June 13, 2018, Michigan – Debtor Oakland Physicians Medical Center, L.L.C. d/b/a/ Doctors’ Hospital of Michigan was formed in 2008 to acquire the assets of Pontiac General Hospital in a sale according to 11 U.S.C. §363. Debtor’s members, who at the time consisted of approximately 45 physicians and McLaren Health Care invested millions of dollars into Debtor. Defendant Michael Short was a member-physician at the hospital. In 2010, McLaren disassociated itself from the hospital and demanded repayment of its secured loan. The member-physicians made loans/advances to Debtor to enable it to pay off the debt owed to McLaren and to finance the Debtor’s revival later. Despite these efforts, Debtor suffered losses between 2010 and 2015 and required continued cash advances from its members to continue its operations. Between November 1, 2011, and July 1, 2015, the Defendant supposedly made 19 loans to the Debtor totaling $1,582,333.34.
On July 22, 2015, the Debtor filed a voluntary petition for relief under Chapter 11, and the Trustee filed an adversary complaint. The central dispute was whether the monies advanced by the Defendant were loans or capital contributions. The Trustee argued that the funds were loans, to establish the “antecedent debt” requirement of Sec. 547 (b)(2). The Defendant argued that the alleged payments were not avoidable as they were made in the ordinary course of business under Sec. 547(c).
The Court found that the trustee’s arguments were sufficient to demonstrate that an essential element of the Defendant’s ordinary course of business defense under § 547(c)(2) was lacking. The Defendant was not in the business of making loans and could not offer any specific terms of repayment and thus, did not satisfy his burden of proof on this element of the affirmative defense. Further, the Defendant did not raise the “ordinary business terms” objective test of § 547(c)(2) earlier, as he did not raise or rely on that test during the summary judgment stage. The Court also held that the Defendant failed to establish that the terms of the loan were the ordinary terms in the parties’ course of dealing. Accordingly, the Court denied the Defendant’s motion for reconsideration.
Simon v. Short (In re Oakland Physicians Med. Ctr., L.L.C.), Nos. 15-51011, 16-05125, 2018 Bankr. LEXIS 1908 (Bankr. E.D. Mich. June 13, 2018)