Opinion
Case No. 17-13797-B-9
04-27-2021
In re TULARE LOCAL HEALTHCARE DISTRICT, Debtor.
Grant Lien, Deputy Attorney General of California, Sacramento, CA, for the Department of Health Care Services, Creditor. Riley C. Walter, WANGER JONES HELSLEY, PC, Fresno, CA, for Tulare Local Health Care District, dba Tulare Regional Medical Center, Debtor.
NOT FOR PUBLICATION DC No. GL-1
MEMORANDUM DECISION ON CREDITOR DEPARTMENT OF HEALTH CARE SERVICES' MOTION FOR LEAVE TO FILE AMENDED CLAIM 197
Before: René Lastreto II, Bankruptcy Judge
Grant Lien, Deputy Attorney General of California, Sacramento, CA, for the Department of Health Care Services, Creditor. Riley C. Walter, WANGER JONES HELSLEY, PC, Fresno, CA, for Tulare Local Health Care District, dba Tulare Regional Medical Center, Debtor. RENÉ LASTRETO II, Bankruptcy Judge:
INTRODUCTION
To receive payments on allowed claims provided by a Chapter 9 Plan of Adjustment under the Bankruptcy Code, the creditor must file a proof of claim on the approved form. Filed claims can be amended. The question here is "when?"
Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to as "Civ. Rule."
In the Ninth Circuit, amendments to claims are "liberally" allowed unless leave to amend would prejudice an opposing party. "Prejudice," though, means more than having to litigate about or pay the claim.
The California Department of Health Care Services ("DHCS") timely filed a proof of claim on the approved form in the Tulare Local Health Care District's ("District") Chapter 9 case. But the claim stated the amount was "[u]ndetermined at this time." After District objected to allowance of the claim, filed a Disclosure Statement and Plan of Adjustment, obtained court approval of the Disclosure Statement, served the Disclosure Statement and Plan, District's creditors voted to overwhelmingly support the Plan, and the court confirmed the Plan, DHCS filed a motion to amend the claim from "undetermined" to $5,520,423.33.
DHCS had many reasons for the delay in specifying the claim amount. The court considered those and the prejudice District, its creditors, and other constituencies would experience if leave to amend was granted. Based on the evidence and status of the Chapter 9 case, the court DENIES the motion for leave to amend.
FACTS
Background
Since 2002, District was a participant in a program administered by DHCS providing supplemental reimbursement to qualified health providers for outpatient services rendered to Medi-Cal patients. Doc. 2260. Annually, District provided cost reports to DHCS for eligible outpatient services. Doc. 1513. Under California's reimbursement plan, DHCS should annually reconcile District's cost reports with settled/audited cost reports. After reconciliation, any underpayment or overpayment is to be reflected annually in DHCS's supplemental payment to the participating provider under the program. Doc. 2260.
Though District submitted its reports annually, no reconciliation followed. Docs. 1513, 2397. That is until after this case was filed, a claim deadline imposed, and District objected to DHCS's claim - over sixteen years after the reimbursement program began.
Why? Because, DHCS says, as of April 2018 (when it filed its proof of claim 197 in an "undetermined" amount) "final reconciliations [were] still pending." Also, DHCS says "the reconciliation process is inherently complicated and necessarily time consuming." Doc. 2259. Time is consumed because interim payments to District (and other providers) are calculated using "cost-to-charge ratios" from provider cost reports and Medi-Cal Fee-for-Service ("FFS") charges. Id. But final reconciliations require audited cost reports and FFS charges and payments reconciled from the State's "internal Medicaid Management Information System ("MMIS")." Id.
Decl. Shiela Mendiola, attach. to proof of claim 197. Then, Ms. Mendiola was "Section Chief of Medi-Cal Supplemental Payment Section, Staff Services Manager II, for the Safety New Financing Division of . . . [DHCS]."
DHCS "experienced difficulties" during this sixteen-year period due to: "difficulties in extracting [outpatient fee-for-service] charges and revenues from MMIS;" "workforce reductions;" and "inefficiencies with workflow logistics, some of which lasted for years." Id.
Once DHCS "developed the necessary framework for extracting the data, additional nuances needed to be addressed." DHCS had to determine the amount of provider cost associated with professional services by using all providers' MMIS data so it could be excluded. This proved to be "difficult" and led to further delays. Id.
Meanwhile, beset with many financial and other problems complicated by its former management arrangement, District filed this Chapter 9 case September 30, 2017. Less than three months later, DHCS was added to the creditor list. After entering an order for relief, the court issued an order setting the claims bar date for April 10, 2018. Doc. 377.
Thirteen months later, District filed its Plan of Adjustment and Disclosure Statement. Docs. 1440, 1441. The Disclosure Statement said allowed unsecured claims would be between $16.5 million and $26 million held by about 250 claimants. Doc. 1441. In a footnote, District explained the wide range of estimated claim amounts was due to disputed government reimbursement claims. District said it "believed" that after the audits are completed within two to three years, the overpayment claims will be eliminated. "Other reductions may be achieved through objections to claims and pending or to be filed." Id.
In August 2019, the Plan of Adjustment was confirmed. Doc. 1618. The success of District's reorganization hinged on two major conditions. First, District needed to lease most of its facilities. They did. Adventist Health is the lessee and is operating the hospital and accompanied facilities. Second, certain loans needed to be repaid which facilitated restructuring of some of District's bond debt. District managed that as well.
DHCS was served all the ballot solicitation materials on July 9, 2019. Doc. 1545 at 11. DHCS did not return a ballot or participate in the solicitation process. Docs. 1593-97. Further, DHCS did not object to plan confirmation.
Cash flow from the lease payments and other sources under the plan permit District to attend to certain deferred maintenance projects and other needs. Under the Plan, the unsecured creditor class (class 8) is to receive between 19.2% and 30.3% distributions on allowed claims over five years. But payments do not begin until 2025. Chapter 9
A word about Chapter 9. This chapter of the Bankruptcy Code is available only to "municipalities" as defined in 11 U.S.C. § 101 (40). District is a municipality. This chapter permits reorganization of municipalities and represents a careful application of reorganization policies under bankruptcy law. Care is necessary because of the constitutional limitation on Federal "interference" with state governments.
Very similar to Chapter 11, Chapter 9 incorporates many provisions of the Bankruptcy Code. A list of applicable sections is found in 11 U.S.C. § 901 (a). Among those incorporated are the provisions dealing with filing and allowance of claims. Both §§ 501 and 502 are incorporated entirely.
That said, there are provisions of both sections that are inapplicable such as those dealing with filing and allowance of "interests" - no "interests" are involved in Chapter 9 - and claims arising during "the involuntary gap" - municipalities cannot be involuntary debtors. See Richard Levin and Henry J. Sommer, eds. 6 Collier on Bankruptcy ¶ 901.04 [11], [12] (16th ed. Matthew, Bender, 2021).
For our purposes, existing jurisprudence about claims and amendments involving other chapters of the Bankruptcy Code is largely applicable. This will become evident throughout the analysis. DHCS's Claim
DHCS filed a claim in April 2018 before the bar date. The claim is in an "undetermined amount." Claim 197 states it is for "overpayment of supplemental reimbursement under Medi-Cal." It is accompanied by the declaration of Shiela Mendiola, the Branch Chief of Provider Payments and Policy, which states, in part, that final reconciliations are still pending for "all program years beginning in State Fiscal Year 2002-2003 until the bankruptcy filing in September 2017."
DHCS filed other claims as well. All of them have been withdrawn or disallowed. The only remaining claim is the subject of this motion.
A month and one half before the Plan confirmation, District filed an objection to the claim. Reserving any other grounds for objection, District contended first the claim should be disallowed because it did not specify an amount, and second, District promptly provided all information for DHCS to liquidate the claim. After agreed continuances, DHCS opposed the claim objection and filed its first motion to amend the claim to assert a liquidated amount: over $5.5 million. This first motion, filed two years after the claim filing deadline, was denied for procedural reasons.
WJH-4. District did not file a notice of hearing on its objection until several months later. Doc. 1948.
Finally, in late August 2020 this motion was filed. Following agreed upon continuances to accommodate discovery, the matter was argued and submitted to the court on March 30, 2021. Summary of Contentions
Neither party elected to nor reserved the right to present live testimony under Local Rule of Practice 9014-1 (f) (1) (B), (C). So, each party is deemed to have factual issues resolved under Civ. Rule 43 (c). Rule 9017.
DHCS contends it is merely adding "greater particularity" to its already timely filed proof of claim. Under the Ninth Circuit's "liberal standard" for claim and pleading amendments, the liquidation of the claim from "undetermined" to $5.5 million is allowed. Under its legal framework, DHCS argues, it has three years to complete its audit and did not delay in finalizing the reconciliations. Further, DHCS has established reasons for the delay in reconciliations.
District urges the court adopt the standard in the Seventh and Eleventh Circuits that claim amendments at this stage should only be allowed for "compelling reasons" or under "compelling circumstances." DHCS has not met this standard, District concludes, so the amendment should be disallowed. Also, District claims DHCS had all the information necessary to provide a liquidated amount long before Plan confirmation. At any rate, the District urges, permitting this amendment will hamper any reorganization effort and is harmful to the integrity of the reorganization process. Allowing the amendment now, District adds, will significantly prejudice unsecured creditors because they will receive over 20% less than they would have otherwise received.
JURISDICTION
The United States District Court for the Eastern District of California has jurisdiction over this proceeding since it arises in a case under Title 11 of the United States Code under 28 U.S.C. § 1334 (b). This court has jurisdiction to hear and determine this matter by reference from the District Court under 28 U.S.C. § 157 (a). This is a "core" proceeding under 28 U.S.C. §§ 157 (b) (2) (A) and (B).
DISCUSSION
I.
Whether to allow an amendment to a timely filed proof of claim is within the discretion of the bankruptcy court. In re Roberts Farms, Inc., 980 F.2d 1248, 1251 (9th Cir. 1992); Venhaus v. Wilson (In re Wilson), 96 B.R. 257, 262 (B.A.P. 9th Cir. 1988). A bankruptcy court abuses its discretion if it applies an incorrect legal standard or its factual findings are illogical, implausible, or without support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).
The Ninth Circuit's standard for allowing claim amendments is often characterized as "liberal." That is an overstatement. Even under that "liberal" standard, Ninth Circuit courts look to whether the opposing party would be "unduly prejudiced" by the amendment. Roberts Farms, 980 F.2d at 1251. "[I]n determining prejudicial effect [we] look to such elements as bad faith or unreasonable delay in filing the amendment, impact on other claimants, reliance by the debtor or other creditors, and change of the debtor's position." Id. at 1251-52 quoting Wilson, 96 B.R. at 262.
A.
The court declines District's invitation to adopt the "compelling reason" or "compelling circumstance" standard of the Seventh and Eleventh Circuits in considering claim amendments.
First, neither the Seventh Circuit's Holstein v. Brill, 987 F.2d 1268 (7th Cir. 1993) nor the Eleventh Circuit's IRT Partners v. Winn-Dixie Stores, Inc. (In re Winn-Dixie Stores, Inc.), 639 F.3d 1053 (11th Cir. 2011) are controlling in this circuit. Neither decision cites nor distinguishes Roberts Farms. The dissent in Holstein does cite Roberts Farms and Wilson to urge remand of the case to bankruptcy court for explanation of the reasons for allowing the amendment. Holstein, 987 F.2d at 1271 (Ripple, J., dissenting).
Second, neither Winn-Dixie nor Holstein have been cited in the Ninth Circuit as stating a more workable test for considering post-confirmation claim amendments than Roberts Farms. Winn-Dixie, as far as the court can tell, has never been cited in the Ninth Circuit. Holstein has been cited twice - in a published and unpublished decision. Neither case examined Roberts Farms and each referenced Holstein as considering various "benchmarks" (including the claims bar date and plan confirmation in Chapter 11) when proposed claim amendments should be more carefully scrutinized. Konop, 386 B.R. at 258; Leap Wireless, 2005 Bankr. LEXIS 3300 at *7.
Fed. Tax Id. Nos. 33-0811062 v. Office of State Assessed Props. (In re Leap Wireless Int'l Inc.), 2005 Bankr. LEXIS 3300 (Bankr. S.D. Cal. Aug. 19, 2005); Konop v. Hawaiian Airlines, Inc. (In re Hawaiian Airlines, Inc.), 386 B.R. 251 (D. Haw., 2008).
Roberts Farms is not "on all fours" with the facts here. In Roberts Farms, the debtor did not object to the proof of claim - which was in a liquidated amount - for almost two years so the passage of time was not prejudicial. Roberts Farms, 980 F.2d at 1252. The proposed amendment to the claim did not change the amount of the claim, but only the legal theory of the claim. Ibid. There was also no persuasive showing of any prejudice in allowing the amendment.
Still, the post-confirmation amendment here attempts to change the amount. The Ninth Circuit's considerations of numerous factors will inform our analysis.
B.
Nor will the court apply the "liberal" standard of pleading amendments under Civ. Rule 15 urged by DHCS.
First, Civ. Rule 15 does not apply to contested matters without a court order. Rule 9014 (c). This motion is a contested matter and there is no order applying Civ. Rule 15.
Second, even if Civ. Rule 15 applied, that does not change the analysis of facts surrounding the proposed amendment. Nor should the court ignore the effects of allowing the amendment.
Pleading amendments are not automatic. Learjet, Inc. v. Oneok, Inc. (In re W. States Wholesale Nat. Gas Antitrust Litig.), 715 F.3d 716, 738 (9th Cir. 2013). The Ninth Circuit considers if any of five factors deter granting leave to amend:
1. Bad faith.
2. Undue delay.
3. Prejudice to the opposing party.
4. Futility of the amendment.
5. Previous opportunities to amend the complaint. See also, Foman v. Davis, 371 U.S. 178, 182 (1962). So, even though pleading amendments are to be freely given "when justice requires," (Civ. Rule 15 (a) (2)) the court should engage in an analysis of the surrounding circumstances before deciding whether the amendment should be allowed.
II.
Considering the pertinent facts and circumstances, the court finds and concludes DHCS unreasonably delayed in seeking to amend its proof of claim.
A.
DHCS reported no final reconciliations to District for at least thirteen fiscal years. This delay occurred though it is undisputed District timely provided cost reports for all those fiscal years. This tenacious reticence continued after the Chapter 9 case was filed. DHCS did not file their first motion to amend the claim until two years after the claim deadline.
1.
This brings the next question into focus. Was the delay reasonable? The answer: no.
At bottom, "reasonable" means "[f]air proper or moderate under the circumstances; sensible." Black's Law Dictionary (11th ed. 2019). This determination relies on an objective analysis of facts. This is consistent with other evaluations of "reasonable delay." See Dye v. Rivera (In re Marino), 193 B.R. 907, 915 (B.A.P. 9th Cir. 1996) (consider "facts and circumstances of the case and determine whether delay in [lien] perfection was reasonable"); Wechsler v. Macke Int'l Trade, Inc. (In re Macke Int'l Trade, Inc.), 370 B.R. 236, 256 (B.A.P. 9th Cir. 2007) (affirming bankruptcy court's application of "objective, reasonable person standard" in finding an involuntary petition was not filed in bad faith); Jackson v. Bank of Haw., 902 F.2d 1385, 1387-89 (9th Cir. 1990) (relevant to determining undue delay is "whether the moving party knew or should have known the facts and theories raised by the amendment in the original pleading.").
It is not "sensible" or "moderate" to delay filing a claim in a liquidated amount when the information needed from the District was timely provided. Nor is it "fair or proper" to delay two years after the claim deadline before seeking to amend a claim from "undetermined" to $5.5 million. DHCS admits here that the District's fiscal year 2015-16 cost reports were audited by April 2018 (before the claim deadline). Yet no amended claim nor motion to amend was filed or prosecuted for two years. No estimated claim was filed based on the information provided by District.
Mendiola Decl., Doc. 2260, Ex. B. She also testified that the 2016-17 fiscal year cost reports did not have to be audited until November 2020. Id.
B.
DHCS's explanations for the delay distill into two themes: internal issues and legal protections.
1.
DHCS claims there were 60-70 providers that participated in the Supplemental Reimbursement Program. There were also delays in establishing the "framework" for evaluating cost reports, reconciling data from DHCS's MMIS system, personnel challenges, other hindrances in finally reconciling the audited cost reports, and "nuances" that added to their problems. But our inquiry must be an objective one. These issues ultimately are not District's nor its creditors' responsibility.
The program is undoubtedly complex to administer. But it is DHCS's duty to annually reconcile cost information from filed hospital cost reports to the audited reports. Payments under the program are adjusted based on the reconciliation. District's duty is to provide the reports. District did.
Id.
The subjective explanations for DHCS's delays are logical. But they do not make the delay reasonable here.
2.
DHCS also argues that statutes authorizing recoupment of overpayments provide three years from acceptance of a cost report to complete an audit. Cal. Welf. & Inst. Code §§ 14710 (a) (1), 14115.5, 14172 and 14177. True enough, but DHCS provides no authority that these statutes excuse DHCS from claim filing deadlines or other deadlines critical to a reorganization process. See In re Bajac Constr. Co., 100 B.R. 524, 525 (Bankr. E.D. Cal. 1989) (acknowledging "[in] Chapter 11, Chapter 12, or Chapter 13 proceedings there may well be equities present which make it proper to reject the attempted amendment of a claim. The process of reorganization or rehabilitation may be too far along and various parties who have labored on the plan may be prejudiced" by the amendment). The cited statutes authorize recoupment the amounts overpaid from future payments. Krolikowski v. San Diego City Employees' Ret. Sys., 24 Cal. App. 5th 537, 560; 24 Cal. Rptr. 3d 499 (2018). The statutes do not go as far as DHCS advocates.
Further, recoupment is not what DHCS is seeking here. Rather, it wants to assert a $5.5 million claim. Recoupment in the bankruptcy context is "the setting up of a demand arising from the same transaction as the plaintiff's claim or cause of action strictly for the purpose of abatement or reduction of such claim." Gardens Reg'l Hosp. & Med. Ctr. Liquidating Tr. v. Cal. (In re Gardens Reg'l Hosp. & Med. Ctr., Inc.), 975 F.3d 926, 934 (9th Cir. 2020) (emphasis in original) quoting Newbery Corp. v. Fireman's Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir. 1996). DHCS is not seeking to recoup its alleged claim from future reimbursements. District is not operating the hospital now. So, prosecuting the claim is not recoupment subject to the statutes cited.
3.
The Ninth Circuit's frequent application of the "informal proof of claim" doctrine is unhelpful to DHCS, here. This "judge made" doctrine permits late "amendments" to claims that may not have been filed timely under certain circumstances. Usually, the claimant seeking relief under the doctrine has otherwise participated in the case and the claim is well known from the case record. See Pac. Res. Credit Union v. Fish (In re Fish), 456 B.R. 413, 419 (B.A.P. 9th Cir. 2011) (holding stay relief motion and plan objection which stated the amount and basis of the claim met the requirements); In re Sambo's Rests., Inc., 754 F.2d 811, 816-17 (9th Cir. 1985) (holding wrongful death lawsuit, correspondence between counsel, and claimant's joinder in a motion to transfer was sufficient).
A bankruptcy court's determination of whether a document is an informal proof of claim is an issue of law. In re Fish, 456 B.R. at 417 citing Pizza of Hawaii, Inc. v. Shakey's, Inc. (In re Pizza of Hawaii), 761 F.2d 1374, 1377 (9th Cir. 1985).
To constitute an informal proof of claim, the document must state an explicit demand showing the nature and amount of the claim against the estate, and evidence an intent to hold the estate liable. In re Holm, 931 F.2d 620, 622 (9th Cir. 1991) (quoting In re Anderson-Walker Indus., Inc., 798 F.2d 1285, 1287 (9th Cir. 1986); In re Franciscan Vineyards, Inc., 597 F.2d 181, 182 (9th Cir. 1979) cert. den. 445 U.S. 915 (1980)). DHCS's claim here suffers from three infirmities preventing application of the "informal proof of claim" doctrine.
First, DHCS filed the proof of claim on the requisite form before the claim filing deadline. Beneficiaries of the doctrine have not filed a timely claim.
Second, DHCS's claim does not state an explicit demand. The claim states the amount as: "Undetermined at this time." In fact, the attachment to the claim does not establish an intent to hold the estate liable. The declaration attached states in part: "A final reconciliation may result in a determination of overpayment or additional reimbursement (underpayment) for a particular year."
Claim 197.
Id., Ex. A, ¶ 4.
Third, DHCS ignores the existence of prejudice in the analysis. Under the "informal proof of claim" doctrine, amending the claim will only be allowed "in the absence of prejudice to opposing parties." Sambo's, 754 F.2d at 816-17. Evident so far is unreasonable delay. District and other creditors have also been prejudiced for other reasons.
III.
On these facts, the court finds and concludes District and other creditors relied upon and changed their positions based on the unliquidated claim filed by DHCS.
A.
District's interim CEO, Daniel R. Heckathorne, testified by declaration that District ordinarily provided cost reports on an annual basis to DHCS through September 30, 2017 when District filed Chapter 9. This testimony is unchallenged. Further, no information was available in the books and records showing any demand from DHCS between 2002 and 2017.
Heckathorne Decl., Doc. 1513.
Id.
What is more, District's next CEO, Sandra L. Ormonde, confirmed in her declaration the District's books and records did not reflect any money was due. So, the DHCS claims were valued at $0 when financial projections were prepared for the Disclosure Statement and Plan. This assumption underpinned District's calculation of the range of percentages allowed unsecured claims would receive, ensure plan feasibility, and District's ability to otherwise perform. No District records reflected any sums due DHCS for the outpatient reimbursement program. So, it was more than plausible that District's reliance was reasonable.
Ormonde Decl., Doc. 2397.
Id.
Id. DHCS objected to admission of portions of the Ormonde declaration and rulings on the objections were placed on the record at the hearing.
The Disclosure Statement stated a range of potential recoveries for the unsecured class (Class 8). The Plan was overwhelmingly accepted by the impaired classes, including Class 8. Logically, those creditors relied upon the estimates of distribution in deciding how to vote. That is reliance and change of position based on the "undetermined" amount of the proof of claim filed by DHCS. /// /// ///
Ballot Summ., Doc. 1593.
B.
District should not have relied upon the proof of claim, contends DHCS, because participation was voluntary, and District could have determined a relatively accurate amount due by examining the actual interim payments it received and recalculated the payments once it received the audited cost reports from DHCS for each fiscal year.
Two problems abate that contention. First, DHCS admits that due to its operational problems, audited cost reports could not be generated on a timely basis until at least April 2018. This is further bolstered by Mr. Heckathorne's and Ms. Ormonde's declarations which state the District's records showed nothing was due.
Mendiola Decl., Doc. 2260, Ex. B.
Heckathorne Decl., Doc. 1513; Ormonde Decl., Doc. 2397.
Second, DHCS's argument proves too much. If District could have hypothetically made an internal reconciliation, so should DHCS. Plus, DHCS had superior access to the necessary information including the internal processes to "put a fine point" on the reconciliation calculation. Yet, no attempt was made to estimate a claim amount in DHCS's proof of claim until well after the Plan of Adjustment was confirmed.
C.
DHCS disputes reliance or change of position by creditors because the Disclosure Statement revealed a range of allowed unsecured claims between $16.5 and $26 million. The Disclosure Statement also included a footnote explaining the reason for the range was in part due to "large disputed proofs of claim filed by governmental entities" for overpayment claims. So, DHCS contends its $5.5 million amount due, if allowed, is within the range the creditor's expected.
Disclosure Statement, Doc. 1441 at 37.
The contention is unsupported by the facts. District disputed many claims in the case for various reasons. Those included DHCS's withdrawn claims which were disallowed after objection. The claim at issue here, claim 197, differs from the others because it was not in any amount and the attachment to the claim was ambiguous whether any claim existed at all.
Claims 186, 187, 243 which totaled about $5.35 million. Docs. 2120-22.
IV.
This court also finds and concludes that based on the above, District and other creditors would be legally prejudiced if DHCS's claim amendment was allowed.
A.
We begin by acknowledging DHCS is correct that in the context of claim amendments "prejudice requires more than simply having to litigate the merits of, or to pay, a claim - there must be some legal detriment to the party opposing." Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 102 (B.A.P. 9th Cir. 2006). Also, the burden of identifying actual prejudice that would result from allowing an amendment is on the party objecting to the amendment. Sambo's, 754 F.2d at 817 (applying the rule to find a sufficient informal proof of claim). This is consistent with burdens placed on parties opposing pleading amendments under Civ. Rule 15. See DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987).
That said, the factors used to determine potential prejudice are the factors listed in Roberts Farms. JSJF, 344 B.R. at 102. The court has found unreasonable delay, reliance, and change of position of both District and creditors. So, there is already more prejudice shown than simply having to litigate or pay the amended claim. But we examine prejudice further.
B.
Ms. Ormonde testified that based on District's books and records and other data the aggregate percentage distribution under the Plan of Adjustment will be 19.2% to 30.3%. She also calculated that based on District's current liability for allowed Class 8 claims, if DHCS's proposed amended claim of over $5.520 million were allowed, the amount paid to Class 8 claims would drop to 18.56%. That is below the "low end" of the estimated payment to Class 8 claims. 20.49% lower. A significant reduction of potential payment to creditors.
Ormonde Decl., Doc. 2397 at 3-4.
Also, District indisputably submitted timely cost reports. No evidence was presented that at any time before this motion to amend was District made aware of a claim that would be made by DHCS under the outpatient reimbursement program. District filed this Chapter 9, obtained an order for relief, the court ordered a claims bar date, District prepared a Plan and Disclosure Statement, creditors voted, the Plan was confirmed. All these benchmarks occurred under the scenario presented by DHCS that the claim amount was "undetermined." That is legal detriment to District and creditors.
C.
DHCS disagrees. They claim neither District nor creditors were prejudiced because claim 197 was "undetermined" since the proposed amendment simply adds more particularity to the claim. Even so, DHCS adds, the confirmed Plan does not start distributions to Class 8 for approximately four more years. The court is unconvinced.
1.
"More particularity" assumes some "particularity" in the first place. We have already discussed the issues with the vagueness of the claim and its effects on District and its creditors.
Also, DHCS improperly minimizes the magnitude of the proposed amendment. The effects on District and distributions to the unsecured class have been discussed.
2.
Nor does the delay in the start of payments to Class 8 creditors assist DHCS.
First, the voting creditors overwhelmingly supported the confirmation of the Plan. It is more than probable the creditors read and understood the Disclosure Statement revealing the proposed delay in beginning the payment stream.
Second, the delay in starting payments does not equate to creditor nonchalance about the amount they were to receive. If anything, the delay in payment would heighten creditor enthusiasm for accurate estimates of their proposed dividend. Those distribution estimates were calculated based on District's evaluation of DHCS's claim discussed previously.
3.
DHCS has provided no authority supporting such a significant "amendment" after plan confirmation even under the often misunderstood "liberal standard" for claim amendments in the Ninth Circuit. Most authorities referenced examine application of the "informal proof of claim" doctrine discussed before: Sambo's, 754 F.2d at 816; JSJF, 344 B.R. at 101-04 (reversing order denying claim amendment since Plan and Disclosure Statement set forth claim); Green v. Brotman Med. Ctr., Inc. (In re Brotman Med. Ctr., Inc.), No. CC-11-1131 PaMkLa, 2012 Bankr. LEXIS 665, *23 (B.A.P. 9th Cir. Jan. 31, 2012) (holding stay relief motion accompanied by attachments including pending lawsuit with inexact claim amount sufficient); In re Parrott Broad. Ltd. P'ship., 518 B.R. 602, 609 (Bankr. D. Idaho 2014) (finding declaration submitted to United States Trustee establishing qualification to serve on creditor's committee while case pending as Chapter 11 was sufficient after conversion of the case to Chapter 7).
The unpublished Brotman memorandum cites In re Pizza of Haw., 761 F.2d at 1381 (holding that an effort to join a debtor as a defendant in a civil action was sufficient to show an intention to hold the estate liable). No similar facts are present here.
In contrast, claim amendments after plan confirmation have been denied on grounds of prejudice. See Bevan v. Socal Communs. Sites, LLC, 327 F.3d 994, 998 at n.2 (9th Cir. 2003) (dicta) (secured creditor's attempted amendment to increase claim to amount paid to IRS to redeem collateral prejudicial, citing Roberts Farms); In re Clickaway Corp., No. 18-51662 MEH, 2020 Bankr. LEXIS 1436, *23 (Bankr. N.D. Cal. May 28, 2020) (amendment found prejudicial when attempted over a year after it should have been asserted under the parties' agreement and allowance would have a significant impact on other claimants, citing Roberts Farms).
In sum, even applying the "liberal" standard of allowing claim amendments under Roberts Farms, the proposed amendment urged by DHCS, if allowed, would result in prejudice to District, creditors, and other beneficiaries of the confirmed Plan of Adjustment. The court does not make this decision lightly - especially considering the potential fiscal impact. But, weighing the facts present here, this is the warranted resolution. /// /// /// /// /// /// /// /// ///
CONCLUSION
For the foregoing reasons, DHCS's Motion for Leave to Amend Claim 197 is DENIED.
The above are the court's findings of fact and conclusions of law under Civ. Rule 52 made applicable to bankruptcy proceedings under Rule 7052 and in contested matters under Rule 9014 (c). If any finding of fact is deemed a conclusion of law, or conclusion of law deemed a finding of fact, the court adopts them as findings or conclusions, respectively.
An appropriate order will issue. Dated: Apr 27, 2021
By the Court
/s/ _________
René Lastreto II, Judge
United States Bankruptcy Court
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