ORDER DENYING DEBTOR'S MOTION FOR VIOLATION OF AUTOMATIC STAY (DKT. # 937) AND
MOTION FOR SUMMARY JUDGMENT (DKT. # 1307)
THIS MATTER is before the Court on the Motion for Violation of Automatic Stay (ECF No. 937) by Debtor Ikechukwu Okorie ("Okorie"); Debtor's Memorandum of Points and Authorities in Support of Motion for Violation of Automatic Stay (ECF No. 940); Opposition Response filed by Keystone Healthcare Partners ("Keystone") (ECF No. 980); and the Debtor's Response to Keystone Healthcare Partners' Opposition to Motion for Violation of Automatic Stay and Opposition to Request for Sanctions (ECF No. 981).
This dispute arises from a post-petition overpayment of $151,567.31 by Keystone to Okorie under a physician services agreement and its subsequent repayment from funds owed to Okorie. Because Keystone was recouping the overpayment, there was no violation of the automatic stay or discharge injunction.
SO ORDERED,
Judge Katharine M. Samson __________________________________________________________________ The Order of the Court is set forth below. The docket reflects the date entered. United States Bankruptcy Judge
__________________________________________________________________ Date Signed: March 25, 2025
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I. Jurisdiction
The Court has jurisdiction over the parties to and the subject matter of this proceeding under 28 U.S.C. § 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(A), (G), (O).
II. Procedural and Factual Background
On February 27, 2019, Okorie filed a Chapter 11 petition. ECF No. 1. Post-petition, he signed a physician services agreement with Keystone to provide emergency medical services at Walthall General Hospital. ECF No. 1355 at 2-13. The Compensation Agreement was amended effective September 1, 2020 ("Walthall Contract"). ECF No. 1356 at 1-2. Under the contract, Okorie would be paid at a rate of $125/hour for weekdays, $150/hour for weekends, $191.38/hour for weekday holidays, and $228.88/hour for weekend holidays. Id. at 1; ECF No. 1375 at 183. Within a month of signing the Walthall Contract, Keystone began overpaying Okorie by compensating him for three twelve-hour shifts instead of two on certain dates. ECF Nos. 1355 at 26 (Ex. 16); 1375 at 193-94; 1398 at 1-13 (Ex. 5); 1422 at 9-13, 78. On February 17, 2021, Okorie converted his Chapter 11 case to Chapter 7. ECF No. 339. It was not until August 13, 2021, that Keystone discovered from a payroll report review that it had overpaid Okorie $151,567.31 on the Walthall Contract. EFC No. 1422 at 13, 16. Keystone immediately notified Okorie of the overpayment and began recouping $8,240.41 a month from money owed to Okorie under the Walthall Contract. ECF Nos. 1375 at 23-24; 1355-1 at 12 (Ex.
30).
On October 5, 2021, Okorie received his Chapter 7 discharge. ECF No. 447. On November 1, 2021, Okorie and Keystone entered into a repayment agreement wherein Okorie agreed to recoupment of $4,878.70 each month until the overpaid funds were repaid in full. ECF Nos. 1375
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at 136-37; 1355-1 at 13-16 (Ex. 30). Keystone ultimately recouped the full amount of $151,567.31 from Okorie. ECF No. 1422 at 34.
Two years after signing the repayment agreement, Okorie demanded that Keystone return the recouped funds. ECF No. 1318-1 at 65. Keystone refused and Okorie filed his motion for violation of the automatic stay against Keystone. See ECF No. 937; ECF No. 1318-1 at 67-68. Okorie sought leave of court to file a motion for summary judgment on the stay violation issue. ECF No. 1295. The Court granted Okorie's request and, pursuant to Federal Rule of Civil Procedure 7056(f), invited briefing on the issues of recoupment and violation of the discharge injunction. ECF No. 1297 at 2.
III. Analysis The right of recoupment is an equitable right that "allows a defendant to reduce the amount of a plaintiff's claim by asserting a claim against the plaintiff which arose out of the same transaction to arrive at a just and proper liability on the plaintiff's claim." ABCO Indus., Inc. v. ESI, Inc. of Tenn. (In re ABCO Indus., Inc.), 270 B.R. 58, 61 (Bankr. N.D. Tex. 2001) (quoting Holford v. Powers (In re Holford), 896 F.2d 176, 178 (5th Cir. 1990)). In bankruptcy, recoupment often prevents "a debtor from receiving double value or a creditor from paying twice for debtor's performance." Sacramento Mun. Util. Dist. v. Mirant Americas Energy Mktg. LP (In re Mirant Corp.), 318 B.R. 377, 382 (Bankr. N.D. Tex. 2004), aff'd, 331 B.R. 693 (N.D. Tex. 2005). "[T]o the extent that a party is entitled to recoupment of funds, 'the debtor has no interest in the funds.'"
U.S. Abatement Corp. v. Mobil Expl. and Producing U.S., Inc. (In re U.S. Abatement Corp.), 79 F.3d 393, 398 (5th Cir. 1996) (quoting In re Holford, 896 F.2d at 179). Consequently, recoupment does not violate the automatic stay or the discharge injunction. In re Holford, 896 F.2d at 179 (recoupment does not violate stay); Beaumont v. Dept. of Veteran Affs. (In re Beaumont), 586 F.3d
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776, 777 (10th Cir. 2009) (recoupment does not violate discharge injunction); see also Gómez- Cruz v. Fernández-Pabellon, No. 3:13-cv-01711-JAW, 2018 WL 4849650, at *5 (D.P.R. Oct. 4, 2018) ("It is well-settled that recoupment is outside the scope of the automatic stay in a bankruptcy proceeding….").
Generally, two elements must be satisfied to characterize a withholding as a recoupment:
[1] "some type of overpayment must have been made" and [2] "both the creditor's claim and the amount owed to the debtor must arise from a single contract or transaction." Kosadnar v. Metro. Life Ins. Co. (In re Kosadnar), 157 F.3d 1011, 1014 (5th Cir. 1998). "When all claims arise out of one contract between the parties, application of the recoupment doctrine is appropriate." Id. at 1015. Here, both elements of recoupment are met.
Keystone presented unrefuted evidence that it overpaid Okorie $151,567.31 from October 2020 to June 2021.1ECF Nos. 1355 at 26 (Ex. 16); 1375 at 193-94; 1398 at 1-13 (Ex. 5); 1422 at 9-13, 78. Keystone also established that both the overpayment and recoupment were made under the Walthall Contract. EFC Nos. 1375 at 164; 1422 at 34.
Okorie's arguments about the repayment agreement are unavailing. In addition to claiming the repayment agreement violated the stay and the discharge injunction, Okorie also claims he was coerced into signing the repayment agreement "[u]nder the pressure of potential job loss." ECF Nos. 937 at 2, 1352 at 1-3. But these arguments miss the point. If Keystone is entitled to recoup, it does not need a repayment agreement because Okorie had no interest in the funds - they were not property of the estate to which the stay or discharge injunction would apply. See Thomas v. S.C. Elec. & Gas Co. (In re Thomas), No. 91-1677, 91-8086, 1991 WL 643146 at *6 (Bankr. D.S.C.
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Sept. 20, 1991) (because debtor had no interest in funds subject to recoupment, funds were not property of estate). In fact, Herster testified that Keystone was going to recoup the money regardless of whether Okorie signed the repayment agreement. ECF No. 1375 at 136-137. By signing the agreement, Okorie successfully negotiated better repayment terms for himself. ECF No. 1422 at 17-23
VI. Order
The recoupment by Keystone of $151,567.31 in overpayments to Okorie did not violate the automatic stay or the discharge injunction.
IT IS HEREBY ORDERED AND ADJUDGED that the Motion for Violation of the Automatic Stay (ECF No. 937) is DENIED.
IT IS FURTHER ORDERED AND ADJUDGED that Okorie's Motion for Summary Judgment (ECF No. 1307) is DENIED as moot.
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