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Judge places North Shore Associates bankruptcy case in abeyance pending possible arbitration

LOVELAND — The bankruptcy case involving North Shore Associates LLP — the owner of the building and property on which North Shore Manor nursing home operates — will be placed in abeyance pending efforts to compel arbitration among the property-owning partners.

North Shore Associates is the second of two related bankruptcy cases pending before the U.S. Bankruptcy Court in Denver. The other case involves North Shore Manor, the nursing home operators. At one time filed together, the court broke the cases into two several months ago.

Today, Judge Joseph Rosania issued an oral ruling regarding the attempt of J. Robert Wilson, the owner of Columbine Health Systems Inc., to compel arbitration. Wilson contends that the individuals who voted to expel him as managing partner and to file bankruptcy did not have authority to do so under the partnership agreement. That agreement requires arbitration to determine who had authority to take such actions.

Rosania said he would not compel arbitration because that is beyond the authority of the bankruptcy court. However, he agreed that Wilson is entitled to seek arbitration under the partnership agreement, which the judge determined as “a non-core dispute” as far as the bankruptcy is concerned. 

“This is solely a dispute between the partners … (and) the court does not have authority over the partners” because none of them have filed bankruptcy claims individually. The entity North Shore Associates is the party that filed the bankruptcy.

Rosania noted that the partners, other than Wilson, have been silent in the proceedings so far. Most of the partners are “heirs or heirs-of-heirs” of the original founders of North Shore. He said he does not know who they are other than by name because they’ve chosen to direct their claims through the entity North Shore Associates. 

The partners have claimed through NSA that Wilson’s actions or inactions as managing partner resulted in failure to file paperwork that would clearly establish voting rights. Wilson has contended that the majority partners’ inattention or unwillingness to seek status as voting members greatly reduced who could vote to oust him as managing partner or file the bankruptcy action.

“The other partners have not filed anything in their own right to oppose arbitration,” Rosania said. “The abject noncooperation” between the parties lends itself to arbitration, he said.

He also said that NSA does not have standing to contest the arbitration provision of the partnership agreement because it as an entity is not a party to the partnership agreement.

Rosania reviewed the case history in detail and reviewed bankruptcy court precedent on the “intersection of arbitration (law) and bankruptcy (law).” He determined that it comes down to whether an issue is core or noncore to the bankruptcy, and he determined that Wilson’s claim is noncore to the bankruptcy and thus can proceed without harming the bankruptcy proceedings. 

In placing the North Shore Associates case in abeyance until the arbitration issue is determined, he said nothing is harmed because the proposed reorganization plan, filed July 12, has provisions for repaying in full any creditors over a period of years.

That plan, which the judge has not yet considered for confirmation, lists just two creditors — Wapello Holdings Inc., a Wilson entity, which has a lien on the real estate because it extended credit to the operations, and Larimer County because of unpaid 2022 property taxes. The debt to Wapello would be repaid over five years; the debt to the county would be paid within 10 days of confirmation of the reorganization plan.

The plan does contain provisions in Exhibit C for sale of the real estate and sets out procedures for how that would occur. While it says that the entity will hire a broker to market it, it may not necessarily accept offers.

The case is North Shore Associates LLP, case number 23-10909 in U.S. Bankruptcy Court for the District of Colorado.

Source: BizWest