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National Medical Imaging, LLC v. U.S. Bank, N.A.

United States District Court, E.D. Pennsylvania

April 30, 2018

U.S. BANK, N.A., et al., Defendants.


          RUFE, J.

         The present motion for partial summary judgment forms the latest chapter in the ongoing litigation among National Medical Imaging, LLC, U.S. Bank, N.A., DVI Funding, LLC, and their affiliates. Because the Court writes primarily for the parties, only the background necessary for resolving the motion will be provided.

         Plaintiffs National Medical Imaging, LLC and National Medical Imaging Holding Company, LLC (together, “NMI”) seek to hold ten Defendants[1] jointly and severally liable for filing involuntary bankruptcy petitions against them in bad faith pursuant to 11 U.S.C. § 303(i)(2). Plaintiffs now move for partial summary judgment to preclude Defendants from “re-litigating” whether the involuntary petitions were filed in bad faith in light of a Florida jury's verdict that the DVI entities, U.S. Bank, and Lyon acted in bad faith in filing an involuntary bankruptcy petition against Maury Rosenberg individually, as the managing member of NMI. For reasons discussed below, Plaintiffs' motion for partial summary judgment will be denied.

         I. Factual Background and Procedural History[2]

         The parties in this bankruptcy case are familiar foes, having spent over a decade litigating the aftermath of a complex securitization transaction. In 2000, Plaintiffs were affiliated with certain limited partnerships (the “NMI LPs”) that operated diagnostic imaging centers. The NMI LPs entered into master leases and equipment schedules (the “Master Leases”) with DVI Financial Services, Inc. (“DVI Financial”) to finance the purchase of medical diagnostic equipment. The leases were secured by a limited guaranty executed by Maury Rosenberg, the managing member of NMI, and an additional guaranty by NMI.

         DVI Financial then transferred some of the Master Leases to DVI Funding, LLC, which held them directly, and the remainder were securitized and assigned to the DVI Receivables corporations. At the same time, DVI Funding entered into indentures with U.S. Bank, acting as trustee of the transaction, under which notes were issued to investors with the Master Leases serving as collateral. DVI Financial was appointed as servicer for the trustee, U.S. Bank, but after filing for bankruptcy in 2003, DVI Financial transferred its rights as servicer to Lyon Financial Services, a subsidiary of U.S. Bank.

         A. The First Round of Litigation and the Settlement Agreement

         In December 2003, U.S. Bank Portfolio Services, a Lyon subsidiary, filed lawsuits against the NMI LPs, NMI, and Rosenberg in Pennsylvania state court, alleging that the NMI LPs had defaulted on their Master Lease obligations. Several of the DVI entities then filed involuntary Chapter 11 bankruptcy petitions against NMI. On August 12, 2005, Rosenberg, NMI, the NMI LPs, and Lyon entered into a comprehensive Settlement Agreement to resolve these disputes. Pursuant to the Settlement Agreement, the involuntary bankruptcy petitions were dismissed, and Lyon agreed to restructure the repayment obligations of the NMI LPs under the Master Leases and to release NMI from all claims except those arising under the Settlement Agreement. In return, Rosenberg and NMI executed new guaranties of repayment and confessions of judgment in favor of Lyon. On March 2, 2007, DVI Funding sold all of its interests in the Master Leases to Defendant Ashland Funding, LLC (“Ashland”).

         B. The Second Round of Litigation: Judgment is Confessed, Involuntary Petitions are Filed, and the Rosenberg Bankruptcy is Adjudicated in Florida

         In March 2008, Lyon notified NMI and Rosenberg that the NMI LPs had defaulted on their repayment obligations under the Settlement Agreement, and in July 2008, Lyon filed a confession of judgment against Rosenberg and NMI in Pennsylvania state court. In November 2008, the DVI entities, U.S. Bank, and Lyon filed involuntary bankruptcy petitions against NMI and Rosenberg in the United States Bankruptcy Court for the Eastern District of Pennsylvania.

         Rosenberg moved to dismiss the involuntary petitions against him and to transfer venue to the United States Bankruptcy Court for the Southern District of Florida, where he resides. The Rosenberg bankruptcy proceedings were transferred to that district.[3]

         i. The Rosenberg Bankruptcy is Adjudicated in Florida

         Following the transfer of venue, and while Rosenberg's motion to dismiss the involuntary petition was still pending, the petition was amended to substitute Ashland in place of DVI Funding. The Florida Bankruptcy Court issued a memorandum opinion and order dismissing the amended involuntary bankruptcy petition against Rosenberg (“Rosenberg I”).[4] On September 27, 2011, the United States District Court for the Southern District of Florida substantially affirmed the Bankruptcy Court's decision (“Rosenberg II”), [5] and, on July 6, 2012, the Eleventh Circuit affirmed Rosenberg II in full (“Rosenberg III”).[6]

         ii. The NMI Bankruptcy is Adjudicated in Pennsylvania

         In the Pennsylvania bankruptcy proceedings against NMI, Ashland was added as a petitioner as successor to DVI Funding, and later joined the other petitioners in filing a Third Amended Petition. After Rosenberg I, the Bankruptcy Court for the Eastern District of Pennsylvania dismissed the involuntary bankruptcy petitions filed against NMI on the basis of the collateral estoppel effect of Rosenberg I's holdings that (1) the DVI entities and Ashland were not real parties in interest and (2) Lyon was the only creditor because the Settlement Agreement constituted a novation.[7] The DVI entities and Ashland appealed, and this Court affirmed the Pennsylvania Bankruptcy Court's order.[8] The Third Circuit affirmed.[9]

         C. The Third Round of Litigation: The Adversary Proceedings

         i. Rosenberg's § 303(i) Adversary Proceeding

         While the appeals to the Southern District of Florida and Eleventh Circuit were pending, Rosenberg brought a § 303(i) sanctions claim in an adversary proceeding in the Florida Bankruptcy Court.[10] Ashland moved to dismiss, and the Florida Bankruptcy Court granted its motion, finding that because Ashland was not a petitioning creditor in the operative underlying petition, a § 303(i) sanctions claim against it could not stand.[11] After the reference was withdrawn from the Bankruptcy Court, the Florida District Court held a jury trial on Rosenberg's § 303(i)(2) claims for damages. The jury returned a verdict in favor of Rosenberg and against the DVI entities, U.S. Bank, and Lyon, and that verdict was upheld by the Eleventh Circuit.[12]

         ii. NMI's § 303(i) Adversary Proceedings

         On May 27, 2014, NMI brought claims for attorneys' fees and costs under § 303(i)(1) and Bankruptcy Rule 9011 in two adversary proceedings in the Bankruptcy Court for the Eastern District of Pennsylvania. After this Court held that NMI's claims had to be initiated in the Bankruptcy Court, NMI added claims for damages under § 303(i)(2). NMI then moved to withdraw the reference, which this Court granted on September 1, 2016, and NMI filed an amended complaint in this Court. The amended complaint seeks compensatory and punitive damages under § 303(i)(2) arising from the involuntary bankruptcy suit.[13] U.S. Bank, Lyon Financial Services, and the DVI entities filed an answer to ...

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