Opinion
No. 21-0843
03-27-2023
A. Karim KATRIB, M.D., Petitioner, v. HERBERT J. THOMAS MEMORIAL HOSPITAL ASSOCIATION and Thomas Health System, Inc., Respondents.
John J. Polak, Esq., Mark A. Atkinson, Esq., ATKINSON & POLAK, PLLC, Charleston, West Virginia, Counsel for Petitioner. Thomas J. Hurney, Jr., Esq., Mark H. Dellinger, Esq., Laura A. Hoffman, Esq., Jackson Kelly PLLC, Charleston, West Virginia, Counsel for Respondents.
John J. Polak, Esq., Mark A. Atkinson, Esq., ATKINSON & POLAK, PLLC, Charleston, West Virginia, Counsel for Petitioner.
Thomas J. Hurney, Jr., Esq., Mark H. Dellinger, Esq., Laura A. Hoffman, Esq., Jackson Kelly PLLC, Charleston, West Virginia, Counsel for Respondents.
WALKER, Chief Justice:
In May 2021, Petitioner A. Karim Katrib, M.D., sued Herbert J. Thomas Memorial Hospital Association and Thomas Health System, Inc. Because Dr. Katrib's claims related to the 2019 suspension of his hospital clinical privileges and medical staff membership, which occurred before Thomas Hospital's Chapter 11 bankruptcy confirmation order and reorganization plan, the circuit court dismissed the complaint under Rules 12(b)(1) and 12(b)(6) of the West Virginia Rules of Civil Procedure. The circuit court held that it lacked jurisdiction because the claims were discharged in bankruptcy and so the complaint failed to state a claim upon which relief can be granted. We agree and affirm the order.
Herbert J. Thomas Memorial Hospital Association is a subsidiary of Thomas Health Systems, Inc. For the sake of brevity, we refer to these Respondents collectively as "Thomas Hospital."
See In re Thomas Health System, Inc., et al. , Case No. 20-20007 (Bankr. S.D. W. Va. Aug. 19, 2020).
I. FACTUAL AND PROCEDURAL BACKGROUND
Dr. A. Karim Katrib is a self-employed physician who practices in South Charleston, West Virginia. He held clinical privileges and medical staff membership with Thomas Hospital for approximately 34 years until they were suspended in 2019. In 2021, he filed this action raising claims related to the 2019 suspension. The question presented here is whether those claims were discharged in Thomas Hospital's 2020 bankruptcy proceeding, so we begin there.
On January 10, 2020, Thomas Hospital and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Thomas Hospital did not list Dr. Katrib as a creditor in its petition, so it did not provide him with actual notice of the filing and claims bar date. But Thomas Hospital publicized notice of the bankruptcy proceedings in The Wall Street Journal , and local newspapers including The Register-Herald , The Charleston Gazette-Mail , and The Herald-Dispatch on July 14, 2020. There is no indication in the record that Dr. Katrib submitted proof of his claims to the bankruptcy court. The bankruptcy proceedings ultimately led to a Chapter 11 reorganization plan that was approved and confirmed by the United States Bankruptcy Court for the Southern District of West Virginia on August 19, 2020, with an effective date of September 30, 2020. Through this plan, the bankruptcy court allocated Thomas Hospital's debts among its creditors and discharged and released it from liabilities occurring prior to the petition date, January 10, 2020. This discharge constituted a permanent statutory injunction prohibiting the commencement and continuation of released and discharged claims against Thomas Hospital.
11 United States Code §§ 101 -1532.
Article VIII of the plan provides that it
shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims ... and Causes of Action of any nature whatsoever ... including demands, liabilities, and Causes of Action that arose before the Effective Date ... and all debts ... whether or not: (1) a Proof of Claim based upon such debt or right is filed or deemed filed ... or (3) the Holder of such a Claim has accepted the Plan or voted to reject the Plan. The Confirmation Order shall be a judicial determination of the discharge of all Claims subject to the occurrence of the Effective Date, except as otherwise specifically provided in the Plan.
The plan describes the injunctive effect of the order:
From and after the Effective Date ... all persons and entities that have, hold, or may hold claims that have been released, discharged, or are subject to the exculpation restrictions below are permanently enjoined, from and after the Effective Date, from ... commencing ... any cause of action released or to be released pursuant to the Plan or the Confirmation Order.
Under federal law, any actions taken in violation of the bankruptcy discharge injunction, and judgments entered or enforced against Thomas Hospital after the entry of the injunction are void and without effect. Even so, Dr. Katrib filed this action in the Circuit Court of Kanawha County against Thomas Hospital on May 14, 2021. In his complaint, Dr. Katrib alleged facts summarized below and accepted as true for purposes of this appeal.
See John W. Lodge Distrib. Co. v. Texaco, Inc. , 161 W. Va. 603, 605, 245 S.E.2d 157, 158 (1978) ("For purposes of the motion to dismiss, the complaint is construed in the light most favorable to plaintiff, and its allegations are to be taken as true.").
In December 2018, Thomas Hospital informed Dr. Katrib that its Peer Review Committee had concerns about a standard-of-care issue arising from his treatment of a patient in September 2018. The committee asked Dr. Katrib to address his treatment of the patient in writing, and he did so in January 2019.
By letter May 16, 2019, Thomas Hospital informed Dr. Katrib of the immediate precautionary suspension of all his clinical privileges. It stated that the medical staff peer review investigation process would be completed within thirty days, as required under the hospital's medical staff bylaws. Dr. Katrib claimed that he did not receive a response within that time.
On August 14, 2019, Dr. Katrib's counsel provided Thomas Hospital with the opinion of Dr. Jeremy Tiu regarding Dr. Katrib's treatment of the patient in question. According to Dr. Tiu, the patient received excellent care. Counsel also stated that Dr. Katrib was willing to meet with those reviewing the suspension to discuss the treatment of the patient.
On September 19, 2019, Thomas Hospital advised Dr. Katrib that his clinical privileges and medical staff membership were suspended with a recommendation that they be revoked. Under the hospital's bylaws, Dr. Katrib had thirty days to request a hearing to protest this decision, which he did on October 2, 2019. But there had not been a hearing scheduled when Dr. Katrib filed his complaint in circuit court in 2021.
Dr. Katrib asserted five causes of action against Thomas Hospital related to the suspension of his privileges: Count I, violation of medical staff bylaws; Count II, retaliation in violation of the West Virginia Patient Safety Act or a substantial public policy of West Virginia; Count III, discrimination based on age, national origin, and religion in violation of the West Virginia Human Rights Act or a substantial public policy of West Virginia; Count IV, tortious interference; and Count V, intentional infliction of emotional distress.
This type of action is commonly referred to as a Mahmoodian claim. See Syl. Pt. 1, Mahmoodian v. United Hosp. Center, Inc. , 185 W. Va. 59, 404 S.E.2d 750 (1991) ("The decision of a private hospital to revoke, suspend, restrict or to refuse to renew the staff appointment or clinical privileges of a medical staff member is subject to limited judicial review to ensure that there was substantial compliance with the hospital's medical staff bylaws governing such a decision, as well as to ensure that the medical staff bylaws afford basic notice and fair hearing procedures, including an impartial tribunal.").
Dr. Katrib asserted that Thomas Hospital's suspension of his medical staff membership and clinical privileges was in retaliation for him voicing patient safety concerns at various times prior to 2018.
In June 2021, Thomas Hospital filed a "Notice of Bankruptcy and Discharge of Proceedings," asserting that Dr. Katrib's claims had been discharged in bankruptcy and that the claims were permanently enjoined based on the discharge injunction. It also filed a motion to dismiss the complaint under Rules 12(b)(1) and 12(b)(6) of the West Virginia Rules of Civil Procedure. The circuit court conducted a hearing on the motion on September 13, 2021.
On September 24, 2021, the circuit court granted Thomas Hospital's motion to dismiss, finding that sufficient facts were present in the complaint to resolve the bankruptcy discharge affirmative defense. The circuit court found that the claims were discharged and permanently enjoined because Thomas Hospital's alleged conduct at issue occurred in 2018 and 2019, prior to the filing of the bankruptcy petition. It determined that the bankruptcy plan had res judicata effect over the claims brought by Dr. Katrib, so any judgment would be void. The circuit court also found that it lacked subject matter jurisdiction because these claims were discharged in bankruptcy, so it concluded that the complaint failed to state a claim upon which relief could be granted under Rules 12(b)(1) and 12(b)(6) of the West Virginia Rules of Civil Procedure. And it found that the dispute over clinical privileges and medical staff membership did not make Dr. Katrib a known creditor of Thomas Hospital, so constructive notice of the bankruptcy was sufficient to bind Dr. Katrib to the discharge injunction, barring his claims.
II. STANDARD OF REVIEW
Dr. Katrib appeals the circuit court's order dismissing his claims under Rules 12(b)(1) and 12(b)(6) of the West Virginia Rules of Civil Procedure. Both subsections of Rule 12 are applicable here because a circuit court lacks subject matter jurisdiction over claims discharged by a bankruptcy court, and any judgment rendered in violation of the bankruptcy court's discharge and injunction would be void. This Court has held that "[a]ppellate review of a circuit court's order granting a motion to dismiss a complaint is de novo. " We have also held that " ‘[t]he trial court, in appraising the sufficiency of a complaint on a Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ " At the same time, a motion to dismiss "enables a circuit court to weed out unfounded suits."
See note 17, below; see also Teresa M. Schreffler & The Honorable Janice Miller Karlin, Walking the Balance Beam of the Bankruptcy Code's Discharge Injunction , 87 J. Kan. B. Ass'n. 38, 40 (May 2018) ("A bankruptcy discharge voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under the applicable chapter. The discharge injunction also operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.") (citing 11 U.S.C. §§ 524(a)(1) and (a)(2) ) (quotation marks and footnotes omitted).
Syl. Pt. 2, Vanderpool v. Hunt , 241 W. Va. 254, 823 S.E.2d 526 (2019) (first quoting Conley v. Gibson , 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ; then quoting Syl. Pt. 2, State ex. rel McGraw v. Scott Runyan Pontiac-Buick, Inc. , 194 W. Va. 770, 461 S.E.2d 516 (1995) ).
Syl. Pt. 2, Boone v. Activate Healthcare, LLC , 245 W. Va. 476, 859 S.E.2d 419, 420 (2021) (quoting Syl. Pt. 3, Chapman v. Kane Transfer Co., Inc. , 160 W. Va. 530, 236 S.E.2d 207 (1977) ).
McGraw , 194 W. Va. at 776, 461 S.E.2d at 522.
III. ANALYSIS
We begin our analysis and application of federal law with two fundamental concepts. First, "a principal purpose of the Bankruptcy Code is to provide debtors and creditors with ‘the prompt and effectual administration and settlement of the [debtor's] estate.’ " Along with that comes the similar purpose "to centralize disputes over the debtor's assets and obligations in one forum, thus protecting both debtors and creditors from piecemeal litigation and conflicting judgments." These background rules provide context for why Thomas Hospital's reorganization plan set strict cut-off dates for potential creditors like Dr. Katrib. Without the finality of those deadlines, the bankruptcy process is robbed of the certainty federal law affords a debtor to restructure and pull itself back to solvency. The clear purpose of a bankruptcy discharge and the concomitant injunction provision is to give the debtor a financial " ‘fresh start.’ "
Moses v. CashCall, Inc. , 781 F.3d 63, 72 (4th Cir. 2015) (quoting Katchen v. Landy , 382 U.S. 323, 328, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) ).
Moses , 781 F.3d at 72 (citing Phillips v. Congelton, L.L.C. (In re White Mountain Mining Co.) , 403 F.3d 164, 169-70 (4th Cir. 2005) ).
In re Jet Florida Systems, Inc. , 883 F.2d 970, 972 (11th Cir. 1989) (quoting Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law , 98 Harv. L. Rev. 1393, 1396-97 (May 1985) ).
While discharge in bankruptcy is an affirmative defense under Rule 8(c) of the West Virginia Rules of Civil Procedure, this defense strikes at the heart of a circuit court's subject matter jurisdiction. When Thomas Hospital filed for bankruptcy, the United States District Court for the Southern District of West Virginia had exclusive jurisdiction over prepetition claims against it. "The authorities seem to be uniform to the effect that where a discharge in bankruptcy is pleaded as a defense ... the burden is upon the defendant to prove his discharge," and this "may be done by putting in evidence a certified copy of the order granting the discharge." And it is "clearly proper" in deciding a motion to dismiss under Rules 12(b)(1) and (6) "to take judicial notice of matters of public record."
This case raises issues of federal preemption because Congress has given the United States District Courts original and exclusive jurisdiction over prepetition claims in bankruptcy matters. The Bankruptcy Code provides that "[t]he district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate." 28 U.S.C. § 1334(e)(1). The bankruptcy court that confirms a reorganization plan enters an injunctive order—the confirmation order, see 11 U.S.C. §§ 524, 1141 —the violation of which it can sanction. See Cox v. Zale Delaware, Inc. , 239 F.3d 910, 915 (7th Cir. 2001) ("the creditor who attempts to collect a discharged debt is violating not only a statute but also an injunction and is therefore in contempt of the bankruptcy court that issued the order of discharge.") (citing Pertuso v. Ford Motor Credit Co. , 233 F.3d 417, 421 (6th Cir. 2000) ).
2 A.L.R. 1672.
Norris v. Hearst Trust , 500 F.3d 454, 461 n.9 (5th Cir. 2007) (citing Cinel v. Connick , 15 F.3d 1338, 1343 n.6 (5th Cir. 1994) ); see also Syl. Pt. 1, Forshey v. Jackson , 222 W. Va. 743, 671 S.E.2d 748 (2008) ("A circuit court ruling on a motion to dismiss under Rule 12(b)(6) of the West Virginia Rules of Civil Procedure may properly consider exhibits attached to the complaint without converting the motion to a Rule 56 motion for summary judgment.").
In this appeal, we are asked to determine whether the circuit court erred by concluding that Dr. Katrib's claims were subject to the discharge, release, and injunction provisions of Thomas Hospital's Chapter 11 bankruptcy confirmation order and reorganization plan. In most cases, confirmation of the plan results in discharge of all prepetition claims against the debtor. Even so, a bankruptcy discharge may be challenged on due process grounds and "[a]ny claimant who makes such a challenge bears the burden of proof."
11 U.S.C. §§ 1141(c), (d)(1)(A).
In re Tronox Inc. , 626 B.R. 688, 718 (Bankr. S.D.N.Y. 2021) (citing Waterman S.S. Corp. , 200 B.R. 770, 774-75 (Bankr. S.D.N.Y. 1996) ).
Dr. Katrib relies on this important but "seldom-occurring" exception in bankruptcy law: a party who fails to receive adequate notice of a bankruptcy filing is not bound by the terms of its confirmation order. He claims that he was a known creditor of Thomas Hospital who was entitled to actual written notice of the bankruptcy filing and that summary dismissal of his claims resulted in a denial of due process. Dr. Katrib contends that whether he was an unknown creditor—and so not entitled to actual notice—was an issue of fact that Thomas Hospital had the burden of proving and that he was entitled to discovery to explore. He also argues that because the complaint sufficiently challenges Thomas Hospital's continued failure to provide him with a hearing in compliance with hospital bylaws, this claim was not discharged in bankruptcy.
In re Newstar Energy of Texas, LLC , 280 B.R. 623, 626 (Bankr. W.D. Mich. 2002).
Thomas Hospital responds that because all of Dr. Katrib's claims arise from conduct that occurred in 2018 and 2019, these prepetition claims were discharged in the 2020 bankruptcy. It argues that dismissal was proper here because the facts of the bankruptcy discharge were not disputed and its application to Dr. Katrib's claims was apparent from the face of the complaint. And as in any other matter where jurisdiction is challenged, Thomas Hospital states that Dr. Katrib had the opportunity to submit additional evidence to refute the arguments that he was an unknown creditor, but he did not come forward with any evidence to suggest that the bankruptcy discharge did not apply to his claims. We take up these two issues in turn.
Thomas Hospital notes that Dr. Katrib had ample opportunity to file a proof of claim with the Bankruptcy Court, request a modification of the plan to exclude his claims from the discharge injunction, or object to the confirmation of the plan.
See Elmore v. Triad Hosps., Inc. , 220 W. Va. 154, 158 n.7, 640 S.E.2d 217, 221 n.7 (2006) (recognizing that matters outside the pleadings can be considered in deciding a motion to dismiss for lack of jurisdiction under Rule 12(b)(1) ).
A. Adequate Notice of Bankruptcy Filing
Dr. Katrib's main contention is that he was a known creditor who was entitled to actual written notice of Thomas Hospital's bankruptcy filing. And Dr. Katrib argues that without adequate notice, the circuit court's dismissal of his claims resulted in a denial of due process in violation of the Fifth Amendment to the United States Constitution and Article III, section 10 of the West Virginia Constitution. Thomas Hospital responds that because Dr. Katrib was an unknown creditor, publication notice of the bankruptcy was sufficient to satisfy due process requirements.
Because these issues are intertwined, we address them jointly.
Procedural due process is a fundamental component of Chapter 11 bankruptcy because of the broad relief that may be granted to those that seek its protection. The "reorganization process is dependent on the proper notification to creditors and other interested parties of all important steps in the proceeding so that they may take such steps as necessary to safeguard their interests." Due process requires notice that is " ‘reasonably calculated to reach all interested parties, reasonably conveys all required information, and permits a reasonable time for a response.’ " As a result, "[i]nadequate notice is a defect which precludes discharge of a claim in bankruptcy."
In re Harbor Tank Storage Co. , 385 F.2d 111, 115 (3d. Cir. 1967).
Chemetron Corp. v. Jones , 72 F.3d 341, 346 (3d Cir. 1995) (quoting Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg., Inc.) , 62 F.3d 730, 735 (5th Cir. 1995) ).
Chemetron , 72 F.3d at 346.
Whether notice satisfies these requirements under federal law depends on whether the creditor is known or unknown. A debtor must provide a known creditor with actual written notice of the bar date. A known creditor is "one whose identity is either known or ‘reasonably ascertainable by the debtor.’ "
Id.
In re Energy Future Holdings Corp. , 522 Bank. 520, 529 (Bankr. D. Del. 2015).
In re Nortel Networks, Inc. , 531 B.R. 53, 63 (Bankr. D. Del. 2015) (quoting Chemetron , 72 F.3d at 346 ); see In re J.A. Jones, Inc. , 492 F.3d 242, 251 (4th Cir. 2007) (affirming bankruptcy court and district court's determination that a woman's estate—following a fatal car crash—was a known creditor based on "[a] plethora of facts and circumstances" that indicated the accident was reported to the contractor's insurer as "an occurrence or offense" which may result in a claim for damages) (internal quotation marks omitted).
A creditor's identity is "reasonably ascertainable" if that creditor can be identified
through reasonably diligent efforts.... Reasonable diligence does not require impracticable and extended searches ... in the name of due process.... A debtor does not have a duty to search out each conceivable or possible creditor and urge that person or entity to make a claim against it.... The requisite search instead focuses on the debtor's own book and records. Efforts beyond a careful examination of these documents are generally not required[.]
Nortel Networks , 531 B.R. at 63 (quoting Chemetron , 72 F.3d at 346-47 (internal quotation marks and citations omitted)).
An unknown creditor, on the other hand, is "one whose ‘interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to [the debtor's] knowledge.’ " And "it is not the debtor's duty to search out each conceivable or possible creditor and urge that person or entity to make a claim against it." In other words, "[d]ebtors cannot be required to provide actual notice to anyone who potentially could have been affected by their actions [because] such a requirement would completely vitiate the important goal of prompt and effectual administration and settlement of debtors’ estates." For unknown creditors, "constructive notice of the claims bar date by publication satisfies the requirements of due process."
Chemetron , 72 F.3d at 346 (quoting Mullane v. Central Hanover Bank & Trust Co. , 339 U.S. 306, 317, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (footnote omitted)).
In re Brooks Fashion Stores, Inc. , 124 B.R. 436, 445 (Bankr. S.D.N.Y. 1991) (internal quotation marks and citations omitted).
In re U.S.H. Corp. of New York , 223 B.R. 654, 659 (Bankr. S.D.N.Y. 1998) (citing Chemetron , 72 F.3d at 348 ).
Chemetron , 72 F.3d at 348 (citing City of New York v. New York, N.H. & H.R. Co. , 344 U.S. 293, 296, 73 S.Ct. 299, 97 L.Ed. 333 (1953) ).
In this case, the parties agree that there was a dispute over the 2019 suspension of Dr. Katrib's hospital privileges resulting from a standard-of-care issue with a patient he treated. Dr. Katrib retained an expert to render an opinion on the matter and asked for a hearing to challenge the suspension, but one was not scheduled. So this appeal turns on whether Thomas Hospital's knowledge of this dispute makes Dr. Katrib's violation-of-medical-staff-bylaws claim "reasonably ascertainable" from a search of its records. Dr. Katrib argues that because he suffered an actual, recognized, property injury when his privileges were suspended that Thomas Hospital had " ‘some specific information that reasonably suggest[ed]’ " this claim. But he is conflating the issue of when this claim arose—a broad inquiry discussed below—with the inquiry of whether Thomas Hospital could reasonably ascertain him as a potential creditor.
See Chemetron , 72 F.3d at 347 (applying "reasonably ascertainable" standard, not a "reasonably foreseeable" standard).
In re Arch Wireless, Inc. , 534 F.3d 76, 81 (1st Cir. 2008) (quoting In re Crystal Oil Co. , 158 F.3d 291, 297 (5th Cir. 1998) ).
Under the facts alleged here and applying federal law, Dr. Katrib's claim for violation of hospital bylaws would not be reasonably ascertainable by a review of Thomas Hospital's books and records. Other than requesting a hearing in October 2019, there is nothing to suggest that Dr. Katrib claimed damages from Thomas Hospital relating to the suspension of his privileges before the bankruptcy petition was filed or that he indicated that he would seek civil damages if Thomas Hospital did not provide him with a hearing. Even though Dr. Katrib's protest to Thomas Hospital's alleged violation of its bylaws could arguably be discovered upon investigation, there is nothing to indicate that a search of Thomas Hospital's books and records would show that this protest would evolve into a claim for damages. And knowledge of this dispute concerning clinical privileges cannot equate to knowledge that Dr. Katrib would bring various claims against Thomas Hospital for torts and statutory violations; these claims were entirely speculative and would not be identified through reasonably diligent efforts. For these reasons, the circuit court did not err in concluding that Dr. Katrib was an unknown creditor. So, notice by publication was constitutionally sufficient.
Dr. Katrib argues that this case is analogous to In re Talon Auto. Group, Inc. , 284 B.R. 622 (Bankr. E.D. Mich. 2002), but Talon is distinguishable. In Talon , Ms. Vargo filed a grievance with her union steward after she was suspended pending discharge in November 2000 following an altercation with another employee. Id. at 623. A meeting was held between Ms. Vargo and representatives of Talon in December 2000 where it was agreed that she could return to work in a different capacity, pending the outcome of her grievance. Id. at 624. Talon later filed for Chapter 11 relief but did not list Ms. Vargo as a creditor nor provide her actual notice of the bankruptcy filing. Id. The bankruptcy court concluded that Talon was a known creditor because her grievance was still pending when Talon filed its bankruptcy petition. Id. at 626. It held that because Ms. Vargo did not receive proper notice of the bankruptcy, she was not bound by the confirmed Chapter 11 plan. Id. Talon is materially different than the facts alleged here because a pending grievance seeking reinstatement and backpay damages would be reasonably ascertainable by a search of the company's records. In this case, Dr. Katrib did not file a grievance or give any notice that he was seeking damages from Thomas Hospital related to his suspension.
We are not persuaded by Dr. Katrib's argument that the issue of whether he qualified as an unknown creditor was an issue of fact upon which he was entitled to discovery. In his response to Thomas Hospital's motion to dismiss, Dr. Katrib did not come forward with any evidence, like an affidavit, to refute Thomas Hospital's evidence of the bankruptcy discharge and its application to his claims. Likewise, in his alternative request for discovery, Dr. Katrib did not identify what kind of evidence would be helpful in resolving the issue. And while discovery is available to ascertain jurisdictional facts relative to a motion to dismiss, it was within the circuit court's sound discretion to deny his request for discovery. Bowers v. Wurzburg , 202 W. Va. 43, 48, 501 S.E.2d 479, 484 (1998).
B. All Claims Were Discharged in Bankruptcy
Dr. Katrib also argues that the circuit court erred in finding that his complaint did not seek relief for actionable nondischargeable conduct that Thomas Hospital committed or continued after the bankruptcy discharge. Specifically, he claims that the complaint challenges Thomas Hospital's continued failure to comply with the bylaws even after the effective date of the discharge order. Reasoning that the suspension of his clinical privileges and medical staff membership had been continuous from May 2019, Dr. Katrib maintains that the denial of due process alleged was also continuous. Thomas Hospital responds that Dr. Katrib should have brought his claims in the bankruptcy proceeding because they all stem from conduct that occurred in 2018 and 2019. It notes that courts have cautioned that "[c]laimants should not have an incentive to delay asserting their claims until after the debtor is reorganized, in the hopes of obtaining a complete recovery rather than the partial recovery they would likely get as part of the reorganization plan."
DPWN Holdings (USA), Inc. v. United Air Lines, Inc. , 871 F.Supp.2d 143, 157 (E.D.N.Y. 2012).
Federal law is clear that when a bankruptcy plan is confirmed, all prior claims against the reorganized company are discharged. This is true regardless of whether a claim was listed on the company's schedules or a proof of claim was filed. As the Bankruptcy Code provides, "the confirmation of a plan ... discharges the debtor from any debt that arose before the date of such confirmation" and that "after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors." When determining when a claim arises for bankruptcy purposes, "reference is to be made to federal bankruptcy law rather than to state law." And in this context, federal courts have recognized the broad definition given to the word "claim" in bankruptcy: "Congress intended that the definition of claim ... be as broad as possible, noting that ‘the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy[,]’ " and this "permits the broadest possible relief in the bankruptcy court."
11 U.S.C. §§ 1141(c), (d)(1)(A).
Although a failure to file a timely claim with the bankruptcy court may be excused where a plaintiff establishes "excusable neglect," Dr. Katrib has not made any allegations in that regard. See Fed. R. Bankr. P. § 9006(b)(1).
11 U.S.C. §§ 1141(c), (d)(1)(A) (emphasis added).
Butler v. NationsBank, N.A. , 58 F.3d 1022, 1029 (4th Cir. 1995).
Grady v. A.H. Robins Co. , 839 F.2d 198, 200 (4th Cir. 1988) (quoting H.R. Rep. No. 95-595, at 309 (1977) as reprinted in 1978 U.S.C.C.A.N. 5963, 6266; S. Rep. No. 95-989, at 22 (1978) as reprinted in 1978 U.S.C.C.A.N. 5787, 5808).
In its motion to dismiss, Thomas Hospital attached a copy of the bankruptcy order, and the circuit court was tasked with determining whether Thomas Hospital met its burden of showing that Dr. Katrib's complaint contained prepetition claims that fell within the discharge. As the Kentucky Supreme Court has observed and we concur, "[w]hile it is true that state courts lack jurisdiction to modify or to grant relief from a bankruptcy court's discharge injunction, they retain, ... concurrent jurisdiction under 28 U.S.C. § 1334(b) ‘to construe the discharge and determine whether a particular debt is or is not within the discharge.’ " Accepting the allegations in the complaint as true, the circuit court concluded that Dr. Katrib's claims arose prior to the confirmation date and were discharged by the bankruptcy court. We agree.
Sunbeam Corp. v. Dortch , 313 S.W.3d 114, 115-16 (Ky. 2010) (quoting In re Pavelich , 229 B.R. 777, 783 (Bankr. App. 9th Cir. 1999) ); see also , In re Stabler , 418 B.R. 764, 770 (Bankr. App. 8th Cir. 2009) (with a few exceptions, "state courts have concurrent jurisdiction to determine the dischargeability of a debt," as well as "whether [certain debts] constituted post-petition debts outside the penumbra of the discharge and discharge injunction."); In re Hamilton , 540 F.3d 367, 373 (6th Cir. 2008) ("State courts have unbridled authority to determine the dischargeability of debts" but an incorrect interpretation that effectively modifies the discharge order is ineffective.).
As explained above, Dr. Katrib's claims arise from his suspension of hospital privileges that occurred in 2019. In his reply brief, Dr. Katrib recognizes that the violation-of-bylaws claim "already existed" when Thomas Hospital filed for bankruptcy protection because he "suffered an actual injury in 2019 when his privileges were suspended." So, when the bankruptcy court discharged the claim under 11 U.S.C. § 1141(d) by confirmation of the plan, 11 U.S.C. § 524(a)(2) automatically provided that the discharge operated as an injunction which barred the commencement of a state court action to collect the discharged claim. Contrary to his assertion, Dr. Katrib does not allege any post-confirmation acts by Thomas Hospital that give rise to his claim for violation of hospital bylaws, separate and distinct from its failure to hold a hearing in 2019.
Roy v. Garden Ridge, L.P. , 283 Ga.App. 74, 640 S.E.2d 665, 666 (2006) (quoting 4-524 Collier on Bankruptcy § 524.01 (15th ed. 2006)).
At oral argument in this matter, Dr. Katrib's counsel conceded that his request for hearing is moot at this point.
This Court has held that "[w]henever it is determined that a court has no jurisdiction to entertain the subject matter of a civil action, the forum court must take no further action in the case other than to dismiss it from the docket." For this reason, the circuit court properly dismissed the complaint.
Syl. Pt. 1, Hanson v. Bd. of Educ. of the Cnty. of Min. , 198 W. Va. 6, 479 S.E.2d 305 (1996) (quoting Syl. Pt. 1, Hinkle v. Bauer Lumber & Home Bldg. Ctr., Inc. , 158 W. Va. 492, 211 S.E.2d 705 (1975) ).
IV. CONCLUSION
For the reasons set out above, we affirm the September 24, 2021, order of the Circuit Court of Kanawha County.
Affirmed.
JUSTICE ARMSTEAD deemed himself disqualified and did not participate in the decision.
JUDGE SHAWN DAVID NINES sitting by temporary assignment.
JUSTICE WOOTON dissents and may write separately.
Wooton, Justice, concurring, in part, and dissenting, in part:
I concur with the majority's determination that Dr. A. Karim Katrib's ("Dr. Katrib") claims for retaliation, discrimination, tortious interference, intentional infliction of emotional distress, and pre-petition failure to provide a hearing were dischargeable in Herbert J. Thomas Memorial Hospital's ("the hospital") bankruptcy, as this issue is governed by federal law and the equities of this case simply do not come into play. However, I dissent from the majority's conclusion that any of the claims were actually discharged in the bankruptcy under the facts and circumstances of this case, and further dissent on separate grounds from the majority's conclusion that Dr. Katrib's claim involving the hospital's post-petition failure to provide him with a hearing was discharged in the bankruptcy.
See text infra.
As to the first issue, there can be no question that the first four causes of action referenced above, as well as the hospital's failure to provide a hearing prior to January 10, 2020, were based on the hospital's allegedly tortious conduct prior to the date on which it filed its bankruptcy petition and were therefore dischargeable in the bankruptcy proceeding. See 11 U.S.C. § 101(5)(A) & (B) ; see also Pa. Dep't of Pub. Welfare v. Davenport , 495 U.S. 552, 558, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990) (explaining that "Congress chose expansive language" in order to effectuate its "broad rather than restrictive view of the class of obligations that qualify as a ‘claim’ giving rise to a ‘debt.’ "); In re Motors Liquidation Co. , 576 B.R. 761, 771 (Bankr. S.D.N.Y. 2017), aff'd , 599 B.R. 706 (S.D.N.Y. 2019) ("Congress selected the broadest possible definition to ensure that ‘all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.’ ") (citation omitted). Indeed, "even unknown claims may be discharged so long as there is a sufficient relationship between the debtor and the claimant such that the potential future claims might be contemplated and addressed in the bankruptcy proceeding." DPWN Holdings (USA), Inc. v. United Air Lines, Inc. , 871 F. Supp. 2d 143, 152 (E.D.N.Y. 2012) (citations omitted).
Title 11, §§ 101(5)(A) & (B) of the United States Code provide that
5. The term "claim" means
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
There is no question that the provisions of 11 U.S.C. §§ 101(5)(A) & (B) have as a primary, and salutary, purpose, "to give debtors ‘a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.’ " Perez v. Campbell , 402 U.S. 637, 648, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971) (citing Local Loan Co. v. Hunt , 292 U.S. 234, 244, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) ). However, that salutary purpose comes at a cost: the "expansive language" utilized to sweep virtually all claims, including potential claims, into the bankruptcy proceedings can pose a trap for the unwary. This case perfectly illustrates the point: Dr. Katrib, who had constructive notice of the hospital's bankruptcy filing, continued to negotiate his dispute with the hospital rather than file a proof of claim, apparently unaware that the factual underpinning of his claims having occurred prior to the date on which the bankruptcy petition was filed, the claims had to be litigated, if at all, in the bankruptcy proceeding.
Davenport , 495 U.S. at 558, 110 S.Ct. 2126.
Dr. Katrib does not contend otherwise.
Thus, I concur with the majority that absent a viable due process challenge, confirmation of the hospital's bankruptcy plan would operate to discharge Dr. Katrib's claims, including his claim that the hospital had failed to provide him with a hearing on the merits of the suspension/revocation of his hospital privileges prior to institution of the bankruptcy proceeding. Where I part company with the majority, however, is that in my view, Dr. Katrib has a viable due process challenge to the discharge: the facts and circumstances alleged in his complaint, construed in a light most favorable to him, are sufficient to support a finding that he was a "known creditor" who was entitled to – but did not receive – actual written notice of the bar date for submission of a proof of claim in the bankruptcy proceeding. In this regard, it is hornbook law that "[a] court reviewing the sufficiency of a complaint should view the motion to dismiss with disfavor, should presume all of the plaintiff's factual allegations are true, and should construe those facts, and inferences arising from those facts , in the light most favorable to the plaintiff." Mountaineer Fire & Rescue Equip., LLC v. City Nat'l Bank of W. Virginia , 244 W. Va. 508, 520, 854 S.E.2d 870, 882 (2020) (emphasis added and citation omitted). Although the majority gives lip service to this unassailable proposition, it then proceeds to give the factual allegations of the complaint short shrift and ignores any inferences favorable to Dr. Katrib.
I disagree with the majority's characterization of this claim as a "Mahmoodian [Mahmoodian v. United Hosp. Ctr., Inc. , 185 W. Va. 59, 404 S.E.2d 750 (1991) ] claim," because it is undisputed that Dr. Katrib has never been afforded a hearing on the merits of his suspension and threatened revocation of his hospital privileges. A Mahmoodian claim is an administrative appeal from a decision reached in an evidentiary hearing: "The decision of a private hospital revoking or otherwise affecting adversely the staff appointment or clinical privileges of a medical staff member will be sustained when, as an element of fair hearing procedures , there is substantial evidence supporting that decision." Id. at 60, 404 S.E.2d at 751, Syl. Pt. 4 (emphasis added).
In Camden-Clark Memorial Hospital Corp. v. Nguyen , 240 W. Va. 76, 807 S.E.2d 747 (2017), we distinguished Mahmoodian on that specific ground:
[T]his is not an administrative appeal following an evidentiary hearing where a physician is claiming that violations of fair procedure or lack of substantial evidence requires a court to set aside the hospital's decision to deny reappointment.... [because] Physician, a doctor who performed surgeries at the hospital for five years and was never the subject of disciplinary action, did not receive a hearing[.]
Id. at 80, 807 S.E.2d at 751.
In a bankruptcy proceeding, a known creditor is one whose identity is either known or "reasonably ascertainable by the debtor." Tulsa Pro. Collection Serv., Inc. v. Pope , 485 U.S. 478, 490, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). On the flip side of the coin, an unknown creditor is one whose "interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to knowledge [of the debtor in bankruptcy]." Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 317, 70 S.Ct. 652, 94 L.Ed. 865 (1950). Under the facts and circumstances of this case, the only possible inference to be drawn is that the authorities in charge of administration of the hospital, a small-market medical facility, were well aware of the ongoing dispute arising from the hospital's attempt to suspend, and ultimately revoke, the privileges of a sixty-seven-year-old physician who had held such privileges for decades. Dr. Katrib had retained counsel, and lawyers on both sides of the dispute had been in communication for more than six months while the matter was investigated. Dr. Katrib had secured the services of an expert and submitted the expert's opinion to the hospital to rebut the claim that his treatment and care of a particular patient was below the standard of care. The hospital had sent Dr. Katrib a letter informing him of its intention to seek not only suspension but also permanent revocation of his privileges, and Dr. Katrib had filed a formal request for a hearing, which was his right under the hospital's Medical Bylaws. Although no hearing had been scheduled, the circuit court found as a fact that "[b]oth parties agreed ... that Dr. Katrib, through two prior law firms, and Thomas Hospital's counsel had been in negotiations over the termination of Dr. Katrib's clinical privileges prior to and during the pendency of the Bankruptcy Case." (Emphasis added).
In this regard, "[a] debtor does not have a ‘duty to search out each conceivable or possible creditor and urge that a person or entity to make a claim against it.’ " Chemetron Corp. v. Jones , 72 F.3d 341, 346 (3d Cir. 1995) (citing In re Charter Co. , 125 B.R. 650, 654 (M.D. Fla. 1991) ).
Ignoring all of these facts, the majority finds that the issue of whether Dr. Katrib was a known creditor "turns on whether ... Dr. Katrib's violation-of-medical-staff-bylaws claim [was] ‘reasonably ascertainable’ from a search of its records." The majority adopts this test from In re Nortel Networks, Inc. , 531 B.R. 53 (Bankr. D. Del. 2015), where the court stated that "[r]easonable diligence [in ascertaining the identity of a creditor] does not require impracticable and extended searches.... The requisite search instead focuses on the debtor's own books and records. Efforts beyond a careful examination of these documents are generally not required." Id. at 63 (citation omitted). The majority's reliance on Nortel is misplaced. First, I find nothing in the appendix record to evidence the hospital's "careful examination" of its books and records to determine the identities of creditors, let alone that such "careful examination" failed to yield any information about the dispute with Dr. Katrib. Second, the relevant entity in Nortel was the "ultimate corporate parent of Nortel entities spread across the globe," which could hardly be expected to be aware of some wrongful termination actions threatened by employees of Nortel's Canadian affiliate. Here, in contrast, the relevant entity is a hospital located in Charleston, West Virginia, which would surely be aware of a protracted ongoing dispute involving alleged malpractice and the resultant suspension of a physician's privileges, without having to search its books and records. Third, even assuming arguendo that such a search of the hospital's books and records was undertaken, the search would necessarily have revealed communications between the hospital and Dr. Katrib – and their respective counsel – concerning that alleged malpractice and suspension.
In re Nortel Networks, Inc. , 531 B.R. at 59 n.6.
The majority also adopts the hospital's argument that even though it knew of the administrative proceedings involving the suspension and threatened revocation of Dr. Katrib's privileges, it did not know that the matter would result in a civil action alleging tort claims and seeking monetary damages. This assertion cannot pass the "straight face" test; is it even remotely believable that where Dr. Katrib had been fighting the suspension of his privileges for more than six months, had hired counsel, had secured the services of an expert, and had requested a hearing but never been given one, it didn't occur to the hospital that he would take the fight to court?
Based on the allegations of the complaint and the facts as agreed to by the parties, I believe that resolution of this case should fall within the paradigm established in the case of In re Talon Auto. Grp., Inc. , 284 B.R. 622 (Bankr. E.D. Mich. 2002), where the facts are materially similar to those before us. In late 2000, Sheryl Vargo filed a grievance with her union steward challenging her suspension from employment stemming from an altercation with a coworker, as well as Talon Automotive's failure to address Ms. Vargo's claims of sexual harassment. Id. at 623. The grievance was still pending when the company filed for bankruptcy protection on June 29, 2001. Id. at 623-24. The company did not list Ms. Vargo as a creditor because "it did not believe she had a claim." Id. at 624. On October 12, 2001, the company fired Ms. Vargo, and two months later she filed a lawsuit in state court alleging wrongful termination, intentional infliction of emotional distress, sexual harassment, and retaliation. Id. Talon moved to dismiss the suit, contending that Ms. Vargo was bound by the discharge injunction which went into effect upon confirmation of its bankruptcy plan. The state court concluded that it had no authority to decide these issues, and the company filed its motion in the bankruptcy court. Id.
Title 11 U.S.C. § 524(a)(2) provides that
(a) A discharge in a case under this title –
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
The bankruptcy court prefaced its discussion by noting that "[d]ischarge under the [Bankruptcy] Code ... presumes that all creditors bound by the plan have been given notice sufficient to satisfy due process." Id. at 625 (citation omitted). In that regard, "[w]hat constitutes reasonable notice varies according to the knowledge of the parties.... [and] if a creditor is known to the debtor, notice by publication is not constitutionally reasonable, and actual notice of the relevant bar dates must be afforded to the creditor." Id. (emphasis added and citation omitted). The court explained that
[k]nown creditors are defined as creditors that a debtor knew of, or should have known of, when serving notice of the bar date. Among known creditors may be parties who have made a demand for payment against a debtor in one form or another before the compilation of a debtor's schedules. Typically, a known creditor may have engaged in some communication with a debtor concerning the existence of the
creditor's claim. This communication by itself does not necessarily make the creditor known. Direct knowledge based on a demand for payment is not, however, required for a claim to be considered "known." A known claim arises from facts that would alert the reasonable debtor to the possibility that a claim might reasonably be filed against it.
Id. at 625-26 (citing In re Drexel Burnham Lambert Grp., Inc. , 151 B.R. 674, 681 (Bankr. S.D.N.Y. 1993) ).
In the instant case, the facts as detailed in the complaint were certainly sufficient to alert the hospital "to the possibility that a claim might reasonably be filed against it." Talon , 284 B.R. at 626. As in Talon , hospital authorities knew Dr. Katrib, knew he was fighting a suspension and potential revocation of his privileges, knew that he had counsel, and knew that he had requested (but not received) a hearing. Accordingly, Dr. Katrib was a known creditor who was entitled to receive actual notice of the hospital's bankruptcy and the bar date; and because actual notice was not given to him, "due process considerations mandate the conclusion that [his] claim[s were] not discharged and [he] is not bound by the terms of the confirmed plan." Id.
With respect to the claim in Dr. Katrib's complaint involving the hospital's failure to provide him with a hearing on the merits of the suspension and potential revocation of his privileges, I cannot agree that the hospital's discharge in bankruptcy insulated it from liability for its continuing course of conduct after the bankruptcy was concluded. In this regard, in O'Loghlin v. County of Orange , 229 F.3d 871, 875 (9th Cir. 2000), the United States Court of Appeals for the Ninth Circuit cogently observed that
[t]he bankruptcy laws provide no justification for such a result. Their purpose is to provide a "fresh start" to a discharged debtor. United States v. Sotelo, 436 U.S. 268, 280, 98 S.Ct. 1795, 56 L.Ed.2d 275 (1978) ; Kokoszka v. Belford, 417 U.S. 642, 645–646, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) ; Lines v. Frederick, 400 U.S. 18, 19, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970). A suit for illegal conduct occurring after discharge threatens neither the letter nor the spirit of the bankruptcy laws. A "fresh start" means only that; it does not mean a continuing licence [sic] to violate the law.
229 F.3d at 875 (emphasis added); cf. Partners for Health & Home, L.P. v. Seung Wee Yang , 488 B.R. 109, 119 (C.D. Cal. 2012) ("[Debtor's] 2009 bankruptcy discharge could not have excused [him] for any infringing activities that he continued post-discharge, including his continuing to leave online any infringing material that he originally posted pre-petition.").
In this case, it was one thing for the hospital to drag its feet on giving Dr. Katrib a hearing between October 2, 2019, when he formally requested one, and January 10, 2020, when the bankruptcy petition was filed, but it was another thing entirely for the hospital to continue its course of conduct during and after the bankruptcy. To this day, Dr. Katrib has never had a hearing, and thanks to the majority's crabbed view of the law he will never have one. In my view, a very reasonable inference to be drawn from the allegations in the complaint is that the hospital deliberately set a trap, holding Dr. Katrib at bay during the bankruptcy by continuing to negotiate with him, and then springing the trap when the bankruptcy was concluded. What happened here violates all fundamental notions of fairness: a physician has lost his ability to contest what could very well be a career-ending action on the part of the hospital because this Court has decided – notwithstanding the undisputed evidence to the contrary – that he was "unknown" to the institution where he had held privileges for thirty-four years. This is not just unfair; it is manifestly unjust.
For these reasons, I respectfully dissent.