                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-4-2002

In Re Charter
Precedential or Non-Precedential: Non-Precedential

Docket No. 00-3516




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Recommended Citation
"In Re Charter " (2002). 2002 Decisions. Paper 323.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/323


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                                                NOT PRECEDENTIAL

               THE UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                          ___________

                          No. 00-3516
                          ___________

         IN RE: CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC,
                                   Debtor

           OFFICIAL COMMITTEE OF UNSECURED CREDITORS,
                                   Appellant
                               v.

         CHASE MANHATTAN BANK, as Collateral Agent; and
             Crescent Real Estate Funding VII, L.P.

                          ___________


        ON APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF DELAWARE

                  (D.C. Civil No. 00-cv-00989)
      District Judge: The Honorable Roderick R. McKelvie

                          ___________

           Submitted Under Third Circuit LAR 34.1(a)
                          May 6, 2002


      BEFORE: NYGAARD, ALITO, and ROSENN, Circuit Judges.


                     (Filed:   June 3, 2002)

                          ___________

                      OPINION OF THE COURT
                          ___________


NYGAARD, Circuit Judge.
              This appeal arises out of a Chapter 11 Bankruptcy involving the
Debtors, Charter Behavioral Health System, LLC, et al. ("Charter"), former owners of in-
patient psychiatric hospitals. In this appeal, a committee of unsecured creditors is
challenging the District Court’s order allowing Charter to assume and assign certain
executory contracts involving Medicare and the sale of some of Charter’s hospitals. We
find this appeal moot under 11 U.S.C. 363(m).
         The parties are familiar with the facts of this case. As a result, we will
provide only a brief summary of those facts at the outset and will incorporate additional
facts as they are relevant to our discussion of the issues.
         Charter owned and managed in-patient psychiatric hospitals which
provided services to some of its patients at some of its hospitals pursuant to Medicare
Provider Agreements. Charter filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code on three separate dates in the year 2000. On July 25, 2000, in order to
sell some of its hospitals, Charter filed a Motion for Authority to Assume and Assign
Medicare Provider Agreements and For Establishment of Cure Amounts. These sales
were conditioned upon the assumption and assignment, to the purchasers, of the
Medicare Provider Agreements associated with such facilities, free and clear of any
claims by the United States Department of Health and Human Services.   Charter and
HHS reached a settlement as to the cure amount, and in connection with the payment of
the $7 million portion of the cure amount, HHS agreed to waive its rights to successor
liability against the purchasers of the facilities. The Settlement Agreement was approved
by the District Court, the $7 million was paid to HHS, and the Medicare Provider
Agreements were assumed and assigned.
         Appellant, the Official Committee of Unsecured Creditors, raises two
issues on appeal:
                       1.   Whether the District Court erred when it authorized Charter to pay
              claims to the United States that did not arise under the contracts to
              be assumed.

                       2.   Whether the District Court erred when it approved a settlement
              agreement between the Debtors and the United States because it did
              not have sufficient information to make an independent
              determination about the settlement.

         In response, Charter and the Government filed motions to dismiss, claiming
that this appeal is moot under 11 U.S.C. 363(m) and the doctrine of equitable, or
prudential mootness.
         We do not reach Appellant’s issues because this appeal is statutorily moot
under 11 U.S.C. 363(m), which provides:
                  The reversal or modification on appeal of an authorization
         under subsection (b) or (c) of this section of a sale or lease of
         property does not affect the validity of a sale or lease under
         such authorization to an entity that purchased or leased such
         property in good faith, whether or not such entity knew of the
         pendency of the appeal, unless such authorization and such
         sale or lease were stayed pending appeal.

         In Cinicola v. Scharffenberger, 248 F.3d 110 (3d Cir. 2001), we
formulated a two-prong test for mootness under 363(m): (1) whether the order was
stayed pending appeal; and (2) whether vacation of the order would affect the validity of
the sale. Id. at 128 (citing Krebs Chrysler-Plymouth v. Valley Motors, Inc., 141 F.3d
490, 499 (3d Cir. 1998). In this case, Appellants did not seek a stay and the only issue is
whether vacation of the Assignment Order would affect the validity of the sales. We
find that it would.
         In Krebs, we looked to the remedies suggested by the appellant to
determine whether such remedies would affect the validity of the underlying sale. Krebs,
141 F.3d at 499. Here, as in Krebs, any remedy sought by the Appellant would be
impermissible under 363(m). Vacation of the Assignment Order would undo the
assignment of the Medicare Provider Agreements and revive the Government’s rights
against Charter’s assignees and thus have a serious and detrimental impact on the
underlying sale of Charter’s assets. Any reversal or modification of the order authorizing
Charter’s assumption and assignment of the Provider Agreements free of successor
liability would undermine the validity of: (1) the Settlement Agreement, (2) the transfer
of the Provider Agreements, and (3) the sales of the Operating Assets.
         In sum, we find this appeal statutorily moot.




_________________________
TO THE CLERK:

         Please file the foregoing opinion.




                               S/S       Richard L. Nygaard
                               Circuit Judge
