HEARING DATE NOVEMBER 16, 2018 AT 1000 A.M. Jeffrey R. Gleit, Esq. Allison Weiss, Esq. Clark A. Freeman, Esq. SULLIVAN & WORCESTER LLP 1633 Broadway New York, New York 10019 (212) 660-3000 (Telephone) (212) 660-3001 (Facsimile) Counsel to the Reorganized Debtors UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------------x In re Chapter 11 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., 1 Case No. 17-22770 (RDD) Debtors. (Jointly Administered) ------------------------------------------------------------------------x REORGANIZED DEBTORS REPLY MEMORANDUM IN FURTHER SUPPORT OF ITS MOTION TO (A) ENFORCE (i) THE TERMS OF THE STIPULATION AND AGREED ORDER TO LIFT STAY AND (ii) THE INJUNCTIVE PROVISIONS OF THE PLAN AND CONFIRMATION ORDER AND (B) BAR LAURA A. HUDSON, INDIVIDUALLY AND AS PERSONAL REPRESENTATIVE OF THE ESTATE OF TODD MICHAEL HUDSON FROM PROSECUTING AGAINST THE REORGANIZED DEBTORS HER PUNITIVE DAMAGES CLAIM (INCLUDING PURSUING DISCOVERY PERTAINING SOLELY TO SUCH CLAIM) 1 Each of the Reorganized Debtors in the above-captioned jointly administered chapter 11 cases and their respective tax identification numbers are set forth in the Order Directing Joint Administration of Chapter 11 Cases [Docket No. 30]. The location of 21st Century Oncology Holdings, Inc. s corporate headquarters and the Reorganized Debtors service address is 2270 Colonial Boulevard, Fort Myers, Florida 33907.
TO THE HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE In reply to the Objection and Response of Creditor Laura A. Hudson, Individually and as Personal Representative for the Estate of Todd Michael Hudson [Docket No. 1241] (the Response ) and in further support of the Motion to (A) Enforce (i) The Terms of the Stipulation and Agreed Order to Lift Stay and (ii) The Injunctive Provisions of the Plan and Confirmation Order and (B) Bar Laura A. Hudson, Individually and as Personal Representative of the Estate of Todd Michael Hudson From Prosecuting Against the Reorganized Debtors Her Punitive Damages Claim (Including Pursuing Discovery Pertaining Solely to Such Claim) [Docket No. 1230] (the Motion ), 1 the Reorganized Debtors respectfully represent as follows PRELIMINARY STATEMENT The Stipulated Order permits Hudson to pursue her claims solely to the extent of any coverage and defense afforded by the Insurer, in accordance with the Insurance Policy, Stipulated Order at 1. Punitive damage are not covered by the Insurance Policy. See Insurance Policy at Section V(A), (C) and (M); Section II(B). By pursuing against the Reorganized Debtors the punitive damages claim and discovery with respect thereto, Hudson is in violation of the Discharge Injunction contained in the Plan and the terms of the Stipulated Order. The Stipulated Order is unambiguous. Hudson negotiated for and freely entered into the Stipulated Order. She cannot now strain its meaning or unilaterally amend its terms. Further, Hudson must not be permitted to consume the Reorganized Debtors time and resources with a hypothetical bad faith denial of coverage claim against the Insurer. Finally, as set forth herein, the Rooker- Feldman doctrine has no application to the case at hand because the Reorganized Debtors are asking this Court to interpret its own order. Accordingly, Hudson should be barred from 1 Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion.
prosecuting the punitive damages claim in the Florida Action and from seeking discovery with respect thereto. REPLY A. The Stipulated Order is Unambiguous as to the Limited Scope of the Claim Relieved from the Stay, now Discharge Injunction. 1. Hudson misses the point by arguing that Claim No. 1782 sought the full amount of any damages in the Florida action. What matters is not the scope of Hudson s initial claim, but the scope of the claim that Hudson is allowed to pursue under the Stipulated Order and the Discharge Injunction. 2. Hudson misconstrues the Reorganized Debtors argument as an effort to take one sentence and one term in the entire Stipulated Order out of context. The Reorganized Debtors are not overstating the importance of this term in the slightest. After the recitals, the very first sentence of the very first paragraph of the Stipulated Order reads as follows The Stay is lifted to permit the Claimants to continue the Action against the Debtors solely to the extent of any coverage and defense afforded by the Insurer, in accordance with the Insurance Policy Stipulated Order at 1. Far from an afterthought, the parties clear intention was to provide Hudson with limited relief from the Automatic Stay, and to ensure that neither the Reorganized Debtors nor their Insurer would be burdened by the need to defend against claims not contemplated by the Stipulated Order (such as Hudson s punitive damages claim). Hudson s alternative interpretation of the Stipulated Order is unavailing. 3. The Stipulated Order was negotiated, agreed upon by the parties, and approved by this Court. Hudson cannot now complain about the explicit terms to which she agreed. 4. Hudson could have negotiated the broader relief from the Automatic Stay (now Discharge Injunction) that she now seeks. She did not. Hudson could have insisted that the 2
Stipulated Order permit her to take discovery related solely to her punitive damages claim. She did not. Hudson failed to carve out the ability to prosecute her punitive damages claim, and now must be bound by the terms of the Stipulated Order that she negotiated and agreed to. B. That the Insurer Could Theoretically be Liable in a Subsequent Action on a Theory of Bad Faith Does Not Mean the Policy Covers Punitive Damages. 5. Hudson does not dispute that the Insurance Policy excludes punitive damages from coverage. 2 That ends the discussion. As described in the Motion, the Stipulated Order only provides for limited relief solely to the extent of coverage under the Insurance Policy. Stipulated Order at 1. 6. Hudson cannot justify her otherwise improper discovery requests by dressing them as aimed at building the factual predicate for a hypothetical bad faith denial of coverage claim against the Insurer. 7. Hudson submits that under Florida law, an insurer can be liable for a punitive damages award in the event it acts in bad faith with respect to the defense or settlement of a particular claim. See Response 14 (citing Ging v. American Liberty Ins. Co., 423 F.2d 115 5th Cir. 1970)). But simply because an insurer perhaps can become liable for a punitive damages award for, say, not advising its insured of a settlement offer within policy limits prior to verdict, does not mean that liability emanates from the coverage provisions of the policy. 8. Hudson s bad faith claim argument is merely a convenient fabrication invented by Hudson s counsel to shoehorn Hudson s improper discovery requests aimed to harass the Reorganized Debtors. Hudson completely ignores the substantial burden that the Discovery Requests impose on the Reorganized Debtors. Hudson s requests would require the Reorganized 2 In fact, on May 30, 2018, the Insurer sent to the Reorganized Debtors a letter informing the Reorganized Debtors that the Insurance Policy does not cover claims for punitive damages. The Reorganized Debtors informed Hudson of this letter. 3
Debtors to expend significant resources and time in connection with wasteful discovery all while the Stipulated Order specifically states that the Reorganized Debtors are not to incur any costs in connection with the Florida Action. 9. The prospect of Hudson s bad faith claim someday does not alter the explicit terms of the Stipulated Order. The Stipulated Order was an agreement, intended to enable Hudson to pursue certain claims covered by the Insurance Policy against the Insurer. Hudson could have negotiated different terms but she did not. The terms of the Stipulated Order control. C. The Rooker-Feldman Doctrine is Inapplicable 10. Finally, the Rooker-Feldman doctrine has no application to the facts at hand. 11. [U]nder what has come to be known as the Rooker-Feldman doctrine, lower federal courts are precluded from exercising appellate jurisdiction over final state-court judgments. Lance v. Dennis, 546 U.S. 459, 463 (2006). 12. The Supreme Court explained in Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005) that the Rooker-Feldman doctrine is confined to cases of the kind from which the doctrine acquired its name cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments. 13. A party invoking Rooker-Feldman must meet four requirements First, the federal-court plaintiff must have lost in state court. Second, the plaintiff must complain[ ] of injuries caused by [a] state-court judgment[.] Third, the plaintiff must invite district court review and rejection of [that] judgment[ ]. Fourth, the statecourt judgment must have been rendered before the district court proceedings commenced. 4
Rountree v. US Bank NA, No. 15 Civ. 9018 (KPF), 2017 U.S. Dist. LEXIS 307, at *20 (S.D.N.Y. Jan. 3, 2017) (quoting Green v. Mattingly, 585 F.3d 97, 101 (2d Cir. 2009)) (emphasis added, internal quotation marks omitted). 14. Hudson cannot meet any of the four requirements. The Reorganized Debtors have not lost in state court. In fact, the Reorganized Debtors are not seeking to have this Court review and reconsider any Florida court orders or judgments at all. This disposes of all four requirements. 15. Instead, the Reorganized Debtors are seeking the interpretation and enforcement of this Court s Stipulated Order and a determination of whether Hudson s actions in attempting to prosecute her punitive damages claim to verdict violate this Court s Discharge Injunction. 16. The Florida court has not ruled on, or even considered, what the Stipulated Order means and/or how it impacts the ongoing Florida Action. Nor would it be proper for the Florida court to do so. In fact, the only court with the jurisdictional authority to consider this dispute at this juncture is the Bankruptcy Court. 17. Further, the situation at hand is decidedly different than that of the one case cited by Hudson, Union Planters Bank National Association v. Salih, 369 F.3D 457 (5th Cir. 2004). Unlike in Salih, the Reorganized Debtors are not seeking an injunction; they already have an injunction (the Discharge Injunction contained in the confirmed Plan). Hudson is already bound by the Discharge Injunction, and was only relieved therefrom in the limited fashion provided in the Stipulated Order. 18. Accordingly, this Rooker-Feldman doctrine is wholly inapplicable. 5
D. Amendment of the Stipulated Order Would Be Improper 19. As discussed in Section A above, the Stipulated Order was heavily negotiated when it was drafted and entered into in November 2017. Hudson cannot now seek its amendment simply because now, a full year later, she does not like what it says. CONCLUSION WHEREFORE, the Reorganized Debtors respectfully request that the Court enter an order (A) enforcing (i) the terms of the Stipulated Order, and (ii) the injunctive provisions of the Plan and Confirmation Order, (B) barring Hudson from prosecuting against the Reorganized Debtors her punitive damages claim (including pursuing discovery pertaining solely to such claim) in Florida, and (C) granting such other and further relief as is just and proper. DATED New York, New York November 15, 2018 SULLIVAN & WORCESTER LLP, By /s/ Allison Weiss Jeffrey R. Gleit, Esq. Allison Weiss, Esq. Clark A. Freeman, Esq. 1633 Broadway New York, New York 10019 (212) 660-3000 jgleit@sandw.com aweiss@sandw.com cfreeman@sandw.com Counsel to the Reorganized Debtors 6