UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

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luRe:

SAINT VINCENTS CATHOLIC MEDICAL

Appeal from the United States . Bankruptcy Court for the

TABLE OF CONTENTS

Table of Authorities ------'

Statement of Jurisdiction j, l

Statement of the Issues l

Statutes Involved 2

Statement of the Case 5

A.

Nature of the Case 5

B.

The Course of Proceedings and Disposition in the Bankruptcy Court. .5

C.

Statement of Facts 8

--------------------~

Summary of the Argument 9

Argwnem ll

1. 11 U.S.c. §362 Does Not Operate As a Stay of the State Court Action __ 11

a.

The State Court Action could not have been commenced

before the bankruptcy case ll

b.

The State Court Action did not seek to exercise control over

property of the estate. 12

c.

The protection of public health and well-being sought in the

State Court Action is not subject to the automatic stay 16

II. It is Against Public Policy for the Bankruptcy Court to Authorize

Debtors to Violate the Law in Order to Save Money for Creditors 17

III. The Bankruptcy Court Does Not Have The Authority to Disenfranchise New York State Taxpayers by Preventing a Taxpayer Derivative

Action Under New York State Finance Law 21

IV. It is Improper for the Bankruptcy Court to Retain Exclusive Jurisdiction With Respect to All Matters Related to the Closure

of the Debtors' Hospital 23

Conclusion .25

TABLE OF AUTHORITIES

Federal Case Law

48th St. Steakhouse, Inc. v. Rockefeller Group, Inc.,

835 F.2d 427 (2d Cir. 1987) 13, 14

Agency for Deposit Insurance, Rehabilitation, Bankruptcy and Liquidation of Banks v. Superintendent of Banks of the State of New York,

310 B.R. 793 (S.D.N.Y. 2004) 23

In re Atreus Enter., Ltd.,

120 B.R. 341 (Bania. S.D.N.Y.1990) 14

In re Financial News Network Inc.,

158 B.R. 570 (S.D.N.Y. 1993) 14

Maritime Elec. Co. v. United Jersey Bank,

959 F.2d 1194 (3d CiT. 1991) 14

Martin-Trigona v. Champion Federal Savings and Loan Ass 'n,

892 F.2d 575 (7th CiT. 1989) 14

In Re Methyl Tertiary Butyl Ether Products Liability Litigation,

522 F.Supp.2d 569 (S.D.N.Y. 2007) 17, 21,22

Mission Iowa Wind Co. v. Enron C01p.,

291 B.R. 39,43 (S.D.N.Y. 2003) 18,20

Roslyn Savings Bank v. Comcoach C01p.,

698 F.2d 571 (2d CiT. 1983) 10, 13,23

111 re Smart World Technologies, LLC,

423 F.3d 166 (2d CiT. 2005) 14

New York Case Law

111 the Matter of Ellen Reese, et al v. Richard F. Daines, et al,

62 A.D.3d 1254,877 N.Y.S.2d 801 (4th Dep't 2009) 19

Matter of Me Clo ud, Index No. 22406/05

(N.Y. Sup. Ct. Kings Cty., July 27,2005) (Jones, J.) 15, 16

Mclean Trucking Company v. Doyle,

184 N.Y.S.2d 114 (N.Y. Sup. Ct. 1959) 24

Orth-OsVlsion, Inc. v. City of New York, et al,

101 Misc. 2d 987,422 N.Y.S.2d 781 (N.Y. Sup. Ct. 1979) 20,22

1

Paduano v. City of New York,

257N.y'S.2d 531 (N.Y. Sup. Ct. 1965), aff'd by 260N.Y.S.2d 831

(1st Dep't 1965), aff'd by 17 N.Y.2d 875 (1966). 22

Federal Statutes

11 U.S.C. §362(a), 1, 2,8,10, 11, 12, 17,21,25

11 U.S.C. §362(b), I, 2, 9,10,16,21

28 U.S.C. §1334(b), 23

28 U.S.C. §1334(c). .24

New York Statutes

New York Codes, Rules & Regulations, Title 10, §401.3 3, 5, 12, 17, 18, 20

New York Finance Law §123-b. l,2, 10, 17,21, 25

New York General Municipal Law, §51 ___;2

New York Not-far-Profit Corporation Law, §521 3, 19

New York Public Health Law §2806(6) 4, 5, 6, 12, 18,20

New York Public Officers Law, § 1 00 3, 19

New York State Constitution, Article XVII, §3. 3, 9, 17,22

New York State Constitution, Article VII, §1 3, 17,22

Secondary Authority

3 Collier on Bankruptcy §362.03(5) (15th ed. Rev. 1996), 14

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STATEMENT OF JURISDICTION

Appellants Richard Stack, Jane Doe Nurse, John Doe Doctor, Joan Bryson, Barbara Police,

Patricia Slone, John M. Gillen and Jay Kallio (hereinafter "Appellants" or "Supreme Court

Plaintiffs"), Plaintiffs in the matter of Richard Stack. et al v. New York State Department of Health. et

al. in New York State Supreme Court, New York County Index No.1 0511411 0 (hereinafter "the State

Court Action") hereby appeal under 28 U.S.C. §158(a)(I) from the Order Enforcing the Interim

Closure Order and the Automatic Stay of The Honorable Cecelia G. Morris, United States Bankruptcy

Judge entered on April 22, 2010 and the Memorandum Decision of The Honorable Cecelia G. Morris,

United States Bankruptcy Judge entered on May 14, 2010 in the Chapter 11 bankruptcy matter of

Saint Vincent's Catholic Medical Centers of New York (hereinafter "Appellees" or "Debtors").

STATEMENT OF THE ISSUES

1. Whether 11 U.S.C. §362(a) operates as a stay of the State Court Plaintiffs' action seeking to compel the Commissioner of the Department of Health to enforce its police power by requesting an investigation of the Hospital by the Attorney General under II U.S.C . . §362(b)(4).

2. Whether a bankruptcy court can authorize debtor to violate its state regulatory obligations, in specific allowing a hospital to close without complying with New York State Department of Health Regulations, under 11 U.S.C. §362(a).

3. Whether a bankruptcy court can bar a taxpayer from bringing an action under N ew York State Finance Law § 123-b against a third party non-debtor state agency to compel it to use its state police power and comply with state regulations using the bankruptcy court's power under 11 U.S.C. §362(a).

4. Whether the Court erred and abused its discretion in denying the State Court Plaintiffs' the right to proceed in state court or bankruptcy court on a derivative taxpayer action under New York State Finance Law §123-b.

5. Whether the Court's denial of the State Court Plaintiffs' right to proceed on a derivative taxpayer action under New York State Finance Law § 123-b violates the substantive and procedural due process rights of New York State citizens.

6. Whether the Court erred and abused its discretion in determining that the relief sought in the State Court action was an "act ... to exercise control over property of the estate" under 11 U.S.C. §362(a)(3).

7. Whether the Court erred and abused its discretion in determining that the relief sought "could have been commenced before the commencement of the [bankruptcy] case under 11 U.S.C. §362(a)(l).

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8. Whether the Court erred and abused its discretion in determining that Debtors had implemented the Closure Plan for its Manhattan hospital in accordance with state law absent a full evidentiary hearing.

9. Whether the Court erred and abused its discretion in ordering and thereby allowing Debtors to continue to implement the Closure Plan when Debtors have failed to do so in accordance with state law.

10. Whether the Court erred and abused its discretion in issuing the Final Order Pursuant to Sections 105(a),363, and 1108 of the Bankruptcy Code authorizing The Debtors to Continue the Implementation of a Plan of Closure for the Debtors' Manhattan Hospital, including but not limited to, retaining "jurisdiction to hear and determine all matters arising from or related to this Final Order."

STATUTES INVOLVED

• 11 U.S.C. §362(a) states in pertinent part:

"Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of-

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under tins titles, or to recover a claim against the debtor that arose before the commencement of the case under this title;"

"(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate."

• 11 U.S.C. §362(b) states in pertinent part:

"The filing of a petition under section 301, 302, or 303 of tins title ... does not operate as a stay-

(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit ... to enforce such governmental unit's or organization's police and regulatory power."

• New York Finance Law §123-b states in pertinent part:

"Notwithstanding any inconsistent provision of law, any person who is a citizen taxpayer, whether or not such person is or may be affected or specially aggrieved by the activity herein referred to, may maintain an action for equitable or declaratory relief, or both, against an officer or employee of the state who in the course of Ins or her duties has caused, is now causing, or is about to cause a wrongful expenditure, misappropriation, misapplication, or any other illegal or unconstitutional disbursement of state funds or state property ... "

• New York General Municipal Law, §Sl, states in pertinent part:

"All officers, agents, commissions, and other person acting, or who have acted, for and on behalf of any county, town, village or municipal corporation in this state ... may be prosecuted, and an action maintained against them to prevent any illegal official action on the part of any such officers, agents, commissioner or other persons, or to prevent waste or injury to, or to restore and make good on the preservation and protection of public resources."

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• New York State Constitution, Article XVII, §3, states in pertinent part:

"The protection and promotion of the health of the inhabitants of the state are matters of public concern and provision therefore shall be made by the state and by such of its subdivisions and in such manner, and by such means as the legislature shall from time to time determine."

• New Yorl c State Constitution, Article VII, §1, states in pertinent part:

"The aid, care and support of the needy are public concerns and shall be provided by the state and by such of its subdivisions, and in such manner and by such means, as the legislature may from time to time determine."

• New York Not-for-Profit Corporation Law, §S21, which states in pertinent part:

"Failure of the corporation to comply in good faith with the notice or disclosure or reporting provisions of section 501 (Stock and shares prohibited; membership certificates authorized), or paragraph (c) of section 503 (Capital certificates), or paragraph (c) of section 505 (Subvention certificates), or paragraph (b) of section 513 (Administration of assets received for specific purposes), or section 518 (Reports to comptroller), or section 520 (Reports of corporation), shall make the corporation liable for any damage sustained by any person in consequence thereof."

• New York Public Officers Law, §100, states in pertinent part:

"It is essential to the maintenance of a democratic society that the public business be performed in an open and public manner and that the citizens of this state be fully aware of and able to observe the performance of public officials and attend and listen to the deliberations and decisions that go into the making of public policy. The people must be able to remain informed if they are to retain control over those who are their public servants. It is the only climate under which the commonwealth will prosper and enable the governmental process to operate for the benefit of those who created it."

• New York Codes, Rules & Regulations, Title 10, §401.3, states in pertinent part:

"(g) No medical facility shall discontinue operation or surrender its operating certificate unless 90 days' notice of its intention to do so is given to the commissioner and his written approval obtained.

(h) The operator shall notify, and in the event of his failure to do so the department shall notify, as appropriate, each patient or resident, his next of kin, his sponsor and his physician, either directly or through the physician's medical society, immediately upon receipt of notification by the department revoking, suspending, limiting, annulling or refusing to issue the operating certificate or approving voluntary surrender of the certificate and shall discharge or transfer all patients or residents to other appropriate facilities prior to discontinuing operation.

(i) No medical facility shall discontinue operation or surrender its operating certificate whether voluntarily or pursuant to judicial or administrative proceedings without first obtaining the commissioner's written approval of a plan for the maintenance, storage and safekeeping of its patient's medical records. The plan shall provide adequate safeguards for these records, make them accessible to the patients and their physicians, and may provide for their ultimate disposition."

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• New York Public Health Law, states in pertinent part:

"§2806 (6)(a) ... [T]he commissioner shall suspend, limit, modify, or revoke a hospital operating certificate, after taking into consideration the total number of beds necessary to meet the public need, the availability of facilities or services such as preadmission, ambulatory, home care or other services which may serve as alternatives or substitutes for the whole or any part of any such hospital facility, and, in the case of modification, the level of care and the nature and type of services provided or required by all or some of the patients in or seeking admission to such hospital facility, and whether such level of care is consistent with the operating certificate of the hospital, and after finding that suspending, limiting, modifying, or revoking the operating certificate of such facility would be within the public interest in order to conserve health resources by restricting the number of beds and/or the level of services to those which are actually needed.

(b) Whenever any finding as described in paragraph (a) of this subdivision is under consideration with respect to any particular facility, the commissioner shall cause to be published, in a newspaper of general circulation in the geographic area of the facility at least thirty days prior to making such a finding an announcement that such a finding is under consideration and an address to which interested persons can write to make their views known. The commissioner shall take all public comments into consideration in making such a finding.

(c) The commissioner shall, upon making any finding described in paragraph (a) of this subdivision with respect to any facility, cause such facility and the appropriate health systems agency to be notified of the finding at least thirty days in advance of taking the proposed action to revoke, suspend, limit, or modify the facility's operating certificate. Upon receipt of any such notification and before the expiration of the thirty days or such longer period as may be specified in the notice, the facility or the appropriate health systems agency may request a public hearing to be held in the county in which the hospital is located. In no event shall the revocation, suspension or limitation take effect prior to the thirtieth day after the date of the notice, or prior to the effective date specified in the notice or prior to the date of the hearing decision, whichever is later.

(d) In the case of a modification of an operating certificate by the commissioner pursuant to paragraph (a) of this subdivision, the commissioner may not modify an operating certificate to reclassify beds previously authorized as hospital beds to domiciliary care beds or to increase the total number of beds authorized by such certificate, and, provided further that no patient in a hospital is to be removed as a result of the pendency or conclusion of a proceeding pursuant to this subdivision.

(f) In determining whether there is a public need for any services or facilities as required by this subdivision, the commissioner shall consider the advice of the state health planning and development agency designated pursuant to the provisions of the national health planning and resources development act of nineteen hundred seventy-four and any amendments thereto and the state health plan developed thereunder."

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STATEMENT OF THE CASE

A. Nature of the Case

This is an appeal of two decisions of The Honorable Cecelia G. Morris, United States Bankruptcy Judge entered in the Chapter 11 cases In Re: Saint Vincent's Catholic Medical Centers of New York, et al, Case No. 10-11963 on April 22, 2010 and May 14, 2010. The first decision determined that Appellants were stayed from bringing a state court action against the New York State Department of Health and Richard Daines, in his official capacity as the Commissioner of the Department of Health (hereinafter collectively the "DOH") to (l) stay closure of Appellees' Manhattan hospital (hereinafter "the Hospital") until the court could confirm it was happening lawfully and (2) compell an investigation by the New York State Attorney General regarding the unlawful closure of the Hospital. The Court further ordered that it would retain jurisdiction "with respect to all matters arising from or related to ... any other actions or proceedings concerning the closure of the Hospital." (Docket No. 115, hereinafter "Order to Enforce the Interim Order"). The second decision reiterates this and further ordered that the Appellants did not haves standing to proceed in Bankruptcy Court because they were neither a creditor nor a debtor. The Court also concluded that "the process of winding down the Hospital has been done in a procedurally proper manner" (Docket No. 275, hereinafter "the Memorandum Decision").

B. The Course of Proceedings and Disposition in the Bankruptcy Court

On April 14, 2010, Appellees, a 501(c)(3) public charity, which qualify as a public body, filed a voluntary petition for Chapter 11 bankruptcy in the Bankruptcy Court of the Southern District of New York with the intent to close the Hospital. The DOH neither fulfilled its regulatory obligations, pursuant to N.Y. Public Health Law §2806(6) and 10 NYCRR §41O.3, to stop this unlawful closure, nor fulfilled its specific statutory requirements under N.Y. Public Health Law §2806(6)(a)-(c) to ensure continuity of service, or in the alternative make a finding that a hospital was not necessary

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under N.Y. Public Health Law §2S06(6)(a). There currently exists no hospital despite the Certificate of Need issued by the state.

After filing their Chapter 11 petition, Appellees filed a: number of first-day motions, including the "Motion of the Debtors for Entry of Interim and Final Orders Pursuant to Sections 10?(A), 363, and 110S of the Bankruptcy Code (A) Authorizing the Debtors to Continue the Implementation, in Accordance with New York State Law, of a Plan of Closure for the Debtors' Manhattan Hospital and Certain Affiliated Outpatient Clinics and Practices, and (B) Scheduling a Final Hearing." (Docket No. 10, hereinafter "Motion for Interim Closure Order"). Without requesting a full evidentiary hearing, or proof of DOH written approval of a Closure Plan, proof of public notice as required by N.Y. Public Health Law §2806(6)(b), a plan for continuity of services, or even receipt of the required Closure Plan, and despite the fact that it had only been 7 days since Appellees' had given written notice to the DOH of the intention to close the Hospital, the Bankruptcy Court issued an order "authorizing the debtors to continue the implementation, in accordance with New York State law, of a plan of closure." (Docket No. 53, hereinafter "Interim Closure Order," emphasis added).

On April 20, 2010, Appellants brought a New York State taxpayer derivative action seeking a temporary restraining order against the DOH. During initial arguments, Judge Marilyn Diamond responded to Appellees' claim that the State Court Action was barred by the automatic stay by requesting that Appellants clarify jurisdictional issues by seeking a determination from Bankruptcy Court as to which court should assert jurisdiction and hear this matter. On April 21,2010, Appellants sought a conference in Bankruptcy Court (Docket No. 100), and filed an Emergency Application for Ex Parte Relief for a Declaratory Judgment and Amended Interim Order seeking a declaratory judgment that their State Court Action could continue in State Court or, in the alternative, to lift the automatic stay with respect to the State Court Action; and amending the Interim Order to stay any closure of the Hospital until May 6, 2010 and allow aggrieved parties to seek relief in the courts of most competent jurisdiction (Docket No.1 01, hereinafter "Order to Show Cause").

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On April 21, 2010, the Appellees filed a Motion for Entry of an Order Enforcing the Interim Closure Order and the Automatic Stay (Docket No. 104, hereinafter "Motion to Enforce Stay"). On April 21, 2010, Appellants filed opposition to this motion (Docket No. 109, hereinafter "Opposition to Motion to Enforce Stay") and Appellees filed opposition to the Order to Show Cause (Docket No. 110, hereinafter "Opposition to Order to Show Cause"). On April 22, 2010, Appellants filed a Reply to the Order to Show Cause (Docket No. 112, hereinafter "Reply to Order to Show Cause").

The Bankruptcy Court held a hearing on April 22, 2010 on the Order to Show Cause and the Motion to Enforce the Stay and subsequently signed Appellees' Order to enforce the Interim Closure Order, which stated the Bankruptcy Court retained "jurisdiction with respect to all matters arising from or related to the implementation of the Interim Closure Order, this Order, and any other actions or proceedings concerning the closure of the Hospital and the transfer or closure of the outpatient programs and clinics associated with and operated by tile Hospital" The Court enjoined tile State Court Action and directed Appellants to present any objections at the May 6, 2010 hearing (Docket No. 115).

On April 26, 2010, Appellants filed an objection to entry of the Final Order Authorizing Debtors to Continue Implementation of Plan of Closure (Docket No. 189, hereinafter "Objection to Final Closure Order") asserting the claims and jurisdiction pled in the State Court Action, by including tile Complaint and incorporating it in this objection. Appellees replied on May 4, 20ID (Dock.et No. 169), and on May 5, 2010 Appellants filed a sur-reply, which included affidavits and declarations further establishing that the closure of the Hospital was happening in an unlawful manner and in a manner that was harming Appellants and jeopardizing the health and safety of the general public (Docket No. 189).

At the May 6, 2010 hearing, the Bankruptcy Court denied the Appellants' Objection to the Final Closure Order asserting that Appellants did not have standing and issued a Memorandum Decision on May 14, 2010 granting Appellees' final order regarding the closure of the Hospital,

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which had already occurred on April 30,2010, as previously scheduled, and enjoining the Appellants' State Court Action. The basis of this decision, which denied Appellants' efforts to have their matter heard in either State Court or Bankruptcy Court, held that Appellants were barred by 11 U.S.C. §362(a) to bring their claims in State Court because Appellants were not a "governmental unit" and that Appellants could not bring their claim in Bankruptcy Court because they were not debtors or creditors. In specific, the Bankruptcy Court held that (1) the automatic stay enjoins the State Court Action, (2) the police power exception is inapplicable as asserted by State Court Plaintiffs, (3) the State Court Plaintiffs do not have standing to request relief from the stay and (4) even if the State Court Plaintiffs have standing to object to entry of the Final Closure Order, they have not demonstrated cause to not enter the order (Docket No. 275).

Appellants filed a Notice of Appeal of the Order Enforcing the Interim Closure Order on May 5,2010 and filed a notice of Appeal of the Memorandum Decision on May 28,2010. The parties filed Designations of the Record with the Bankruptcy Court and once these appeals were docketed in the United States District Court of the Southern District of New York, the cases were consolidated by Order of this Court dated July 1,2010.

C. Statement of the Facts

The Hospital was the only inpatient, outpatient, Level I trauma center and acute care facility that served Manhattan from Battery Park to Midtown. It has served as a unique health care facility for over 160 years, including but not limited to its critical role in treating those injured in the terrorist attacks of September 11, 2001 given its Level I trauma capabilities. It is also known for its work with the LGBT community and specifically its world renowned HIV/AIDS clinic. The Hospital accepts substantial tax-payer funds for its operations, including city, state and federal government monies, is licensed and regulated by the DOH and has a state- issued Certificate of Need.

In early 2010, Appellees disclosed they were approximately $700 million in debt, having assumed the debt of other medical facilities and having mismanaged their operations. In response to

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tins, a Governor's Task Force was assembled and $6 million made available by the State to allow the Hospital to close and a new entity to take over operations. It is Appellants' good faith belief that in February of 2010 the Hospital submitted a Closure Plan to the DOH that proposed that Mt. Sinai would take over operations to relieve Appellees' financial problems and ensure the "promotion and protection of the health of the inhabitants," as obligated under the New York State Constitution, Article XVII, §3. It is Appellants' good faith belief that the DOH was unwilling to accept tins plan and as a result, the Hospital's Board of Trustees chose (by private vote) to close the Hospital in violation of state law with tile DOH's knowledge and wrongful acquiesence.

On April 14, 2010, the Hospital filed a Chapter 1 I bankruptcy petition seeking protection from its creditors. Among the creditors of tile Hospital were the pension funds for a substantial number of hospital employees including 1199/SEIU workers. As outlined above, on April 16,2010 Appellees were granted permission by the Bankruptcy Court to continue an unlawful closure of the Hospital.

SUMMARY OF ARGUMENT

In tile two decisions appealed from herein, the Bankruptcy Court fails to address why Appellants are not exempt from the automatic stay under 11 U.S.C. §362(a)(1) and has misapplied the exemptions under 11 U.S.c. §362(a)(b) and relevant case law. The Court also misunderstands derivative taxpayer standing and misapplies case law related to Appellants' basis for standing. Finally, the Court has not only failed to stop the Debtors from continuing to breach their state legal and regulatory obligations, it has in fact authorized the Debtors to commit these violations. More fatally, it has not addressed the issue of the DOH's obligations, tile named Defendants in the State Court Action, and misunderstands the additional obligations the DOH has to ensure public health and safety separate and aside from its duties to oversee the closure of the Hospital as well as the right of Appellants to file suit against tile DOH based on their standing as taxpayers.

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Appellants sought to compel the DOH to exercise its police power to protect the public health by both enjoining closure of the Hospital pending further order of the Court to ensure safeguarding of public health as well as compelling the DOH to request that the Attorney General investigate this issue. Neither of these causes of action fall within the automatic stay imposed by 11 U.S.C. §362 because the matter itself could not have been commenced before the filing of the bankruptcy case (11 U.S.C. §362(a)(1)} and the relief sought would not exercise control over property of the estate (11 U.S.C. §362(a)(3». The Court failed to respond to this. Most importantly, however, regardless of when the matter could be commenced or if there was exercise of control, the automatic stay under 11 U.S.C. §362 cannot be enforced against Appellants because the relief sought is exempt from the stay under 11 U.S.C. §362(b)(4) because the Supreme Court Plaintiffs brought a taxpayer derivative action under New York State Finance Law and, as such, stand in the shoes of the DOH, which is a government entity with regulatory and police powers and is exempt from the automatic stay.

In addition, the Bankruptcy Court should not have retained exclusive jurisdiction with respect to all matters related to the closure of the Hospital, especially this matter, and should have allowed tins action to proceed in New York State Supreme Court since state court is best suited to interpret state law and adjudicate equitable state law claims against state agencies, while the Bankruptcy Court's primary concern is with liquidating assets and distributing them among creditors. Finally, if the Bankruptcy Court insists on retaining jurisdiction over this matter, it must then also simultaneously concede to Appellants' standing as an interested party under the analysis described in Roslyn Savings Bank v. Comcoach Corp., the very standard the Court uses to reject Appellants' standing. Roslyn Savings Bank v. Comcoach Corp., 698 F.2d 571, 574 (2d. Cir. 1983) (describing a party in interest in Bankruptcy Court as "the one who, under the applicable substantive law, has tile legal right which is sought to be enforced").

While the Hospital filed a Chapter 11 proceeding due to mismanagement and the transfer of debt from other entities, tins does not dispose of the DOH's responsibilities to oversee a proper

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closure and ensure continuation of services. The DOH is a state agency that is charged with protecting and promoting the health and safety of the public and therefore granted significant police and regulatory powers with which to do so. Before the DOH can allow a hospital to close, it must receive 90-day notice of intention to close, grant written approval by the Commissioner of the closure plan, ensure notification of the public and provide for public comment. It is Appellants' assertion that not only were these steps not taken in the closure of the Hospital but that the DOH now is attempting to hide behind the protections of the Debtors to escape their obligations under the law. In response to dispositive evidence offered by Appellants that the DOH was allowing the Hospital to close unlawfully (See Docket No. 189, Exhibit A), the DOH quickly authored a dubious letter dated April 21,2010, to convince the Court it was not breaking the law (Docket No. 110, Exhibit A). However, closer examination of the letter reveals the exact opposite. In fact, it confirms that the Hospital did not give notice, there is no Closure Plan or written approval, and there is no plan in place for continued services. The absence of an approved Closure Plan is especially concerning not only because it is needed to ensure public safety during the closure but also after the closure to ensure continued services for the public. The details of why this plan was not approved and the reasons for these breaches will only be determined if Appellees' State Court Action is allowed to proceed. The DOH demonstrated it will only comply with the law if mandated to do so through the Appellants' State Court Action and the Bankruptcy Court erred in concluding that the Hospital was closing in accordance with the law. Most concerning though, it did not rule on whether the DOH was acting in accordance with the law.

ARGUMENT

1.11 U.S.C. §362 Does Not Operate As a Stay of the State Court Action

a. The State Court Action could not have been commenced before the banlauptcy case

The Bankruptcy Court erred and abused its discretion in determining that the State Court Action was precluded under the automatic stay imposed by 11 U.S.C. §362. Specifically, the

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Bankruptcy Court erred in ruling that the State Court Action "could have been commenced before the commencement of the [bankruptcy] case" and was therefore subject to the automatic stay under 11 U.S.C. §362(a)(l). Appellees claim to have submitted a Closure Plan to the DOH to close the Hospital on April 9, 2010 and first filed for bankruptcy on April 14,2010. It was not until Appellees began closing the Hospital on April 16, 2010 that the relief Appellants sought became relevant because it was at this point that the State Court Plaintiffs suffered injury by the DOH's failure to use its regulatory and police powers to stop this closure without the necessary conditions precedent. Again, it is not the Hospital that Appellants are suing, but the DOH, who did not advise the Court on Apri116, 2010, or at anytime, that the Commissioner had not granted written approval of any Closure Plan and that the Hospital therefore could not lawfully close, nor did it advise the Court of other requirements that needed to be met by the Hospital and the DOH before the Hospital could begin closure pursuant to state law. N.Y. Public Health Law §2806; 10 NYCRR §410.3. Appellants' State Court Action is not subject to the automatic stay under 11 U.S.C. §362(a)(l) because it could not have been commenced prior to the commencement of the bankruptcy case.

b. The State Court Action did not seek to exercise control over property of the estate

The Bankruptcy Court erred and abused its discretion in determining that the relief sought in the State Court action was an "act ... to exercise control over property of the estate" under 11 U.S.C. §362(a)(3). The Appellants brought suit in State Court seeking no financial relief and only equitable relief against the DOH, who is neither a debtor nor a creditor in this action, but rather a government entity with regulatory and police power, which was obligated to safeguard public health and safety while properly supervising the closure of the Hospital. The relief Appellants sought in the State Court Action was merely (1) to enjoin the DOH from approving a closure plan for the hospital before the court could review and approve such a plan (a finite period of time) and (2) to compel the DOH to request an investigation of the Hospital and its closure by the Attorney General. The Debtors are not named parties in the action and the relief sought would not exercise control over the Debtors' estate.

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Roslyn Savings Bank v. Comcoach Com., 698 F.2d 571, 574 (2d. Cir. 1983) (stating that "[u]ntil the debtor is named as a party-defendant the action does not affect the bankrupt estate").

Appellants requested that the DOH be enjoined from approving a Closure Plan until the court could determine whether the closure of the Hospital was lawful because Appellants had a good faith basis to believe the closure was in violation of law. Debtors failed to show there would be financial cost, but even if this process required the Appellees to incur any cost, it would be minimal, and more importantly, it would most likely be covered by government funds, which already provided most of Debtors' operating expenses. Moreover, regardless of cost, the DOH has an affirmative obligation to ensure the Hospital was closed properly and that the needs, as identified in the Hospital's Certificate of Need, were met through other medical facilities prior to permitting closure of the Hospital. The Bankruptcy Courtmisunderstands that the obligations of the DOH are not merely financial in nature as would be the case in a for-profit business. The DOH's obligations to regulate the Hospital extend beyond Debtors' financial obligations to its creditors, and includes obligations under New York Public Health Law §2806 and the New York State Constitution, Article XVII, §3.

Further, the Bankruptcy Court cites the case 48th St. Stealmouse. Inc. v. Rockefeller Group, Inc., 835 F.2d 427 (2d Cir. 1987) to claim that the relief Appellants seek will exercise control over the Debtors' estate. This case is distinguishable from the instant matter in many ways-the most significant being Appellees run a Hospital and not a steakhouse-necessary for ensuring the public health and safety of the public. In essence, before the DOH may allow the Hospital to close, the DOH would have had to affirmatively determine, through strict procedural steps that include public input, publication, and notice, that the need for the Hospital's services no longer existed. The 48th St. Steakhouse decision is also not applicable here because it stands for the notion that a mere possessory interest in real property can trigger the automatic stay, however the DOH does not have a possessory interest in the Debtors' real property, and is not attempting to assert one.

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An automatic stay under 11 U.S.C. §362(a) is not intended to obviate the obligations of a state authority to dispense with its regulatory duties. While the automatic stay does include prohibiting "any act ... to exercise control over property of the estate," 11 U.S.C. § 362(a)(3), this provision is intended to "assure an equitable distribution ofthe property among creditors" and therefore should be focused on prohibiting efforts to claim financial recovery against the debtors. In re Smart World Teclmologies. LLC, 423 F.3d 166 (2d Cir, 2005), citing 3 Collier on Bankruptcy §362.03(5) (l5th ed. Rev. 1996). Similarly, in 48th 81. 8tealdl0use, the termination of the business' sublease took away the opportunity to do business, whereas in this case Appellants merely seek to compel the DOH to obey the law. Furthermore, "[t]he principal policy behind the automatic stay of section 362 is 'to protect the bankrupt's estate from being eaten away by creditors' lawsuits and seizures of property before the trustee has had a chance to marshal the estate's assets and distribute them equitably among the creditors." In re Financial News Network Inc., 158 B.R. 570 (S.D.N.Y. 1993) (emphasis added), citing Martin-Trigona v. Champion Federal Savings and Loan Ass'n. 892 F.2d 575, 577 (7th Cir. 1989); Maritime Elec. Co. v. United Jersey Bank. 959 F.2d 1194, 1204 (3d Cir. 1991); see In re Atreus Enter .. Ltd, 120 B.R. 341,346 (Bankr. S.D.N.Y.1990) ("the automatic stay is intended as an umbrella to protect a debtor temporarily from the shower of law suits and collection efforts by creditors outside the bankruptcy court administering the debtor's case"). Appellants do not make any claims against the Debtors, let alone any financial claims and do not seek to seize property. Further, the property is protected and may be marshaled and distributed as soon as the DOH complies with its regulations. As such, the relief sought would not exercise control over the Debtors' estate.

It is interesting to note that while Debtors failed to establish there would be a loss to the estate, it can be argued that the Hospital's continued operations would incur costs of operations. But likewise, it would also earn revenues. In addition, the Hospital, as a public body, would be entitled to government funds to cover the period of time necessary to ensure lawful closure and the public's continued health and safety, if needed, and the conveyance of the Hospital to an appropriate sponsor,

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which could only happen through proper procedure, would net even more for the estate than liquidating a closed hospitaL Regardless, financial loss due to compliance with the law does not constitute exercising control over an estate, and the stay is not intended to allow a state agency to avoid its constitutional responsibilities such as safeguarding public health and safety.

Additionally, the second prong of Appellants' requested relief, namely to compel the Commissioner of the DOH to request an investigation of the Hospital and its closure by the Attorney General, would have no effect on Appellees or the estate of the Debtors whatsoever and the Court does not address this. It is crucial for tins investigation to proceed to determine the liability for current breaches of law and remedies for damages as well as the broader obligations tile DOH has beyond the Debtors' obligations. Further, the Appellants' action could be financially beneficial to tile estate if it is determined in this proceeding that t~le DOH was responsible for Debtors' illegal closure and Debtors are entitled to damages that both Debtors and Creditors incurred as a result.

The Bankruptcy Court raises tile decision in Matter of McCloud, Index No. 22406/05 (N.Y.

Sup. Ct. Kings Cty., July 27, 2005) (Jones, J.) to assert that a claim against the DOH should be stayed under 11 U.S.C. §362. It is first important to note that tins unpublished state court decision was never challenged tlrrough appeal and is certainly not controlling in either Federal Banlcruptcy Court or this Court, but more importantly is distinguishable from the matter herein. Perhaps the most glaring difference is that there was a Closure Plan, whereas neither the DOH nor Appellees have produced a Closure Plan in the instant matter. Furthermore, tile hospital that SVCMC sought to close in McCloud was only one hospital in the system, while SVCMC sought to keep its many other hospitals open. Justice Jones specifically highlighted this point when he stated, "[tjhis Court is particularly persuaded by the fact that if tins Court continued the Temporary Restraining Order, resources used to assist St. Mary's might affect critical services at the other hospitals and facilities." Justice Jones was concerned with the diversion of assets from functioning hospitals and what effect tins could have on tile well-being of current patients. In doing so, it is also important to note that McCloud had standing

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in state court to obtain a Temporary Restraining Order based on evidence presented to state court.

Therefore, if anything, the McCloud decision establishes precedent for state courts to hear matters

regarding temporary relief against the DOH.

TIle Bankruptcy Court seems to misunderstand that the dissolution or reorganization of the

corporate entity known as Saint Vincent's Catholic Medical Center does not complete the DOH's

obligations under the law when it concludes that "[tjhe final comments of counsel to the State Court

Plaintiffs is telling. They admitted, 'we think that Saint Vincent's obviously will and should

close ... we want to make sure that the services that are going to replace Saint Vincent's happen as

expeditiously as possible'" (Docket No. 245, p. 17). In reality, what counsel said was:

We think that Saint Vincent's obviously will and should close. The reason that we seek the Department of Health, [in] the complaint here is ... because we think that that kind of rapid closure without that kind of proper supervision .. .is a serious, serious public health and safety concern; and ... what we're seeking to do is [e ]nsure that the services, ... as Debtors' counsel had stated, there will be third parties that come forward. We want to make sure that the services that are going to replace Saint Vincent's happen as expeditiously as possible.

(May 6, 2010 Transcript, p. 69, lines 4-15). This makes clear that the Bankruptcy Court

misunderstood that while the closure of the Hospital was necessary, it was equally necessary that it be

done in accordance with the law and that a third party replace tins hospitaL This is the responsibility

of the DOH to ensure, as identified by tile Hospital's Certificate of Need. Appellant's State Court

Action sought to compel the DOH to fulfill these responsibilities but the Bankruptcy Court failed to

recognize any obligations greater than the liquidation of the corpus of the Hospital.

c. The protection of public health and well-being sought in the State Court Action is not subject to the automatic stay

In seeking to enjoin the Hospital's closure before the Court could determine whether the

closure was lawful, Appellants sought to compel the DOH to enforce its police power, an action

expressly excluded from the automatic stay pursuant to 11 U.S.C. §362(b)(4) for the exact public

policy reasons at stake here. Appellants' State Court Action was a taxpayer derivative action, brought

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under New York Finance Law § 123-b, whereby Appellants stand in the place of the DOH to compel

the agency to dispense with its obligations. The Court acknowledges that the Appellants have

standing in state court and that had the DOH brought this action, they would be exempt under the stay,

but stops short of acknowledging that Appellants should therefore be allowed to proceed with their

claim. Protecting the health and well-being of the public is a vital role of the DOH, as described in

the New York State Constitution Article XVII, §3 and Article VII § 1. When an agency such as the

DOH abdicates its statutory obligations, taxpayers have the right to file suit to compel them to enforce

the law. The Bankruptcy Court, citing the In Re Methyl Tertiary Butyl Ether Products Liability

Litigation decision, erred in its application of law and misstates that Appellants are personally

claiming they have regulatory and police powers by ignoring the derivative standing they are entitled

to as taxpayers. To explain, when Appellants appeared in State Court to effectuate this relief, they

were not asserting they had regulatory or police powers personally, but that the DOH did and was not

properly dispensing with them. See Section III, infra. 11 U.S.C. §362(a) does not operate as a stay of

the Appellants' State Court Action because the claim, and more directly the relief sought, is exempt

from such restriction.

Il. It is Against Public Policy for the Bankruptcy Court to Authorize Debtors to Violate the Law in Order to Save Money for Creditors

In the process of closing their Manhattan hospital, Debtors have violated numerous statutory

requirements, including but not limited to 10 NYCRR §401.3, which states in pertinent part, "[n]o

medical facility shall discontinue operation or surrender its operating certificate unless ninety days'

notice of its intention to do so is given to the commissioner and his written approval obtained." The

DOH has also violated its obligation to ensure that the services offered continue in a new facility or

facilities. By earliest estimations, Appellees decided to close the Hospital on April 9, 2010 yet by

April 30, 2010 the Hospital was closed, without taking the necessary steps and without the DOH's

proper oversight, but with the approval and authorization of the Court. The consequence of tills was,

."

and continues to be, devastating to the public. (See Docket #189, Exhibit Al. The Appellees

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provided little more than conclusory statements to justify the claim that the Hospital needed to be closed and yet the Bankruptcy Court authorized Debtors to simply shut down the only Level I Trauma Center in lower Manhattan denying Appellants' due process, and in doing so has created a serious public health crisis. (See Docket #189, Exhibit A). Strangely the Court concludes that demanding the DOH properly oversee this closure would jeopardize the health and safety of its patients. The Court erred in relying solely on the Debtors' business judgment and one Affidavit of Mark Toney, while wholly ignoring the obligations of both Appellees and the DOH under New York Public Health Law §2806(6) and 10 NYCRR §401.3 to allow the closing of a major medical institution. Such a situation should have warranted "meaningful scrutiny," and not merely cursory review. Mission Iowa Wind Co. v. Emon Corp., 291 B.R. 39, 43 (S.D.N.Y. 2003).

The Bankruptcy Court failed to exercise such scrutiny over the Debtors' choice to close the hospital, and while the Bankruptcy Court and the Debtors have claimed that the Patient Care Ombudsman and the Consumer Privacy Ombudsman will provide the necessary oversight of potential problems, the scope of these two ombudsmen's responsibility is narrowly construed under the Bankruptcy Code and neither position is given the statutory power necessary to actually do this. In essence, there is no substitute for proper oversight of a hospital closure and the health and safety of New Yorkers, and the Court has given no reason why the DOH should be excused from this responsibility. The Bankruptcy Court erred and abused its discretion in deferring to only the Debtors' business judgment in deciding to authorize the closure and signing the Appellees' Interim Closure Order, which authorized the Appellees' to implement a closure plan that the Court had not seen and, more importantly, a closure plan that did not comply with state law and had not been approved.

This mistake was exacerbated when the Bankruptcy Court further erred and abused its discretion in concluding that Debtors had implemented the Closure Plan in accordance with state law absent a full evidentiary hearing or review of the alleged Closure Plan and despite a letter submitted to the Court by the DOH dated April 21, 2010, which specifically states that "[ajpproval of the draft

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closure plan for the outpatient services is not granted at tins time." Even as late as April 21, 2010, the DOH admitted it had only granted "contingent" approval of tile inpatient services based upon the resolution of remaining issues. More concerning is that this letter references a Closure Plan submitted February 17, 2010, which upon information and belief was a plan to allow another hospital to take over operations, a request which was denied. This seems to imply there was no April 2010 Closure Plan submitted as claimed by Appellees and raises additional questions. At tile Bankruptcy Court hearing on May 6, 2010 only after numerous attempts to alert the Court to the seriousness of the issue, Judge Morris asked Neil Mann, a representative from the New York State Attorney General's Office, to speak on behalf of the DOH to the questions of whether tile Appellees had closed the Hospital in compliance with state legal and regulatory requirements and whether the DOH had followed its statutory mandates. Mr. Mann stated that the Hospital was in compliance with state law, but did not produce a single document, including the alleged Closure Plan itself, to support this assertion, and yet the Bankruptcy Court accepted this as fact and failed to hold any type of evidentiary hearing on this crucial question despite the presence of significant evidence that in fact they were not complying with the law.

The closing of the Hospital was also in violation of NY Not-far-Profit Corporation Law §521, as well as NY Public Officers Law § I 000 (also known as the "Open Meetings Law"). This hospital has been supported by substantial taxpayer funds, including federal, state and local monies, and therefore tile Hospital and Board are subject to the Open Meetings Law as the Hospital and its Board constituted a public body. In the Matter of Ellen Reese. et al v. Richard F. Daines, et aI, 62 A.D.3d 1254, 877 N.Y.S.2d 801 (4th Dep't 2009). In breach of this law, all meetings of the Board of Directors have been closed to the public, including the closed meeting on April 6,2010 in which the Board voted to close the Hospital and a closed meeting in which the Board voted to begin laying off staff.

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The DOH is liable for failing to exercise .appropriate oversight over the Appellees and failing to prevent these violations of law, which resulted in harm to the Appellants, as well as those similarly situated and the general public. 10 NYCRR §410.3; NY Public Health Law §2806; See Orth-OVision. Inc. v. City of New York, et al. 101 Misc. 2d 987, 422 N.Y.S.2d 781 (N.Y. Sup. Ct. 1979). The DOH breached its duty not only to ensure that the closure of the Hospital was completed lawfully, but to ensure continuity of services at the site of the Hospital or conducting public hearings to present its finding that a hospital is not needed. Neither the Bankruptcy Court nor the DOH questioned the Debtors' assertion that the Hospital must close without any other entity replacing it. This shows the improper degree of deference the Debtors have been awarded by both the Court and the DOH. See Mission Iowa Wind Co. v. Enron Corp., 291 B.R. 39, 43 (S.D.N.Y 2003).

The Bankruptcy Court has disregarded the various legal and regulatory requirements to which the Appellees and, more importantly, the DOH must be subject and failed to dispense with its duties to verify compliance with these laws. A simple 'yes' or 'no' question asked to Mr. Mann as to whether the Debtors were complying with the law was accepted as sufficient proof, and more importantly, the Court never even asked if the DOH was complying with the law. The Court abused its discretion and committed clear en-or by accepting the word of a representative to the wrong question and failing to hold an evidentiary hearing or allowing Appellants to present evidence regarding what should have been reasonable doubt by the Court. Mr. Mann's testimony that the Hospital "is in complete compliance with state law." (May 6, 2010 transcript, p. 62, lines 10-12) was clearly false. The fact that he would give knowingly false information about the Hospital's compliance with the law should not have been reassuring to the Court. Rather it should have been a red flag and made clear the need for the relief Appellants seek, namely court intervention to stop the DOH from enabling, or even worse causing an illegal closure of a hospital where its proper closure and adequate back up plan is necessary and required.

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ill. The Bankruptcy Court Does Not Have The Authority to Disenfranchise New York State Taxpayers by Preventing a Taxpayer Derivative Action Under New York State Finance Law

The Bankruptcy Court may not use 11 U.S.C. §362(a) to bar a taxpayer from bringing an

action under New York State Finance Law §123-b against a third party non-debtor state agency to

compel it to use its police power and comply with state regulations. In their State Court Action,

Appellants sought to enjoin the DOH from approving a Closure Plan for the Hospital before the Court

could determine whether proper regulatory requirements had been met. Appellants have an

undisputed right, as taxpayers in the State of New York, to bring suit to compel the DOH or any state

agency to enforce its police power, an action which is not subject to the automatic stay pursuant to 11

U.S.C. §362(b)(4) and therefore an action that the Bankruptcy Court does not have the authority to

prohibit. Appellants brought suit under New York Finance Law § 123-b in State Court, which

Appellants felt was a more appropriate venue. However, whether the claim is heard in state court or

federal court, the matter must be heard. To affirmatively choose to exercise jurisdiction while

denying standing in a case which could proceed in state court is to deny Appellants due process.

There must be a remedy for a valid claim. However, in the Bankruptcy Court decision the Appellants,

taxpayers and citizens of New York State raising New York constitutional issues, cannot bring their

claims in state court, because the Bankruptcy Court chose to retain exclusive jurisdiction on all

matters related to this matter, and now cannot bring their claim in Bankruptcy Court. It begs the

question, where can the public go then to seek redress when they are concerned their government

actors are not complying with the law, and why not state court when there are laws expressly carved

out to provide for this relief? Or conversely, if the Bankruptcy Court affirmatively chooses to retain

jurisdiction on all matters, how then can they exclude the basis for this jurisdiction and claim they

have no standing?

The Bankruptcy Court misunderstands and instead of allowing the Appellants a chance to

have their day in Court whether in state court or bankmptcy court, it cites In Re Methyl Tertiary Butyl

Ether Products Liability Litigation, 522 F.Supp.2d 569 (S.D.N.Y. 2007) in denying Appellants

21

standing in Bankruptcy Court. However, Methyl in no way weakens the strength of a taxpayer derivative action or the rights of taxpayer to stand in the shoes of the state agency they seek to compel to act. The Bankruptcy Court incorrectly states that since the government entity in Methyl did not have police powers itself and therefore was not exempt, that therefore Appellants cannot stand in shoes of the DOH, which does have police powers, in order to compel appropriate action. The Bankruptcy Court acknowledges that the DOH could take action against the Debtors (Docket No. 275, p. 12), but then denies the Appellants' ability to compel the DOH to do so, making the DOH above reproach of the law. Protecting the health and well-being of the public is a vital role of New York state government, as described in the New York State Constitution Article XVII, §3 and Article VII §1, and as a result, taxpayers have the power to file suit in state court to compel the DOH, or any state agency, to enforce state law. Paduano v. City of New York, 257 N.Y.S.2d 531 (N.Y. Sup. Ct. 1965), aff'd by 260 N.Y.S.2d 831 (lst Dep't 1965), aff'd by 17 N.Y.2d 875 (1966) (affirming the validity of water fluoridation programs against challenge by taxpayers based on the fundamental importance of the DOH's police power to protect and promote the health and well-being of citizens).

Furthermore, Appellants .have the right to bring suit against the DOH pursuant to New York General Municipal Law §51 in order to prevent the misappropriation or misuse of public resources. Orth-O-Vision. Inc. v. City of New York. et al, 101 Misc. 2d 987, 422 N.Y.S.2d 781 (N.Y. Sup. Ct. 1979). Appellees accepted significant amounts of public funding, including federal, state and local monies. Appellants filed the State Court Action with a good faith belief that the DOH had not been overseeing the Hospital's use of these public funds.

Further, the Bankruptcy Court opened the door to the State Court Plaintiffs' claims in Bankruptcy Court when it retained 'Jurisdiction with respect to all matters arising from or related to" the closure of the Hospital in the Interim Closure Order. The Bankruptcy Court cannot retain exclusive jurisdiction over all claims related to the Hospital's closure and then refuse to hear the State Court Plaintiffs' action claiming they do not have standing to maintain causes of action that would

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have been valid in State Court. Even though the Bankruptcy Court attempts to claim that the State

Court Plaintiffs do not have standing because they are neither debtors nor creditors, this is not an

accurate interpretation of the relevant law, as this Court itself has expressly affirmed, albeit under

different circumstances. There are situations where entities other than debtors and/or creditors have

standing to bring claims in Bankruptcy Court. Agency for Deposit Insurance. Rehabilitation,

Bankruptcy and Liquidation of Banks v. Superintendent of Banks of the State of New York, 310 RR.

793 (S.D.N.Y. 2004) (holding that foreign administrators of Yugoslavian banks had standing to seek

injunctive relief in Bankruptcy Court even though they were not debtors or creditors). Furthermore

Comcoach makes clear Appellant has standing.

IV. It is Improper for the Bankruptcy Court to Retain Exclusive Jurisdiction With Respect to All Matters Related to the Closure of the Debtors' Hospital

The Bankruptcy Court erred and abused its discretion in issuing the Order Enforcing the

Interim Closure Order, including but not limited to, retaining "jurisdiction with respect to all matters

arising from or related to the implementation of the Interim Closure Order, this Order, and any other

actions or proceedings concerning the closure of the Hospital and the transfer or closure of the

outpatient programs and clinics associated with and operated by the Hospital" (Docket No. 115). First,

the Bankruptcy Court does not have exclusive jurisdiction of civil proceedings "related to cases under

title 11." 28 U.S.C. §1334(b). Further, the Bankruptcy Court is not the court of most competent

jurisdiction for every matter that arises during the closure of a major medical institution, especially

one that has operated with a substantial amount of public funding. The dismissive position and

superficial attention given by the Court regarding the closure issue underscores the importance of

allowing a state court to hear this case.

Moreover, state court is best suited to adjudicate matters of state law and equitable relief,

while the Bankruptcy Court's primary purpose, and "the one most relevant here," according to the

Court's Memorandum Decision (Docket No. 245, p. 9), "is to convert the bankrupt's estate into cash

and distribute it among creditors." In re Comcoach Corp., 698 F.2d at 573. The state court is charged

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with interpreting state law while the federal courts have the ability to apply state law, where appropriate. For these reasons, tins Court must question whether it was proper for the Bankruptcy Court to retain exclusive jurisdiction over all matters arising from the closure of the Hospital, especially after issued and then repeatedly upheld an unenforceable order that directs Debtors to continue closure in accordance with the law.

If tile Bankruptcy Court retains exclusive jurisdiction over all matters affecting a debtor, the filing of a bankruptcy petition becomes an improper shield against valid requests for equitable relief, which the state court is best suited to handle. Furthermore, the Appellees' State Court Action raises fundamental questions of state law, including but not limited to New York Public Health Law and the exercise of the DOH's police powers, which are best adjudicated by the state courts. McLean Trucking Company v. Doyle, 184 N.Y.S.2d 114 (N.Y. Sup. Ct. 1959) (stating that "[t]he rule that emerges from a study of the cases both in this state and in the federal courts seems to establish that the state courts retain jurisdiction in ... cases involving the police power"). WIllie the power of the Bankruptcy Court is rightfully broad, it is also focused on protecting assets and distributing them to creditors and therefore the Bankruptcy Court is directed to abstain from hearing matters "based upon a State law claim or State law cause of action," 28 U.S.C. §1334(c)(2). In this sense, retaining exclusive jurisdiction over all matters related to the closure of the Hospital was beyond the scope of the Court's justifiable power. Certainly, however, if tile Court is going to take on the responsibility of asserting jurisdiction in this matter, it must also acknowledge the standing Appellants therefore have in Bankruptcy Court as an interested party.

CONCLUSION

Appellants hereby appeal two consolidated decisions of the Honorable Cecelia O. Morris, in which the Bankruptcy Court has not only failed to raise issue with the Appellees' violations of legal and regulatory requirements in the process of closing St. Vincent's Catholic Medical Center, it in fact granted affirmative permission to the Appellees to commit these violations. The Appellants sought to

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compel the DOH to exercise its police power to protect the health and well being of the public by

enjoining the DOH from approving a closure plan pending further order of the Court as well as

compelling the Commissioner of the DOH to request an investigation of the Hospital by the Attorney

General, Neither of these causes of action fall within the automatic stay imposed by 11 U.S.C. §362

because the matter itself could not have been commenced before the commencement of the

bankruptcy case (11 U.S.C. §362(a)(I)) and the relief sought would not exercise control over property

of the estate (11 U.S.C. §362(a)(3)). Moreover, the relief sought is exempt from the automatic stay

because Appellants brought the State Court Action under NY Finance Law §123-b and the

Bankruptcy Court does not have the authority to disenfranchise Appellants by enjoining the continued

prosecution of this derivative matter. Further, the Court has not distinguished the obligations of the

DOH, which are broader than the obligations of the Debtors and not avoidable or dischargeable

through bankruptcy. Lastly, it is improper for the Bankruptcy Court to retain exclusive jurisdiction

with respect to all matters related to the closure of the Hospital, especially since the New York State

Supreme Court is best suited to adjudicate matters of New York State law and equitable relief and the

Bankruptcy Court is specifically concerned with liquidating assets and distributing them among

creditors.

Dated: July 19,2010

lsi Yetta G. Kurland Yetta O. Kurland, Esq.

KURLAND, BONICA & ASSOCIATES, P.C. Counsel for Appellants

304 Park Avenue South, Suite 206 New York, New York 10010 (212) 253-6911

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