william m. rathbone, sbn: 95864 gordon rees scully

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-1- OBJECTION OF CIGNA TO DEBTORS’ MOTION TO REJECT, PURSUANT TO 11 U.S.C. § 365(A),

PROFESSIONAL SERVICES AGREEMENT WITH ALL CARE MEDICAL GROUP, INC. AND

RELATED EXECUTORY CONTRACTS AND UNEXPIRED LEASE NUNC PRO TUNC

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William M. Rathbone, SBN: 95864 [email protected] GORDON REES SCULLY MANSUKHANI, LLP 101 W. Broadway, Suite 2000 San Diego, CA 92101 Telephone: (619) 230-7444 Facsimile: (619) 696-7124 And Jeffrey D. Wisler DBN: 2795 (pending pro hac vice) [email protected] Connolly Gallagher, LLP 1000 West Street, Suite 1400 Wilmington, Delaware 19801 Telephone: (302) 888-6258 Facsimile: (302) 658-038 Attorneys for Cigna Healthcare of California, Inc. and Life Insurance Company of North America

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

Verity Health System of California, Inc., et al Debtor.

))) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

CASE NO. 18-20151 CHAPTER 11 Re: D.L. No. 365 OBJECTION OF CIGNA TO DEBTORS’ MOTION TO REJECT, PURSUANT TO 11 U.S.C. § 365(A), PROFESSIONAL SERVICES AGREEMENT WITH ALL CARE MEDICAL GROUP, INC. AND RELATED EXECUTORY CONTRACTS AND UNEXPIRED LEASE NUNC PRO TUNC Hon. Ernest M. Robles

Cigna Healthcare of California, Inc. (“Cigna”) hereby objects to the Debtors’ Motion to

Reject, Pursuant to 11 U.S.C. § 365(a), Professional Services Agreement With All Care Medical,

Group, Inc. and Related Executory Contracts and Unexpired Lease Nunc Pro Tunc [D.I. 399]

(“Rejection Motion”), and in support thereof, respectfully states as follows:

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Case 2:18-bk-20151-ER Doc 448 Filed 10/10/18 Entered 10/10/18 15:38:11 Desc Main Document of 4

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1820151181010000000000022

Docket #0448 Date Filed: 10/10/2018

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BACKGROUND

1. Cigna and certain of its affiliates, and the above-captioned debtors (collectively

“Debtors”), are parties to the numerous ongoing agreements (collectively, “Cigna Contracts”).

2. The Debtors filed the Rejection Motion on October 3, 2018, 34 days following the

August 31, 2018 petition date (“Petition Date”). Pursuant to the Rejection Motion, Debtors seek

this Court’s approval for the nunc pro tunc rejection of a group of so-called “All Care

Agreements,” effective as of the Petition Date.

3. The Rejection Motion describes the All Care Agreements as a maze of contracts

now or formerly with All Care Medical Group, Inc. – a non-debtor. The Rejection Motion

indicates that the All Care Agreements may have been assigned to and from Debtors and non-

debtors on multiple occasions, and indicates that some of those contracts are directly between

two non-debtor third-parties.

4. The Rejection Motion alleges that the All Care Agreements are a significant

burden upon the estates and that the rejection of these contracts will benefit the estate. However,

the Rejection Motion includes no substantive discussion of the benefits that the Debtors continue

to receive under the All Care Agreements. Further, although the Rejection Motion seeks a nunc

pro tunc rejection to the Petition Date, it includes no discussion of the post-petition benefits these

contracts may have provided, the potential rejection damages, or the unjust burden upon the non-

debtor counterparties if such rejection is approved.

INVESTIGATION AND EXTENSION REQUEST

5. Cigna is diligently investigating whether any of the Cigna Contracts are All Care

Agreements, the status of any such contracts, and the potential impact of any proposed rejection

of those contracts. However, because of the multiple layers of assignments described in the

Rejection Motion, that investigation is difficult and ongoing. Accordingly, counsel for Cigna

requested a two-day extension of time for Cigna to file a response to the Rejection Motion.

Counsel for Debtors responded that such an extension “shouldn’t be a problem,” and requested a

proposed extension stipulation which was promptly provided. However, as of the filing of this


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Objection, counsel for Debtors’ has not confirmed Debtors’ agreement to Cigna’s extension

request. Therefore, Cigna files this Objection and reserves its right to supplement this Objection

as necessary.

OBJECTION

6. Cigna objects to the Rejection Motion because: (i) section 365 of the Bankruptcy

Code does not authorize rejection of contracts between non-debtors; and (ii) nunc pro tunc

rejection of any Cigna Contract is improper and inequitable.

7. Section 365 of the Bankruptcy Code provides that, subject to the court’s approval,

a trustee or debtor in possession “may reject any executory contract or unexpired lease of the

debtor.” 11 U.S.C. § 365(a) (emphasis added). Thus, under the plain language of the

Bankruptcy Code, this Court may not authorize rejection of any contracts solely between non-

debtors.

8. The Rejection Motion plainly seeks the rejection of contracts to which the

Debtors are not a party. See, Rejection Motion, Exhibit A, listing, e.g., contracts between Beech

Street Corporation and All Care Medical Group. Indeed, the Debtors acknowledge this in

footnote 2 of Exhibit A, where they state that “no Debtor has been made a party to these

agreements.” To the extent that the Rejection Motion seeks rejection of any contracts between

two non-debtor parties, the Rejection Motion must be denied.

9. Rejection of an executory contract or unexpired lease under section 365(a) of the

Bankruptcy Code “does not take effect until judicial approval is secured, but the approving court

has the equitable power, in suitable cases, to order a rejection to operate retroactively.” Pacific

Shores Dev., LLC v. At Home Corp. (In re At Home Corp.), 392 F.3d 1064, 1069 (9th Cir. 2004).

However, such nunc pro tunc or retroactive rejection is “the exception to the general rule that

rejection is effective upon entry” of the order approving rejection. Stonebriar Mall L.P. v. CCI

Wireless, LLC (In re CCI Wireless, LLC), 297 B.R. 133, 140 (D. Colo. 2003). In other words,

“only in exceptional circumstances . . . will the court adopt a retroactive date.” Id. (citation

omitted).


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10. While the Debtors allege that the proposed rejection is supported by its business

judgment, the Rejection Motion fails to allege any “exceptional circumstances.” Further,

because the Debtors seek equitable relief, they must address – and the Court should consider –

equities to the non-debtor contract parties. Here, not only do the Debtors seek nunc pro tunc

rejection, but they filed their motion seeking such relief more than a month after the Petition

Date. Thus, the Debtors seek extraordinary equitable relief in the face of laches and potential

significant harm to contract counterparties, justifying denial of the Rejection Motion.

WHEREFORE, Cigna respectfully requests that this Court enter an order that: (i) denies

the Rejection Motion as to any Cigna Contracts; and (ii) grants Cigna such additional relief to

Cigna as this Court deems just and equitable.

Dated: 10/09/2018

GORDON REES SCULLY MANSUKHANI, LLP

By: /s/William M. Rathbone William M. Rathbone Counsel to Cigna Healthcare of California, Inc. and Life Insurance Company of North America

6001924/40690613v.1


This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE

PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 101 West Broadway, Suite 2000, San Diego, California 92101

A true and correct copy of the foregoing document entitled (specify):

OBJECTION OF CIGNA TO DEBTORS’ MOTION TO REJECT, PURSUANT TO 11 U.S.C. § 365(A), PROFESSIONAL SERVICES AGREEMENT WITH ALL CARE MEDICAL GROUP, INC. AND RELATED EXECUTORY CONTRACTS AND UNEXPIRED LEASE NUNC PRO TUNC

will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below:

1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On (date) 10/10/2018 , I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below:

Service information continued on attached page

2. SERVED BY UNITED STATES MAIL: On (date) 1010/2018 , I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.


3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on (date) 10/10/2018 , I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed. The Hon. Ernest M. Robles, U. S. Bankruptcy Court, 255 E. Temple St., Suite 1568, Los Angeles, CA 90012


I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

10/10/2018 Jeanne Mydland-Evans /s/Jeanne Mydland-Evans

Date Printed Name Signature

Case 2:18-bk-20151-ER Doc 448-1 Filed 10/10/18 Entered 10/10/18 15:38:11 Desc Proof of Service Page 1 of 6

SERVICE BY EMAIL:

Mailing Information for Case 2:18-bk-20151-ER

Electronic Mail Notice List The following is the list of parties who are currently on the list to receive email notice/service

for this case.

Robert N Amkraut [email protected]

Kyra E Andrassy [email protected],

[email protected];[email protected];[email protected]

Simon Aron [email protected]

James Cornell Behrens [email protected],

[email protected];[email protected];[email protected];dodonnell

@milbank.com;[email protected];[email protected]

Ron Bender [email protected]

Bruce Bennett [email protected]

Peter J Benvenutti [email protected], [email protected]

Elizabeth Berke-Dreyfuss [email protected]

Steven M Berman [email protected]

Alicia K Berry [email protected]

Stephen F Biegenzahn [email protected]

Scott E Blakeley [email protected], [email protected]

Dustin P Branch [email protected],


Michael D Breslauer [email protected],


Damarr M Butler [email protected], [email protected]

Lori A Butler [email protected], [email protected]

Sara Chenetz [email protected],


Aaron Davis [email protected], [email protected]

Kevin M Eckhardt [email protected], [email protected]

Christine R Etheridge [email protected]

M Douglas Flahaut [email protected]

Michael G Fletcher [email protected], [email protected]

Jeffrey K Garfinkle [email protected],

[email protected];[email protected]

Lawrence B Gill [email protected], [email protected]

Mary H Haas [email protected],


Robert M Hirsh [email protected]

Marsha A Houston [email protected]

Monique D Jewett-Brewster [email protected], [email protected]

Lance N Jurich [email protected], [email protected];[email protected]

Ivan L Kallick [email protected], [email protected]

Monica Y Kim [email protected], [email protected]

Gary E Klausner [email protected]


Joseph A Kohanski [email protected], [email protected]

Darryl S Laddin [email protected]

Richard A Lapping [email protected]

David E Lemke [email protected],


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Elan S Levey [email protected], [email protected]

Samuel R Maizel [email protected],

[email protected];[email protected];tania.moyron@denton

s.com;[email protected];[email protected]

Alvin Mar [email protected]

Craig G Margulies [email protected],


Hutchison B Meltzer [email protected], [email protected]

John A Moe [email protected],

[email protected],[email protected],[email protected],andy.j

[email protected],[email protected]

Monserrat Morales [email protected],


Kevin H Morse [email protected],


Marianne S Mortimer [email protected]

Tania M Moyron [email protected], [email protected]

Alan I Nahmias [email protected], [email protected]

Jennifer L Nassiri [email protected]

Mark A Neubauer [email protected],


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Bryan L Ngo [email protected],

[email protected];[email protected];[email protected];JNguye

[email protected]

Melissa T Ngo [email protected], [email protected]

Abigail V O'Brient [email protected],


Aram Ordubegian [email protected]

Paul J Pascuzzi [email protected], [email protected]

Mark D Plevin [email protected], [email protected]

Lori L Purkey [email protected]

Michael B Reynolds [email protected], [email protected]

Emily P Rich [email protected], [email protected]

Debra Riley [email protected], [email protected]

Julie H Rome-Banks [email protected]

Mary H Rose [email protected], [email protected]

Megan A Rowe [email protected], [email protected]

Nathan A Schultz [email protected]

Mark A Serlin [email protected], [email protected]


Rosa A Shirley [email protected],


Kyrsten Skogstad [email protected], [email protected]

Michael St James [email protected]

Jason D Strabo [email protected], [email protected]

Sabrina L Streusand [email protected]

Ralph J Swanson [email protected], [email protected]

Gary F Torrell [email protected]

United States Trustee (LA) [email protected]

Matthew S Walker [email protected],

[email protected]

Jason Wallach [email protected], [email protected]

Kenneth K Wang [email protected],


Phillip K Wang [email protected], [email protected]

Gerrick Warrington [email protected], [email protected]

Latonia Williams [email protected], [email protected]

Neal L Wolf [email protected],

[email protected],[email protected]

Hatty K Yip [email protected]

BY UNITED STATES MAIL:

Sam J Alberts

DENTONS US LLP

1900 K Street NW

Washington, DC 20006

Margaret M Anderson

Fox Swibel Levin & Carroll LLP

200 West Madison St

Chicago, IL 60606

Alicia Berry

California Attorney General

300 South Spring St Ste 1702

Los Angeles, CA 90013

Daniel S Bleck

Mintz, Levin, et al

One Financial Center

Boston, MA 02111


Nathan F Coco

McDermott Will & Emery

444 West Lake Street

Chicago, IL 60606-0029

Ian A Hammel

Mintz Levin Cohn Ferris Glovsky & Popeo

One Financial Center

Boston, MA 02111

Donald R Kirk

Carlton Fields

4221 W Boy Scout Blvd Ste 1000

Tampa, FL 33607

Donald R Kirk

Carlton Fields Jorden Burt, P.A.

4221 W. Boy Scout Blvd., Suite 1000

Tampa, FL 33607-5780

Marilyn Klinger

SMTD Law, LLP

355 S. Grand Avenue

Suite 2450

Los Angeles, CA 90071

Claude D Montgomery

Dentons US LLP

1221 Avenue of the Americas

New York, NY 10020-1001

Charles E Nelson

Ballard Spahr LLP

80 S Eighth St Ste 2000

Minneapolis, MN 55402

Megan Preusker

McDermott Will & Emery

444 West Lake Street

Chicago, IL 60606-0029

Jason Reed

Maslon LLP

3300 Wells Fargo Center


90 S Seventh St


Paul J Ricotta

Mintz Levin Cohn Ferris Glovsky and Pope

Chrysler Center

666 Third Ave

New York, NY 10017

Ryan Schultz

Fox Swibel Levin & Carroll LLP

200 W. Madison Street

Suite 3000

Chicago, IL 60606

William P Wassweiler

Ballard Spahr LLP

80 S Eighth St Ste 2000


Clark Whitmore

Maslon LLP

3300 Wells Fargo Center

90 S 7th St


John Ryan Yant


4221 W Boy Scout Blvd Ste 1000

Tampa, FL

John Ryan Yant


4221 W. Boy Scout Blvd., Suite 1000

Tampa, FL 33607-5780

Verity Health System of California, Inc.

2040 E. Mariposa Avenue

El Segundo, CA 90245

6001924/40672266v.1


william m. rathbone, sbn: 95864 gordon rees scully

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