debtors’ objection to cerner

DEBTORS’ OBJECTION TO CERNER ARBITRATION MOTION –

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BUSH KORNFELD LLP LAW OFFICES

601 Union St., Suite 5000 Seattle, Washington 98101-2373

Telephone (206) 292-2110 Facsimile (206) 292-2104

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JAMES L. DAY (WSBA #20474) THOMAS A. BUFORD (WSBA #52969) BUSH KORNFELD LLP 601 Union Street, Suite 5000 Seattle, WA 98101 Tel.: (206) 292-2110 Fax: (206) 292-2104 Email: [email protected] Email: [email protected] Attorneys for the Chapter 11 Debtors and Debtors-in-Possession

HONORABLE WHITMAN L. HOLT

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF WASHINGTON

In re ASTRIA HEALTH, et al.1,

Debtors.

No. 19-01189-11 DEBTORS’ OBJECTION TO CERNER CORPORATION’S MOTION FOR (1) RELIEF FROM AUTOMATIC STAY TO ALLOW ARBITRATION; (2) FOR DETERMINATION THAT ARBITRATION IS REQUIRED; AND (3) RECOGNITION OF FEDERAL ARBITRATION ACT STAY OF FURTHER PROCEEDINGS ON OBJECTION TO ADMINISTRATIVE EXPENSE CLAIM [DOCKET NO. 1995]

1 The Debtors, along with their case numbers, are as follows: Astria Health (19-01189-11), Glacier Canyon, LLC (19-01193-11), Kitchen and Bath Furnishings, LLC (19-01194-11), Oxbow Summit, LLC (19-01195-11), SHC Holdco, LLC (19-01196-11), SHC Medical Center-Toppenish (19-01190-11), SHC Medical Center-Yakima (19-01192-11), Sunnyside Community Hospital Association (19-01191-11), Sunnyside Community Hospital Home Medical Supply, LLC (19-01197-11), Sunnyside Home Health (19-01198-11), Sunnyside Professional Services, LLC (19-01199-11), Yakima Home Care Holdings, LLC (19-01201-11), and Yakima HMA Home Health, LLC (19-01200-11).

19-01189-WLH11 Doc 2088 Filed 12/07/20 Entered 12/07/20 17:50:29 Pg 1 of 24

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Docket #2088 Date Filed: 12/07/2020


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The Debtors, by their undersigned counsel, hereby file this objection

(“Objection”) to the Motion of Cerner Corporation for (1) Relief From the Automatic

Stay to Allow Arbitration; (2) For Determination the Arbitration is Required and

Should Proceed; and (3) Recognizing Federal Arbitration Act Stay of Further

Proceedings on Objection to Administrative Expense Claim; and Notice Thereof (the

“Motion”) [Docket No. 1995] and in support, state as follows:

I. INTRODUCTION

The Motion is an untimely, procedurally and legally defective attempt to

mandate arbitration of core bankruptcy matters that are central to the Debtors’

bankruptcy case and proposed plan of reorganization. Moreover, by seeking relief at

this time, Cerner Corporation (“Cerner”) is attempting to hijack the plan confirmation

process and place at risk the provider of critical healthcare in the Yakima Valley in an

attempt to recover on alleged claims despite the Debtors’ defenses thereto and its

pending motion to reject one Cerner agreement and assume another Cerner agreement.

More specifically, this court should deny Cerner’s efforts for at least five reasons.

First, any right Cerner may have had to arbitrate has been waived by virtue of

Cerner having waited approximately 18 months to seek arbitration and raising the issue

on the eve of Plan confirmation. Cerner notes that the “Debtors could have sought

arbitration over these alleged claims at any time for the last 18 months” and by doing

so, evidences its own deleterious and prejudicial conduct.

Second, case authority establishes that claim adjudication, especially when

significant to plan structure and confirmation, is a core matter that should proceed in



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the Bankruptcy Court. In fact, notwithstanding Cerner’s efforts to diminish the Ninth

Circuit’s precedent established in Cont’l Ins. Co. v. Thorpe Insulation (In re Thorpe

Insulation Co.), 671 F.3d. 1011 (9th Cir. 2012), that decision establishes that courts are

well within their rights to deny arbitration of such matters when they could affect plan

confirmation. Id. at 1022-23. There is no dispute that Cerner has submitted itself to the

jurisdiction of the Bankruptcy Court in filing and seeking determination of

administrative and prepetition claims, which is indisputably core. Id. at 1021 (“Here,

we agree with the bankruptcy court and district court that resolution of [creditor]

Continental’s claim was a core proceeding.”) (citations omitted).

Third, Cerner’s attempt to obtain a declaratory judgment at this juncture that all

disputes between it and the Debtors must proceed through arbitration is without merit.

Bankruptcy Rule 7001(7) and (9) provides that injunctive and declaratory relief is to

proceed by adversary proceeding. Furthermore, the request is improper in that it

undercuts this court’s role as gatekeeper of claims against the Debtors as well the

allocation of assets to creditors under the Plan.

Fourth, Cerner’s blanket request for relief from the automatic stay similarly

should be denied because it contradicts the existing plan structure, which provides that

the Bankruptcy Court retains jurisdiction to address claims disputes, whether predicated

on prepetition or postpetition conduct or based on issue of contractual cure. See Plan

of Reorganization, Section VI.

For these reasons, and those set forth below, the Debtors request that the court

deny the Motion.



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II. SUMMARY OF RELEVANT FACTS

There are two contracts that are central to the Debtors’ relationship with Cerner:

1) the Cerner Business Agreement (the “CBA”) and 2) the RevWorks Contract (the

“RevWorks Contract,” and together with the CBA, collectively, the “Contracts”). The

Contracts are described below.

A. The CBA

On June 30, 2017, Regional Health, the former name of Astria Health,2 and

Cerner entered into the CBA. A true and correct copy of the CBA is attached as

Exhibit A to the Declaration of Michael Lane attached hereto (“Lane Declaration”).

Pursuant to the CBA, Cerner agreed to provide a wide range of services to Astria

Health, covering each of the Debtors’ hospitals and dozens of smaller facilities

operated by the Debtors. More specifically, under the CBA, Cerner agreed to provide

and does provide the Debtors’ information technology platform, which includes the

Debtors’ electronic health records. This platform and these records are critical to the

Debtors’ operations and include both financial and clinical records. The services that

Cerner provides under the CBA are independent of the RevWorks Contract.3

2 For ease of reference, this Motion will refer to the contracting party as Astria Health.

3 For the obvious reason that the RevWorks Contract was not entered into for almost a year after the CBA, the CBA contains no reference to the RevWorks Contract and functions independently of the RevWorks Contract. In its first page, the RevWorks contract incorporates the CBA.



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As set forth in the Motion, the CBA contains an arbitration provision. To the

extent that Cerner can prove otherwise, the Debtors are prepared to cure any amount

deemed necessary by this court.4

B. The RevWorks Contract

A year later, on June 26, 2018, Astria Health and Cerner Revworks, LLC

(“Cerner RevWorks”), an affiliate of Cerner, agreed for Cerner to provide revenue

cycle services to Astria Health pursuant to the RevWorks Contract (through a form

Cerner Sales Order). A true and correct copy of the RevWorks Contract is attached as

Exhibit B to the Lane Declaration. The RevWorks Contract requires Cerner RevWorks

to manage the Debtors’ revenue cycle, which (broadly speaking) entails Cerner

RevWorks managing the Debtors’ patient account receivables. Under the RevWorks

Contract, Cerner RevWorks was responsible for billing, collections, and cash posting

for all patients and all third-party payors generated in the course of the Debtors’

healthcare services provided to patients. Cerner RevWorks did not perform its duties

under the RevWorks Contract, as the Debtors have more fully described to the court in

the Debtors’ Objection to Cerner’s Motion for Administrative Claim [Docket No.

1973]. The Debtors have ceased utilizing Cerner RevWorks’s services under the

RevWorks Contract and, instead, have retained another vendor for revenue cycle

management services.

4 The Debtors are prepared to demonstrate as part of Plan confirmation or at an administrative claim or

cure hearing that value of Cerner’s CBA claim is $0.



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In contrast to the CBA, the RevWorks Contract does not contain an arbitration

provision.

On December 7, 2020, the Debtors filed a motion to reject (to the extent not

already terminated) the RevWorks Contract [Docket No. 2086] (the “Motion to

Reject”). The Motion to Reject does not seek termination of the CBA.

C. The Chapter 11 Filings And Cerner, The Principal Cause Thereof

On May 6, 2019 (the “Petition Date”), the Debtors filed separate petitions for

relief under Chapter 11 of the Bankruptcy Code. As described in the supporting First

Day Declaration filed therewith [Docket No. 21], a principal cause of the Chapter 11

filings was the tortious and contractual violating conduct of Cerner and Cerner

RevWorks. First Day Declaration, ¶¶ 54-56.5

D. The Debtors’ Reorganization Efforts And Co-Sponsored Plan

Since the Petition Date, the Debtors have worked to successfully reorganize their

operations and balance sheet in a manner aimed at maximizing recovery to their

creditors while maintaining essential healthcare in the Yakima Valley. These efforts

have included obtaining approval of two rounds of debtor in possession financing

(“DIP Financing”) from two separate lenders, closure of Astria Regional Medical

Center (“ARMC”) and several clinics beginning in January 2020, the sale of the

Medical Office Building of ARMC and certain other property approved by the court

and resolutions of myriad disputes and settlements.

5 Although no entity was designated by name, there is no question that Cerner and others knew it was the subject party.



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During this period, the Debtors also worked closely and extensively with their

principal creditor constituents, namely the Lapis Parties who provided both prepetition

financing and the current DIP Financing and the Official Committee of Unsecured

Creditors (“UCC”) appointed on May 24, 2019 [Docket No. 135]. These efforts have

resulted in the filing of a plan of reorganization co-sponsored by the Debtors and the

Lapis Parties (the “Plan”) [Docket No. 1986] and the approval of a related Disclosure

Statement [Docket No. 1987]. The Plan, which is supported by the Committee, has

been sent out for vote solicitation and based upon the returned ballots received to date,

the Debtors expect all classes entitled to vote to vote in favor of the Plan. Lane

Declaration, ¶ 5. The hearing on Plan confirmation is scheduled to occur on

December 18, 2020 [Docket No. 1991].

Under the Plan, contracts not scheduled for assumption (or ride through) will be

deemed rejected. The Debtors have filed a motion seeking to reject the RevWorks

Contract and to assume the CBA. E. The Cerner Claims, The Debtors’ Related Claim Objections And The Cerner Arbitration Motion

On August 1, 2019, Cerner filed a claim seeking damages related to alleged

prepetition obligations arising out of the CBA and RevWorks Contract. [Proof of

Claim # 364-1].

On July 22, 2020, Cerner filed a Request for Allowance and Payment of

Administrative Expense Claim of Cerner Corporation [Docket No. 1573], seeking

allowance and payment of $2,125,497.75 as administrative expenses allegedly arising

in connection with postpetition services provided to ARMC pursuant to the CBA (the



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“Administrative Claim”). Thereafter, the parties engaged in settlement discussions and

in connection therewith, agreed to extend the objection deadline to the Cerner

Administrative Claim. On November 5, 2020, the Debtors filed a timely Objection to

Cerner Corporations Motion for Allowance of Administrative Expense Claim [Docket

No. 1973] (the “Administrative Claim Objection”).6

On November 13, 2020, Cerner filed the Motion. As set forth therein, Cerner

seeks relief to conduct arbitration of its Administrative Claim. In footnote 2 of the

Motion, however, Cerner also requests relief from stay to “to require arbitration of all

matters related to allowance of any claim by Cerner or pursuit of any claim by Debtors

against Cerner.” The hearing on the Motion is scheduled for December 10, 2020.

III. ARGUMENT A. Cerner’s Failure To Demand Arbitration Until The Eve Of Confirmation Constitutes Waiver

In its rendition of facts, Cerner claims that the “Debtors could have sought

arbitration over these alleged claims at any time for the last 18 months.” While this

may be true, it establishes Cerner could have sought arbitration too but opted against it

until the eve of Plan confirmation. In fact, Cerner’s decision to wait “18 months” to

seek arbitration rises to the level of waiver.

6 Cerner contends, incorrectly, that the basis of this defense is limited to Cerner’s prepetition conduct. Motion at 6, line 1-3. This is not an accurate description nor did the Debtors ever seek to limit such conduct to prepetition action. Among other things, Cerner’s actionable conduct continued after the Petition Date through its continued, postpetition failure to correct the troubled RevWorks system notwithstanding remaining on site with the express purpose of attempting to fixing this failed system.



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In the Ninth Circuit, a party waives its right to arbitrate if “three conditions are

met: (1) the waiving party must have knowledge of an existing right to compel

arbitration; (2) there must be acts by that party inconsistent with such an existing right;

and (3) there must be prejudice resulting from the waiving party’s inconsistent acts.”

United Computer Sys., Inc. v. AT & T Corp., 298 F.3d 756, 765 (9th Cir. 2002);

E.E.O.C. v. Fry’s Elecs., Inc., No. C10-1562RSL, 2011 WL 666328, at *3 (W.D.

Wash. Feb. 14, 2011) (same).

Here, the first prong of test is clearly satisfied as there is no dispute that Cerner

had knowledge of the arbitration provision in the CBA. See Motion, ¶ 5. As to the

second prong, Cerner’s delay in pursuing arbitration is inconsistent with the right to

arbitrate. The Ninth Circuit has explained “that a party’s extended silence and delay in

moving for arbitration may indicate a ‘conscious decision to continue to seek judicial

judgment on the merits of the arbitrable claims,’ which would be inconsistent with a

right to arbitrate.” Martin v. Yasuda, 829 F.3d 1118, 1125 (9th Cir. 2016) (quoting Van

Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759 (9th Cir. 1988)) (brackets

omitted).

Cerner’s claims cover the Debtors’ alleged non-payment both prior to and after

the Petition Date. However, the basis for the Debtors’ nonpayment has never been a

mystery to Cerner as the Debtors consistently informed Cerner that any alleged claim

under the CBA is subject to offset due to Cerner’s improper conduct that cost the estate

upwards of $150 million. See Debtors’ Objection to Cerner Administrative Claim

[Docket No. 1973], at 3, ll. 2-5 (“The Debtors informed Cerner prior to filing their



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chapter 11 cases that Cerner breached its obligations and failed to properly implement

and conduct the RevCycle program during the period of June 2018 to the Petition Date,

which resulted in Astria’s suffering significant financial damages.”), ll. 13-15 (“The

Debtors have experienced more than $75,000,000 in decreased cash collections during

the period of July 2018 through March 2019 that were due to Cerner’s failure to fulfill

its duties”). However, despite knowing since prior to the bankruptcy filing that the

Debtors did not intend to pay Cerner going forward, and that the Debtors did not in fact

pay Cerner, Cerner waited more than a year to assert its Administrative Claim. Lane

Declaration, ¶ 6. It was not until another four months later (18 months since the

Petition Date), on the eve of confirmation of the Plan, that Cerner decided to seek

arbitration of its claims. Cerner’s actions in delaying to seek arbitration of its claims,

which it knew existed prior the Petition Date, for 18 months until the eve of

confirmation is inconsistent with the right to seek arbitration.

Moreover, allowing Cerner to proceed to arbitration on the eve of confirmation

of the Plan will cause the Debtors significant prejudice. The confirmation hearing is set

for December 18, 2020 and the Plan contemplates a specific procedure to timely

resolve disputed claims, including Cerner’s Administrative Claim. See Plan, Section

V.B. By attempting to mandate that the Debtors proceed to arbitration with Cerner,

Cerner is seeking to hijack the Plan and claim resolution process, which has been

extensively negotiated with the UCC and the Lapis Parties, as well as impair the

Debtors’ ability to reorganize. Accordingly, Cerner has waived its right to arbitrate and

its Motion should denied.



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B. Cerner’s Reliance On The Federal Arbitration Act Is Misplaced Because Applicable Law Does Not Mandate Arbitration But Rather, Supports Bankruptcy Court Adjudication

Cerner spends the bulk of its brief discussing the Federal Arbitration Act

(“FAA”) and how it, along with certain case law, “mandates” arbitration of all matters

in a dispute between Cerner and the Debtors. Among these cases, Cerner attempts to

rely on United States Supreme Court authority and a select reading of the Ninth Circuit

case of In re Thorpe Insulation Co., 671 F.3d 1011 (9th Cir. 2012). Examination of the

cited authority, as well as other cases not only undercuts Cerner’s asserted arbitration

mandate but justifies denial of any arbitration.

First, it is well established that the FAA does not mandate arbitration of

bankruptcy issues. In re Anderson, 884 F.3d 382, 392 (2d Cir. 2018) (“Because we

determine there is an inherent conflict between arbitration of Anderson's claim and the

Bankruptcy Code, we must also assess whether the bankruptcy court abused its

discretion in declining to enforce the arbitration agreement. . . . We hold that the

bankruptcy court did not abuse its discretion by denying Credit One's motion to compel

arbitration in this case.) To the contrary, where there is a conflict between arbitration

and the underlying purpose of the Bankruptcy Code, arbitration is neither mandatory

nor warranted. In re EPD Inv. Co., LLC, 821 F.3d 1146, 1150 (9th Cir. 2016)

(concluding that the bankruptcy court acted within its discretion to deny the defendants'

motion to compel arbitration, agreeing that to compel arbitration would conflict with

Bankruptcy Code purposes of having bankruptcy law issues decided by bankruptcy



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courts, of centralizing resolution of bankruptcy disputes and of protecting parties from

piecemeal litigation).

Second, in assessing the issue, courts will look at whether the proceeding sought

to be arbitrated is either core or non-core. “In non-core proceedings, the bankruptcy

court generally does not have discretion to deny enforcement of a valid prepetition

arbitration agreement. Thorpe, 671 F.3d at 1021 (citing In re Elec. Mach. Enters., 479

F.3d at 796; Crysen/Montenay Energy Co. v. Shell Oil Co. (In re Crysen/Montenay

Energy Co.), 226 F.3d 160, 166 (2d Cir. 2000); 2 Martin Domke, Domke on

Commercial Arbitration § 52:6 (3d ed.2011); see also MCI Telecomms. Corp. v. Gurga

(In re Gurga), 176 B.R. 196, 199– 200 (B.A.P. 9th Cir.1994)). “In core proceedings, by

contrast, the bankruptcy court, at least when it sees a conflict with bankruptcy law, has

discretion to deny enforcement of an arbitration agreement.” Id. (citing In re Phillips v.

Congelton, L.L.C. (In re White Mountain Mining Co.), 403 F.3d 164, 169 (4th

Cir.2005); In re U.S. Lines, 197 F.3d at 640; In re Nat’l Gypsum, 118 F.3d at 1067–68;

Domke, supra, § 52:7). As Thorpe further noted, “[t]he rationale for the core/non-core

distinction, as explained by the Second Circuit, is that non-core proceedings ‘are

unlikely to present a conflict sufficient to override by implication the presumption in

favor of arbitration,’ whereas core proceedings ‘implicate more pressing bankruptcy

concerns. In re U.S. Lines, 197 F.3d at 640.’” Id.

Here, there can be no dispute that claim adjudication is a core proceeding. See

generally, In re G.I. Indus., Inc., 204 F.3d 1276, 1279-80 (9th Cir. B.A.P. 2000) (“The

filing of a proof of claim is the prototypical situation involving the ‘allowance or



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disallowance of claims against the estate,’ a core proceeding under 28 U.S.C. §

157(b)(2).”); In re Saint Vincent’s Catholic Medical Ctrs of N.Y., 445 B.R. 264, 269-70

(Bankr. S.D.N.Y. 2011), aff’d, 581 Fed. Appx. 41 (2d Cir. 2014) (bankruptcy court had

core jurisdiction to hear and decide Chapter 11 debtors’ objection to proof of claim

filed by state’s department of labor under state’s worker adjustment and retraining

notification law, pursuant to court’s jurisdiction over “core” proceedings to determine

allowance or disallowance of claims against estate and Bankruptcy Code’s mandate

that bankruptcy court determine claim objections); In re Gorilla Companies LLC, 429

B.R. 308, 317 (Bankr. D. Ariz. 2010) (by filing proof of claim against the estate,

creditor provided bankruptcy court with core jurisdiction to decide removed state court

cause of action and debtor’s counterclaim). This is true regardless of the fact that

Cerner’s alleged claim is based upon nonpayment or breach of the CBA and the

RevWorks Contract, and seeks administrative and prepetition amounts. In Thorpe, the

Court of Appeals acknowledged that, “we agree with the bankruptcy court and the

district court that the resolution of Continental’s claim was a core proceeding.

Continental argues that its ‘state law breach of contract claim’ is non-core because ‘it is

based on state law and arose outside of and independent of Thorpe’s bankruptcy.’ Yet

regardless of how Continental characterizes its claim, Continental filed a proof of

claim, and Thorpe objected to the claim, so under 28 U.S.C. § 157(b)(2) (B), the

allowance or disallowance of that claim was a core proceeding.” Id. at 1021 (citations

omitted). Resolution of administrative period claims are also core. See In re Stainless

Sales Corp., 579 B.R. 836, 839 (Bankr. N.D. Ill. 2017) (providing that a claim for an



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administrative expense is a core proceeding); In re Center Field Props., Case No. 12–

60854–11, 2013 WL 3353874, at *1 (Bankr. D. Mont. Jul. 3, 2013) (“[The] [m]otion

for payment of administrative expense under § 503(b)(1)(A) is a core proceeding

under 28 U.S.C. § 157(b)(2).”); In re Hildebrand, 205 B.R. 278, 284 (Bankr. D. Col.

1997) (“Even where the specific causes of action asserted against a bankruptcy trustee

exist independently of bankruptcy law, an action against a bankruptcy trustee for the

trustee’s administration of the bankruptcy estate could not, therefore, all claims against

[a trustee] related to his conduct during the . . . bankruptcy, . . . should be

considered core proceedings.”) (internal quotations omitted).

There can also be no dispute that adjudication of Cerner’s claims by the

Bankruptcy Court is critical to the plan structure and confirmation. This is because the

plan provides limited funds for administrative claims and allowing Cerner’s desired

litigation path will create piecemeal litigation at the expense of creditors and the estate.

Thorpe 671 F.3d at 1022. Thus, Cerner’s contention that Thorpe is limited because the

plan at issue there addressed asbestos claims under Bankruptcy Code § 524(g) and a

related trust is unavailing. As the Court in Thorpe stated, “[e]ven apart from § 524(g),

the purposes of the Bankruptcy Code include ‘[c]entralization of disputes concerning a

debtor’s legal obligations’ and ‘protect[ing] creditors and reorganizing debtors from

piecemeal litigation.’ [citations omitted] Arbitration of a creditor’s claim against a

debtor, even if conducted expeditiously, prevents the coordinated resolution of debtor-

creditor rights and can delay the confirmation of a plan of reorganization.” Id. at 1022-

23.



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Further, the other cases cited by Cerner are both distinguishable and otherwise

fail to support Cerner’s requested relief.

In re Bennett v. Liberty Nat.’l Fire Ins. Co., 968 F.2d 969 (9th Cir. 1992) is

inapplicable because it involved an action brought by a state law insurance liquidator in

a nonbankruptcy context.

In re Mor-Ben Ins, 73 B.R. 644 (9th Cir. B.A.P. 1987) is also inapplicable

because it involved a debtor in the insurance claims market that brought affirmative

claims against two United Kingdom based insurers. The BAP affirmed the decision

below finding “[i]n light of the fact that the majority of the appellees have their

principal places of business in London and the subject dispute involves issues of

insurance law and insurance accounting practices, we cannot conclude that the court’s

finding is clearly erroneous.” Id. at 647. Here, none of these key facts apply.

In re Gura, 176 B.R. 196 (9th Cir. B.A.P. 1994) is similarly unpersuasive as it

involved a claim brought by a debtor for damages for breach of contract and an

accounting under the rules of the American Arbitration Association (AAA), not the

FAA. Further distinguishable is that the account had been originally brought by the

debtor in arbitration. In reaching its conclusion, the court recognized that the matter

was noncore, as it involved garden variety contractual breach claims by a debtor. Id. at

199-200.

In re Morgan, 28 B.R. 3 (9th Cir. B.A.P. 1983) involved a debtor who filed a

breach of contract claim against a shipbuilder. In finding that this matter was subject to



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the United States Arbitration Act, the Court distinguished the situation from cases that

involve claims brought against debtors: The Arbitration Act strongly favors resolution of disputes by arbitration [citation omitted]. This policy conflicts with that in favor of resolving claims against the debtor in the bankruptcy court. Johnson v. England, 356 F.2d 44 (9th Cir.1966), cert. den., 384 U.S. 961, 86 S.Ct. 1587, 16 L.Ed.2d 673. In Johnson, the Ninth Circuit affirmed a decision of the district court refusing to enforce an arbitration provision in the bankrupt’s collective bargaining agreement. In that liquidation case, the union had sought to have arbitrated claims against the bankrupt estate. The court found the interests of the trustee and other creditors, who had never agreed to the arbitration clause, precluded arbitration of the issues which it characterized as “within the special competence of the bankruptcy court.

Id. at 5.

Two of the three BAP judges also noted that the prior decisions of Alabama and

California courts “decreeing enforcement of the arbitration clause to be res judicata.”

Id. As such, Morgan is plainly distinguishable from the present matter.

Also distinguishable is In re Horstman, 2018 WL 6219840 (C.D. Cal. Oct. 1,

2018), which involved withdrawing the reference and referring to arbitration claims

brought by a trustee of failed franchise owners against Dickey’s, the franchisor. In

granting the relief, the court distinguished the situation from Thorpe and moreover,

noted that the trustee had failed to raise its claims as a defense to proofs of claim filed

by the franchisor. Id. at *2 (“There, the Ninth Circuit explained that ‘the allowance or

disallowance’ of a claim against an estate, and any objections to that claim, are core



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proceedings. Thorpe, 671 F.3d at 1021. That’s not what we have here. Yes, Dickey’s

filed a proof of claims against the Huerths’ bankruptcy estate. But Plaintiffs didn’t

present their franchise claims as objections to Dickey’s proof of claims.” The Court

noted the noncore nature of the trustee’s claims and the lack of relationship to the needs

of the bankruptcy case.) Here, not only is the matter core because Cerner seeks to

arbitrate its claims, but this case is further distinguishable because Astria has actually

raised its claims as a defense to Cerner’s claims.

Cerner further looks to a series of either inapposite or readily distinguishable

Supreme Court cases in support of its position. Cerner cites Moses H. Cone, Epic

Systems and Shearson, all for the proposition that arbitration is generally favored as a

matter of policy. While this may be true in the most general sense, none of those cases

deal with a debtor in a bankruptcy proceeding, or the concept of bankruptcy at

all. Indeed, in Shearson, the Supreme Court explicitly provides that “[l]ike any

statutory directive, the Arbitration Act’s mandate may be overridden by a contrary

congressional command.” 482 U.S. at 226. Thorpe cites to this very quotation in its

finding that bankruptcy courts are within their rights to deny arbitration of matters that

could affect plan confirmation. Thorpe, 671 F.3d at 1020 (“‘[T]he Arbitration Act’s

mandate may be overridden by a contrary congressional command.’”) (quoting

Shearson). Moreover, the Ninth Circuit explicitly addressed the Moses H. Cone

decision in Thorpe, providing that “Continental argues that judicial economy and

centralization of disputes are not sufficient bases for nonenforcement of an otherwise

applicable arbitration clause. In general, this proposition is correct, see Moses H. Cone,



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460 U.S. at 20, 103 S.Ct. 927, but it does not hold in the bankruptcy context.” Thorpe,

671 F.3d at n.9.

Cerner also cites to Envisage Devel. Partners, Saigon Plaza Associates, Banks

and Touchstone Home Health LLC, which while at least contemplating the concept of

bankruptcy, are equally inapplicable. None of those cases involve a core proceeding

that directly affects the administration of a bankruptcy case, as is the case here. The

fact of the matter is that Cerner has cited no case for the proposition that a bankruptcy

court should allow arbitration of a core proceeding directly affecting administration of

the estate because there exists no such case. Instead, as the Ninth Circuit has set forth

in Thorpe, a bankruptcy court may deny arbitration of matters that could affect plan

confirmation. Id. at 1023-24. C. Cerner’s Demand For A Blanket Declaratory Judgment Of

Arbitration Should Be Denied As Being Procedurally And Legally Improper

Cerner’s attempt to obtain a blanket declaratory judgment that all disputes

between it and the Debtors must proceed through arbitration is also without merit.

Bankruptcy Rule 7001(7) and (9) provides that injunctive and declaratory relief is to

proceed by adversary proceeding. Furthermore, the request for a blanket grant of

mandatory arbitration is improper in that it undercuts this court’s role as gatekeeper.

“Bankruptcy Courts are courts of equity. They are the gatekeepers of the fair allocation

of assets to creditors.” In re Murdock, 134 B.R. 417, 420 (Bankr. D. Mont. 1991).

Bankruptcy Courts also serve as “gatekeepers for actions against debtors in



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bankruptcy.” Advanced Comput. Servs. v. Mai Sys. Corp., 161 B.R. 771, 775 (E.D. Va.

1993); see also In re Motors Liquidation Co., 568 B.R. 217, 222 (Bankr. S.D.N.Y.

2017) (The bankruptcy court’s role is a gatekeeper which should “decide what claims

and allegations should get through the gate . . . .”). The Motion seeks to sidestep these

roles of the court to determine claims and allegations against the Debtors and, instead,

mandate arbitration of Cerner’s bankruptcy matters that are central to the Debtors’

proposed plan and confirmation process. Accordingly, this court should adjudicate this

matter.

D. Cerner’s Request For Relief From The Automatic Stay Should Be Denied

Cerner’s request for relief from the automatic stay should be denied because it

does not establish cause or otherwise meet the requirements for relief under § 362 of

the Bankruptcy Code, contradicts the existing Plan structure that provides that the

Bankruptcy Court retains jurisdiction to address claims disputes whether predicated on

prepetition or postpetition conduct or based on the issue of contractual cure.

A creditor seeking relief from the automatic stay bears the burden of establishing

a prima facie case that “cause” exists for such relief. In re Plumberex Specialty Prods.,

Inc., 311 B.R. 551, 557 (Bankr. C.D. Cal. 2004). “Cause” is determined on a case-by-

case basis. In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir. 1990). In

determining whether “cause” exists courts often consider the factors set forth in In re

Curtis, 40 B.R. 795 (Bankr. D. Utah 1984):

(1) Whether the relief will result in a partial or complete resolution of the issues;

(2) The lack of any connection with or interference with the bankruptcy case;



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(3) Whether the foreign proceeding involves the debtor as a fiduciary;

(4) Whether a specialized tribunal has been established to hear the particular cause

of action and whether that tribunal has the expertise to hear such cases;

(5) Whether the debtor's insurance carrier has assumed full financial responsibility

for defending the litigation;

(6) Whether the action essentially involves third parties, and the debtor functions

only as a bailee or conduit for the goods or proceeds in question;

(7) Whether the litigation in another forum would prejudice the interests of other

creditors, the creditor's committee and other interested parties;

(8) Whether the judgment claim arising from the foreign action is subject to

equitable subordination;

(9) Whether movant's success in the foreign proceeding would result in a judicial

lien avoidable by the debtor under Section 522(f);

(10) The interests of judicial economy and the expeditious and economical

determination of litigation for the parties;

(11) Whether the foreign proceedings have progressed to the point where the

parties are prepared for trial; and

(12) The impact of the stay and the "balance of hurt.”

40 B.R. at 799-800 (internal citations omitted). See also In re Advanced Medical Spa

Inc., Case No. EC–16–1087; KuMaJu, 2016 WL 6958130, at *4 (9th Cir. B.A.P. Nov.

28, 2016) (adopting the Curtis factors); In re Plumberex, 311 B.R. at 559 (Bankr. C.D.

Cal. 2004) (adopting the Curtis factors and recognizing that courts in other circuits that



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have done the same). See also In re Tucson Estates, Inc., 912 F.2d at 1166-67

(approving similar factors that a court should consider when deciding whether to

abstain).

While the above factors are not exclusive or dispositive, Cerner has made no

attempt to address them, or any similar factors in its effort to show “cause.” Instead,

Cerner merely cites the presence of an arbitration provision and the general proposition

that arbitration is favored under federal law. Cerner’s contentions fall woefully short of

establishing “cause” under section 362(d) of the Bankruptcy Code.

Moreover, there can be little dispute that Cerner’s requested relief seek to undercut

the terms of the Plan. Section VI of the Debtors’ Plan of Reorganization provides, in

relevant part, that the court retains jurisdiction to:

• Allow, Disallow, determine, liquidate, classify, estimate, or establish the priority, Secured or unsecured status, or amount of any Claim, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the Secured or unsecured status, priority, amount, or Allowance of Claims . . . ;”

• “Resolve any matters related to (i) the assumption or assumption and assignment of any Executory Contract to which a Debtor is a party or with respect to which a Debtor may be liable in any manner and to hear, determine, and, if necessary, liquidate, any Claims arising therefrom, including Claims related to the rejection of an Executory Contract, cure costs pursuant to § 365, or any other matter related to such Executory Contract; and (ii) any dispute regarding whether a contract or lease is or was executory or unexpired;”

• “Adjudicate, decide, or resolve any controversies, if any, with respect to distributions to Holders of Allowed Claims;”



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• “Adjudicate, decide, or resolve any motions, adversary proceedings, contested, or litigated matters, and any other matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date;” and

• “Determine requests for the payment of Claims entitled to priority pursuant to §

507.”

Accordingly, Cerner’s request for relief from the automatic stay and its Motion

more broadly should be denied.

IV. CONCLUSION

For the reasons stated above, the Debtors request the court deny the Motion.

DATED this 7th day of December, 2020.

BUSH KORNFELD LLP By /s/ James L. Day

James L. Day, WSBA #20474 Thomas Buford, WSBA #52969

Attorneys for the Debtors



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DECLARATION OF MICHAEL LANE

I, Michael Lane, declare that if called on as a witness, I would and could testify

of my own personal knowledge as follows:

1. I am the Chief Restructuring Officer (“CRO”) of Astria Health (“Astria”)

and independently employed. I submit this declaration in support of the Debtors’

Objection to Cerner Corporation’s Motion For (1) Relief From Automatic Stay To

Allow Arbitration; (2) For Determination That Arbitration Is Required; And (3)

Recognition of Federal Arbitration Action Stay Of Further Proceedings On Objection

To Administrative Expense Claim [Docket No. 1995] (the “Objection”).

2. The statements herein are based upon my personal knowledge of the facts

and information gathered by me in my capacity as CRO for Astria. All capitalized

terms in this declaration are defined as set forth in the Objection.

3. A true and correct copy of the CBA is attached as Exhibit A to my

declaration in support of the Debtors’ Motion to Assume and Reject Contracts, file at

Docket No. 2087.7

4. A true and correct copy of the RevWorks Contract is attached as

Exhibit B to my declaration in support of the Debtors’ Motion to Assume and Reject

Contracts, file at Docket No. 2087.8

7 This document will be filed pursuant to a motion to seal.

8 This document will be filed pursuant to a motion to seal.



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5. The Plan, which is supported by the Committee, has been sent out for vote

solicitation and based upon the returned ballots received to date, the Debtors expect all

classes entitled to vote to vote in favor of the Plan.

6. Prior to the filing of the Bankruptcy Case, the Debtors communicated with

Cerner to express its views on the parties’ asserted obligations and that the Debtors did

not intend to pay Cerner going forward and that the Debtors have not in fact paid

Cerner going forward.

I declare under penalty of perjury under the laws of the United States that, to the

best of my knowledge and after reasonable inquiry, the foregoing is true and correct.

Executed this 7th day of December, 2020.

/s/Michael Lane Michael Lane Chief Restructuring Officer


debtors’ objection to cerner

Documents