Court Certifies Class of Lower Buck Hospital Bondholders and Refuses to Reconsider Earlier Partial Summary Judgment Decision in Favor of Bondholders

10/13/2016 - In a pair of recent opinions in Becker v. The Bank of New York Mellon Trust Company, N.A., et al., Judge Legrome D. Davis of the United States District Court of the Eastern District of Pennsylvania, certified the proposed class and refused to revisit his March 2016 rulings on the parties’ competing motions for summary judgment. 

The complaint alleges that BNY Mellon, as the trustee of bonds secured by certain assets of Lower Bucks Hospital, breached its fiduciary and contractual duties to the bondholders by failing to maintain perfected security interest in the collateral securing the bonds.  As a result, when Lower Bucks Hospital filed for bankruptcy and challenged the bondholders’ security interest, the bond trustee settled for less than the full amount it would have been entitled to obtain for bondholders had it fulfilled its duties and ensured that the security interest was perfected.  In addition to the harm bondholders suffered as a result of the trustee’s breaches, the plaintiff also seeks to compel the bond trustee to distribute the fund the trustee received in the bankruptcy settlement on behalf of the bondholders.  The trustee contends that, under the bond documents, it may use the fund to indemnify itself for its bankruptcy-related expenses, as well as for its expenses in defending against the plaintiff’s claims in this case.

Class Certification:  In his October 5, 2016, opinion, Judge Davis held that all of the prerequisites for class certification under the Federal Rule of Civil Procedure have been met, and certified the following class:

All persons or entities who purchased or otherwise acquired the bonds identified as the Borough of Langhorne Manor Higher Education and Health Authority Hospital Revenue Bonds, Series of 1992 (The Lower Bucks Hospital), and who are holders of an Allowed Class A3 Claim pursuant to Section 5.1.3(A)(ii) of the Plan for reorganization of Lower Bucks Hospital, which Plan was confirmed under Chapter 11 of the Bankruptcy Code. Excluded from the class are Defendants and any person, firm, trust, corporation, or other entity related to or affiliated with any Defendant and any officers and directors thereof.

In certifying the class, Judge Davis rejected the defendants’ arguments that the plaintiff, an individual bondholder, was subject to unique defenses and therefore was not a “typical” class member.  The Court found the record clear that that before the bondholders voted to approve the plan of reorganization in Lower Bucks Hospital’s bankruptcy, none of them – including the plaintiff – had received adequate notice and disclosure of the existence, merits, or value of the claims they had against BNY Mellon for its failure to maintain the security interest in the collateral pledged to secure the bonds.  The plaintiff’s claim for damages from BNY Mellon’s misconduct was therefore typical of the claims of all bondholders.  The Court also held that questions of law and fact common to the class predominate (another prerequisite for class certification) and that the defendants’ proffered affirmative defenses were both not actionable and not relevant to class certification.  Click here for a copy of the Court’s class certification opinion. 

Summary Judgment Reconsideration: Judge Davis had ruled in March 2016 that, under Pennsylvania law, the defendants owed fiduciary and contractual duties to the bondholders, and could be held liable to the bondholders under the bond documents for not using reasonable care to protect and preserve the bondholders’ rights and interests. Judge Davis also ruled that the defendants do not have the right to be indemnified for expenditures incurred by BNY Mellon’s defense of this litigation. Defendants had sought reconsideration of that summary judgment opinion.  On September 30, 2016, Judge Davis refused to revisit his decision, finding that the defendants’ arguments did not satisfy any of the narrow grounds that would warrant the Court’s reconsideration.  Click here for a copy of the order.

If you have any questions about the Court’s opinions or the litigation generally, please contact BR&B partner, Lisa Port, at lport@barrack.com.