15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 1 of 7 UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TEXAS EL PASO DIVISION IN RE: EL PASO CHILDREN S HOSPITAL CASE NO. 15-30784-hcm CORPORATION, DEBTOR. CHAPTER 11 OFFICE OF THE TEXAS ATTORNEY GENERAL S RESPONSE IN SUPPORT OF DEBTOR S EMERGENCY MOTION TO COMPEL MEDIATION [Relates to Docket No. 5] COMES NOW, the Office of the Texas Attorney General, files its Response ( Response ) in Support of Debtor s Emergency Motion to Compel Mediation [Dkt. No. 5] (the Motion ), and in support hereof respectfully states as follows: I. PRELIMINARY STATEMENT 1. The Office of the Texas Attorney General files this Response to voice its support for mediation between the Debtor and El Paso County Hospital District d/b/a University Medical Center of El Paso ( UMC ), and requests that a representative of the Texas Attorney General, and/or its client agencies as set forth below, be allowed to attend any mediation as an observer 1 and suggest that retired United States Bankruptcy Judge Leif M. Clark continue to serve as mediator in this case, subject to his willingness to do so, given his intimate familiarity with the facts of this case from presiding over a previous full-day mediation in this matter and his extensive experience in handling complex bankruptcy issues. Debtor has requested that the mediation be 1 At this time, the Texas Attorney General represents the Texas Department of State Health Services (regulatory agency charged with oversight of hospitals), the Texas Health and Human Services Commission (Medicaid) and the Texas Tech University System. The Texas Attorney General is currently evaluating its potential role in this case on behalf of the public interest in charities in light of the Debtor s status as an independent non-profit 501(c)(3) corporation. As a result, the Texas Attorney General requests to attend any mediation as an observer.
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 2 of 7 binding. See Debtor s Motion, Docket Number 5, at 17. Further, while the Texas Attorney General does not represent UMC, the Texas Attorney General expresses concern about any governmental, or quasi-governmental, entity having the lawful ability to agree to a binding mediation given, inter alia, open meetings laws and other regulatory requirements to which that entity may be subject. Accordingly, the Texas Attorney General respectfully requests the Court allow a nonbinding mediation to proceed in accordance with the concerns expressed herein. II. FACTUAL BACKGROUND 2. The Debtor is an independent non-profit 501(c)(3) corporation that is governed by a board of directors, the sole mission of which has been to provide pediatric care to the children of El Paso and surrounding areas. The Debtor s primary operations have consisted of owning and operating a 122-bed children s hospital in El Paso, Texas whose current census, upon information and belief, is approximately forty-two (42). 3. Upon information and belief, El Paso County Hospital District d/b/a University Medical Center of El Paso ( UMC ) is an existing hospital district. Upon information and belief, since February 2012, the Debtor and UMC have had a relationship under a number of agreements whereby the Debtor leases hospital space consisting of four floors of a 10-story tower on the campus of UMC in El Paso and conducts operations. As alleged by the Debtor, the multiple agreements (hereinafter, collectively the Agreements ) 2 govern the relationship between UMC and the Debtor on nearly every aspect of the Debtor s operations. 4. On May 19, 2015 (the Petition Date ), the Debtor filed its voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. 101, et seq. (the 2 The Debtor s Adversary Complaint against UMC may be consulted for a more complete discussion of the Agreements between the Debtor and UMC. See Docket Number 13, at pp.4 8 and attached copies of the Agreements. 2
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 3 of 7 Bankruptcy Code ). The Debtor is a debtor-in-possession pursuant to 1107(a) and 1108 of the Bankruptcy Code. 5. Also on the Petition Date, the Debtor filed an Adversary Complaint and Application for Injunctive Relief against UMC [Dkt. No. 13] wherein the Debtor asserts myriad bankruptcy claims pursuant to 547, 548 and 550 against UMC, stemming from the alleged avoidability of UMC s purported preferential lien filing against the Debtor and from obligations allegedly taken on by the Debtor at the insistence of UMC for purportedly inadequate consideration. Further, the Debtor seeks injunctive relief to prevent UMC from moving forward with any assertion that the various Agreements between the Debtor and UMC terminated prior to the Petition Date. Finally, the Debtor also seeks a declaratory judgment under both federal and Texas law concerning UMC purportedly obligating the Debtor to make allegedly overpriced rental payments for its use of its premises on the UMC campus despite the Debtor s continued provision of medical services to El Paso s indigent pediatric population. 6. As alleged in the Debtor s Motion [Dkt. No. 5], since July 2014, the Debtor and UMC have purportedly engaged in various negotiations regarding the Debtor s and UMC s respective issues under the Agreements. 7. Upon information and belief, in February 17, 2015, the Debtor and UMC (collectively, the Parties ) engaged in a half-day mediation which allegedly nearly resulted in an agreement but, upon information and belief, failed to do so when UMC purportedly declined to continue the mediation past the initial setting in order to resolve the remaining issues. 8. Upon information and belief, after the initial mediation did not result in any agreement, the Parties continued negotiations and UMC and the Debtor each presented one another with proposed term sheets on February 23rd and February 25, 2015, respectively. 3
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 4 of 7 9. Upon information and belief, the Parties then participated in a second, full-day, mediation with retired United States Bankruptcy Judge Leif M. Clark, which purportedly resulted in an agreement that was signed by both parties and subsequently approved by the Board of Managers of UMC as well as the El Paso County Commissioners Court. Upon information and belief, however, the Parties failed to reach a settlement and the agreed-upon closing date of April 30, 2015 passed without any final agreement being reached before the Petition Date. 10. On the Petition Date of May 19, 2015, the Debtor filed its Motion requesting that mediation between the Parties be compelled [Dkt. No. 5]. In its Motion, the Debtor requests that a sitting or former Bankruptcy Judge serve as mediator [Id. at 16]. Further, the Debtor requests that attendance at the proposed mediation be limited to a single representative of the Debtor and UMC with full authority to settle the case [Id. at 17]. Finally, the Debtor requests that mediation be binding upon the Debtor and UMC, subject to approval by the Commissioner s Court [Id.]. 11. Since the Petition Date, numerous Texas regulatory and other agencies have requested representation from the Texas Attorney General including the Texas Department of State Health Services (regulatory agency charged with oversight of hospitals), the Texas Health and Human Services Commission (Medicaid) and the Texas Tech University System. See supra note 1. Given the numerous interests of the Texas Attorney General which are still in the process of being fully explored, the Texas Attorney General applauds the Debtor s efforts to conserve the resources of the non-profit Debtor through mediation between the Parties and accordingly believes that mediation is in the best interests of creditors and the estate. III. ARGUMENT AND AUTHORITIES 12. As alleged in the Debtor s Motion, the Court has the authority to order the participation of the Debtor and UMC in mediation under the Bankruptcy Code, applicable case 4
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 5 of 7 law, and the Local Rules of the United States Bankruptcy Court for the Western District of Texas. See Debtor s Motion, Docket Number 5, at 13 15. 13. Upon information and belief, former United States Bankruptcy Judge Leif M. Clark is intimately familiar with the facts and issues of this case from his experience serving as mediator in the second full-day mediation between the Debtor and UMC in late-february 2015. Given the numerous complex legal and factual issues and the sensitive nature of this case, rather than reinvent the wheel by directing another mediator, the Texas Attorney General respectfully contends that the Court should appoint Judge Clark to preside over any mediation, subject to his willingness to do so, in light of his experience in handling complex bankruptcy matters and intimate understanding of this case. 14. Further, while the Texas Attorney General does not represent the quasigovernmental entities involved in the dispute between the Debtor and UMC, the Texas Attorney General respectfully requests that it, and/or a representative of its client agencies, be allowed to attend any mediation as an observer so that the Texas Attorney General can further inform its position on these important public matters. IV. RELIEF REQUESTED 15. WHEREFORE, PREMISES CONSIDERED, the Texas Attorney General requests that the Court enter an order compelling nonbinding mediation between the Debtor and UMC before retired United States Bankruptcy Judge Leif M. Clark and that the Office of the Texas Attorney General, and/or a representative of its client agencies, be authorized to attend as an observer. 5
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 6 of 7 Dated: June 2, 2015. RESPECTFULLY SUBMITTED, KEN PAXTON Attorney General of Texas CHARLES E. ROY First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation RONALD R. DEL VENTO Assistant Attorney General Chief, Bankruptcy & Collections Division /s/ Hal F. Morris HAL F. MORRIS Texas State Bar No. 14485410 ASHLEY F. BARTRAM Texas State Bar No. 24045883 CHRISTOPHER S. MURPHY Texas State Bar No. 24079031 Assistant Attorneys General Bankruptcy & Collections Division P. O. Box 12548 Austin, Texas 78711-2548 P: (512) 463-2173/F: (512) 936-1409 hal.morris@texasattorneygeneral.gov ashley.bartram@texasattorneygeneral.gov christopher.murphy@texasattorneygeneral.gov ATTORNEYS FOR THE TEXAS DEPARTMENT OF STATE HEALTH SERVICES, TEXAS HEALTH AND HUMAN SERVICES COMMISSION, AND TEXAS TECH UNIVERSITY SYSTEM 6
15-30784-hcm Doc#52 Filed 06/02/15 Entered 06/02/15 12:15:40 Main Document Pg 7 of 7 CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing document has been served via the Court s Electronic Filing System on all parties requesting notice in this proceeding and that copies were mailed to the counsel and parties listed below, via first class U.S. Mail, postage prepaid, on June 2, 2015: El Paso Children s Hospital Corporation 4845 Alameda Avenue El Paso, Texas 79905-2705 Debtor Office of the United States Trustee P.O. Box 1539 San Antonio, Texas 78295-1539 Patricia Baron Tomasco Jennifer Francine Wertz Jackson Walker, LLP 100 Congress Avenue, Suite 1100 Austin, Texas 78701 Debtor s Counsel A courtesy copy was sent contemporaneously via electronic mail to the following counsel: Patricia Baron Tomasco, ptomasco@jw.com Jennifer Francine Wertz, jwertz@jw.com Louis R. Strubeck, Jr., louis.strubeck@nortonrosefulbright.com U.S. Trustee's Office/Kevin Epstein, USTPRegion07.SN.ECF@usdoj.gov /s/ Hal F. Morris HAL F. MORRIS Assistant Attorney General 7