Free Reply Brief - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

In re: W.R. GRACE & CO., et al. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Civil Action No. 06-745 RLB Appellant, v. Bankruptcy Case No. 01-01139 W.R. GRACE & CO., et al., Appeal No. 06-70 Appellee.

BRIEF OF APPELLANT IN REPLY TO APPELLEE'S BRIEF Laurie S. Polleck (#4300) JASPAN SCHLESINGER HOFFMAN LLP 913 North Market Street, 12th Floor Wilmington, DE 19801 (302) 351-8000 - and RIKER, DANZIG, SCHERER, HYLAND & PERRETTI LLP Joseph L. Schwartz, Esq. Curtis M. Plaza, Esq. Kevin J. Larner, Esq. Headquarters Plaza One Speedwell Avenue Morristown, NJ 07962 (973) 538-0800 Attorneys for Appellant, The Prudential Insurance Company of America

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TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................... ii SUMMARY OF REPLY .................................................................................................................1 LEGAL ARGUMENT.....................................................................................................................3 I. THE DOCTRINE OF ISSUE PRECLUSION BARRED W.R. GRACE FROM RELITIGATING THE STATUTE OF LIMITATIONS CHOICE-OF-LAW ISSUE. .................................................................................................................................3 A. The Issue Litigated by W.R. Grace Before the Bankruptcy Court was the Very Same Issue as the Issue Litigated by W.R. Grace Before the New Jersey District Court. .................................................3 "Finality" for Purposes of Issue Preclusion. ............................................................5 Issue was Essential and Actually Litigated..............................................................9

B. C. II.

THE ERIE DOCTRINE REQUIRED THAT THE BANKRUPTCY COURT RESPECT THE CHOICE OF LAW DETERMINATION MADE BY THE NEW JERSEY DISTRICT COURT..............................................................................................9 THE BANKRUPTCY COURT IMPROPERLY GRANTED AN APPEAL OF THE DISTRICT COURT DECISION...............................................................................14 THE BANKRUPTCY COURT IMPROPERLY MADE FACT-BASED STATUTE OF LIMITATIONS DETERMINATIONS WITHOUT DEVELOPMENT OF AN APPROPRIATE FACTUAL RECORD. ...............................15 THE BANKRUPTCY COURT ERRED IN ITS APPLICATION OF DELAWARE CHOICE OF LAW STANDARDS. ...........................................................17 A. B. C. The Delaware Supreme Court's Holding in Saudi Basic Should Be Applied. ...............................................................................................17 Prudential's Cause of Action Arose in New Jersey. ..............................................18 Even Applying Delaware's Statute of Limitations, Prudential's Century Center Claims are Timely. ...................................................21

III. IV.

V.

CONCLUSION..............................................................................................................................23

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TABLE OF AUTHORITIES CASES In re Allegheny Int'l, Inc., 954 F.2d 167 (3d Cir. 1992).............................................................................22 In re Asbestos School Litigation, 1991 WL. 3890 (E.D. Pa. 1991) ......................................................................20 Autrey v. Chemtrust Inds. Corp., 362 F. Supp. 1085 (D. Del. 1973)....................................................................19 B. Lewis Productions, Inc. v. Bean, 2005 WL. 273298 (D. Del. 2005) ....................................................................20 Becker v. Hamada, Inc., 455 A.2d 353 (Del. 1982) ..........................................................................21, 22 In re Brown, 82 F.3d 801 (8th Cir. 1996) .............................................................................22 In re Brown, 951 F.2d 564 (3d Cir. 1991)...............................................................................3 Building Erection Servs., Inc. v. JLG, Inc, 376 F.3d 800 (8th Cir. 2004) ...........................................................................20 Burlington N. R.R. Co. v. Hyundai Merch. Marine Co., Ltd., 63 F.3d 1227 (3d Cir. 1995)...............................................................................8 Butner v. United States, 440 U.S. 48 (1979)...........................................................................................14 Calhoun v. Yamaha Motor Corp., 216 F.3d 338 (3d Cir. 2000).............................................................................20 Child, Inc. v. Rodgers, 377 A.2d 374 (Del. Super. Ct. 1977) ...............................................................21 In re Combustion Eng'g, Inc., 391 F.3d 190 (3d Cir. 2005).......................................................................13, 14 Davis v. Norris, 34 Fed. Appx. 658 (10th Cir. 2002).................................................................12

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In re District Court Litigation West Trial Group, 622 A.2d 1090 (Del. Super. Ct. 1992) .............................................................21 In re Docteroff, 133 F.3d 210 (3d Cir. 1997)...........................................................................4, 6 Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).................................................................................9, 10, 11 Ferens v. John Deere Co., 494 U.S. 516 (1990).........................................................................................12 Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415 (1996).........................................................................................10 In re Gaston & Snow, 243 F.3d 599 (2d Cir. 2001).......................................................................10, 11 In re G-I Holding, Inc., 02-CV-3082 (WGB), 2003 WL 22273256 (D.N.J. 2003) .................................8 In re Grynberg, 986 F.2d 367 (10th Cir. 1993) cert. denied, 510 U.S. 812 (1993) ...................13 Guaranty Trust Co. v. York, 326 U.S. 99 (1945)...........................................................................................10 In re Hanlin Group, Inc., 185 B.R. 703 (Bankr. D.N.J. 1995) .................................................................13 Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703 (7th Cir. 1999) .............................................................................6 Hill v. Equitable Trust Co., 562 F. Supp. 1324 (D. Del. 1983)....................................................................19 Hodges v. Smith, 517 A.2d 299 (Del. Super. Ct. 1986) ...............................................................21 Kaufman v. C.L. McCabe, 603 A.2d 831 (Del. 1992) ..........................................................................20, 21 Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941)...................................................................................10, 11

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LeJeune v. Bliss-Salem, Inc., 85 F.3d 1069 (3d Cir. 1996).............................................................................20

In re Lindsay, 59 F.3d 942 (9th Cir. 1995) .............................................................................10 McNasby v. Crown Cork & Seal Co., 888 F.2d 270 (3d Cir. 1989)...............................................................................6 In re Merritt Dredging Co., Inc., 839 F.2d 203 (4th Cir. 1988) .....................................................................10, 11 Nardo v. Guido DeAscanis & Sons, Inc., 254 A.2d 254 (Del Super. Ct. 1969) ..........................................................20, 21 In re Ovetsky, 100 B. R. 115 (Bankr. N.D. Ga. 1989) ............................................................14 Pacific Union Conf. of Seventh-Day Adventists v. Marshall, 434 U.S. 1305 (1977).........................................................................................8 In re PHP Healthcare Corp., 128 Fed. Appx. 839 (3d Cir. 2005)............................................................10, 11 In re Professional Investors Ins. Group, Inc., 232 B.R. 870 (Bankr. N.D. Tex. 1999)......................................................12, 14 Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15 (2000)...........................................................................................14 Rudginski v. Pullella, 378 A.2d 646 (Del. Super. Ct. 1977) ...............................................................21 In re SMEC, Inc., 161 B.R. 953 (M.D. Tenn. 1993).....................................................................14 Sack v. Low, 478 F.2d 360 (2d Cir. 1973).............................................................................20 Saudi Basic Industries Corp. v. Mobil Yanbu Petrochemical Co., Inc., 866 A.2d 1 (Del. 2005) ....................................................................1, 17, 18, 21 Schor v. Abbott Laboratories, 457 F.3d 608 (7th Cir. 2006) .........................................................................8, 9

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In re Segre's Iron Works, Inc., 258 B.R. 547 (Bankr. D. Conn. 2004) .......................................................12, 14 Travelers Indem. Co. v. Lake, 594 A.2d 38 (Del. 1991) ..................................................................................19 Ubiquitel Inc. v. Sprint Corp., No. 1489-N, 2005 WL. 3533697 (Del. Ch. Dec. 19, 2005).............................19 Van Dusen v. Barrack, 376 U.S. 612 (1964)...................................................................................11, 12 Woods-Tucker Leasing Corp. v. Hutcheson-Ingram Dev. Co., 642 F.2d 744 (5th Cir. 1981) ...........................................................................10 STATUTES 11 U.S.C. § 502 ..........................................................................................................................13

28 U.S.C. § 1291 ............................................................................................................................8 MISCELLANEOUS 3rd Cir. LAR, Internal Operating Procedure 5.3 ...........................................................................11 Fed. R. Bankr. P. 3001(a) ..............................................................................................................13 Restatement (Second) of Conflict of Laws §145 ..........................................................................19

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SUMMARY OF REPLY In Prudential's1 Brief of Appellant filed on January 16, 2007 ("Prudential's Appeal
Brief"), Prudential set forth various reasons why the Bankruptcy Court's decision to expunge

Prudential's Century Center Claims as time-barred was legally improper and why the Order entered by the Bankruptcy Court on October 24, 2006 should be reversed. Specifically, as Prudential explained, the Order should be reversed due to, inter alia, the following reasons: 1. The doctrine of issue preclusion barred W.R. Grace from relitigating the statute of limitations choice-of-law issue previously decided by the New Jersey District Court; The Bankruptcy Court erred in its choice-of-law analysis by: (i) disregarding the reasoning of the Erie doctrine, which requires federal courts to adopt the law of the federal forum where a case was initially brought, and (ii) improperly altering Prudential's pre-existing state law rights, in contravention of well-established authority that bankruptcy courts merely administer, and cannot alter, the non-bankruptcy law rights of claimants; The Bankruptcy Court improperly acted as an appellate court in reversing and allowing W.R. Grace to collaterally attack the June 9, 1994 Order of the New Jersey District Court, stating that it would not follow the reasoning of the New Jersey District Court because that court was "wrong;" The Bankruptcy Court improperly transformed W.R. Grace's legal objections to Prudential's Century Center Claims to a summary judgment hearing and improperly made fact-based determinations without developing an appropriate factual record; and The Bankruptcy Court erred in its application of Delaware choice-of-law standards and statute of limitations law in that it (i) failed to conduct a proper an analysis under Saudi Basic Industries Corp. v. Mobil Yanbu Petrochemical Co., Inc., 866 A.2d 1 (Del. 2005), (ii) failed to properly determine where the cause of action arose, and (iii) failed to perform a factual analysis to determine whether Prudential's claims were timely under Delaware law.

2.

3.

4.

5.

1

All capitalized terms not otherwise defined herein shall have the meanings ascribed in Prudential's Appeal Brief (defined above).

1

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In the forty (40)-page Appellees' Brief filed by W.R. Grace on February 14, 2007 ("W.R. Grace's Appeal Brief"), W.R. Grace makes a number of legal arguments. Notwithstanding the apparent length of W.R. Grace's arguments, W.R. Grace's arguments revolve around the following primary contention -- that the issue considered by the Bankruptcy Court in determining whether Prudential's Century Center Claims were time-barred was purportedly different than the issue considered by the New Jersey District Court. In support of this contention, W.R. Grace argues that the Bankruptcy Court's decision to apply Delaware's choice-of-law analysis as compared to the New Jersey District Court's decision to apply New Jersey's choice-of-law analysis, constitute two different issues, thereby making collateral estoppel inapplicable. W.R. Grace is wrong. The Bankruptcy Court's decision to apply Delaware's choice-of-law analysis resulted from the very same issue that W.R. Grace previously presented to the New Jersey District Court, i.e. which state's statute of limitations should be applied with respect to Prudential's Century Center Claims. For this and other reasons stated in Prudential's Appeal Brief and stated herein, Prudential respectfully requests that this Court reverse the Bankruptcy Court's Order expunging Prudential's Century Center Claims as time-barred.

2

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LEGAL ARGUMENT I. THE DOCTRINE OF ISSUE PRECLUSION BARRED W.R. GRACE FROM RELITIGATING THE STATUTE OF LIMITATIONS CHOICEOF-LAW ISSUE. A. The Issue Litigated by W.R. Grace Before the Bankruptcy Court was the Very Same Issue as the Issue Litigated by W.R. Grace Before the New Jersey District Court. For the reasons set forth in Prudential's Appeal Brief, the doctrine of issue preclusion should have barred W.R. Grace from relitigating an issue previously briefed, argued, and decided in the New Jersey District Court.2 W.R. Grace's primary argument against the application of the doctrine of issue preclusion is that the New Jersey District Court was presented with a choice-of-law issue under New Jersey law, whereas the Bankruptcy Court was presented with a choice-of-law issue under Delaware law, which purportedly were different issues. Notwithstanding W.R. Grace's arguments, the Third Circuit Court of Appeals has clearly and consistently held that issue preclusion serves to bar relitigation of an issue where the same (or substantially similar issue) has been previously decided by another court. See, e.g., In re Brown, 951 F.2d 564, 569 (3d Cir. 1991). During its bankruptcy case, W.R. Grace unquestionably litigated before the Bankruptcy Court the identical issue that it raised (and lost) in the New Jersey District Court -that the statute of limitations of Georgia, rather than the statute of limitations of New Jersey, should apply to bar Prudential's claims. Notwithstanding the fact that these issues were exactly the same, W.R. Grace attempts to confuse matters by arguing that the choice-of-law issues considered by the New Jersey District Court and the Bankruptcy Court were different.

2

See Prudential's Appeal Brief at 14-23.

3

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Despite W.R. Grace's arguments, the Third Circuit Court of Appeals has specifically held that where an issue arising in a bankruptcy case bears semblance to the issue litigated prior to the bankruptcy case, differences solely arising as a result of the new bankruptcy venue do not prevent issue preclusion from being applied, reasoning: Taking [the debtor's] argument to its logical conclusion, collateral estoppel would never apply in bankruptcy because the precise bankruptcy issue would never have been litigated in a court action prior to the filing of the petition in bankruptcy. Such a conclusion defies common sense and reason and is at odds with the Supreme Court's [previous rulings]. In re Docteroff, 133 F.3d 210, 215 (3d Cir. 1997). Indeed, the New Jersey District Court could not have been more clear in its pronouncement of the issue, which was which state's statute of limitations law should govern: The threshold inquiry is into what state's law should govern. ... The defendants contend that the applicable statute of limitations is the statute of the state in which each affected building is located. Thus, for example, Prudential's claim regarding a building in Wisconsin is governed by Wisconsin law. And so on. In defendants' view, these statutes mandate that all of Prudential's claims be dismissed. Prudential responds by arguing that New Jersey's fairly lengthy statute of limitations applies to all of its state law claims. ... [T]here is essentially a presumption [under New Jersey law] that [New Jersey's] statute of limitations applies, which is based on New Jersey's substantial interest in compensating its domiciliaries. . . . At any rate, this is not a case where the plaintiff's only connection to New Jersey is the fact that it is domiciled in New Jersey. . . . [T]he defendants have some contacts with New Jersey [and] many of the corporate financial decisions for which Prudential seeks compensation took place in New Jersey. ... Thus, I conclude that because plaintiff Prudential is a New Jersey domiciliary whose primary place of business is in New Jersey, the New Jersey Supreme Court would be persuaded by its interest in

4

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compensating its domiciliary to apply its own statute of limitations in this case.[3] In the New Jersey District Court Litigation, W.R. Grace specifically argued that Georgia's statute of limitations law should have been applied to bar Prudential's Century Center Claims. As a result of the June 19, 1994 Order, W.R. Grace lost that argument. After having lost that argument, W.R. Grace again presented and argued before the Bankruptcy Court, as it had previously presented and argued before the New Jersey District Court, that Georgia's statute of limitations law should have been applied to bar Prudential's Century Center Claims. Without question, W.R. Grace presented the Bankruptcy Court with exactly the same issue that W.R. Grace had presented to the New Jersey District Court. If W.R. Grace's current argument that issue preclusion is inapplicable was accepted, many parties to a pre-petition litigation that receive an adverse ruling could potentially file for bankruptcy in a different state and relitigate the adverse ruling under the guise that the issues were different. No greater encouragement of improper forum shopping could be

envisioned by this result, which would render the doctrine of issue preclusion in bankruptcy cases a virtual nullity. B. "Finality" for Purposes of Issue Preclusion. As was set forth at length in Prudential's Appeal Brief, the Third Circuit Court of Appeals has ruled on a number of occasions that "finality," for purposes of issue preclusion, is a "pliant" concept and does not need to reach the maturity of being appealable.4 W.R. Grace nevertheless contends, inter alia, that issue preclusion did not apply because "Grace had no

3 4

R-21 at 10-16 (emphasis added). See Prudential's Appeal Brief at 18.

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opportunity to appeal the 1994 decision."5 In complete disregard of binding Third Circuit jurisprudence, the Bankruptcy Court improperly accepted W.R. Grace's argument on this issue: THE BANKRUPTCY COURT: Well, somebody has the right to appeal . . . or else the ruling can't have collateral estoppel consequences because there's no right to appeal.6 Prudential submits that this was clear error by the Bankruptcy Court. Perhaps recognizing that its inability to appeal the June 9, 1994 Order did not render issue preclusion inapplicable, W.R. Grace also argues that the June 9, 1994 Order was not "final" for purposes of issue preclusion simply because it would purportedly be "highly unfair."7 Even if this were true, Third Circuit precedent should have compelled the Bankruptcy Court to have concluded that the June 9, 1994 Order was "final" for purposes of issue preclusion. Further, the Third Circuit has stated that a debtor like W.R. Grace is prohibited from arguing that a pre-petition order lacks "finality" where the debtor's bankruptcy filing prevented conclusion of the prior litigation. In re Docteroff, 133 F.3d at 216. Consequently, fair or unfair, the

Bankruptcy Court should have determined that the June 9, 1994 Order was "final" for purposes of issue preclusion. W.R. Grace also argues that the June 9, 1994 Order was not "final" for purposes of issue preclusion because "[a]n unappealable ruling is not res judicata."8 However, despite this argument, res judicata is an entirely different legal concept than issue preclusion/collateral estoppel. See, e.g., McNasby v. Crown Cork & Seal Co., 888 F.2d 270, 276 n.7 (3d Cir. 1989). As a result, this argument by W.R. Grace also has no merit.
See W.R. Grace's Appeal Brief at 26. R-14 at 32. 7 See W.R. Grace's Appeal Brief at 27. 8 See W.R. Grace's Brief at 28 (citing Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703, 708 (7th Cir. 1999)).
6 5

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W.R. Grace further argues that the June 9, 1994 Order not "final" for purposes of issue preclusion because the New Jersey District Court dismissed all claims against defendants other than W.R. Grace after W.R. Grace had filed for bankruptcy.9 This argument is misleading. As a result of the New Jersey District Court's determination that Prudential's RICO claim was time-barred as against defendants other than W.R. Grace, the New Jersey District Court dismissed the New Jersey District Court Litigation as against these nondebtor defendants, but not as against W.R. Grace, because there was no longer any basis for federal jurisdiction.10 The decision of the New Jersey District Court, however, would have allowed Prudential to continue to pursue the State Law Claims as against these nondebtor defendants in state court.11 Prudential submits that a state court would thereafter have been bound by the New Jersey District Court's ruling on which state's statute of limitations should apply, like the Bankruptcy Court should have been bound here. Further, even if W.R. Grace had not filed for bankruptcy, and the New Jersey District Court, or a state court, had later ruled in favor of W.R. Grace and against Prudential, that court would have done so based upon the facts, not based upon choice-of-law principles, which had already been determined by the New Jersey District Court and which determination was binding. Finally, W.R. Grace argues that the June 9, 1994 Order was not "final" for purposes of issue preclusion because determinations made in orders denying summary judgment are not "final" for issue preclusion purposes as a matter of law.12 This argument plainly ignores

9

See W.R. Grace Appeal Brief at 28. See R-24 at 51-52. 11 See id. at 52. 12 See W.R. Grace's Appeal Brief at 25-26.
10

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the vast majority of the caselaw that has considered the issue, including decisions from the Third Circuit Court of Appeals. See, e.g., Burlington N. R.R. Co. v. Hyundai Merch. Marine Co., Ltd., 63 F.3d 1227, 1233 n.8 (3d Cir. 1995) (determining that an interlocutory order denying summary judgment precludes relitigation in a subsequent litigation as to issues decided in the order); see also In re G-I Holding, Inc., 02-CV-3082 (WGB), 2003 WL 22273256 (D.N.J. 2003) (holding that the prior statute of limitations determinations contained in an order denying summary judgment precludes re-litigation of the issue in bankruptcy). Not surprisingly, the caselaw that W.R. Grace relies upon to support its contention that determinations made in summary judgment orders are not "final" do not even support W.R. Grace's arguments. For example, in support of its bold statement that "a decision denying a motion for summary judgment is not final as a matter of law,"13 W.R. Grace cites Pacific Union Conf. of Seventh-Day Adventists v. Marshall, 434 U.S. 1305, 1306 (1977). However, contrary to W. R. Grace's representations, the Pacific Union decision merely stands for the proposition that a denial of summary judgment is not final for purposes of appealability pursuant to 28 U.S.C. § 1291, not issue preclusion. See, generally, Pacific Union, 434 U.S. 1305. As a result, the Pacific Union decision does not support W.R. Grace's position. Further, Schor v. Abbott Laboratories, 457 F.3d 608 (7th Cir. 2006), another case upon which W.R. Grace relies, merely provides that when an order denying summary judgment does not resolve any issues of law, it is not final for collateral estoppel purposes. See Schor, 457 F.3d at 614-15. Importantly, the Schor decision also states that if an order denying summary judgment did conclusively resolve a legal issue, issue preclusion might bar relitigation of that

13

See W.R. Grace Appeal Brief at 26 (emphasis in added).

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issue. Id. at 615. As a result, this decision relied upon by W.R. Grace also does not support W.R. Grace's position. For all these reasons, W.R. Grace's arguments on the issue of "finality" lack merit and, because the Bankruptcy Court accepted them, the Bankruptcy Court erred as a matter of law. C. Issue Was Essential and Actually Litigated. W.R. Grace also argues that the choice-of-law issue presented to the Bankruptcy Court was neither "actually litigated" in the New Jersey District Court Litigation nor "essential" to the New Jersey District Court's determination. In support of its arguments, W.R. Grace merely reiterates the same arguments that it makes in support of its contention that the issue presented was different. For the same reasons discussed earlier, Prudential submits that the statute of limitations choice-of-law issue presented to the Bankruptcy Court was both "actually litigated" in the New Jersey District Court Litigation and "essential" to the New Jersey District Court's determination. II. THE ERIE DOCTRINE REQUIRED THAT THE BANKRUPTCY COURT RESPECT THE CHOICE OF LAW DETERMINATION MADE BY THE NEW JERSEY DISTRICT COURT. Although Prudential and W.R. Grace disagree on many issues, both Prudential and W.R. Grace agree that the Erie line of cases applies to the issues in this case. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). In fact, in W.R. Grace's Appeal Brief, W.R. Grace states that "[t]his point is really Civil Procedure 101..."14 W.R. Grace's Brief, however, incorrectly applies the Erie doctrine.

14

See W.R. Grace's Appeal Brief at 15.

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A central proposition of the Erie line of cases is that forum shopping is an ill to be prevented. See, e.g., Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 428 (1996) (discussing "the twin aims of the Erie rule: discouragement of forum shopping and avoidance of inequitable administration of the laws"). Erie and its progeny sought to minimize the possibility that a party could achieve varying results depending upon the court in which the litigation was pursued. See, e.g., id. In particular, the Erie line of cases sought to minimize a party's forum shopping between a state court and a nearby federal court. See Guaranty Trust Co. v. York, 326 U.S. 99, 109 (1945). In order to prevent such forum shopping, Erie announced that a federal court should apply the law of the state in which it sits. See generally Erie, 304 U.S. 64. The Erie line of cases further stated that statute of limitations determinations should be performed under the substantive law of the state in which the litigation was first brought. See generally Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941).15 Courts have disagreed about whether the Klaxon decision applies in bankruptcy cases. Some courts have held that when a litigation is first brought in a bankruptcy case, the bankruptcy court may use Klaxon to determine the applicable choice-of-law standards. See, e.g., In re Gaston & Snow, 243 F.3d 599, 605-07 (2d Cir. 2001); In re Merritt Dredging Co., Inc., 839 F.2d 203, 205-06 (4th Cir. 1988). Other courts, however, have held that Klaxon is completely inapplicable in bankruptcy cases. See, e.g., In re Lindsay, 59 F.3d 942, 948 (9th Cir. 1995); Woods-Tucker Leasing Corp. v. Hutcheson-Ingram Dev. Co., 642 F.2d 744, 747-49 (5th Cir. 1981).16

See also Prudential's Appeal Brief at 26-27. W.R. Grace insists that Third Circuit precedent has included a determination that Klaxon applies in bankruptcy cases, citing to In re PHP Healthcare Corp., 128 Fed. Appx. 839 (3d Cir. 2005). See W.R. Grace's Appeal Brief at 15-16. However, the Third Circuit has clearly indicated that the PHP Healthcare
16

15

(footnote continued...)

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Regardless of whether Klaxon applies in bankruptcy cases, because Prudential first asserted its claims against W.R. Grace in the New Jersey District Court, which case remains pending, and where the New Jersey District Court already made a thorough Klaxon-based determination, the Bankruptcy Court should not have performed its own Klaxon analysis to overrule the New Jersey District Court's prior Klaxon determination. In any event, certain of the cases following Erie have expressed concern that if a defendant moved to transfer a case from one federal district court to a federal district court in a different state, the defendant could potentially seek to avail itself of defenses not otherwise available in the original federal district court. See, e.g., Van Dusen v. Barrack, 376 U.S. 612 (1964). In such a case, a new problem of forum shopping would arise -- a defendant could move litigation to a new forum to avail itself of more favorable rules. Id. In order to limit such possibility, the Supreme Court ruled in Van Dusen that when a federal case is transferred from one federal district court to a federal district court in a different state, the law of the original jurisdiction, including the applicable statute of limitations, travels with the case. Id. at 638-39. Thus, Van Dusen clarified Klaxon to ensure that a federal district court will apply the statute of limitations choice-of-law doctrine of the state in which the original litigation arose. Id.; see also Ferens v. John Deere Co., 494 U.S. 516, 523-28 (1990); Gaston & Snow, 243 F.3d at 607; Merritt Dredging Co., 839 F.2d at 206.

decision is not available for precedental use. See In re PHP Healthcare Corp., 128 Fed. Appx. 839, annexed to this brief as "Attachment A," (including the clear label "NOT PRECEDENTIAL" at the top of the first page of the opinion). See 3rd Cir. LAR, Internal Operating Procedure 5.3. Further, even if PHP Healthcare were precedental, that decision does not even stand for the proposition for which W.R. Grace relies. Contrary to W.R. Grace's arguments, PHP Healthcare does not stand for the proposition that a bankruptcy court should disregard a valid Klaxon-based determination of a federal district court in a prior litigation.

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Van Dusen is clearly on point and should have been applied by the Bankruptcy Court. W.R. Grace attempts to distinguish Van Dusen and argue its inapplicability by asserting that it addressed the transfer of a case from one federal district court to another federal district court. While Van Dusen did deal with the transfer of a case, the reasoning of Van Dusen certainly applies to this case. Indeed, here, the Bankruptcy Court had less justification to apply Delaware choice-of-law principles than the transferee court in Van Dusen. This is because the New Jersey District Court Litigation was never even transferred to the Bankruptcy Court, but remains pending before the New Jersey District Court, albeit automatically stayed by W.R. Grace's bankruptcy filing. Prudential cited to other caselaw in Prudential's Appeal Brief that follow and support the Van Dusen ruling. See, e.g., G-I Holdings, Inc., 02-CV-3082 (WGB), 2003 W.L. 22273256 (D.N.J. 2003). In re Professional Investors Ins. Group, Inc., 232 B.R. 870 (Bankr. N.D. Tex. 1999); Davis v. Norris, 34 Fed. Appx. 658 (10th Cir. 2002); In re Segre's Iron Works, Inc., 258 B.R. 547 (Bankr. D. Conn. 2004). Like its attempt to distinguish Van Dusen, W.R. Grace's attempts to distinguish these other cases are unavailing. After attempting to distinguish this supporting caselaw cited by Prudential, W.R. Grace summarily concludes that Prudential "has not cited a single case to support its assertion that a bankruptcy court adjudicating claims that previously were brought elsewhere . . . is bound by the choice-of-law rules of the other forum.17 However, despite W.R. Grace's rhetoric, in reality, it is W.R. Grace, not Prudential, that has failed to cite any supporting legal authority for its position.

17

See W.R. Grace's Appeal Brief at 19.

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In an attempt to further confuse this issue, W.R. Grace baldly states that Prudential's proofs of claim filed in W.R. Grace's bankruptcy assert "new claims," which W.R. Grace intimates are different from the "original claims" that are pending before the New Jersey District Court.18 This is untrue for a number of reasons. First, during W.R. Grace's bankruptcy case, on April 22, 2002, upon motion by the Debtors, the Bankruptcy Court entered the Property Damage Bar Date Order, which required all asbestos property damage claimants to file proofs of claim in the Debtors' bankruptcy cases by March 31, 2003, or those claims would be barred. See In re Grynberg, 986 F.2d 367, 970 (10th Cir. 1993) cert. denied, 510 U.S. 812 (1993) (failure to file proof of claim before bar ate generally precludes a creditor from receiving a distribution from debtor's estate). Prudential timely complied with the Property Damage Bar Date Order and filed proofs of claim against W.R. Grace in order to prevent its claims form being barred. These proofs of claim filed by Prudential were not "new claims," as W.R. Grace suggests, but instead were simply required written statements apprising W.R. Grace of the existence of the claims that Prudential asserted in the New Jersey District Court as of the Petition Date. See Fed. R. Bankr. P. 3001(a); In re Hanlin Group, Inc., 185 B.R. 703, 707 (Bankr. D.N.J. 1995) (stating that the purpose of a proof of claim is to apprise the debtor of existing claims against the estate); see also In re Combustion Eng'g, Inc., 391 F.3d 190, 245 (3d Cir. 2005) (stating that the effect of § 502 of the Bankruptcy Code as to the allowance of claims or interests "is to provide a bankruptcy trustee with the same rights and defenses to claims as held by the debtor prior to bankruptcy."). Moreover, black letter bankruptcy law confirms that the institution of a bankruptcy case cannot change a claimant's underlying state law rights as such rights existed at
18

See W.R. Grace's Appeal Brief at 18.

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the time of the bankruptcy filing. See Raleigh v. Ill. Dep't of Revenue, 530 U.S. 15, 20 (2000). ("[T]here is no reason why [the state law] interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.") (quoting Butner v. United States, 440 U.S. 48, 55 (1979)); Combustion Eng'g, 391 F.3d at 245 (same). Indeed, where a claimant has filed litigation against a debtor prior to the debtor's bankruptcy filing, the prepetition litigation will define the non-bankruptcy law rights of the claimant. See, e.g.,

Professional Investors Ins. Group, 232 B.R. at 883-85; Segre's, 258 B.R. at 551-52. As a result, W.R. Grace could not, as a matter of law, alter Prudential's non-bankruptcy law rights simply because W.R. Grace chose to file its bankruptcy case in a different jurisdiction. See In re SMEC, Inc., 161 B.R. 953, 956 (M.D. Tenn. 1993) ("A claim which was valid prior to bankruptcy should not be disallowed solely because the state law of the state in which the debtor has chosen to reside and filed bankruptcy . . . would not allow recovery.") (quoting In re Ovetsky, 100 B. R. 115, 118 (Bankr. N.D. Ga. 1989)); Segre's, 258 B.R. at 552 ("It is fundamentally unfair, and subversive of uniformity, for a debtor to be permitted to defeat a creditor's claim ­ which was timely prosecuted in, and under the law of, the state with the greatest interest in the dispute ­ through the simple maneuver of filing a bankruptcy case in a different state where a less generous statute of limitation arguably controls."). For these reasons, the Bankruptcy Court should have deferred to the New Jersey District Court and applied New Jersey statute of limitations law with respect to Prudential's Century Center Claims. III. THE BANKRUPTCY COURT IMPROPERLY GRANTED AN APPEAL OF THE DISTRICT COURT DECISION. W.R. Grace argues in a footnote that the Bankruptcy Court did not improperly act as an appeals court and allow W.R. Grace to collaterally attack the June 9, 1994 Order, stating

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that the Bankruptcy Court "simply decided a new issue that had never been decided by any other court."19 However, for the reasons previously discussed, the Bankruptcy Court did not decide a new issue, and its cursory dismissal of the New Jersey District Court's ruling as "wrong" was certainly improper.20 In reviewing this same issue, the Bankruptcy Court should have come to the same conclusion as the New Jersey District Court for the same reasons as those articulated by the New Jersey District Court, and should not have overruled the New Jersey District Court and declared its decision simply to be "wrong."21 IV. THE BANKRUPTCY COURT IMPROPERLY MADE FACT-BASED STATUTE OF LIMITATIONS DETERMINATIONS WITHOUT DEVELOPMENT OF AN APPROPRIATE FACTUAL RECORD. W.R. Grace argues, albeit again in a footnote, that Prudential had the burden to identify genuine issues of material fact to preclude dismissal of the Century Center Claims because W.R. Grace had supposedly filed a "summary judgment motion" objecting to those claims.22 This argument by W.R. Grace is disturbing due to W.R. Grace's blatant lack of candor to this Court. In response to this argument, Prudential respectfully submits that the Court should be aware of the following: 1. Nowhere in any of W.R. Grace's pleadings before the Bankruptcy Court did W.R. Grace refer to the proceedings as a "summary judgment motion";23 To the contrary, W.R. Grace's pleadings asserted that the objections to the Century Center Claims, among other claims, involved legal issues "which require little or no evidentiary record development for adjudication;"24

2.

19 20

See W.R. Grace's Appeal Brief at 24 n.3. R-14 at 40. 21 Id. 22 See W.R. Grace's Appeal Brief at 36 n.4. 23 See R-1, R-12, R-15 and R-17.

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3.

Moreover, W.R. Grace's counsel represented to the Bankruptcy Court at the first oral argument that the issues to be entertained were legal only ­ "I don't believe there's any factual issues";25 In addition, summary judgment motions as to asbestos property damage claims determinations are not even due to be heard by the Bankruptcy Court until April 19, 2007, pursuant to the Bankruptcy Court's Amended Order Setting Various Deadlines Regarding Objections to Asbestos Property Damage Claims;26 and Subsequent to the entry of the Order, on November 17, 2006, W. R. Grace did, in fact, file a motion for summary judgment against Prudential's other asbestos property damage claims, styled: Motion for an Order Pursuant to F.R.B.P. 7056 Disallowing and Expunging Six (6) Time-Barred Asbestos Property Damage Claims Filed by Prudential Insurance Company of America,27 which motion is scheduled to be heard by the Bankruptcy Court on April 19, 2007.28

4.

5.

In summary of the foregoing, not only did W.R. Grace not call its objection to the Century Center Claims a "summary judgment motion," it did not treat it as one -- until possibly the day of oral argument on its objection to the Century Center Claims, when W.R. Grace improperly raised factual issues for the first time. This was addressed at length in Prudential's Appeal Brief, at 2831. The Bankruptcy Court erred as a matter of law by considering the "facts" asserted by W.R. Grace without permitting Prudential to submit facts and establish a factual record. For this additional reason, the Order should be reversed.

24 25

R-12 at 1. See R-14 at 44. 26 See Docket No. 13406 in W.R. Grace's bankruptcy case. 27 See Docket No. 13700 in W.R. Grace's bankruptcy case. 28 See Docket No. 13406 in W.R. Grace's bankruptcy case.

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V.

THE BANKRUPTCY COURT ERRED IN ITS APPLICATION OF DELAWARE CHOICE OF LAW STANDARDS. A. The Delaware Supreme Court's Holding in Saudi Basic Should Be Applied. For the reasons set forth in Prudential's Appeal Brief, the Delaware Supreme

Court's holding in Saudi Basic Industries Corp. v. Mobil Yanbu Petrochemical Co., 866 A.2d 1 (Del. 2005), prevents W.R. Grace's offensive use of the Delaware Borrowing Statute.29 W.R. Grace contends that Saudi Basic is inapplicable because W.R. Grace chose Delaware for a "legitimate" reason, and just happened to be fortunate so as to obtain a windfall from the Delaware Borrowing Statute.30 W.R. Grace further contends that W.R. Grace

incorrectly asserts that Prudential must show that W.R. Grace actually had an intent to forum shop in order for the Saudi Basic decision to apply.31 However, the Saudi Basic holding is not limited only to those parties who utilize Delaware courts solely for the purpose of using the Delaware Borrowing Statute. Instead, Saudi Basic is intended to prevent all parties, regardless of the legitimacy of their reasons for choosing Delaware as a forum, from filing actions in Delaware and then utilizing the Delaware Borrowing Statute to invoke a shorter statute of limitations than would otherwise be available. Saudi Basic, 866 A.2d at 17-18. It could not be clearer from Saudi Basic that the Delaware Supreme Court intended to keep parties, such as W.R. Grace, from "subvert[ing] the [borrowing] statute's purpose, by enabling [them] to prevail on a limitations defense that would never have been available to [them] in the jurisdiction where the cause of action arose." Id.

29 30

See Prudential's Appeal Brief at 34-36. See W.R. Grace's Appeal Brief at 39. 31 See id. at 38.

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In any event, Prudential submits that W.R. Grace has unquestionably conducted forum shopping with respect to its decisions to relitigate issues as to certain claims. For

example, W.R. Grace has sought to apply the results of certain of its pre-bankruptcy litigations to bind certain claimants where W.R. Grace achieved favorable results prior to its bankruptcy filing.32 In contrast, where W.R. Grace received unfavorable results prior to the bankruptcy filing, such as with Prudential's claims in the New Jersey District Court Litigation, W.R. Grace has chosen to relitigate those issues in the Bankruptcy Court forum. Thus, despite its contention, W.R. Grace is actively shopping between forums as to which forum will provide a more favorable result to W.R. Grace. For these reasons, and for the reasons set forth in Prudential's Appeal Brief, because (i) pursuant to Saudi Basic, the New Jersey statute of limitations applies with respect to Prudential's Century Center Claims, and (ii) the Bankruptcy Court neglected to even consider Saudi Basic, the Bankruptcy Court erred as a matter of law. B. Prudential's Cause of Action Arose in New Jersey. W.R. Grace further argues that Georgia has the "most significant relationship" with Prudential's Century Center Claims.33 Once again, W.R. Grace is wrong. Given the fact that the Bankruptcy Court accepted W.R. Grace's arguments, the Bankruptcy Court erred. First, as noted above, the Delaware Borrowing Statute is inapplicable here. Also, for the reasons noted, the Bankruptcy Court should have deferred to the New Jersey District Court, which had already made the determination of which state law applies. Even if, however, the Bankruptcy Court had the authority to conduct its own independent analysis of which state

32 33

See R-1 at 18-20. See W.R. Grace's Appeal Brief at 31-36.

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statute of limitations applied to Prudential's Century Center Claims, the Bankruptcy Court should have concluded that New Jersey's statute of limitations applied. As was set forth in Prudential's Appeal Brief, the Delaware Supreme Court has adopted the "most significant relationship" test as set forth in the Restatement (Second) of Conflict of Laws §145 (the "Restatement") to determine choice of law.34 W.R. Grace argues, as it had argued before the New Jersey District Court, that Prudential's long-standing relationship with New Jersey and the fact that Prudential's injury occurred in New Jersey are irrelevant.35 Instead, W.R. Grace

concludes, like it had done in the New Jersey District Court Litigation, that simply because the Century Center buildings are located in Georgia, the Bankruptcy Court should apply Georgia law. However, the New Jersey District Court considered, and rejected, these very same

arguments by W.R. Grace.36 Further, not only has W.R. Grace re-argued what it had previously argued in the New Jersey District Court Litigation, but W.R. Grace's arguments are contrary to controlling Delaware law. Under Delaware law, in the case of a negligence tort, the place where the injury occurred, not the place where the wrong occurred, is the place where the wrong caused the economic injury or loss. Autrey v. Chemtrust Inds. Corp., 362 F. Supp. 1085, 1090 (D. Del. 1973) ("Since the business losses suffered by all the plaintiffs substantially occurred in Florida, Florida is the place of the alleged tortious wrongs."); Hill v. Equitable Trust Co., 562 F. Supp. 1324, 1334 (D. Del. 1983) (in a negligence action "the cause of action arises where the economic impact is felt, normally where the plaintiff resides"); Ubiquitel Inc. v. Sprint Corp., No. 1489-N, 2005 WL 3533697, at *5 (Del. Ch. Dec. 19, 2005) (plaintiff's "principal place of business is in
34 35

See Prudential's Appeal Brief at 36-37 (citing Travelers Indem. Co. v. Lake, 594 A.2d 38 (Del. 1991). See W.R. Grace's Appeal Brief at 33-35. 36 See New Jersey District Court Decision at 9-16.

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Pennsylvania and it will, in a financial and economic sense, be injured in Pennsylvania"); see also Sack v. Low, 478 F.2d 360, 366 (2d Cir. 1973) (holding that cause of action arises where economic impact is felt, normally where the plaintiff resides). The basis for this rule is the recognition that the injury is the last element necessary for a cause of action to accrue. See Kaufman v. C.L. McCabe, 603 A.2d 831, 834 (Del. 1992); Nardo v. Guido DeAscanis & Sons, Inc., 254 A.2d 254 (Del Super. Ct. 1969). W.R. Grace essentially argues that the location of Prudential's economic injury was irrelevant to the Bankruptcy Court's choice of law analysis.37 Not surprisingly, W.R. Grace fails to cite any applicable Delaware legal authority to support its assertions. Instead, W.R. Grace cites to, inter alia, a case that applied the federal choice of law rules in the admiralty context. Calhoun v. Yamaha Motor Corp., 216 F.3d 338, 345 (3d Cir. 2000). W.R. Grace also cites to cases that did not apply Delaware law at all, but instead applied Pennsylvania or Missouri choice-of-law rules. See LeJeune v. Bliss-Salem¸ Inc., 85 F.3d 1069, 1071 (3d Cir. 1996) (applying Pennsylvania rules); In re Asbestos School Litigation, 1991 WL 3890, at *1 (E.D. Pa. 1991) (same); Building Erection Servs., Inc. v. JLG, Inc, 376 F.3d 800, 802-03 (8th Cir. 2004) (applying Missouri law). Finally, W.R. Grace cites to B. Lewis Productions, Inc. v. Bean, 2005 WL 273298 (D. Del. 2005), which at least involved Delaware law, but which decision involved an action on a breach of contract -- not a negligence action. Id. at *3. The economic injury rule, which is at issue herein and which applies to negligence torts, did not apply in the B. Lewis Productions case. Id. For these reasons, even under Delaware law, Prudential's injury occurred where it suffered its business and economic losses, in New Jersey.
37

See W.R. Grace's Appeal Brief at 33-35.

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Against this backdrop, when considering the Delaware Borrowing Statute and the Saudi Basic doctrine, it becomes perfectly clear that the Bankruptcy Court's refusal to consider New Jersey as the jurisdiction where Prudential's cause of action arose for statute of limitations purposes was legally improper. C. Even Applying Delaware's Statute of Limitations, Prudential's Century Center Claims are Timely. Notwithstanding the fact that the New Jersey statute of limitations should apply to the Century Center Claims, W.R. Grace further asserts that Prudential "does not even argue that its claims are timely under the Delaware limitations period."38 This is untrue. Throughout this litigation, Prudential has argued that even if the Delaware statute of limitations applies to the Century Center Claims, Prudential's claims were timely.39 Under Delaware law, a tort cause of action does not accrue prior to the time that plaintiff is injured. See, e.g., Kaufman v. C.L. McCabe, 603 A.2d 831, 834 (Del. 1992); Nardo v. Guido DeAscanis & Sons, 254 A.2d 254 (Del Super. Ct. 1969). For purposes of injury, Delaware recognizes a "discovery rule" for determining the accrual of a cause of action. Kaufman, 603 A.2d at 835.40 Under Delaware's discovery rule, the statute of limitations begins to run only when the plaintiff knows facts "constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry

W.R. Grace's Appeal Brief at 36. See, e.g., R-16 at 32-33. 40 Although initially held applicable in medical malpractice cases, Delaware courts have applied the discovery rule in a wide range of cases, including asbestos personal injury claims, In re District Court Litigation West Trial Group, 622 A.2d 1090, 1093 (Del. Super. Ct. 1992) (cause of action for asbestos related injuries accrues when plaintiff is chargeable with knowledge of injury) and construction-related defects, Becker v. Hamada, Inc., 455 A.2d 353, 356 (Del. 1982); Rudginski v. Pullella, 378 A.2d 646, 649 (Del. Super. Ct. 1977) (negligent installation of a septic tank); see also Hodges v. Smith, 517 A.2d 299, 301 (Del. Super. Ct. 1986); Child, Inc. v. Rodgers, 377 A. 2d 374, 377 (Del. Super. Ct. 1977).
39

38

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which, if pursued, would lead to the discovery" of such facts. Becker v. Hamada, Inc., 455 A.2d 353, 356 (Del. 1982). As Prudential set forth in its Century Center proofs of claim, Prudential first became aware of the presence of asbestos-containing fireproofing at the Century Center buildings in April 1986.41 This fact was never disputed by W.R. Grace in its objections to the Bankruptcy Court, and therefore, must be accepted as prima facie valid.42 See In re Brown, 82 F.3d 801 (8th Cir. 1996); In re Allegheny Int'l, Inc., 954 F.2d 167, 173 (3d Cir. 1992). As a result, for purposes of W.R. Grace's objections to the Century Center Claims, the Bankruptcy Court should have determined that it was undisputed that Prudential did not discover the property damage at the Century Center buildings until April 1986, at which time Delaware's three-year statute of limitations was triggered. The Bankruptcy Court should have also determined that it was undisputed that Prudential filed the New Jersey District Court Litigation on October 20, 1987. Therefore, Prudential brought its Century Center Claims well within Delaware's threeyear statute of limitations. It is very telling that in expunging the Century Center Claims, the Bankruptcy Court readily admitted that it was not familiar with applicable law: "I have not paid much attention to the discovery rule that may lengthen Delaware's statute."43 For this additional reason, the Bankruptcy Court erred as a matter of law.

41 42

See R-3 and R-4 (Prudential's responses to Question Nos. 18, 19, 20 and 21). Nor has Grace presented any law either to the Bankruptcy Court or this Court -- presumably because none exists -- to demonstrate that the discovery rule is not applicable herein. 43 R-18 at 52.

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CONCLUSION For all of the foregoing reasons, Prudential respectfully requests that the Court (i) reverse the Bankruptcy Court's Order expunging Prudential's Century Center Claims, (ii) direct the Bankruptcy Court to apply the statute of limitations law of New Jersey to Prudential's claims, (iii) remand the matter to the Bankruptcy Court for development of an appropriate factual record with detailed factual findings as to its determinations of the statute of limitations issues, (iv) determine that W.R. Grace is barred from relitigating the statute of limitations choice of law issues in the Bankruptcy Court with respect to Prudential's claims, and (v) grant Prudential such other and further relief the Court deems just and appropriate.

Wilmington, Delaware Date: March 5, 2007

Respectfully submitted, /s/ Laurie S. Polleck Laurie S. Polleck (#4300) JASPAN SCHLESINGER HOFFMAN LLP 913 Market Street, 12th Floor Wilmington, DE 19801 (302) 351-8000 - and RIKER, DANZIG, SCHERER, HYLAND & PERRETTI LLP Joseph L. Schwartz, Esq. Curtis M. Plaza, Esq. Kevin J. Larner, Esq. Headquarters Plaza One Speedwell Avenue Morristown, NJ 07962 (973) 538-0800 ATTORNEYS FOR APPELLANT, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

3738229.3

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128 Fed.Appx. 839 128 Fed.Appx. 839, 2005 WL 488785 (C.A.3 (Del.)) (Cite as: 128 Fed.Appx. 839)

Page 1

Briefs and Other Related Documents In re PHP Healthcare Corp.C.A.3 (Del.),2005.This case was not selected for publication in the Federal Reporter.NOT PRECEDENTIAL Please use FIND to look at the applicable circuit court rule before citing this opinion. Third Circuit Local Appellate Rule 28.3(a) and Internal Operating Procedure 5.3. (FIND CTA3 Rule 28.0 and CTA3 IOP APP I 5.3.) United States Court of Appeals,Third Circuit. In re: PHP HEALTHCARE CORPORATION, Debtor, PHP Liquidating, LLC, Appellant, v. *Charles H. Robbins; RJB Partners Profutures Fund Management, Inc.; Strome Hedge Cap Ltd; Strome Partners LP; Strome Offshore Ltd; Strome Suskind Hedge Cap LP; Lakeshore International Ltd; Kenneth L. Staub; Lisa I. Grove-Samuelson Trust B; Rachael K. Collins Trust B; J.F. Grove III Trust A; Earle E. Gales, Jr.; Deere Park Capital Management, LLC; Elara Ltd; Canadian Imperial Holdings; Sil Nominees Ltd; Bear Stearns Securities Corp.; Watt Family Property; Fortune Fund Ltd; Robert Charles Ketner; Kirk Whillock; Judy Willock; Oh Sharma; Bhagyawati Sharma; Caldwell & Orkin Market Opportunity Fund # 1; Jill Brooks Milberg; Dennis Decret; Tom Teters; Mary K. Carpenter; Robert F. Carpenter; John P. Cole; Linda D. Cole; Ward T. Bell & Associates, Inc. Profit Sharing Plan; William L. Todd; Allen Mendler; Paul Cole; Paul Mandragona; Carmella G. Mandragona; Terry W. Hunt; Randall A. Konsker; Carol R. Bounds; Mary Jerkins; Berwin C. Jerkins; R2 Investments; Q Funding LP; Harry Metherian, Jr.; Jolana Metherian; Metherian Family Living Trust; Maria Calvert; Ohio State Systems Small 384; Big Capital Partners LP; Executive Nurse Home Care, Inc.; Walker Smith Capital LP; Jeanne Marcari; John Does 1-500; ABC Corps 1-500; Robert Konsker; Profutures Special Equities Fund LP, *(Amended pursuant to Court's 07/28/04 Order). No. 03-3972. Argued Jan. 20, 2005. Decided March 3, 2005. Background: As assignee of claims of Chapter 11 debtor-in-possession and unsecured creditors, liquidator of debtor's assets sued debtor's shareholders and former shareholders, seeking to

recover consideration paid in series of stock redemption transactions authorized by debtor's board of directors. The United States District Court for the District of Delaware, Joseph J. Farnan, Jr., J., 291 B.R. 592 and 291 B.R. 603, granted former shareholders' motions to dismiss. Liquidator appealed.

Holdings: The Court of Appeals held that: (1) Delaware law governed liquidator's claims; (2) liquidator lacked standing, as assignee of creditors' claims, to assert claim under state statute governing stock redemptions; (3) absence of allegation that shareholders knew that debtor's capital was impaired when they redeemed stock precluded claims by liquidator, as debtor's assignee, under state statute governing stock redemptions; and (4) liquidator failed to state fraudulent transfer claims.

Affirmed. West Headnotes [1] Contracts 95

129(1)

95 Contracts 95I Requisites and Validity 95I(F) Legality of Object and of Consideration 95k129 Obstructing or Perverting Administration of Justice 95k129(1) k. Agreements Relating to Actions and Other Proceedings in General. Most Cited Cases Corporations 101 640

101 Corporations 101XVI Foreign Corporations 101k640 k. Subjection to Same Requirements as Imposed by Home State. Most Cited Cases Transactions involving redemption of Chapter 11 debtor's stock qualified as internal affairs of debtor for purposes of internal affairs doctrine, which required that laws of state of incorporation govern

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128 Fed.Appx. 839 128 Fed.Appx. 839, 2005 WL 488785 (C.A.3 (Del.)) (Cite as: 128 Fed.Appx. 839) matters peculiar to relationships among or between corporation and its officers, directors, and shareholders, given allegations that debtor, a Delaware corporation, violated Delaware law because it had no surplus when it redeemed stock or because redemptions impaired debtor's capital, and therefore Delaware law governed claims in which debtor's assignee sought to recover consideration paid in redemption transactions, despite choice-of-law provision in stock purchase agreement indicating that Virginia law applied. Restatement (Second) of Conflict of Laws § 302 comment. [2] Bankruptcy 51 2154.1

debtor's assignee sought to recover from shareholders consideration paid in disputed redemption transactions. 8 Del.C. § 174(c). [4] Bankruptcy 51 2724

51 Bankruptcy 51II Courts; Proceedings in General 51II(B) Actions and Proceedings in General 51k2154 Rights of Action by or on Behalf of Trustee or Debtor 51k2154.1 k. In General. Most Cited Cases To the extent that Delaware statute governing redemption of corporate stock created private right of action on creditor's behalf, it created general right of action seeking to redress injury common to all creditors, and therefore liquidator of Chapter 11 debtor-corporation's assets did not have standing, as assignee of creditors' claims, to assert claim under statute challenging debtor's stock redemption transactions; individual creditor could not assert general claim belonging to all creditors, and liquidator's standing as assignee extended only as far as creditor-assignor's standing. 8 Del.C. § 160(a)(1). [3] Bankruptcy 51 2154.1

51 Bankruptcy 51V The Estate 51V(H) Avoidance Rights 51V(H)2 Proceedings 51k2724 k. Pleading. Most Cited Cases Liquidator of Chapter 11 debtor's assets failed to state claims for fraudulent transfer against debtor's founder and members of founder's family under Bankruptcy Code and Delaware law, given absence of allegation that debtor redeemed stock of founder and family members with actual intent to defraud creditors, or that debtor received less than reasonably equivalent value for redeemed stock. Bankr.Code, 11 U.S.C.A. § 548(a)(1)(A, B); 6 Del.C. § 1301 et seq. [5] Bankruptcy 51 2650(2)

51 Bankruptcy 51V The Estate 51V(F) Fraudulent Transfers 51k2650 Consideration 51k2650(2) k. " Reasonably Equivalent Value" General. Most Cited Cases in Corporations 101 548(9)

51 Bankruptcy 51II Courts; Proceedings in General 51II(B) Actions and Proceedings in General 51k2154 Rights of Action by or on Behalf of Trustee or Debtor 51k2154.1 k. In General. Most Cited Cases Even if Delaware statute gave debtors-in-possession (DIPs) or their assignees implied right to sue stockholders who received payments for unlawful stock redemptions, it did so only as to those stockholders who received payments with knowledge of facts indicating that redemptions were unlawful, and therefore absence of allegation that shareholders of Chapter 11 debtor-corporation knew that debtor's capital was impaired when shareholders redeemed their stock precluded claims under statute in which

101 Corporations 101XII Insolvency and Receivers 101k548 Creditors' Suits 101k548(9) k. Evidence. Most Cited Cases Market price information for Chapter 11 debtorcorporation's stock at time of challenged stock redemption established that debtor received reasonably equivalent value for its stock, given that contemporaneous market price for debtor's stock exceeded consideration paid to debtor's shareholders, and therefore transactions did not support fraudulent transfer claims under Bankruptcy Code or Delaware law. Bankr.Code, 11 U.S.C.A. § 548(a)(1)(B); 6 Del.C. § 1301 et seq.

*841 On Appeal from the United States District Court for the District of Delaware. Dist. Court Civil Action No. 01-236. District Judge: The Honorable Joseph J. Farnan, Jr. Gerald H. Gline (Argued), Cole, Schotz, Meisel,

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128 Fed.Appx. 839 128 Fed.Appx. 839, 2005 WL 488785 (C.A.3 (Del.)) (Cite as: 128 Fed.Appx. 839) Forman & Leonard, P.A., Hackensack, New Jersey, Neal J. Levitsky, Fox Rothschild, Wilmington, Delaware, for Appellants. Thomas J. Allingham II (Argued), Darryl A. Parson, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, Michael Wooley (Argued), Potter Anderson & Corroon LLP, Wilmington, Delaware, Thomas G. Macauley (Argued), Zuckerman Spaeder LLP, Wilmington, Delaware, Laurie S. Silverstein, William A. Hazeltine, Potter, Anderson & Corroon, Wilmington, Delaware, Michael Woolley, *842 Mark D. Kotwick, Seward & Kissel, New York, New York, Andrew R. Lee, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, Louisiana, William M. Kelleher, Ballard, Spahr, Andrews & Ingersoll, Wilmington, Delaware, Thomas C. Marconi, Wilmington, Delaware, for Appellees. Before ALITO, MCKEE, and SMITH, Circuit Judges. OPINION PER CURIAM. **1 The various Defendants in this action all moved to dismiss the Amended Complaint dated April 4, 2002 (" Amended Complaint" for failure to state the ) a claim upon which relief can be granted. The District Court granted those Motions in several Orders and dismissed the Amended Complaint with prejudice. For the reasons set forth below, we affirm those Orders. their claims to the Liquidating Company.

**1 The Liquidating Company filed suit in federal district court in Delaware against certain stockholders and former stockholders of PHP, seeking to recover the consideration paid in a series of stock redemption transactions authorized by PHP's Board of Directors. Soon after the Liquidating Company filed its Amended Complaint, the Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The District Cour