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United States v. Vanguard Healthcare, LLC

United States District Court, M.D. Tennessee, Nashville Division

March 13, 2017

UNITED STATES OF AMERICA and STATE OF TENNESSEE, Plaintiffs,
v.
VANGUARD HEALTHCARE, LLC, VANGUARD HEALTHCARE SERVICES, LLC, BOULEVARD TERRACE, LLC, VANGUARD OF CRESTVIEW, LLC, GLEN OAKS, LLC, IMPERIAL GARDENS HEALTH AND REHABILITATION, LLC, VANGUARD OF MEMPHIS, LLC, VANGUARD OF MANCHESTER, LLC, and MARK MILLER, Defendants.

          MEMORANDUM

          KEVIN H. SHARP, UNITED STATES DISTRICT JUDGE

         Contemporaneously with the filing of a 268-paragraph, 59-page Complaint, Plaintiffs, the United States of America and the State of Tennessee, filed a “Joint Motion for an Order That Their Pending False Claims Act Civil Action is Legally Excepted From the Automatic Stay in Bankruptcy” (Docket No. 2). Defendants oppose that Motion (Docket No. 18). Also pending is Defendants' “Motion to Stay Response to Plaintiffs' Complaint” (Docket No. 10), which Plaintiffs do not oppose (Docket No. 18). Both Motions will be granted.

         I. Background

         As the title of Plaintiffss Motion suggests, this is primarily a False Claims Act case brought pursuant to 31 U.S.C. §§ 3729-3733. In its simplest form, Plaintiffs allege that five nursing homes operated by Defendants knowingly billed Medicare and TennCare for grossly substandard services that resulted in improper care and severe physical and emotional harm to the nursing home residents. Plaintiffs also allege that four of those nursing homes and another one submitted pre-admission evaluations to TennCare that contained forged and/or photocopied signatures.

         The allegations were investigated by the Tennessee Bureau of Investigation and the United States Department of Health and Human Services. Plaintiffs claim that, after conversations with counsel for most of the Defendants, a formal meeting was scheduled in which Plaintiffs intended to present their findings. However, that meeting did not take place because the corporate Defendants filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.

         II. Discussion

         “As a general rule, the filing of a bankruptcy petition operates to stay, among other things, the continuation of a judicial proceeding against the debtor that was commenced before the petition.” Dominic's Rest. of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012). It also operates to stay “the commencement . . . of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy] case . . . or to recover a claim against the debtor that arose before the commencement of the bankruptcy case.” 11 U.S.C. § 361(a)(1).

         “The purpose of the automatic stay is to ‘give[ ] the debtor a breathing spell from his creditors.'” In re Robinson, 764 F.3d 554, 559 (6th Cir. 2014) (citation omitted). Thus,

[i]t stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

Id. “In effect, the stay offers debtors a ‘new opportunity' to organize their financial affairs, ‘unhampered by the pressure and discouragement of pre-existing debt.'” Id. (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).

         “But the automatic stay protection does not apply in all cases; there are statutory exemptions, and there are non-statutory exceptions.” Dominic's Rest., 683 F.3d at 760. Thus, while the automatic stay “‘repel[s] . . . many prepetition collection actions, [s]ome governmental attacks on the estate . . . penetrate the barrier.'” In re Robinson, 764 F.3d at 559 (quoting In re Javens, 107 F.3d 359, 363 (6th Cir. 1997)).

         One such exception for a governmental attack, and the one on which Plaintiffs rely, deals with the enforcement of police or regulatory powers. More specifically, the Bankruptcy Code provides that the filing of a petition does not operate as a stay of

the commencement or continuation of an action or proceeding by a governmental unit or any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, opened for signature on January 13, 1993, to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or ...

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