PLEASE TAKE NOTICE that on February 5, 2013 at 10:30 a.m., or as soon thereafter as

LaMONICA HERBST & MANISCALCO, LLP Counsel Lori Lapin Jones, as Chapter 11 Trustee 3305 Jerusalem Avenue Wantagh, New York 11793 Telephone: (516) 826-6500 Gary F. Herbst, Esq. Holly Rai, Esq. Hearing Date: February 5, 2013 at 10:30 a.m. Objections Due By: January 29, 2013 by 5:00 p.m. UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------------x In re: Chapter 11 PENINSULA HOSPITAL CENTER, et al., Case No.: 11-47056 (ESS) Case No.: 11-47985 (ESS) (Jointly-Administered) Debtors. -------------------------------------------------------------x NOTICE OF HEARING ON CHAPTER 11 TRUSTEE S MOTION FOR ENTRY OF AN ORDER: (I) ESTABLISHING PRE-LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR SETTLEMENT OF DEMANDS FOR THE RECOVERY OF CERTAIN AVOIDANCE CLAIMS; (II) ESTABLISHING POST-LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR ADMINISTRATION AND SETTLEMENT OF CERTAIN AVOIDANCE CLAIMS; AND (III) SEGREGATING FUNDS FOR THE PAYMENT OF COUNSEL S CONTINGENCY FEES AND EXPENSES AND THE TRUSTEE S STATUTORY COMMISSIONS PLEASE TAKE NOTICE that on February 5, 2013 at 10:30 a.m., or as soon thereafter as counsel can be heard, a hearing (the Hearing ) will be held before the Honorable Elizabeth S. Stong, United States Bankruptcy Judge, at the United States Bankruptcy Court, 271 Cadman Plaza East, Courtroom 3585, Brooklyn, New York 11201 (the Court ), on the motion (the Motion ) of Lori Lapin Jones, as Chapter 11 Trustee (the Trustee ) of the estates of Peninsula Hospital Center ( PHC ) and Peninsula General Nursing Home Corp. d/b/a Peninsula Center for Extended Care & Rehabilitation, by her general counsel, LaMonica Herbst & Maniscalco, LLP, seeking the entry of an Order: (I) establishing pre-litigation guidelines (the Pre-Litigation Guidelines ) in the PHC case for settlement of the Trustee s demands for the recovery of certain avoidance claims; (II) establishing 1

post-litigation guidelines (the Post-Litigation Guidelines ) in the PHC case for the administration and settlement of certain avoidance claims; and (III) segregating funds for the payment of LH&M s contingency fees, reimbursement of expenses and the Trustee s statutory commissions. The proposed Pre-Litigation Guidelines are as follows: a. The Trustee seeks authorization to settle, prior to the commencement of an adversary proceeding, non-insider avoidance claims on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that the aggregate avoidance claim against the non-insider does not exceed $50,000.00, net of contemporaneous or subsequent new value as defined in Bankruptcy Code 547(c)(1) and 547(c)(4) ( New Value ). b. With respect to a non-insider avoidance claim asserted by the Trustee that aggregates $50,001.00 to $150,000.00, net of New Value, the Trustee seeks authorization to settle such an avoidance claim, prior to the commencement of an adversary proceeding, on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that such settlement requires payment of no less than 60% of the aggregate avoidance claims, net of New Value. c. No pre-litigation, non-insider settlement will be entered into by the Trustee unless it is reasonable in the judgment of the Trustee upon consideration of: (i) the probability of success if the claim is litigated, (ii) the complexity, expense and likely duration of any litigation with respect to the claim, (iii) the difficulty in collection of any judgment, (iv) other factors relevant to assessing the reasonableness of the settlement, and (v) the fairness of the settlement to PHC s estate. d. Any settlement that falls outside the Pre-Litigation Guidelines must be approved by further order of the Court. The Trustee proposes to serve any motions to approve such settlements with a notice of hearing on at least twenty-one (21) days notice to: (a) the settling party and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. e. Any settlement of avoidance claims against an insider, as such term is defined in Bankruptcy Code 101(31), shall be brought before the Court for approval. f. No settlement will be effective unless it is executed by the Trustee or her counsel. 2

The proposed Post-Litigation Guidelines are as follows: a. The Trustee seeks authorization to extend each defendant s time to answer, move or otherwise plead for up to an aggregate of an additional one hundred and twenty (120) days without further order of the Court; b. The Trustee seeks to limit the parties required to receive notice of any compromises under Bankruptcy Rule 2002(a)(3); and c. The Trustee seeks authorization to settle certain post-litigation avoidance claims as follows: Amount in Controversy, Proposed Settlement Procedures Net of New Value $50,000.00 and under The Trustee seeks authorization to settle non-insider claims, in her discretion, on any reasonable terms and to enter into, execute and consummate a stipulation, which will be binding on PHC s estate and its creditors without further order of the Court. $50,001.00 to $150,000.00 If the settlement amount is at least 60% of the aggregate amount in controversy, net of New Value, the Trustee seeks authorization to settle non-insider claims, in her discretion, on any reasonable terms and to enter into, execute and consummate a stipulation, which will be binding on PHC s estate and its creditors without further order of the Court. If the settlement amount for non insider-claims is less than 60% of the aggregate amount in controversy, net of New Value, the Trustee proposes to submit to the Court the fully-executed stipulation, which the Trustee will serve by Notice of Presentment on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. If an objection is filed, a hearing will be held before the Court. $150,001.00 to $400,000.00 The Trustee proposes to submit to the Court the fullyexecuted stipulation with an appropriate motion seeking to approve the proposed settlement of non- 3

In excess of $400,001.00 Insider Claims insider claims, which the Trustee proposes to serve, by notice of presentment on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. If an objection is filed, a hearing will be held before the Court. The Trustee proposes to serve the fully-executed stipulation with an appropriate motion seeking to approve the proposed settlement of non-insider claims and a notice of hearing on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. Settlement of insider claims will be brought before the Court for approval. The Motion is on file with the Clerk of the Court and may be reviewed at the Office of the Clerk of the Bankruptcy Court, 271 Cadman Plaza East, Brooklyn, New York 11201 between the hours of 9:00 a.m. and 4:00 p.m. on regular business days. In addition, copies of the Motion may be obtained, without charge, by each creditor or interested party that requests same. Requests for copies of the Motion must be in writing and either mailed to LaMonica Herbst & Maniscalco, LLP, 3305 Jerusalem Avenue, Wantagh, New York 11793, attn. Holly Rai, Esq.; or (ii) emailed to Holly Rai, Esq. at hrai@lhmlawfirm.com. A copy of the Motion will also be posted on the following website: http://www.gcginc.com/cases/phs/. PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion must be in writing, conform with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, state with particularity the grounds therefor and be filed with the Bankruptcy Court no later than January 29, 4

2013, 2013 by 5:00 p.m. (prevailing Eastern Time) as follows: (I) through the Bankruptcy Court s electronic filing system, which may be accessed through the internet at the Bankruptcy Court s website at www.nyeb.uscourts.gov and in portable document format (PDF) using Adobe Exchange Software for conversion; or (II) if a party is unavailable to file electronically, such party shall submit the objection in PDF format on a diskette in an envelope with the case name, case number, type and title of document, document number to which the objection refers and the file name on the outside of the envelope. PLEASE TAKE FURTHER NOTICE, that the hearing on the Motion may be adjourned from time to time as set forth in open Court and without further notice by the Trustee. Dated: January 4, 2013 Wantagh, New York LaMONICA HERBST & MANISCALCO, LLP Counsel to Lori Lapin Jones, as Chapter 11 Trustee By: s/ Gary F. Herbst Gary F. Herbst, Esq. Holly Rai, Esq. 3305 Jerusalem Avenue, Suite 201 Wantagh, New York 11793 Telephone: (516) 826-6500 5

LaMONICA HERBST & MANISCALCO, LLP Counsel Lori Lapin Jones, as Chapter 11 Trustee 3305 Jerusalem Avenue Wantagh, New York 11793 Telephone: (516) 826-6500 Gary F. Herbst, Esq. Holly Rai, Esq. UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------------x In re: Chapter 11 PENINSULA HOSPITAL CENTER, et al., Case No.: 11-47056 (ESS) Case No.: 11-47985 (ESS) (Jointly-Administered) Debtors. -------------------------------------------------------------x CHAPTER 11 TRUSTEE S MOTION FOR ENTRY OF AN ORDER: (I) ESTABLISHING PRE-LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR SETTLEMENT OF DEMANDS FOR THE RECOVERY OF CERTAIN AVOIDANCE CLAIMS; (II) ESTABLISHING POST-LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR ADMINISTRATION AND SETTLEMENT OF CERTAIN AVOIDANCE CLAIMS; AND (III) SEGREGATING FUNDS FOR THE PAYMENT OF COUNSEL S CONTINGENCY FEES AND EXPENSES AND THE TRUSTEE S STATUTORY COMMISSIONS TO: HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE Lori Lapin Jones, as Chapter 11 Trustee (the Trustee ) of the estates of Peninsula Hospital Center ( PHC ) and Peninsula General Nursing Home Corp. d/b/a Peninsula Center for Extended Care & Rehabilitation ( PNH and, together with PHC, the Debtors ), by her general counsel, LaMonica Herbst & Maniscalco, LLP ( LH&M ), seeks the entry of an Order: (I) establishing prelitigation guidelines (the Pre-Litigation Guidelines ) in the PHC case for settlement of the Trustee s demands for the recovery of certain avoidance claims; (II) establishing post-litigation guidelines (the Post-Litigation Guidelines ) in the PHC case for the administration and settlement of certain avoidance claims; and (III) segregating funds for the payment of LH&M s contingency fees, 1

reimbursement of expenses and the Trustee s statutory commissions, and respectfully represents as follows: JURISDICTION AND VENUE 2. The Court has jurisdiction over these cases pursuant to 28 U.S.C. '' 157(a) and 1334. 3. Venue of these cases is proper pursuant to 28 U.S.C. ' 1408. 4. This is a core proceeding pursuant to 28 U.S.C. '' 157(b)(2)(A) and (O). 5. This Motion is made pursuant to Bankruptcy Code ' 105(a), and Bankruptcy Rules 2002, 7016, 9006 and 9019. PRELIMINARY STATEMENT 6. The Trustee and her professionals have reviewed certain pre-petition transfers that were made by PHC, and certain post-petition transfers that were made by PHC between August 16, 2011 and September 21, 2011 (collectively, the Avoidance Claims ). A preliminary analysis reflects millions of dollars in transfers during the pre- and post-petition periods. The Trustee determined in her business judgment that it would be more cost-effective and beneficial for PHC s estate if, in connection with the pursuit of the Avoidance Claims, certain guidelines in the PHC case were established both for the pre- and post-litigation pursuit of such claims. 7. To the extent practicable, the Trustee desires to resolve the Avoidance Claims in an efficient manner and, when possible, prior to commencing adversary proceedings. By this Motion the Trustee seeks to establish pre-litigation guidelines in the PHC case for settlement of the Trustee s demands for the Avoidance Claims. The Trustee submits that such guidelines will save expenses in the PHC case and time for the Court, the Trustee and Trustee s counsel. 2

8. By this Motion the Trustee also seeks to establish post-litigation administrative guidelines in the PHC case for the management and settlement of certain of the Avoidance Claims. Specifically, the Trustee requests that the Court: (a) authorize the Trustee to extend each defendant s time to answer, move or otherwise plead for up to an additional one hundred and twenty (120) days without further order of the Court; (b) limit the Trustee s noticing requirements under Bankruptcy Rule 2002 in any settling the Avoidance Claims; and (c) authorize the Trustee to settle certain Avoidance Claims, subject to the conditions set forth herein, without further order of the Court. Such post-litigation guidelines will enable the Trustee to more effectively and efficiently prosecute the Avoidance Claims after commencing adversary proceedings, which will maximize value for the creditors of PHC s estate. 9. Finally, the Trustee seeks authority to segregate funds for the payment of LaMonica Herbst & Maniscalco, LLP s contingency fees and expenses and the Trustee s statutory commissions. BACKGROUND 10. On August 16, 2011 ( PHC s Petition Date ), an involuntary petition for relief under Chapter 11 of the Bankruptcy Code was filed against PHC. 11. On September 19, 2011, PHC consented to entry of the order for relief under Chapter 11 of the Bankruptcy Code and, on that same day, PNH filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. 12. On September 21, 2011, the Court entered an order for relief under Chapter 11 of the Bankruptcy Code [Dkt. No. 42]. The Debtors cases are being jointly administered in accordance with an order of the Court [Dkt. No. 38]. 3

13. The Debtors operated their businesses and managed their properties as debtors-inpossession pursuant to Bankruptcy Code 1107 and 1108 until the Trustee was appointed. 14. By Notice of Appointment of Chapter 11 Trustee dated March 9, 2012, the Office of the United States Trustee appointed Lori Lapin Jones as the Chapter 11 Trustee of PHC s estate [Dkt. No. 471]. By Order dated March 9, 2012, the Court approved the appointment of Lori Lapin Jones as the Chapter 11 Trustee for the Chapter 11 Cases [Dkt. No. 476]. 15. By Amended Order dated October 5, 2012 [Dkt. No. 750], the terms of LH&M s employment were modified to provide that, in connection with the Trustee s pursuit of Avoidance Claims, LH&M would be paid on a contingent fee basis of 25% of actual recoveries received, whether by demand, suit or settlement, plus reimbursement of LH&M s actual and necessary out-ofpocket expenses. RELIEF REQUESTED AND BASIS FOR RELIEF 16. By this Motion, the Trustee seeks to establish certain pre- and post-litigation guidelines in connection with her pursuit of the Avoidance Claims in the PHC case. The Trustee also seeks authority to segregate funds for the payment of LH&M s contingency fees and expenses, and the Trustee s statutory commissions. Upon information and belief, approximately $8.2 million in payments were made by PHC in the ninety days prior to PHC s Petition Date. In addition, postpetition payments were also made that may be assailable. The Trustee anticipates sending demand letters and, if appropriate, commencing adversary proceedings in an effort to recover the Avoidance Claims. 4

I. The Proposed Pre-Litigation Guidelines 17. The Trustee seeks authority to enter into pre-litigation settlements under certain terms and conditions without further order of the Court. Providing the Trustee with limited discretionary authority to settle the pre-litigation Avoidance Claims within prescribed guidelines will limit the cost and time associated with obtaining settlements of the Avoidance Claims thereby maximizing the value of the Avoidance Claims to PHC s estate and its creditors. Accordingly, in order to serve the dual purposes of maximizing the value for the benefit of creditors and ensuring appropriate Bankruptcy Court oversight of the administration of these cases, the Trustee proposes specific settlement guidelines and procedures. 18. The Trustee proposes that she be authorized to enter into pre-litigation settlements of Avoidance Claims that fall within certain parameters (the Pre-Litigation Guidelines ), without obtaining further Court approval. The proposed Pre-Litigation Guidelines are as follows: a. The Trustee, in her discretion, may agree to settle, prior to the commencement of an adversary proceeding, any non-insider Avoidance Claim on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that the aggregate Avoidance Claim against the non-debtor does not exceed $50,000.00, net of contemporaneous or subsequent new value as defined in Bankruptcy Code 547(c)(1) and 547(c)(4) ( New Value ). b. With respect to a non-insider Avoidance Claim asserted by the Trustee that aggregates $50,001.00 to $150,000.00, net of New Value, the Trustee, in her discretion, may agree to settle such Avoidance Claim, prior to the commencement of an adversary proceeding, on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that such settlement requires payment of no less than 60% of the aggregate Avoidance Claims, net of New Value. c. No pre-litigation settlement will be entered into by the Trustee unless it is reasonable in the judgment of the Trustee upon consideration of: (i) the probability of success if the claim is litigated, (ii) the complexity, expense and likely duration of any litigation with respect to the claim, (iii) the difficulty in collection of any judgment, (iv) other 5

factors relevant to assessing the reasonableness of the settlement, and (v) the fairness of the settlement to PHC s estate and its creditors. d. Any settlement that falls outside the Pre-Litigation Guidelines must be approved by further order of the Court. The Trustee proposes to serve any motions to approve such settlements with a notice of hearing on at least twenty-one (21) days notice to: (i) the settling party and its counsel, if any; (ii) the Office of the United States Trustee; (iii) the Official Committee of Unsecured Creditors, through counsel; and (iv) all entities that filed a notice of appearance and request for service of documents in these cases. e. Any settlement of Avoidance Claims against an insider, as such term is defined in Bankruptcy Code 101(31), shall be brought before the Court for approval. f. No settlement will be effective unless it is executed by the Trustee and/or her counsel. 19. Notwithstanding the proposed Pre-Litigation Guidelines, the Trustee shall be entitled to seek approval of the Bankruptcy Court for the settlement of any pre-litigation Avoidance Claim. 20. Bankruptcy Code 105(a) grants bankruptcy courts broad authority and discretion to take such actions and implement such procedures as are necessary to enforce the provisions of the Bankruptcy Code. Bankruptcy Code 105(a) provides: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C. 105. 21. Bankruptcy Rule 9019(b) provides that [a]fter a hearing on such notice as the court may direct, the court may fix a class or classes of controversies and authorize the trustee to compromise or settle controversies within such class or classes without further hearing or notice. FED. R. BANKR. P. 9019(b). Thus, Bankruptcy Rule 9019(b) specifically authorizes the streamlining of settlements where there are a multitude of claims involved, as is the case here. 6

22. As set forth above, the Trustee also seeks a modification of Bankruptcy Rule 2002(a)(3) to limit the parties required to receive notice of any compromises or settlements with noninsiders that fall outside the Pre-Litigation Guidelines. Bankruptcy Rule 2002(a)(3) requires that all creditors receive at least twenty-one (21) days notice by mail of the hearing on approval of a compromise or settlement of a controversy... unless the court for cause shown directs that notices not be sent. FED. R. BANKR. P. 2002. The Trustee proposes that she be authorized and allowed to limit the notice requirements contained in Bankruptcy Rule 2002 to the following parties: (a) the settling party and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. 23. After careful analysis and consideration of the effectiveness of omnibus settlement guidelines used in other large cases, the Trustee submits that the approval of the proposed Pre- Litigation Guidelines is in the best interest of PHC s estate and its creditors. II. The Proposed Post-Litigation Guidelines 24. While the Trustee is hopeful that many of the Avoidance Claims may be resolved consensually without the need to commence litigation, the Trustee recognizes that certain Avoidance Claims will be pursued by commencing adversary proceedings. Accordingly, the Trustee also seeks to establish certain guidelines for the administration and settlement of the post-litigation Avoidance Claims (the Post-Litigation Guidelines ). 25. Specifically, the Trustee seeks an Order: a. Authorizing the Trustee to extend each defendant s time to answer, move or otherwise plead for up to an aggregate of an additional one hundred and twenty (120) 7

days without further order of the Court; b. Limiting the parties required to receive notice of any compromises under Bankruptcy Rule 2002(a)(3); and c. Authorizing the Trustee to settle certain post-litigation Avoidance Claims, subject to the conditions set forth below, without further order of the Court. 26. The Trustee submits that the proposed Post-Litigation Guidelines are appropriate and will substantially aid in the efficient administration of the adversary proceedings for the Trustee, the defendants and the Court. 27. Bankruptcy Rules 7016(a) and (b) afford courts flexibility in case management and scheduling. Specifically, Bankruptcy Rule 7016 authorizes courts to enter scheduling and other orders for the purposes of: expediting the disposition of the action; establishing early and continuing control so that the case will not be protracted because of lack of management; discouraging wasteful pretrial activities; and facilitating the settlement of the case. FED. R. BANKR. P. 7016. Similarly, Bankruptcy Rule 9006(b) allows the court, in its discretion and for cause shown, to enlarge the time for certain acts required to be completed pursuant to the Bankruptcy Rules. Moreover, Bankruptcy Code 105(a) grants bankruptcy courts broad authority and discretion to take such actions and implement such Guidelines as are necessary to enforce the provisions of the Bankruptcy Code. 28. The Trustee believes it would be more efficient to allow the Trustee to consent to short extensions of a defendant s time to answer (up to an aggregate of an additional one hundred and twenty days) without further order of the Court. Such flexibility will enhance the Trustee s ability to settle the post-litigation Avoidance Claims by allowing the Trustee to extend the answering deadline while good faith settlement negotiations are progressing, defendants are retaining counsel, 8

or for other good reasons without requiring intervention from the Court for orders approving each extension. 29. The Trustee also seeks a modification of Bankruptcy Rule 2002(a)(3) to limit the parties required to receive notice of any compromises or settlements. Bankruptcy Rule 2002(a)(3) requires that all creditors receive at least twenty-one (21) days notice by mail of the hearing on approval of a compromise or settlement of a controversy... unless the court for cause shown directs that notices not be sent. FED. R. BANKR. P. 2002. The Trustee proposes that she be authorized and allowed to limit the notice requirements contained in Bankruptcy Rule 2002 to the following parties: (a) the defendant or defendant s counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. 30. The Trustee believes that cause exists to limit the parties required to receive notice of any compromises. Here, there are more than one thousand creditors in these cases. Service of every motion on each of the Debtors creditors (along with all other interested parties) would be unduly burdensome and expensive. Moreover, the Trustee does not believe that any of the Debtors creditors substantive rights will be impaired because the proposed Order provides that the Trustee will cause a copy of the Order to be served upon all creditors, thereby affording them the opportunity to file a notice of appearance in these cases. 31. Finally, the Trustee proposes that the following will apply to the settlement of postlitigation Avoidance Claims: a. The Trustee, in her discretion, may agree to settle any post-litigation, non-insider Avoidance Claim on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its 9

creditors without further order of the Court, provided that the aggregate Avoidance Claim against the defendant does not exceed $50,000.00 net of New Value. b. With respect to any post-litigation, non-insider Avoidance Claim held by the Trustee that aggregates $50,001.00 to $150,000.00, net of New Value, the Trustee, in her discretion, may agree to settle such Avoidance Claim on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that such settlement requires payment from the defendant of no less than 60% of the aggregate Avoidance Claims, net of New Value. c. With respect to a post-litigation, non-insider Avoidance Claim where the amount in controversy aggregates $50,001.00 to $150,000.00, net of New Value, and the settlement is less than 60% of the aggregate amount in controversy, net of New Value, the Trustee may submit a fully-executed stipulation to the Court, which the Trustee will serve by notice of presentment (the Notice of Presentment ) on at least twenty-one (21) days notice to: (i) the defendant or defendant s counsel, if any; (ii) the Office of the United States Trustee; (iii) the Official Committee of Unsecured Creditors, through counsel; and (iv) all entities that filed a notice of appearance and request for service of documents in these cases. In the event a timely objection is received by the Trustee or the Court, a hearing to held before the Court. In the event no timely objections are received by the Trustee or the Court, the Trustee requests that the Court enter an Order approving the stipulation without further notice or hearing. d. With respect to a post-litigation, non-insider Avoidance Claim where the amount in controversy aggregates $150,001.00 to $400,000.00, net of New Value, the Trustee may submit to the Court the fully-executed stipulation with an application (the Rule 9019 Motion ) and proposed order seeking authorization and approval of the stipulation under Bankruptcy Rule 9019. The Trustee will serve the Rule 9019 Motion by notice of presentment on at least twenty-one (21) days notice to: (i) the defendant or defendant s counsel, if any; (ii) the Office of the United States Trustee; (iii) the Official Committee of Unsecured Creditors, through counsel; and (iv) all entities that filed a notice of appearance and request for service of documents in these cases. In the event a timely objection is received by the Trustee or the Court, a hearing to held before the Court. In the event no timely objections are received by the Trustee or the Court, the Trustee requests that the Court enter an Order approving the stipulation without further notice or hearing. e. Finally, with respect to a post-litigation, non-insider Avoidance Claim where the amount in controversy exceeds $400,001.00, net of New Value, the Trustee proposes to serve the fully-executed stipulation with a Rule 9019 Motion and a notice of hearing on at least twenty-one (21) days notice to: (i) the defendant or defendant s 10

counsel, if any; (ii) the Office of the United States Trustee; (iii) the Official Committee of Unsecured Creditors, through counsel; and (iv) all entities that filed a notice of appearance and request for service of documents in these cases. f. Any settlement of post-litigation Avoidance Claims against an insider, as such term is defined in Bankruptcy Code 101(31), shall be brought before the Bankruptcy Court for approval. g. Notwithstanding the proposed Post-Litigation Guidelines, the Trustee shall be entitled to seek approval of the Bankruptcy Court for the settlement of any postlitigation Avoidance Claim. 32. As set forth above, Bankruptcy Code 105(a) grants bankruptcy courts broad authority and discretion to take such actions and implement such procedures as are necessary to enforce the provisions of the Bankruptcy Code. Moreover, Bankruptcy Rule 9019(b) specifically authorizes the streamlining of settlements where there are a multitude of claims involved, as is the case here. 33. The Trustee believes that the proposed Post-Litigation Guidelines will maximize the potential recovery for PHC s estate and its creditors. Moreover, the proposed Post-Litigation Guidelines will enable the Trustee to settle certain of the adversary proceedings expeditiously, thereby conserving judicial resources. 34. For the reasons set forth above, the Trustee requests that the Court approve the Post- Litigation Guidelines. 11

III. Segregation Of Funds 35. As set forth above, by Amended Order dated October 5, 2012 [Dkt. No. 750], the terms of LH&M s employment were modified to provide that, in connection with the Trustee s pursuit of Avoidance Claims, LH&M would be paid on a contingent fee basis of 25% of actual recoveries received, whether by demand, suit or settlement, plus reimbursement of LH&M s actual and necessary out-of-pocket expenses. The Amended Order further provides, inter alia, that the Trustee shall segregate 25% of any Avoidance Claim recoveries, which will be designated exclusively for LH&M but payable subject to the procedures set forth herein. 36. By this Motion, the Trustee seeks authority to segregate funds for the payment of LH&M s contingency fees, reimbursement of expenses and the Trustee s statutory commissions with respect to the Avoidance Claims recoveries. Consistent with the Amended Order dated October 5, 2012, LH&M and the Trustee shall file final (or interim) applications for compensation/commissions and reimbursement of expenses in accordance with Federal Rule of Bankruptcy Procedure 2016(a), and Local Bankruptcy Rules 2016-1 and 2016-2. CONCLUSION 37. This Motion will be served by regular mail upon: (a) the Office of the United States Trustee; (b) the Official Committee of Unsecured Creditors, through counsel; (c) the New York State Department of Health; (d) JPMorgan Chase Bank, N.A., through counsel; (e) 1199SEIU National Benefit Fund for Health and Human Service Employees, 1199SEIU Heath Care Employees Pension Fund, League/1199SEIU Training and Upgrading Fund, and League/1199SEIU Health Care Industry Job Security Funds, through counsel; (f) Revival Funding Co., LLC, through counsel; (g) the Patient Care Ombudsman, through counsel; (h) the New York State Attorney General; (i) the Office of the 12

United States Attorney; (j) all parties who filed a notice of appearance in these cases; and (k) applicable taxing authorities. Court. 38. No previous request for the relief herein has been made to this Court or any other WHEREFORE, the Trustee respectfully requests that the Court enter the proposed Order, substantially in the form that is Exhibit A, and grant the Trustee such additional and further relief as the Court deems just and proper. Dated: January 4, 2013 Wantagh, New York LaMONICA HERBST & MANISCALCO, LLP Counsel to Lori Lapin Jones, as Chapter 11 Trustee By: s/ Gary F. Herbst Gary F. Herbst, Esq. Holly Rai, Esq. 3305 Jerusalem Avenue, Suite 201 Wantagh, New York 11793 Telephone: (516) 826-6500 13

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------------x In re: Chapter 11 PENINSULA HOSPITAL CENTER, et al., Case No.: 11-47056 (ESS) Case No.: 11-47985 (ESS) (Jointly-Administered) Debtors. -------------------------------------------------------------x ORDER: (I) ESTABLISHING PRE-LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR SETTLEMENT OF DEMANDS FOR THE RECOVERY OF CERTAIN AVOIDANCE CLAIMS; (II) ESTABLISHING POST- LITIGATION GUIDELINES IN THE PENINSULA HOSPITAL CENTER CASE FOR ADMINISTRATION AND SETTLEMENT OF CERTAIN AVOIDANCE CLAIMS; AND (III) SEGREGATING FUNDS FOR THE PAYMENT OF COUNSEL S CONTINGENCY FEES AND EXPENSES AND THE TRUSTEE S STATUTORY COMMISSIONS UPON the motion (the Motion ) of Lori Lapin Jones, as Chapter 11 Trustee (the Trustee ) of the estates of Peninsula Hospital Center ( PHC ) and Peninsula General Nursing Home Corp. d/b/a Peninsula Center for Extended Care & Rehabilitation, by her general counsel, LaMonica Herbst & Maniscalco, LLP, seeking the entry of an Order: (I) establishing prelitigation guidelines (the Pre-Litigation Guidelines ) in the PHC case for settlement of the Trustee s demands for the recovery of certain avoidance claims; (II) establishing post-litigation guidelines (the Post-Litigation Guidelines ) in the PHC case for the administration and settlement of certain avoidance claims; and (III) segregating funds for the payment of LH&M s contingency fees, reimbursement of expenses and the Trustee s statutory commissions; and adequate notice of the Motion having been given; and the hearing on the Motion having been held on February 5, 2013 at 10:30 a.m.; and the Trustee, through her counsel, having appeared at the hearing on the Motion; and no objections having been filed with respect to the Motion; and sufficient cause having been shown therefore; and upon due deliberation and consideration of the

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13 facts and circumstances relevant to the matter; and no additional notice being necessary or required; it is now hereby ORDERED, that any settlement of Avoidance Claims against an insider, as such term is defined in Bankruptcy Code 101(31), shall be brought before the Court for approval; and, it is further ORDERED, that the Pre-Litigation Guidelines are approved and the Trustee is authorized to settle pre-litigation, non-insider Avoidance Claims as follows: i. The Trustee may settle, prior to the commencement of an adversary proceeding, non-insider Avoidance Claims on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that the aggregate avoidance claim against the non-insider does not exceed $50,000.00, net of contemporaneous or subsequent New Value. ii. iii. iv. With respect to a non-insider Avoidance Claim held by the Trustee that aggregates $50,001.00 to $150,000.00, net of New Value, the Trustee may settle such Avoidance Claim, prior to the commencement of an adversary proceeding, on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that such settlement requires payment of no less than 60% of the aggregate avoidance claims, net of New Value. No pre-litigation settlement will be entered into by the Trustee unless it is reasonable in the judgment of the Trustee upon consideration of: (a) the probability of success if the claim is litigated, (b) the complexity, expense and likely duration of any litigation with respect to the claim, (c) the difficulty in collection of any judgment, (d) other factors relevant to assessing the reasonableness of the settlement, and (e) the fairness of the settlement to PHC s estate. Any settlement that falls outside the Pre-Litigation Guidelines must be approved by further Order of the Court upon a motion of the Trustee, provided that the Trustee is authorized to serve notice of motions to approve such settlements with a notice of hearing on at least twenty-one (21) days notice to: (a) the settling party and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases.

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13 v. No settlement will be effective unless it is executed by the Trustee and/or her counsel. and, it is further ORDERED, that, with respect to post-litigation, non-insider Avoidance Claims, the Trustee is authorized (but not required) to extend each defendant s time to answer, move or otherwise plead for up to an aggregate of an additional one hundred and twenty (120) days without further order of the Court; and, it is further ORDERED, the that the Post-Litigation Guidelines are approved and the Trustee is authorized to settle post-litigation, non-insider Avoidance Claims as follows: i. The Trustee, in her discretion, may settle any non-insider, post-litigation Avoidance Claim on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that the aggregate Avoidance Claim against the defendant does not exceed $50,000.00 net of New Value. ii. iii. iv. With respect to a non-insider, post-litigation Avoidance Claim held by the Trustee that aggregates $50,001.00 to $150,000.00, net of New Value, the Trustee, in her discretion, may settle such Avoidance Claim on any reasonable terms and may enter into, execute and consummate a settlement agreement that will be binding on PHC s estate and its creditors without further order of the Court, provided that such settlement requires payment from the defendant of no less than 60% of the aggregate Avoidance Claims, net of New Value. With respect to a non-insider, post-litigation Avoidance Claim where the amount in controversy aggregates $50,001.00 to $150,000.00, net of New Value, and the settlement is less than 60% of the aggregate amount in controversy, net of New Value, the Trustee may submit a fully-executed stipulation to the Court, which the Trustee will serve by Notice of Presentment on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. In the event a timely objection is received by the Trustee or the Court, a hearing to held before the Court. In the event no timely objections are received by the Trustee or the Court, the Court may enter an Order approving the stipulation without further notice or hearing. With respect to a non-insider, post-litigation Avoidance Claim where the amount in controversy aggregates $150,001.00 to $400,000.00, net of New Value, the

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13 Trustee may submit to the Court the fully-executed stipulation with a Rule 9019 Motion and proposed order seeking authorization and approval of the stipulation under Bankruptcy Rule 9019. The Trustee will serve the Rule 9019 Motion by notice of presentment on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. In the event a timely objection is received by the Trustee or the Court, a hearing to held before the Court. In the event no timely objections are received by the Trustee or the Court, the Court may enter an Order approving the stipulation without further notice or hearing. v. With respect to a non-insider, post-litigation Avoidance Claim where the amount in controversy exceeds $400,001.00, net of New Value, the Trustee may serve a fully-executed stipulation with a Rule 9019 Motion and a notice of hearing on at least twenty-one (21) days notice to: (a) the defendant and its counsel, if any; (b) the Office of the United States Trustee; (c) the Official Committee of Unsecured Creditors, through counsel; and (d) all entities that filed a notice of appearance and request for service of documents in these cases. vi. Notwithstanding anything contained herein, the Trustee may seek approval of the Bankruptcy Court for the settlement of any post-litigation Avoidance Claim. and, it is further ORDERED, that, upon collection, the Trustee shall segregate from any Avoidance Claim recoveries: (i) 25% for LH&M s contingency fee in accordance with the Amended Order dated October 5, 2012 [Dkt. No. 750]; (ii) LH&M s out-of-pocket expenses in accordance with the Amended Order dated October 5, 2012 [Dkt. No. 750]; and (iii) 3% of the gross Avoidance Claim recovery for the Trustee s statutory commissions, which funds will be designated exclusively for LH&M and the Trustee; and, it is further ORDERED, that, notwithstanding anything contained herein, LH&M and the Trustee shall apply for interim or final compensation and reimbursement of expenses in accordance with 328, 330 and 331 of the Bankruptcy Code, applicable provisions of the Bankruptcy Rules, the Local Bankruptcy Rules for the Eastern District of Ne w York, the guidelines established by the United States Trustee, and such procedures as fixed by Order of the Court; and, it is further

Case 1-11-47056-ess Doc 868-1 Filed 01/04/13 Entered 01/04/13 15:21:13 ORDERED, that the Trustee shall cause a copy of this Order to be served upon all known creditors of the Debtors within fourteen (14) days of the date of this Order, and cause proof of such service to be filed with the Court; and, it is further ORDERED, that the Court shall retain jurisdiction to hear and determine all matters arising from the implementation and performance of this Order.