Free MEMORANDUM in Support - District Court of Delaware - Delaware

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The questions presented to counsel by the Court at the December 18, 2006 oral argument,
addressed in this supplemental brief, are as follows H:
THE COURT: . . . I think you have to choose whether you are going to try to collect against the
debtor or you are going to choose to withdraw your proofs of claim and do what you say you want to do,
which is just proceed against the nondebtor entity, knowing that you can't collect against the debtor or the
debtors' estate, I should say. .
MR. CANDEUB: I hear your Honor. It's not a question that -- if your Honor is asking me is --
are my clients willing to withdraw the proofs of claim --
TI-IE COURT: No, I'm not saying are they willing. I'm saying: What legal argument do you have
to go both ways? (Tr. 27-28).
THE COURT: Is there any case, because I maintain you can find a case that says anything, is
there any case that either you or the appellees have cited that involves specifically the situation where the
only relationship to the estate is that the debtor is an indemnitor?
MR. CANDEUB: There's --
THE COURT: Because it seems to me that must happen on a regular basis, and the question is:
Is what other Courts have done with that relationship, the indemnity relationship, and whether that, the
Bankruptcy Court has jurisdiction, whether it's core? And if you have not cited any cases, I want you to
go back and look for that and let me know whether that has been addressed by any Courts or not. (Tr. 67)
THE COURT [addressing Debtor’s counsel]: . . . Let's assume that everyone understood that the
debtor was the sole indemnitor, and if they understood that at the outset as someone pursuing litigation
against these nondebtor entities, I probably would want to file a contingency claim, to make sure there
was money at the end of the day. So are you saying that that is a core proceeding to the extent that, all of a
sudden, that litigation should be pursued in Federal Court? I mean, are you saying that a proof of claim of
that nature converts that litigation [among nondebtors] into a bankruptcy litigation? (Tr. 70)
I would like both parties to go back and focus on that issue .... [T]he real issue is, in the normal
course of events, what happens when you have a guarantor or indemnitor situation and a contingent proof
of claim based on that relationship? Who has jurisdiction and where are we? I think that will help me
analyze the situation here. I think procedurally, it's all bollixed up, but, nevertheless. And I also want you
to go back and just think about what the situation would be -- well, I don't know that the appellant has any
interest in giving up its contingent right to collect money from the debtor, but if it were, whether the
debtor would really have any interest in pursuing this in bankruptcy despite the "irrrevocableness" of filing
a proof of claim. (Tr. 71)
TI-[E COURT: . . . The issue is this: Setting aside how we got here, which is that Judge Carey
decided kind of after the fact that the debtor was the sole indemnitor here, let's pretend for a moment that
everyone knew that from the beginning and that we have this litigation between nondebtors and
nondebtors, and that the nondebtor plaintiffs filed a contingency proof of claim here in case it got
judgment and it could have recourse to the debtor.
H The transcript contained numerous errors. By way of example, it frequently indicates the word "contention"
when in fact the word "contingent" was spoken. As another example, the transcript shows "Court" when the word
spoken was "tort." (p. 76). The quotations set forth herein encompass corrections of such errors, without indication
of the original errors.
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I guess the question is: Does that illuminate the issue before us, which is whether the bankruptcy
Court has jurisdiction over the underlying litigation, and whether this is a core issue, a noncore issue.
Basically, what the Bankruptcy Court would be doing with that to see if that’ll help me decide what the
Bankruptcy Court should be doing with the situation we have now. (Tr. 72-73)
THE COURT: . . . Well, you need to clarify for me this: And that is that if it is your position that
the tort claims, that the debtor has no responsibility for the tort claims and would under no circumstances
serve as an indemnitor of the tort claims as opposed to the contract claims, then I need to know that from
a practical standpoint. I'm a little confused about where the contract and the sale comes in and other tort
claims. (Tr. 76)
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