In re Plymouth House Health Care Center

2005 WL 2589201 (2005)

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In re Plymouth House Health Care Center

United States Bankruptcy Court for the Eastern District of Pennsylvania
2005 WL 2589201 (2005)

Facts

In August 2001, SouthTrust Bank (SouthTrust) (creditor) loaned money to nursing-home operator Plymouth House Health Care Center (Plymouth) (debtor) and received a security interest in Plymouth’s assets. In September 2001, Plymouth entered into a loan and security agreement with Healthcare Business Credit Corporation (HBCC) (creditor) and gave HBCC a security interest in the same collateral as SouthTrust. HBCC entered into a subordination agreement with SouthTrust, pursuant to which SouthTrust agreed that HBCC had a first and priority interest in the collateral and SouthTrust’s interest was subordinate to HBCC’s. Plymouth subsequently filed for bankruptcy. At the time of the bankruptcy filing, the value of the collateral was more than what was owed to HBCC but much less than what was owed to SouthTrust. During the bankruptcy proceeding, a dispute arose regarding the effect of the subordination agreement between HBCC and SouthTrust. HBCC asserted that the subordination agreement meant that HBCC replaced SouthTrust as the first lienholder on Plymouth’s assets. The administrator of Plymouth’s reorganization plan contended that the subordination agreement did not change SouthTrust’s position as first lienholder and simply meant that SouthTrust had to pay to HBCC any funds SouthTrust received up to the amount of HBCC’s claim.

Rule of Law

Issue

Holding and Reasoning (Fox, J.)

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