order (A) Authorizing The Sale Of Property Free And Clear Of All Claims, Liens And Encumbrances, and appears on the Bankruptcy Docket as Docket No \V-

3 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 II. ARGUMENT A. THE MOTION SHOULD BE DENIED BECAUSE IT IS DOES NOT COMPLY WITH THE LOCAL BANKRUPTCY RULES. Local Bankruptcy Rule ( LBR ) 0- (m) provides, in relevant part: () Motion for Continuance. Unless otherwise ordered, a motion for the continuance of a hearing under this rule must be filed as a separately captioned motion, and must be filed with the court and served upon all previously noticed parties by facsimile, , personal service, or overnight mail at least days before the date set for the hearing. LBR 0-(m)(emphasis added). (A) The motion must set forth in detail the reasons for the continuance, state whether any prior continuance has been granted, and be supported by the declaration of a competent witness attesting to the necessity for the continuance. Simply put, the Motion lacks specificity as to (i) why schedules related to the APA and (ii) an alleged new arguments raised by the Debtors (which they are not, as set forth below), should result in the continuance of the Hearing that primarily seeks approval of the Bidding Procedures. Additionally, the Motion is not supported by a declaration attesting to the necessity for the continuance. Consequently, the Debtors respectfully submit that the Motion could be denied and should be denied on a procedurally basis alone. B. THE MOTION SHOULD BE DENIED BECAUSE THERE IS NO BASIS FOR A CONTINUANCE.. The Absence of the Schedules Does Not Merit A Continuance. The Attorney General requests a continuance based on the assertion that there are there are important issues of state law regarding health, safety, and welfare at issue. Motion, at, lines -. The Attorney General offers no evidence to support this assertion, nor does he explain what issues of health, safety and welfare exist, leaving it to the Debtors and the Court to guess at his meaning. The Attorney General requests a continuance because the schedules referenced in the APA have not yet been completed, and, therefore, are not yet available for review. However, the Debtors anticipate being able to disclose many of the required APA schedules before the hearing - - 0\V-

4 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 on the Sale Procedures Motion on October,, so the issue may well be moot. The Attorney General argues that the schedules relate to essential terms of the APA including the specific clinical services the Purchaser agrees to maintain. Motion, at, lines -. However, the Attorney General fails to point out that of the more than 0 schedules required under the APA, only one relates to clinical services. See Schedule. of the APA (Maintenance of Clinical Services), Docket No. -, at, Exhibit A to Sales Procedures Motion, Docket No. ]. Moreover, the Attorney General ignores that the information required to prepare this schedule comes from the purchaser, Santa Clara County, not the Debtors. Because the Attorney General acknowledges that his representatives have been in ongoing communications with the County about this transaction, Motion, at, lines -, it might have been a better use of his resources to simply ask the County what its intentions were with regard to the clinical services to be provided post-acquisition, rather than pursue his Motion against the Debtors. Finally, at a minimum, the APA schedules will be filed on November,, which is well before the earliest likely date of an auction. As the Motion is effectively an objection to the sale process not the bidding procedures, as set forth above, this Motion is premature. The Debtors in their omnibus response to other objections [Docket No. ] and the reply (the Reply ) [Docket No. 0] to the Attorney General s response (the Response ) [Docket No. ] argued that it is pointless to delay the process until the Debtors identify the actual buyer at the auction and identifies what obligations/contracts the buyer is assuming. That is also true in regard to the conditions. Moreover, with respect to the County, the time prior to the auction will allow for continued negotiations and the opportunity for resolution with respect to the County but none of that matters if the County is not the winning buyer.. Issues Related To The Conditions Need Not Be Resolved Now. As pointed out by the Debtors in their Reply, this objection is premature, because until the Debtors are sure that who the buyer of the assets will be (the County may be overbid at an auction), it is impossible to know whether the sale is subject to Attorney General review, or what conditions, if any, the eventual buyer will want modified. In fact, it is the experience of counsel for the Debtors that the Attorney General s office will refuse to accept a submission related to - - 0\V-

5 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 such a sale in bankruptcy until the sale order is entered by the Court, to avoid the Attorney General reviewing a transaction which may be overbid or simply denied by the Bankruptcy Court.. There Are No New Issues Raised In The Debtors Reply. The Attorney General argues that the Debtors presented new arguments for the first time in their Reply to the Attorney General s Response to the Sales Procedures Motion. Motion, at, lines -. This is simply incorrect. In their Reply, the Debtors argued that: (a) the Response was premature (responding to the timing of the Response and the Attorney General s argument that the Bid Procedures Motion should not be granted now, because how the Conditions were to be treated was unclear and the APA schedules were unavailable); (b) the sale was not subject to Attorney General review because of the nature of the Purchaser as a governmental entity (which directly responded to arguments raised by the Attorney General in his Response, at, lines - ( California law requires nonprofit corporations to provide notice and obtain written consent from the California Attorney General in order to transfer, sell, or otherwise dispose of a material amount of their assets. )); and (c) the Conditions imposed by the Attorney General in were interests in property which could be stripped off, pursuant to a sale under section of the Bankruptcy Code (which directly responded to arguments raised by the Attorney General in his Response, at, lines - ( The California Attorney General s response is limited to requesting clarification that the sale of the property is not free and clear of the conditions set forth in the California Attorney General s December, Decision [ ] ), at, lines - ( Under both California law and the express terms of the conditions, the County of Santa Clara as the proposed purchaser takes the assets subject to the existing conditions, regardless of whether additional California Attorney General review or approval is necessary. ), and at 0, line -, line (arguing at length that [t]h The California Attorney General s Conditions are not a claim, interest, or lien that can be extinguished by a sale of the assets. )). Moreover, the Attorney General has raised this last issue repeatedly in this case. See, e.g., Attorney General s Limited Objection to Debtors Emergency Motions For Interim And Final Orders (A) Authorizing The Debtors To Obtain Post Petition Financing, (B) Authorizing Debtors To Use Cash Collateral, (C) Granting Adequate Protection To Prepetition Secured Creditors Pursuant to USC 0,, 0, And 0, Docket No., at, lines - - 0\V-

6 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of 0 Perhaps the most incomprehensible assertion in the Motion is the Attorney General s assertion that the Debtors raised a new argument by discussing whether bankruptcy law trumps state law related to health and safety in their Reply. Motion, at, lines -. It could not be more clear that the Reply is directly responding to the Attorney General s argument in his Response that the Bankruptcy Code does not preempt state statutes designed to protect the public health or safety. Response, at, lines - ( The Bankruptcy Code Does Not Preempt State Statutes Designed To Protect The Public Health Or Safety ). In sum, it is clear that all of the Debtors arguments in the Reply were in direct response to arguments made by the Attorney General in his Response, and this argument does not support the Attorney General s request for a continuance.. A Continuance Would Strip The Debtors Of Adequate Time To Market The Assets And Could Result In A Breach Of The APA. Not only is a continuance of the Sales Procedure Motion wholly unwarranted, it would result in (i) significantly shortening the time the Debtors could market the assets, and (ii) potentially cause the Debtors to breach the APA. As to the latter, the sale milestones in the APA require the Debtors to obtain the entry of a sale order ninety (0) days after the execution date, which is December 0, (the Sale Order Deadline ). See APA, Section.. (Sales Milestones), at, Docket No. -. Keenly aware of the foregoing deadline and all related deadlines, the Debtors have designed a time frame that allows for, among other things, adequate marketing, requisite notice on multiple fronts, and the ability to satisfy multiple deadlines related to the Sale. Delaying this process for nearly a month would completely destroy this timeframe, cause the Debtors to trip against the Sale Order Deadline, and jeopardize the Sale. Consequently, the Debtors request that the Motion be denied. -. It could hardly be said that this last issue was a new argument raised for the first time in the Reply by the Debtors \V-

7 Case :-bk--er Doc 0 Filed 0// Entered 0// :: Desc Main Document Page of III. CONCLUSION 0 WHEREFORE, the Debtors respectfully request that the Court (i) deny the Attorney General s Motion, (ii) grant the Debtors Sale Procedures Motion, and (iii) grant to the Debtors such other and further relief as the Court may deem proper. Dated: October, DENTONS US LLP SAMUEL R. MAIZEL TANIA M. MOYRON By /s/ Tania M. Moyron Tania M. Moyron Proposed Attorneys for the Chapter Debtors and Debtors In Possession - - 0\V-