Free Letter - District Court of Delaware - Delaware

Case 1 :04-cv-01551-JJF Document 367 Filed 10/04/2007 Page 1 of 3
r ‘ ··,‘ · ° Eckert Seamans Cherin & Mellott, LLC rn 302 425 0430
I _ . 300 Delaware Avenue, Suite 1210 FAX 302 425 0432
I Wilmington, DE 19801 vvww.eckertseamans.com
Brya M. Keilson
$02425.0430 (Wilmington)
2 I 5.85 I .8430 (Philadelphia)
[email protected]
i October 4, 2007
The Honorable Joseph J. F aman, Jr.
United States District Court for the
District of Delaware
J. Caleb Boggs Federal Building
844 N. King Street, Room 4124
Lockbox 27
Wilmington, DE 19801 3
Re: Charles A. Stanziale, Jr., Chapter 7 Trustee of
Student Finance Corporation v. Pepper Hamilton LLP, et aL
Civil Action No. 04-1551 (JJF) .
I Dear Judge Faman: I T J
" This letter is written on behalf of the Family defendants and responds to the letter memorandum
submitted today to Your Honor Hom Michael S. Waters, counsel for the Trustee. The letter is in
support of the Trustee’s attempt, after the close of discovery and on the eve of trial, to add claims
relating to stock redemption and purportedly excessive commitment fees to his case against the
Family defendants.
This letter states that the First Amended Complaint set forth a claim against the Family
defendants for recovery of fraudulent conveyance. The Family defendants do not dispute that ·
assertion. However, that claim related only to a transfer of stock of three general partnerships
(the "GP Stock”) from Andrew Yao ("Yao") to certain Family defendants._ I
The Count in the Complaint alleging that Yao’s transfer of the GP Stock was a fraudulent
conveyance does not somehow allow the Trustee to make other fraudulent conveyance claims
against the Family defendants after the close of discovery. That argument is akin to saying that
pleading a breach of contract action on a particular contract somehow allows a plaintiff to
proceed on breach of contract claims on any other contract that the plaintiff (or principals of the
plaintiff) had with the defendant, even if the complaint did not allege that those other contracts
were breached. To allow this would be in plain derogation of the most fundamental purpose of a
complaint: to give the defendant "fair notice of what the plaintiffs claim is and the grounds
upon which it rests." Conley v. Gibson, 335 U.S. 41, 47 (1957).
The Trustee’s argument that he gave notice of his claim by stating in answers to interrogatories
that he would seek the return of items of value, including "$4,293,179.40 million [sic] in
payments within one year of the filing date, together with the value of other transfers that are
identified in discovery" is baseless. The stock redemption and payment of commitment fees
WILMINGTON, DE PITTSBURGH, PA HARRISBURG, PA PHILADELPHIA, PA BOSTON, NIA WASHINGTON, DC
NIORGANTOWN, WV SOUTHPOINTE, PA WHITE PLAINS, NY _ r

Case 1 :04-cv-01551-JJF Document 367 Filed 10/04/2007 Page 2 of 3
I ‘ _ " Eckert Seamans Cherin & Mellott, LLC rrr 302 425 0430
I · . 300 Delaware Avenue, Suite 1210 mx 302 425 0432
,1 Wilmington, DE 19801 www.eckertseamans.com
The Honorable Joseph J. F aman, Jr.
I October 4, 2007
1 Page 2
were not "identified in discovery.” They were known to the Trustee at the time the complaint F
was tiled. The only unknown was on the part of the Family defendants — they did not know until
j after the close of discovery that the Trustee would attempt to assert $8 million in claims against
I them by contending that these transfers, known to the Trustee for years, should be recoverable as
fraudulent conveyances.
The prejudice to the Family defendants if these claims are now added to the case would be
severe. It is true, as the Trustee contends, that the Family defendants are prepared to present
testimony on the reasonableness of the commitment fees paid by SFC on their loans. However,
because the claims that the payment of allegedly excessive commitment fees and the redemption or
of stock were not in the case when discovery was conducted, the Family defendants are not
‘ prepared to present evidence on issues critical to their defense of these claims. Indeed, they still
do not know (because the proffered Second Amended Complaint does not allege) whether the
Trustee is contending that these transfers were constructively fraudulent, actually fraudulent or
both. At a minimum, the Family defendants would need to depose former SFC employees,
accountants and consultants regarding SFC’s iinances before May 2001 and the SFC value of the
stock when it was redeemed; if actual intent is at issue, they would also need to depose witnesses
regarding SFC’s intent at the time of each transfer.
To the extent that the Trustee is arguing that such discovery has already been taken by the
Family defendants, he is flat-out wrong. The Family defendants did not conduct any discovery
on issues relating to SFC’s financial condition before the begirming of the preference period
alleged by the Trustee (June 5, 2001 to June 4, 2002), or on the value of the SFC stock, because
they had no reason to do so. The Family defend·ants will also need expert testimony, which they
do not have, on these issues.
If the Family defendants are forced to defend these new claims at trial, now only days away, the
prejudice would be irreparable. Moreover, there would be severe prejudice even if the trial is
I delayed and discovery reopened. To require the Family defendants, who are individuals and
trusts, to bear the expense of reopening discovery, because of the Trustee’s failure to timely
assert his purported claims, would be an extreme and unwarranted burden.
Under these circumstances, the Trustee should not be permitted to file the proffered Second
Amended Complaint. See, e. g., Lorenz v. CSX Corp., 1 F .3d 1406, 1444 (3d Cir. 1993) (motion
. to amend complaint denied; amendment was proposed three years after action filed and nearly
two years after complaint was amended twice); Berger v. Edgewater Steel C0., 911 F .2d 911,
924 (3d Cir. 1990) (motion to amend complaint denied; motion sought to add a different legal
theory that would require new discovery after the close of discovery); Cornell & Co. v.
Occupational Safety & Health Review Comm ’n, 573 F.2d 820, 824-25 (3d Cir. 1978) (motion to
amend denied; amendment would change the legal and factual matters in dispute; defendant was
entitled to rely on movant’s earlier pleaded allegations).
WILMINGTON, DE PITTSBURGH, PA HARRISBURG, PA PHILADELPHIA, PA BOSTON, MA WASHINGTON, DC
MORGANTOWN, WV SOUTHPOINTE, PA WHITE PLAINS, NY

Case 1 :04-cv-01551-JJF Document 367 Filed 10/04/2007 Page 3 of 3
· ;· · · Eckert Seamans Cherin & lx/Iellott, LLC Tu. 302 425 0430
` " . _; 300 Delaware Avenue, Suite 1210 mx 302 425 0432
Wilmington, DE 19801 wwvv.ecl The Hon ra J seph J. Faman, Jr.
· October 4, 2007
Page 3
For these reasons, as well as the reasons stated in their Memorandum and Reply Memorandum in
Support of the Motion to Strike the Trustee’s Improper Damage Claims, the Family defendants
respectfully request that the Court deny the Trustee’s request to proceed on the Second Amended
Complaint.
Respectfully submitted,
WW. l Brya M. Keilson 3
cc: All counsel on attached Service List
M06I2888.DOC
WILMINGTON, DE PITTSBURGH, PA HARRISBURG, PA PHILADELPHIA, PA BOSTON, MA WASHINGTON, DC
MORGANTOWN, WV SOUTHPOINTE, PA WHITE PLAINS, NY