The Court first noted that while Congress had authorized compensation and expenses to be paid to an ombudsman, it did not provide for the ombudsman to employ professionals. As a result, the court looked at the nature of the ombudsman's role to see whether Congress had implicitly provided for this relief. The Court does a good job of explaining the roles of the various code-created entities in a chapter 11 case.
In analyzing the issues before the court, it is important to begin by noting the distinction between the role of an ombudsman as compared to that of other fiduciaries compensated (together with their retained professionals) by the estate. A trustee or debtor in possession and its professionals have the duty of preserving, protecting and maximizing the estate. A committee and its professionals serve a constituency with an economic interest in the estate. A committee will have a common interest with representatives of other economic constituencies in preserving value for creditors (and even equity owners) as well as enhancing the estate.
A patient care ombudsman, on the other hand, is concerned with a constituency whose interests do not necessarily coincide with the economic interests of other case participants. The ombudsman therefore is not concerned with the economics of the case. His very job is to ensure that his constituents--patients--are well cared for by the debtor in possession (or trustee). He may press for the debtor in possession (or trustee) to take costly measures that will deplete rather than enhance the estate and the ultimate recovery of creditors. The result is that the court and other parties cannot view a patient care ombudsman as they can a fiduciary whose job includes improving an estate's value.
One of the inherent goals in a bankruptcy case is to ensure that what is paid for from the estate provides a comparable return to the estate. Because a patient care ombudsman's cost to the estate will not be (or at least is unlikely to be) offset by any accretion of value to the estate, it is incumbent upon the court to ensure that the patient care ombudsman, while fulfilling his statutory role, does not create a serious drain on estate assets. In short, retention by an ombudsman of professionals is not consistent with the central purpose of bankruptcy in general and chapter 11 in particular: improving return to creditors and equity holders.
Memorandum Opinion, pp. 5-6.
The court concluded that "in proper circumstances and for limited purposes an ombudsman may employ professionals." The court reached this conclusion because the duties of an ombudsman include filing motions before the court. "As it is doubtful that every suitable candidate for the ombudsman role will possess not only the qualifications necessary to 'monitor the quality of patient care' but also the expertise necessary to preapre legal documents and appear in court, it seems clear that Congress must have anticipated that an ombudsman would, on occasion, have to have the assistance of counsel." Memorandum Opinion, p. 8. The Court also noted that the statute authorizes appointment of a "disinterested person" as ombudsman. Since the term "person" includes individuals, partnerships and corporations, an entity could be appointed as ombudsman. Since an entity must appear by counsel, it is appropriate for an ombudsman to employ counsel.
However, the Court limited the scope of employment of the ombudsman's counsel. The Court noted that the proposed counsel was being retained primarily for its bankruptcy expertise, while the ombudsman was required to protect and enhance the care of patients. "Counsel to an ombudsman does not require a license to generally monitor and participate in all phases of a bankruptcy case." Memorandum Opinion, p. 12. The Court defined counsel's duties as follows:
Two functions are required of the attorneys representing the Ombudsman. First, the Ombudsman must be assisted in identifying and understanding those laws intended to protect patients and those laws intended to regulate, to such end, Debtors' businesses. Second, counsel must press such motions as the Ombudsman may be required to file under Code section 333 or Rule 2015.1; additionally counsel may aid the Ombudsman in identifying and opposing relief requested by other parties which, if granted, would cause patient care to deteriorate or otherwise adversely affect patient's rights.
Memorandum Opinion, p. 12. However, the Court did not allow counsel to be compensated for preparing reports for the Ombudsman except to the extent necessary to make accurate statements about healthcare law.
The application to employ the Advisor posed a more difficult question. The proposed Advisor was the company which employed the Ombudsman. The Ombudsman proposed to hire his company to perform many of the duties of the Ombudsman himself. However, "The general rule in bankruptcy is that a fiduciary employed at estate expense will not be permitted to hire a professional to perform those duties statutorily assigned specifically to the fiduciary." Memorandum Opinion, p. 14. The Court pointed out that the U.S. Trustee could have appointed the proposed Advisor as Ombudsman rather than appointing the individual. "If the burden of serving as the patient care ombudsman in these cases is beyond the capability of an individual, an entity with greater capacity should be assigned the role rather than dividing it up through the use of an advisor." Memorandum Opinion, p. 15.
Nevertheless, the Court approved employment of the Advisor on the basis that the U.S. Trustee did not oppose the appointment and might not have considered the possibility of appointing an entity rather than an individual. However, the Court reserved the right to deny a similar request under other circumstances.
The Renaissance Hospital case is interesting because it illustrates the problem of how to make the bankruptcy system work when the Code provisions are incomplete or inadequate. The Court could have adopted a strict constructionist approach and denied employment of professionals on the basis that was not specifically authorized by the Code. On the other hand, the Court could have adopted a laissez faire approach and approved the employment on the basis that no one had objected. Instead, the Court looked within the structure of the Code to find a statutory basis for allowing the employment without giving a blank check to the professionals. While the argument that Congress must have intended something more than it made explicit can easily be abused, the Court did a good job of navigating between Code and practicality in this case.