Ala.`s DEMSI Files for Bankruptcy

Feb. 27--Days before the Decatur City Council is scheduled to consider revocation of its license to operate in the city, Decatur Emergency Medical Services Inc. filed a petition for bankruptcy that could prevent the council from taking action.

The bankruptcy filings indicate DEMSI's owner is trying to sell the company.

DEMSI on Tuesday filed a petition for a reorganization bankruptcy at the same time similar petitions were filed by its owner, Roger Stanmore, of Huntsville, and Stanmore-owned ambulance service Gadsden/Etowah EMS Inc.

None of the parties had filed complete lists of their creditors or details on the amount of their debts as of Wednesday.

On Tuesday and Wednesday, according to Morgan County 911 Director Ryan Welty, DEMSI had only one ambulance in service. The city requires it to have two ambulances in service at all times and a third in service 12 hours a day. The city's other ambulance service, First Response, had five medic ambulances operating Wednesday.

A motion filed with DEMSI's bankruptcy petition said it owes the Internal Revenue Service $785,227. Gadsden EMS owes the IRS $362,367, the motion said.

"The IRS has filed numerous tax liens against the debtors and conveyed its intent to levy against the debtors' assets prior to the filing (of) the bankruptcy cases," according to the motion.

In its petition, DEMSI said it has 50 to 99 creditors, and liabilities of $1 million to $10 million. Among the partial list of creditors it listed in the petition are the IRS, the Alabama Department of Revenue, Cadence Bank and USA Financial Services.

The petition filed by Stanmore, of Asbury Road in Huntsville, indicated he has 50 to 99 creditors and has liabilities of $10 million to $50 million.

The Gadsden/Etowah EMS petition for reorganization references under 50 creditors with liabilities of $500,000 to $1 million.

On Feb. 7, a work stoppage at DEMSI resulted in it taking all of its ambulances out of service. On Feb. 21, the Decatur EMS Committee recommended the City Council revoke the company's license to operate in the city. If the City Council adopts the recommendation at a hearing scheduled Monday, First Response would hold a monopoly on Decatur ambulance services.

The motion gave a hint at the goal of the bankruptcy petition, a goal that could conflict with the city's ambulance ordinance.

"Through the filing of the Chapter 11 cases, the debtors seek to accomplish a possible sale of the businesses, which will allow debtors to distribute funds to their creditors in an organized and orderly liquidation," the motion said.

Transfer

The Decatur ambulance ordinance expressly prohibits the transfer of an ambulance company's license to operate, called a certificate of public necessity and convenience. The purchaser would have to apply to the city for its own license.

The bankruptcy petition could change that, said University of Alabama law professor Gary Sullivan, who specializes in bankruptcy law.

"It sounds to me like the timing of this petition is that DEMSI thought the termination of the license was imminent," Sullivan said.

DEMSI bankruptcy attorney Kevin Heard, of Huntsville, did not return calls.

Had DEMSI waited until after the City Council revoked its license to file bankruptcy, Sullivan said, the bankruptcy judge could not have reinstated the license.

Sullivan said DEMSI's license from the city probably qualifies as an executory contract under bankruptcy law.

"Executory contracts can be assigned as part of a sale through the bankruptcy process," Sullivan said. "It sounds like that may be what they're trying to do."

The bankruptcy could be a formality designed to circumvent the ambulance ordinance's prohibition on a transfer of the license and allow sale of the company, Sullivan said. That would be critical, both to DEMSI and its creditors, because the company would have no value as an ongoing business unless the license transfers to the buyer.

"At least arguably, and it's a strong argument, the (bankruptcy petition) prevents the City Council from taking any action to terminate DEMSI's license," Sullivan said.

Arguments

John Ayer, a bankruptcy professor who specializes in Chapter 11 bankruptcies at the University of California, in Davis, said the city's strongest argument is that it has a right, despite the bankruptcy, to revoke DEMSI's license because revocation is part of its police and regulatory powers. DEMSI, he said, could argue that the bankruptcy petition prevents the city from revoking its license as long as the company can give assurance that it will perform all requirements of the license in the future.

"A sensible judge will try to muddle through these seeming contradictions," Ayer said. "Anybody's guess who wins."

Assistant City Attorney Chip Alexander said Wednesday he did not know DEMSI had filed for bankruptcy and had not researched the issue, but he felt the City Council should hold the revocation hearing Monday.

"It would surprise me if a bankruptcy order would even go into issues like whether they have the proper number of ambulances," Alexander said. "I don't see how the bankruptcy will change the issues for Monday unless there's a court order. If a court told us we can't do it, we certainly won't do it."

Waiting for a court order may be the wrong approach, Sullivan said.

"The city attorney's position that we're going to do what we want to until we're ordered not to works great, unless bankruptcy is involved," Sullivan said. "Then things change. I haven't read the ordinance, but the city may have to get court permission to terminate DEMSI's rights. ... The bottom line is that the city should not take unilateral action without getting the bankruptcy court involved."

Eric Fleischauer can be reached at 256-340-2435 or eric@decaturdaily.com. Follow on Twitter @DD_Fleischauer.

Copyright 2014 - The Decatur Daily, Ala.