117033.000001 4871-9130-4594.4 11/20/2023 (6:36 PM)

Deborah D. Williamson 

TX State Bar No. 21617500 

Dwilliamson@dykema.com

Patrick L. Huffstickler 

TX State Bar No. 10199250 

phuffstickler@dykema.com

DYKEMA GOSSETT PLLC 

112 E. Pecan St., Suite 1800 

San Antonio, Texas 78205 

Telephone: (210) 554-5500 

Alexandria R. Rahn 

TX State Bar No. 24110246 

arahn@dykema.com

DYKEMA GOSSETT PLLC 

1717 Main Street, Suite 4200 

Dallas, Texas 75201 

Telephone: (214) 462-6400 

Scott C. Skelton 

Skelton Slusher Barnhill Watkins Wells PLLC 

1616 S. Chestnut 

Lufkin, Texas 75901 

(936) 632-2300 

(936) 635-8407 

sskelton@ssbww.law

IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE NORTHERN DISTRICT OF TEXAS 

FORT WORTH DIVISION 

In re: 

Lion Star Nacogdoches Hospital, LLC, 

Debtor. 

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CHAPTER 11 

Case No. 23-43535-mxm11 

NACOGDOCHES COUNTY HOSPITAL DISTRICT’S LIMITED AND PRELIMINARY 

OBJECTION TO DEBTOR’S EMERGENCY MOTION FOR INTERIM AND FINAL 

ORDERS (I) AUTHORIZING THE DEBTOR TO OBTAIN POSTPETITION 

FINANCING ON A SECURED, SUPERPRIORITY BASIS; (II) AUTHORIZING THE 

DEBTOR TO USE CASH COLLATERAL; (III) SCHEDULING A FINAL HEARING; 

(IV) MODIFYING THE AUTOMATIC STAY, AND 

(V) GRANTING RELATED RELIEF 

TO THE HONORABLE U.S. BANKRUPTCY JUDGE MARK X. MULLIN: 

Nacogdoches County Hospital District (“NCHD” or the “District”), by and through its 

undersigned counsel, files this its Limited and Preliminary Objection to Debtor’s Emergency 

Motion for Interim and Final Orders (I) Authorizing the Debtor to Obtain Postpetition 

Financing on a Secured Superpriority Basis; (II) Authorizing the Debtor to Use Cash Collateral; 

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(III) Scheduling a Final Hearing; (IV) Modifying the Automatic Stay, and (V) Granting Related 

Relief [Docket No. 11 and 12] (the “Financing Motion”). In support of the Objection, the 

District respectfully states as follows: 

1. Lion Star Nacogdoches Hospital, LLC (the “Debtor” or “Lion Star”) and the 

District entered into a Hospital Asset Purchase Agreement (the “APA”) and a Hospital Facility 

Lease Agreement (the “Lease”) both effective as of the Closing Date, July 14, 2021. The Lease 

and the APA are integrated agreements.1 A default in the APA constitutes an Event of Default in 

the Lease [Lease Section XVIII.A.6]. A default in the Lease constitutes an Event of Default in 

the APA [APA Section 10.01(b)]. On November 11, 2023 the Debtor filed the Declaration of 

Edmund C. King in Support of First Day Motions (the “King Declaration”) [Docket No. 22]. 

The King Declaration makes multiple unsubstantiated allegations against the District in an 

attempt to blame the District for the Debtor’s financial condition. The District will respond at an 

appropriate time but for purposes of the hearings on November 21, only states that it disagrees it 

caused the Debtor to be unable to pay its debts as they become due. 

2. The Debtor has filed a Motion Pursuant to 11 U.S.C. § 365(a) for Authority to 

Assume Unexpired Lease of Nonresidential Real Property [Docket No. 15] (the “Motion to 

Assume”), asserting that it is not in default of any provision in the Lease. The District will file a 

timely response to the Motion to Assume outlining Debtor’s multiple defaults. For purposes of 

the hearing on November 21, however, this Objection identifies some provisions of the APA and 

the Lease that are relevant to the pending Financing Motion. 

3. The District has no objection to the Debtor incurring additional debt as the risk of 

non-payment falls on the Lender. The District objects to the extent that there is any attempt to 

grant liens on the Lease or any agreements with the District. The District also objects to the 

1

 The District has filed copies of the APA and Lease at Docket No. 26. 

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extent that the Financing Motion seeks to modify, impair or otherwise limit the rights of the 

District under the APA and/or the Lease. For example, the District objects to the extent that any 

order approving the Financing Motion would grant rights to certain assets which, upon a default 

in the Lease, would revert to the District. Similarly, the District objects to the extent that the 

Financing Motion seeks to grant rights to property owned by the District. By way of example: 

(a) Motor Vehicles – the APA provides that ownership and title to 

motor vehicles used in the Hospital Operations shall be transferred to the District 

without further consideration upon Termination of the Lease [APA Section 

1.01(m)]. 

(b) Records – the APA provides that all documents, books, records, 

operating and policy manuals, compliance policies and files owned by the District 

(defined in the APA as “Transferred Records”) shall revert to the District without 

further consideration upon termination of the Lease. [APA Section 1.01(h)]. 

(c) Leases – the APA provides that upon termination of the Lease, all 

Assumed Real Property Leases shall be reassigned to the District. 

(d) Intellectual property - the trademark name “Nacogdoches 

Memorial Hospital” and any other licenses for intellectual property terminate 

upon the expiration of the term of the Lease [APA Section 1.05]. 

(e) FF&E – the Lease provides that FF&E is leased to the Debtor and 

all Landlord Replacement Property and Tenant Replacement Property “shall 

become part of the Leased FF&E” [Lease Sections VIII.H and I]. 

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(f) Pharmacy and Other Regulatory Obligations – The Budget has no 

provision for remediation costs related to regulatory and operational life and 

safety issues including, without limitation, those related to the Pharmacy. 

4. Any Order granting the Financing Motion should specifically provide that the 

Debtor and the Lender stipulate the rights of the District are not impaired, limited or otherwise 

affected in any manner. 

5. The Budget attached as Exhibit B to the Financing Motion raises questions 

regarding future defaults as well as operational issues. By way of example: 

(a) Section VI.B. of the Lease requires that the Debtor, as the Tenant, 

“shall be solely responsible for and shall promptly pay such taxes or 

assessments.” The Budget makes no provision for payment of any such taxes. 

Section XVIII.A.3 of the Lease provides that a failure to pay ad valorem taxes is a 

Monetary Default under the Lease. 

(b) Draws – the Budget assumes availability under the proposed DIP 

financing to fund the budget items. While the Hospital has authority to operate 

with over 200 beds, on information and belief, the Debtor has averaged between 

25-35 occupied beds (not including new babies). While the number of occupied 

beds may increase due to the seasonal increase in incidences of flu and other 

respiratory cases, the ability of the Debtor to increase revenue (particularly net 

revenue) is limited by the lack of physicians with privileges at the Hospital. On 

information and belief, the Hospital does not currently have a general surgeon, an 

orthopedic surgeon or a cardiologist with privileges to operate at the Hospital. 

The lack of a general or orthopedic surgeon limits the ability to accept trauma 

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patients. The lack of a cardiologist limits the ability to accept patients showing 

symptoms of heart attacks and similar conditions. The Budget does not appear to 

include any amounts for additional physicians in such specialties. 

(c) LPPF Funding – the Hospital, like many other medical facilities, is 

dependent on the additional funds which can be received from governmental 

funding. Texas requires that such payments are conditioned upon prior deposits 

into specific funds. The Debtor is a party to an Indigent Care Affiliation 

Agreement with the District. See Exhibit “A”. On information and belief, the 

Debtor has a payment of $1,087,998.52 due November 26, 2023. See Exhibit 

“B”. The Budget has a provision for payment of only $600,000 during the week 

of 12/08/23 for “UC/Chirp Fees/LPPF”. 

(d) Professional Fees – the Financing Motion refers to a $800,000 

“Carve-Out” for Counsel for the Debtor and $200,000 for a Committee and 

appears to contemplate immediate funding of such amounts. The Budget, 

however, only includes $400,000 for Legal/Professional. 

(e) Deposits - The Budget is dependent on an apparent return of a 

$100,000 deposit the week of 12/15/23 followed by a payment of the same 

amount the next week. 

(f) The Lease requires the Debtor to make at least $1 million each 

Lease Year in Improvement Expenditures, as defined in Section VIII.L of the 

Lease. The current Lease Year expires on June 30, 2024. Expenditures for 

routine operating expenses or maintenance obligations are excluded from the 

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calculation of Improvement Expenditures. The Budget does not appear to provide 

for any payments which would qualify as “Improvement Expenditures”. 

6. The District reserves all rights to further object to entry of a final or subsequent 

interim order. 

Dated: November 20, 2023 Respectfully submitted, 

DYKEMA GOSSETT PLLC 

112 E. Pecan St., Suite 1800 

San Antonio, Texas 78205 

(210) 554-5500 

(210) 226-8395 (Fax) 

By: /s/ Deborah D. Williamson 

Deborah D. Williamson 

Texas State Bar No. 21617500 

dwilliamson@dykema.com

Patrick L. Huffstickler 

Texas State Bar No. 10199250 

phuffstickler@dykema.com

and 

Alexandria R. Rahn 

DYKEMA GOSSETT PLLC 

1717 Main Street, Suite 4200 

Dallas, Texas 75201 

(214) 462-6400 

(214) 462-6401 

arahn@dykema.com

and 

Scott C. Skelton 

SKELTON SLUSHER BARNHILL WATKINS 

WELLS PLLC 

1616 S. Chestnut 

Lufkin, Texas 75901 

(936) 632-2300 

(936) 635-8407 

sskelton@ssbww.law

ATTORNEYS FOR NACOGDOCHES 

COUNTY HOSPITAL DISTRICT 

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CERTIFICATE OF SERVICE 

I hereby certify that a true and correct copy of the foregoing has been served 

electronically upon those parties registered to receive electronic notice via the Court’s CM/ECF 

system on this 20th day of November, 2023. 

/s/ Deborah D. Williamson 

Deborah D. Williamson

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EXHIBIT A

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EXHIBIT B 

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