Case Against Non-Debtors OK in Federal Court

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By Daniel Gill

May 25 — A complaint for health care liability under Texas law against a hospital and nurse was sufficiently “related to” the bankruptcy case of a non-party surgeon to create subject matter jurisdiction for the claim in the district court, the U.S. Court of Appeals for the Fifth Circuit ruled May 19 ( Passmore v. Baylor Health Care Sys., 2016 BL 160438, 5th Cir., No. 15-10358, 5/19/16 ).

The Fifth Circuit reversed the U.S. District Court for the Northern District of Texas, which had dismissed an action by applying a Texas procedural rule related to the timing by which a plaintiff must submit an expert's report in a “health care liability” action.

The circuit court found that the state court claim was properly brought in the district court because the claim was sufficiently related to the bankruptcy of a doctor who was not party to the lawsuit but against whom the named defendants might have rights of contribution or indemnity.

Issue Not Argued by the Parties

The central issue for the court was whether a Texas procedural law would apply in the federal court action based on a Texas state law claim for “health care liability.” In Texas, a health care liability claim is an action brought in tort or contract against health care providers for death or injury.

In the action, plaintiffs Robert Passmore and his wife sued a hospital and nurse for injuries the plaintiffs claimed Mr. Passmore suffered as the result of two back surgeries. The plaintiff's surgeon, the debtor in a pending Chapter 11 bankruptcy case, was not named as a party.

Before examining the Texas procedural law in question, the court discussed whether it and the district court below properly had jurisdiction to hear the state law claim in the first place. The court noted that it is “duty-bound” to consider whether subject matter jurisdiction is proper, citing Union Planters Bank Nat'l Ass'n v. Salih, 369 F.3d 457, 460 (5th Cir. 2004).

Apparently none of the defendants to the action argued against the propriety of the federal court's jurisdiction for the state court claim, nor did the district court address the question below. The circuit court explained that by ruling on a motion to dismiss, it was implicit that the district court found it had proper subject matter jurisdiction.

Effect on the Pending Bankruptcy Case

The court examined the facts of the case under the rubric of 28 U.S.C. §1334(b), which confers jurisdiction on the district courts for “all civil proceedings … arising in or related to cases under title 11.”

Although the plaintiffs did not explain (either in the district court or on appeal) how their suit might affect the surgeon's bankruptcy case, the circuit court decided that if the plaintiffs prevailed, the defendants “may have contribution or indemnity claims” under Texas law against the debtor. Therefore, the court said, the lawsuit “could conceivably have an effect on [the surgeon's] estate, and the action is therefore sufficiently ‘related to' bankruptcy to provide” the federal court jurisdiction.

The court did not discuss questions of mandatory or permissive joinder of the debtor in the district court case.

Judge James L. Dennis wrote the opinion.

Girards Law Firm represented the plaintiffs. Cooper & Scully PC represented Baylor Health Care System and Baylor Regional Medical Center. The Law Offices of Brian J. Judis represented the individual defendant.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com