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March 2021: Complete Victory in Western District of Oklahoma Bankruptcy Court Dismissal

March 2021

Quinn Emanuel, working together with local Oklahoma counsel, recently obtained dismissal as bad faith filing of bankruptcy cases filed by the owners of two hospitals in rural Oklahoma, two months after the chapter 11 reorganization cases were filed.  

The firm represents Rural Hospital Acquisition, First Physicians Realty Group, First Physicians Business Solutions, First Physician Resources, and First Physicians Services, the secured creditor, landlord, and companies providing management and related services to certain rural hospitals in Oklahoma.  

In February 2020, Quinn Emanuel filed a case in Oklahoma state court against the hospitals’ owners on behalf of the secured creditor and landlord, seeking money owed to our clients and the appointment of a receiver for the insolvent hospitals.  Following a September in-person trial before the court in Caldwell, Oklahoma, the court granted our application for a receiver.  On a Sunday evening in October 2020, before the state court had entered the order that would formally appoint the receiver and set out the scope of his authority, and without any notice to the hospitals’ management company or vendors, the hospitals’ owners filed for bankruptcy.  The filing created confusion and disruption for vendors and employees at the two hospitals, which had been operating smoothly for years and were filled to capacity during the COVID-19 pandemic. 

Knowing that courts rarely grant dismissal of chapter 11 cases in the early stages, Quinn Emanuel nonetheless filed within two weeks of the bankruptcy commencement a motion to dismiss, arguing that the cases were really a two party dispute and that the debtors were administratively insolvent, could not confirm a plan of reorganization, and had commenced the cases in bad faith to avoid the appointment of a receiver in the state court action.  The U.S. Trustee joined in Quinn Emanuel’s motion.  Quinn Emanuel swiftly sought discovery in support of its motion to dismiss via written discovery, as well as depositions of the debtors, two of their board members, and the principal of a management company—formed after Quinn Emanuel filed its motion to dismiss—with which the hospitals’ owners sought to replace our clients.  

During the mid-December three-day remote trial on the motion to dismiss, Quinn Emanuel presented both fact and expert witnesses, deposition testimony, and cross-examined the witnesses who testified on behalf of the debtors.  On December 30, 2020, the court issued a 26-page opinion granting Quinn Emanuel’s motion in full, finding that dismissal under Section 1112 of the Bankruptcy Code was warranted based on a continuing loss to the debtors’ estates and absence of a likelihood of rehabilitation, and on the debtors’ bad faith, and that dismissal was also warranted under Section 305 of the Bankruptcy Code.