IN RE NELSON

CHARLES CASE, Bankruptcy Judge

I. Introduction

This case has been a battle since day one. And, although in its waning days, it continues to be so. At issue now is whether final judgment can be entered in this adversary against Plaintiff Donald Nelson.

II. Background

To understand the genesis of this dispute, it is necessary to recap with some detail how the parties got to this point. In May, 2002, Plaintiffs Arizona Diagnostic Imaging, Inc. ("ADI") and Donald Nelson ("Plaintiff" or "Dr. Nelson") filed the Complaint giving rise to this adversary proceeding. Both ADI and Dr. Nelson are debtors in separate Chapter 11 proceedings. Plaintiffs originally named as Defendants in this adversary Ralph Felder, Rakesh and Geeta Pahwa, Deepak and Anju Narang, John and Jane Doe Hoffman, AzTech Radiology and Open MRI, LLC, and Accessible MRI of East Valley, LLC. Plaintiffs alleged the following counts:

The Court entered an order dismissing the Complaint as to the Hoffmans after Plaintiffs failed to object to the Hoffmans' request for dismissal.

Count I: Avoidable preference claim pursuant to 11 U.S.C. § 547 brought by Plaintiff Donald Nelson against Defendants Accessible MRI of East Valley, LLC, Pahwa, Narang and Felder.

Count II: Willful and intentional interference with contractual and prospective business relationship by Plaintiff Arizona Diagnostic Imaging, Inc. against all named Defendants.

Count III: Conversion brought by Plaintiff Arizona Diagnostic Imaging, Inc. against all named Defendants.

Count IV: Stay violations pursuant to 11 U.S.C. § 362(h) brought by all Plaintiffs against all named Defendants.

Count V: Declaratory relief request by Plaintiff Donald Nelson against Defendant Accessible MRI.

Count VI: Equitable subordination pursuant to 11 U.S.C. § 510(c) brought by all Plaintiffs against Defendants Accessible MRI, Pahwa, Narang, and Felder.

Defendants Felder, Pahwa, Narang and AzTech Radiology and Open MRI, LLC filed, inter alia, a motion for summary judgment on all seven counts of the Complaint. In May, 2003, the Court granted Defendants summary judgment on Counts I (Preference), III (Conversion), and V (Declaratory Relief) and denied summary judgment without prejudice on Counts II (Intentional Interference with Contractual Relationships and Prospective Business Relationships), IV (Stay Violation), and VI (Equitable Subordination), allowing Plaintiffs the opportunity to amend their Complaint on these three counts.

It appears that Defendant Accessible MRI was not included as one of the Defendants seeking summary judgment and did not file an answer in this case. The explanation appears to be, as explained by counsel at the time Roger Foote in his Notice of Filing No Answer, that Accessible MRI would not participate as it was itself in bankruptcy (02-9954-CGC). See Docket 19.

Plaintiffs did in fact amend their Complaint on the counts as permitted in the Court's Under Advisement Decision. In addition, they revised and somewhat restated their original Declaratory Relief count, despite summary judgment having been previously granted to Defendants on this count. The amended complaint included the following four, renumbered claims: Count I (Intentional Interference with Contractual Relationships and Prospective Business Relationships), Count II (Stay Violations), Count III (Declaratory Relief), and Count V (Equitable Subordination) — Count IV (Negligence) having been voluntarily dismissed along with dismissal of the newly named Defendants.

In amending their Complaint, Plaintiffs also added as Defendants Joseph Hayes, Neil Holmes, and Holmes Hayes, CPA, P.C. Plaintiffs included them as Defendants to the claims for Intentional Interference with Contractual Relationships and Prospective Business Relationships and Violation of 11 U.S.C. § 362(h). They also added a new claim for Negligence solely against these Defendants. Plaintiffs subsequently agreed to dismissal of these newly added Defendants, leaving only the original named Defendants.

Defendants Felder, Pahwa, Narang and AzTech Radiology and Open MRI, LLC then filed for summary judgment on newly numbered Counts I and II as brought by Plaintiff Donald Nelson, but not as brought by Plaintiff Arizona Diagnostic Imaging. Dr. Nelson affirmatively stated he would not resist the motion and this Court granted judgment in favor of Defendants on these two counts on November 19, 2003. Defendants then filed another motion for summary judgment on what they argued was the sole remaining claim against them — Count V (Equitable Subordination). Defendants also requested entry of final judgment on all the claims of Plaintiff Nelson against Defendants. Dr. Nelson responded, claiming that no record supported granting summary judgment on the Equitable Subordination claim and that Count III of the Amended Complaint — the Declaratory Relief count — still remained and, therefore, final judgment could not be entered on all claims. A hearing was held at which time the Court stated that it would treat the order for entry of final judgment as lodged and that if no objections were filed, the order would be entered. An objection to the order was in fact filed and Defendants followed up the matter with another request for entry of final judgment.

Defendants also filed a separate motion for summary judgment as to the remaining claims of intentional interference with contract, stay violation and equitable subordination as alleged by Plaintiff Arizona Diagnostic Imaging. Plaintiff ADI never responded, and the Court entered an order granting Defendants summary judgment on all claims brought against them by Plaintiff ADI.

Before the Court ruled on the request for entry of final judgment, Dr. Nelson filed in his administrative case an Application for Approval of Collateralization of Judgment Debt and Application to Dismiss Nelson Chapter 11 or Alternatively Confirm First Amended Plan of Reorganization, to which the Trustee and Defendants Felder, Pahwa, Narang and Accessible MRI objected. In essence, Dr. Nelson proposed to use his personal residence as collateral in favor of the Bankruptcy Estate of Accessible MRI to secure the November 16, 2001, state court judgment against himself. He also sought additional time within which to "commence or to continue legal proceedings in whatever forum, wherever located, of whatever nature or kind, relating to his pursuit of any claims, offsets, or defenses in which his sole and absolute discretion, are offsets, credits, or defenses against the Obligation in whole or in part, in whatever court of competent jurisdiction that will allow or entertain same," including certain enumerated proceedings already underway and certain issues he believed needed resolution. No mention was made of the adversary at issue here or its causes of action.

After numerous pleadings back and forth and several hearings, the parties eventually reached a settlement on most of the terms. Still in dispute, however, were questions as to whether Defendants would be prevented from collecting on the judgment for three years once collateralized, whether Dr. Nelson could have an additional sixty days to bring additional claims against Defendants, and whether the bankruptcy would be dismissed immediately upon the Court's approval of the collateralization. On these issues, the parties submitted briefs to this Court for binding resolution. On September 8, 2004, this Court issued its Order Re: Application for Collateralization, ordering dismissal of the case once the collateralization was complete, but expressly retaining "jurisdiction to handle any and all disputes surrounding the collateralization agreement itself." In addition, the Court granted Debtor sixty days to bring additional claims against Defendants with the express caveat that "Debtor shall be liable for, and will not contest that he is liable for, all attorneys' fees, costs and sanctions that may be awarded by a court of competent jurisdiction if such court finds that such claims have been adjudicated or should have been adjudicated in prior proceedings or are subject to res judicata, collateral estoppel or similar defenses."

Thereafter, the parties submitted their Stipulation re: Payment of Judgment, Preservation of Claims, and Dismissal and Application Thereon that, inter alia, acknowledged actual payment of the judgment (as opposed to simply collateralization) and granted the dismissal of Debtor Nelson's Chapter 11 case. Further, the stipulation affirmed various provisions of Dr. Nelson's earlier Amended Iteration of Nelson Residence Collateralization Elements and Disagreement Terms. This Court approved the stipulation on October 29, 2004, pursuant to a form of order lodged in nearly identical form to the relief agreed to in the stipulation.

When the administrative case was dismissed, so too was this adversary proceeding. A telephonic hearing was subsequently held where the parties discussed with the Court the status of this adversary in light of its dismissal. The Court ordered the parties to brief what substantive and procedural impact, if any, the settlement agreement and entry of the order approving the settlement in the administrative case, and dismissal of this case, has upon this adversary and the pending requests for entry of final judgment. Having now received the parties' post-hearing briefs, the matter is now under advisement and ripe for resolution.

III. Analysis

According to Dr. Nelson, the settlement in the administrative case preserved his claims originally brought in this case against Defendants, and as recently asserted by him in his state court proceeding CV 2004-021879, and also freed him from any res judicata or collateral estoppel argument Defendants might make based on summary judgment having been previously granted in this adversary. He contends that Defendants did not reserve for themselves, in the settlement agreement, the right to pursue entry of final judgment in this adversary. To allow final judgment in this case, he argues, would in effect bar his newly filed state court case (CV 2004-021879) and, as such, would not have been anything to which he would have agreed. Dr. Nelson argues instead that the stipulation was meant to preserve his claims and is in fact titled in part "Preservation of Claims." According to Dr. Nelson, reservation and reaffirmation of his claims for judicial consideration permeate the Stipulation and Order and that any defense of Defendants that these claims had already been decided on summary judgment no longer existed.

The problem with Dr. Nelson's argument, as Defendants see it, is that the various documents leading up to the settlement, and the settlement itself, never mention this adversary by name or number, let alone the particular claims — a fact Nelson himself readily admits in his brief. This Court agrees. Of further impediment to Dr. Nelson's position is the fact that while the parties were arguing over the collateralization application, they were also arguing about entry of final judgment in this adversary. With these two matters proceedings simultaneously, if the parties had intended for the subsequent stipulation to settle the adversary and moot the entry of final judgment issue, one would imagine that this adversary should have been and would have been expressly contemplated and set forth in the final settlement.

As Defendants point out, this Court held a hearing on September 10, 2004, only two days after entering the initial collateralization Order issued, addressing Defendants' request for entry of final judgment. At no point in the hearing did Dr. Nelson indicate that this issue depended in any way on, or would be possibly mooted out by, the collateralization proceedings in the administrative case. In fact, Dr. Nelson actively resisted the final judgment request and filed an objection subsequently.

Further, in both the initial Iteration of Nelson Residence Collateralization Elements and Disagreement Items and the subsequent Amended Iteration, the parties expressly provided in paragraphs F3 and F4 that this Court would retain jurisdiction of the parties and all matters within the scope of the pleadings in adversary 02-699, "including the power to determine the collateral estoppel and res judicata effects, if any, involved therein. The foregoing shall include those matters raised by said pleadings which involve the collateral estoppel and res judicata effects, if any, evolving from the judgments in Accessible et al v. Nelson, et al, CV 1999-92346, Superior Court Maricopa County Arizona." In addition, in paragraph F5, the parties also agreed that while Plaintiff Nelson could pursue any other claims he believed he had against Defendants et al., such litigation would be subject to "prior collateral estoppel or res judicata effects, in any court of competent jurisdiction, including the bankruptcy court, at any time." This language clearly implies the opposite of what Plaintiff Nelson urges here.

The estoppel limitation provided for in both versions of the Iterations is reinforced subsequently in this Court's September 8^th Order whereby a specific caveat to Dr. Nelson bringing any future claims against Defendants was that such claims would be subject to the defenses of res judicata and collateral estoppel.

The Court also finds the language of the Stipulation expressly noting that there are claims still existing between the parties that are being actively litigated a further acknowledgment by the parties that adversary 699 was still pending and not automatically being resolved by the Stipulation. Specifically, paragraph 6 points out that "there are numerous disputes between the parties, some in various stages of litigation, but they desire to resolve some of them herein, without waiver of the remainder." Nowhere is adversary 699 mentioned as being resolved or effected by the stipulation. Further, the parties further stipulate that the September 8, 2004, Order is in full force and effect, which would include the estoppel caveat, and that "all terms of the Amended Iteration of Nelson Residence Collateralization Elements and Disagreement Items . . . shall be preserved and reaffirmed," which includes the specific reference to this Court retaining jurisdiction over this adversary.

In further contravention of Dr. Nelson's position is paragraph 11 of the October 29, 2004, Order, which expressly states that "[s]ubject only to the limitations of the September 8, 2004 Order, no claim of any party not specifically resolved in the Stipulation shall be waived thereby. Neither the Nelsons' payments, nor the Full Satisfaction shall be deemed to resolve or to waive any other claim not specifically identified herein." Again, nowhere in the various settlement briefs, the Stipulation itself or the Order approving the settlement, is there any specific resolution, let alone discussion, of the claims involved in this adversary. The language of the Order itself requires such recitation.

The Court also rejects Dr. Nelson's attempt to parse the language of the October 29, 2004, Order. While the Order provides that "no claim of any party" shall be waived, the Court does not read it to somehow exclude any defense Defendants may have. This is simply reading too much into the language of the Order and ignores the various other provisions of the Orders discussed above seeming to preserve this adversary as it stood at the time.

Last, the Court finds that termination of this adversary based on dismissal of the administrative case was an administrative error and not something contemplated by the Stipulation or by the Court's orders. While normally the proper sequence of case closing requires the administrative case to remain open until the adversary proceeding attached is closed, the Court places no real significance on the sequence of events here. See In re Burch, 88 B.R. 686 (Bankr. E.D. Pa. 1988); In re Stardust Inn, Inc., 70 B.R. 888, 890 (Bankr. E.D. Pa. 1987). Further, officially reopening the administrative case is unnecessary. "The fact that a case is or is not closed merely related to its administrative status, which does not affect a bankruptcy court's jurisdiction to determine matters relevant to the case." See In re Taylor, 216 B.R. 515 (Bankr. E.D. Pa. 1998); In re Statistical Tabulating Corp., 60 F.3d 1286, 1289-90 (7^th Cir. 1995), cert. denied sub nom. LaSalle Bank Lake View v. United States, 516 U.S. 1093, 116 S.Ct. 815, 133 L.Ed.2d 759 (1996); In re Germaine, 152 B.R. 619, 624 (9^th Cir. BAP 1993). A matter over which this Court has jurisdiction can be considered even if the main case is closed. See Koehler v. Grant, 213 B.R. 567, 569-70 (8^th Cir. BAP 1997).

Further, the Court concludes that based on facts as set forth above and the fact that dismissal of this adversary was not contemplated at the time the administrative case was closed, good cause exists to reopen the main bankruptcy case sua sponte if necessary under 11 U.S.C. section 350(b). However, the Court perceives no adverse impact on any other interested party who is not already present, and who has had the opportunity to be heard, in these proceedings in not taking this procedural step. The fact remains that the request for entry of final judgment was pending at the time the adversary was terminated, Dr. Nelson had made his objection known, and no ruling was ever issued. And, this Court expressly retained jurisdiction over this adversary pursuant to the settlement entered in the administrative case.

With respect to the merits of the request for entry of final judgment, the Court finds entry of such an order appropriate. To recap, the Amended Complaint alleged Count I (Intentional Interference with Contractual Relationships and Prospective Business Relationships), Count II (Stay Violations), Count III (Declaratory Relief), and Count V (Equitable Subordination) with respect to Defendants. Dr. Nelson acquiesced to summary judgment on Counts I and II. Defendants then sought summary judgment on Count V, Equitable Subordination, and the matter was fully briefed by the parties.

While Dr. Nelson objected to summary judgment on the Equitable Subordination claim, he provided no real legal argument to counter Defendants' motion. Defendants are correct that where all creditors will be paid 100% of their claims, there are no grounds for subordination. "Equitable subordination exists to offset an inequality in the claim position of a creditor that will produce injustice or unfairness to other creditors in terms of bankruptcy results." In re Audre, Inc., 210 B.R. 360 (Bankr. S.D. Cal. 1997); See also Trone v. Smith (In re Westgate-California Corp.), 642 F.2d 1174, 1177 (9^th Cir. 1981).

Last, Dr. Nelson argues that the Count III for Declaratory Relief remains. This Court disagrees. This Court granted Defendants summary judgment on this claim as it arose in Plaintiff's initial Complaint. The Court did not grant Plaintiff leave to amend this count and his attempt to re-urge it in his Amended Complaint, somewhat reworded and modified, is ineffective.

IV. Conclusion

For the foregoing reasons, the Court grants summary judgment to Defendants on the remaining claims of Plaintiff Donald Nelson's Amended Complaint. The Court shall sign this same date the form of order originally lodged by Defendants entitled Order Granting Final Summary Judgment Against Donald Nelson.

So ordered.

ORDER GRANTING ENTRY OF FINAL JUDGMENT

For the reasons set forth in this Court's Under Advisement Decision Re: Motion for Entry of Final Judgment filed this same date,

IT IS HEREBY ORDERED granting Defendants' motion for final summary judgment a as against Plaintiff Donald Nelson.

IT IS FURTHER ORDERED that this is a final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure as to all claims alleged in this adversary by Plaintiff Donald Nelson against Defendants Ralph Felders, Rakesh Pahwa and Jane Doe Pahwa, Deepak Narang and Jane Doe Narang, and AzTech Radiology and Open MRI, LLC.