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In Re: Valley Health System v. Post-Effective Date Committee of Creditors

August 3, 2012

IN RE: VALLEY HEALTH SYSTEM, DEBTOR. JESSICA LOPEZ, APPELLANT,
v.
POST-EFFECTIVE DATE COMMITTEE OF CREDITORS; ALVAREZ & MARSAL HEALTHCARE INDUSTRY GROUP, LLC, AS DISBURSING AGENT, APPELLEES.



Appeal from the United States Bankruptcy Court for the Central District of California Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding Bk. No. 07-18293-PC

SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on July 19, 2012 at Pasadena, California

Filed - August 3, 2012

Before: MARKELL, DUNN and KIRSCHER, Bankruptcy Judges.

INTRODUCTION

Jessica Lopez ("Lopez") is a former employee of Valley Health System ("VHS") and was a participant in the Valley Health System Retirement Plan ("VHS Retirement Plan").*fn2 Lopez filed a proof of claim in VHS's bankruptcy case seeking a distribution from that bankruptcy based on her claimed entitlement to benefits under or from the VHS Retirement Plan. But VHS's confirmed chapter 9*fn3 plan of adjustment ("Chapter 9 Plan") specified, among other things, that any claims held by VHS Retirement Plan participants ("Participants") against VHS would "not be entitled to receive any distributions" under the Chapter 9 Plan.

A Post-Effective Date Committee of Creditors and a disbursing agent appointed under the Chapter 9 Plan (jointly, the "Committee Parties") objected to Lopez's proof of claim. The bankruptcy court sustained the objection and entered an order disallowing Lopez's claim. Lopez appealed, and we AFFIRM.

FACTS*fn4

A. VHS, its bankruptcy case, and its Chapter 9 Plan.

VHS is a public agency and a local healthcare district formed in 1946, under the California Local Health Care District Law, Cal. Health & Safety Code § 32000, et seq. VHS owned and operated one skilled nursing facility and three acute health care facilities in Riverside County, California. VHS filed a chapter 9 bankruptcy petition in December 2007, and the bankruptcy court entered an order for relief in February 2008.

Pursuant to § 943, the bankruptcy court confirmed VHS's first amended plan of adjustment ("Chapter 9 Plan") by order entered April 26, 2010 ("Confirmation Order"). The Chapter 9 Plan was based on the sale of substantially all of VHS's remaining assets to another entity known as Physicians for Healthy Hospitals, Inc. Among other things, the Chapter 9 Plan provided for the discharge of VHS's prepetition debts and also enjoined claimants from pursuing any action or proceeding on account of such debts.

1 The Chapter 9 Plan classified general unsecured claims as 2 Class 2A claims and generally provided for the pro rata 3 distribution of $17 million to the holders of allowed Class 2A 4 claims. The plan then separately classified the Participants as 5 Class 2C claimants and provided no distribution for them. 6 Instead, the Chapter 9 Plan expected the Class 2C claimants to 7 look to the assets left for them, along with their other rights 8 and entitlements, under the VHS Retirement Plan.*fn5 9 The asset sale had expressly excluded all these VHS 10 Retirement Plan assets. As a consequence, the Chapter 9 Plan 11 specified that the Participants as Class 2C claimants would not 12 have recourse as against VHS or its assets, and would not be 13 entitled to any distribution under the Chapter 9 Plan.

14 This was expressly stated in the Chapter 9 Plan: 15 Defined Benefit Plan Participants will be entitled to the same rights and benefits to which such participants 16 are currently entitled under the VHS Retirement Plan and the MetLife Group Annuity Contract, and such 17 participants shall have no recourse to the District or to any assets of the District, and shall not be 18 entitled to receive any distributions under this Plan. Instead, all unallocated amounts held by MetLife Group, 19 pursuant to the VHS Retirement Plan and the MetLife Group Annuity Contract, will continue to be made 20 available to provide retirement benefits for participants in the manner indicated under the 21 provisions of the VHS Retirement Plan and the MetLife Group Annuity Contract. ...


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