Firm's Win in BAP Appeal Preserves Creditor Distribution in Valley Health System

August 2012

Pachulski Stang represents the posteffective-date creditors' committee (the “Committee”) and the disbursing agent appointed to represent the interests of unsecured creditors who are to be paid more than $17 million pursuant to the confirmed plan of adjustment (the “Plan”) in the chapter 9 case of Valley Health System, a California Healthcare District (the “District”). The District operated three hospitals and related facilities in the Inland Empire area of California. The Committee and the disbursing agent anticipate collecting the next payment due from the purchaser of the District's assets in October, to be followed by the first of what is hoped will be multiple distributions to unsecured creditors.

On August 3, 2012, the Bankruptcy Appellate Panel of the Ninth Circuit Court of Appeals (“BAP”) affirmed the firm’s objection to, and the bankruptcy court’s subsequent disallowance of, a creditor’s claim; Jeff Kandel briefed and argued the appeal for the firm. In the appeal, the BAP resolved several important issues that will help ensure that a significant distribution be preserved for the unsecured creditors, including holding that the bankruptcy court had jurisdiction to adjudicate the controversy, that the creditor’s constitutional rights had not been violated, that the creditor had notice of the terms of the Plan and its potential impact on creditors, and that the creditor had failed to act in a timely manner as required by the Bankruptcy Code. 

The firm has significant experience in both important aspects of this case and the appeal. Few firms have significant experience in the relatively uncommon filings under chapter 9. The firm’s Henry Kevane, however, is a noted expert on such cases, and James Stang and Jeff Kandel both have significant experience in chapter 9 cases. The firm’s Healthcare Restructuring Group also has significant experience in the complicated area of healthcare restructuring, including having represented creditors’ committees in hospital operator debtor cases such Valley Health System, Hawaii Medical Center, and Pacifica Hospital of the Valley

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