Opinion
No. 78-1641-JG
January 8, 1979
Arrangements — Jurisdiction — Automatic Stay — Revocation of License.
A bankruptcy court has jurisdiction to stay a state administrative action to revoke debtor hospital's operating license commenced after filing of Chapter XI proceedings where the agency's decision was not made in the exercise of its police power.
Subsequent to conversion to Chapter XI proceedings, the debtor hospital discharged its remaining patients and completely shut down its operations in response to an order of the state Department of Health citing certain hospital administrative deficienies. Shortly thereafter under Section 314 of the Bankruptcy Act, the court appointed receiver issued an injunction restraining "all persons from removing, transferring, disposing of, or in any way interfering with any property, assets, or effects in the possession of the receiver." Two days later, the Department of Public Health notified the hospital that its license to operate was terminated as of that date pursuant to its regulation, Section 111B3(c), which provides that a hospital abandons its license by discontinuance of operations, unless continuance of the license is allowed by the Commissioner of the Department.
The receiver contended that its injunction precluded enforcement of the agency's automatic revocation of the hospital's license. The state sought dismissal of the receiver's complaint, claiming that the court lacked subject matter jurisdiction to determine the validity of the administrative agency's action.
The court recognized the exception to its jurisdiction set forth in Colonial Tavern vs. Byrne, 420 F. Supp. 44 (D. Mass. 1976). There it was stated that despite the Bankruptcy Rule 11-44 automatic stay and the Section 314 grant of broad injuntive powers to the court, the court is prohibited from interfering in a state's exercise of its police power. However, it was noted that in the instant case the application of the regulation requiring revocation of the debtor hospital's license was not a decision made in the exercise of the agency's police power, but rather was based on the hospital's discontinuance of operations, which was directly related to its financial difficulties. Therefore, the court had jursidiction to stay the administrative action. See Sec. 314 [§ 362 at ¶ 8602 and Rule 11-44 at ¶ 20,744.
Arrangements — Property of the Debtor — License to Operate — Jurisdication
The court has jurisdiction over the stat's automatic revocation of debtor hospital's operating license subsequent to commencement of Chapter XI proceedings where such license was material to the rehabilitation of the debtor. Section 311 of the Bankruptcy Act gives the court "exclusive jurisdiction of the debtor and his property, whereever located." Where, as here, such license is necessary for the operation of the debtor's business, it constitutes a property interest sufficient to invoke the jurisdiction of the court. See Sec. 311 at ¶ 3313.