have found that Section 525(a) was
the more specific statute, and it
was a “basic principle of statutory
construction that a specific statute…
controls over a general provision.” 22
For example, in the housing context,
the court found that Section 525(a)
was more specific because, while
Section 365 authorized landlords to
evict debtor-tenants for nonpayment
of discharged prepetition rent,
Section 525(a) “specifically prohibits
landlords who are also governmental
units from evicting debtor-tenants
solely because of nonpayment of
discharged prepetition rent.” 23
With regard to Gardens, it seems
that the conditions imposed by the
California attorney general, albeit
seemingly consistent with Section
363(d)( 1), are in violation of Section
525, and the latter should control. 24
If it does, the attorney general’s
decision to compel repayment or
be barred from the HQAF program
is a violation of Section 525.
While the Gardens case is still
pending, it raises serious issues in
the interpretation of Section 363(d)( 1),
on which precedent provides little
guidance at the moment. In the
current circumstances the only
seemingly certain thing is that
this issue will be raised again. J
1 “Estimating the Impact of Repealing
the Affordable Care Act on Hospitals,”
American Hospital Association, aha.org/
2 All references to “section” are to sections of
the Bankruptcy Code, 11 U.S.C. §§ 101-1530.
3 Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005,
Pub. L. 109-8, 119 Stat. 23.
4 One of the most publicized cases dealing
with this issue was the Chapter 11
bankruptcy of Allegheny Health Education
and Research Foundation in 1998. For a
detailed discussion of this case, see L.R.
Burns, J. Cacciamani, J. Clement and W.
Aquino, The fall of the house of AHERF:
the Allegheny bankruptcy, Health Affairs
19, no. 1 (2000), content.healthaffairs.org/
AHERF the Bankruptcy Court refused the
requests of the attorney general to allow
it to investigate AHERF’s use of restricted
endowments, to appoint an interim trustee,
and to allow it to review any bids before
the assets were sold. In re Bankruptcy
Appeal of Allegheny, Health, Education
and Research Foundation, Appeal of
Order Staying/Enjoining Orphans Court
Proceedings, 252 B.R. 309 (W.D. Pa. 1999).
5 11 U. S.C. Subsection 363(d)( 1) ( Trustee
may use, sell or lease property of the
estate “only in accordance with applicable
nonbankruptcy law that governs the
transfer of property by a corporation or
trust that is not a moneyed, business or
commercial corporation or trust.”); 541(f)
(Property held by a debtor that is a not-for-profit corporation under Internal Revenue
Code § 501(c)( 3) may be transferred to an
entity that is not such a corporation “only
under the same conditions that would
apply if the debtor had not filed a case”
under the Bankruptcy Code.); 1129(a)( 16)
(A Chapter 11 plan can only be confirmed
if all transfers of property are “made in
accordance with any applicable provisions
of nonbankruptcy law that govern the
transfer of property by a corporation or
trust that is not a moneyed, business,
or commercial corporation or trust.”)
6 An earlier article on these provisions
is Samuel R. Maizel and Mary D. Lane,
“The Sale of Nonprofit Hospitals through
Bankruptcy: What BAPCPA Wrought,”
ABI Journal, Vol. XXX, No. 5, June 2011.
7 In re Gardens Regional Hospital and
Medical Center, Inc., Case No. 2:16-bk-
17463-ER (Bankr. C.D. Cal.).
8 Medi-Cal is California’s Medicaid
program. It provides healthcare
services for, among others, low-income individuals. www.dhcs.ca.gov/
9 Cal. Corp. Code Sections 5914-5925; 11
Cal. Code Reg. Section 999.5. Examples
of the kinds of conditions imposed by the
California Attorney General can be found at
California Department of Justice, Nonprofit
Hospital Transaction Notices, available
10 HQAF imposes a fee on certain general
acute care hospitals to make supplemental
and grant payments and increased
capitation payments to hospitals. www.
HQAF.aspx (“The program provides
funding for supplemental payments to
California hospitals that serve Medi-Cal and uninsured patients. Revenue
from the HQAF also provides funding
for children’s health care coverage, pays
direct grants to public hospitals, and
reimburses DHCS for the direct costs of
administering the program. The program
has been very successful, providing
billions of dollars in supplemental
payments to California hospitals.”).
11 The state “assesses a fee on certain
general acute care hospitals to be used,
for the most part, as the non-federal share
of supplemental Medi-Cal payments
to eligible hospitals for inpatient
and outpatient services. The money
collected is deposited into the hospital
quality assurance revenue fund.” Id.
12 See State of Missouri v. U. S. Bankruptcy
Court, 647 F.2d 768, 776 (8th Cir. 181) (“[W]e
believe that the term ‘police or regulatory
power’ refers to the enforcement of state
laws affecting health, welfare, morals,
and safety, but not regulatory laws that
directly conflict with the control of the res
or property by the bankruptcy court.”).
13 In re Medicar Ambulance Co., Inc., 166
B.R. 918 (Bankr. N.D. Calif. 1994).
14 Medicar Ambulance Co., Inc.,
166 B.R. at 926-27.
15 Hiser v. Blue Cross of Greater Philadelphia
(In re St. Mary Hospital), 89 B.R. 503,
513 (Bankr. E.D. Pa. 1988) (Court held
that Section 525(a) barred the Medicare
Program from requiring the debtor to repay
prepetition obligations as a condition for
remaining in the Medicare Program.).
16 11 U.S.C. Section 525(a). See In re Sun
Healthcare Group, Inc., 2002 U.S.
Dist. LEXIS 17868 (D. Del. 2002); In re
Psychotherapy & Counseling Ctr., Inc.,
195 B.R. 522, 531 (Bankr. D.C. 1996)
(“were HHS’s exclusion [from Medicare
and state health care programs] based
solely on the debtor’s nonpayment of
debt, it might run afoul of the Code’s
antidiscrimination provision under 11
U.S.C. § 525(a) . . . . This sort of government
action, which would interfere with the
debtor’s breathing spell and fresh start, is
just the sort of discriminatory activity 11
U.S.C. § 525(a) was intended to prevent.”).
17 537 US 293, 123 S.Ct. 832 (2003).
18 123 S.Ct. at 838-39.
19 Id. at 839. See also Bradley v. Barnes (In
re Bradley), 989 F.2d 802 (5th Cir. 1993)
(“Section 525 does not prohibit a state
from denying or revoking a license based
upon a determination that the public
safety would be jeopardized by granting
or allowing continued possession of a
license, but it does prohibit a state from
exacting a discharged debt as the price
of receiving or retaining a license.”).
20 Courts have noted the broad jurisdiction
of bankruptcy courts in general, and
when ruling pursuant to Section 525 in
particular. See, e.g., Applegate v. March,
64 B.R. 448, 450 (Bankr. E.D. Va. 1986)
(“No court in the realm holds such a
wide subject matter jurisdiction as does
the Bankruptcy Court … the entirety of
§525, every word, is utterly sweeping.”).
21 See, e.g., 315 F.3d 80 (2d Cir. 2002).
22 Id. at 93 (quoting HCSC-Laundry v.
United States, 450 U.S. 1, 6 (1981)).
23 Id. See also In re Aikens, 503 B.R. 603,
607-08 (Bankr. S.D.N.Y. 2014) (finding that
Section 362(b)( 22) was the “more general”
statute because it “applies to all landlord
and tenant relationships, public and
nonpublic alike,” whereas Section 525(a)
applies “to the subset of such relationships
that are with government units alone”).
24 See, e.g., In re St. Mary Hospital, 89 B. R.
at 512 (Court held that Section 525(a)
“eliminates” the right of the Medicare
Program to compel a debtor to accept
Medicare’s recoupment of prepetition
obligations as a condition for utilization
of its Medicare provider agreement,
even though Section 365(b)( 1)
would otherwise require it.).