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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWAR
ARIN M. ADAMS, Chapter 11 Trustee of the Post-Confirmation Bankruptcy Estates
of CORAM HEALTHCARE CORP. and CORAM, INC.,
) ) )
)
) Civ. Action No. 04-cv-1565(SLR)
Plaintiff,
v.
) ) )
DANEL D. CROWLEY, et al.,
Defendants.
)
)
) )
MEMORADUM OF CHAPTER 11 TRUSTEE ARIN M. ADAMS IN OPPOSITION TO MOTION TO STRIKE EVIDENCE CITED IN THE TRUSTEE'S MOTION
FOR SUMMARY JUDGMENT AND OPPOSITION TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Dated: June 4, 2007
Richard A. Barkasy (#4683)
Michael J. Barre (#4684)
SCHNADER HARRISON SEGAL & LEWIS LLP 824 N. Market Street, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (facsimile)
OF COUNSEL:
Barr E. Bressler (admitted pro hac vice) Wilbur 1. Kipnes (admitted pro hac vice)
Nancy Winkelman (admitted pro hac vice)
SCHNADER HARSON SEGAL & LEWIS LLP 1600 Market Street, Suite 3600
Philadelphia, P A 19103 (215) 751-2400 (telephone) (215) 751-2205 (facsimile)
Counsel to Plaintif
Arlin M. Adams, Chapter 11 Trustee of the Post-
Confrmation Bankruptcy Estates of CORA
HEALTHCARE CORP. and CORAM, ¡He.
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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .......................................................................................................... ii
i. NATUR AN STAGE OF PROCEEDINGS .................................................................. 1
II. SUMMARY OF ARGUMENT .......................................................................................... 1
III. STATEMENT OF FACTS.. ................................................................ ..... ............... ...... ..... 3
IV. ARGUMENT...................................................................................................................... 3
1. Crowley's Motion to Strike Evidence Cited in the Trustee's Sumary Judgment Motion Should be Denied Because the Trustee's Motion is Based Entirely on Collateral EstoppeL.......................................................................................................... 3
2. Crowley's Motion to Strike Evidence Cited in the Trustee's Opposition to Crowley's Sumary Judgment Motion Should be Denied Because the Trustee Does Not Rely Solely on the Banptcy Cour's Findings. .............................. 4
3. Crowley's Motion to Strike Should be Denied Because the Banptcy Court's
Opinions are Not Hearsay. ............................................................................................... 5
4. Crowley Wil Not Be Prejudiced if
the Opinions are Permitted for a Limited Purpose.. 8
5. Crowley's Motion to Strike is Premature. .......................................................................9
CONCLUSION............................................................................................................................. 10
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TABLE OF AUTHORITIES
FEDERA CASES
Bernstein v. Travelers Insurance Co., Civ. A. No. 05-1528,2006 WL. 2567875 (N.D. Cal. Sept. 5, 2006) ...............................................................................................4
DiBella v. Borough of Beachwood, 407 F.3d 599 (3d Cir. 20OS)........................................7
Lorraine v. Markel America Insurance Co., Civ. A. No. 06-1893,2007 WL. 1300739 (D. Md. May 4, 2007) .....................................................................................6
Marks v. Marina District Development Co., App. A. No. 05-3619,2007 App. LEXIS 479 (3d Cir. Jan. 10, 2007) .............................. .................................. ............ ....6
National Union Fire Insurance Co. of Pittsburgh, Pa. v. L.E. Myers Co. Group, 937 F. Supp. 276 (S.D.N. Y. 1996) ............................................................................. ...4
Orthotec v. Reo Spineline, LLC, 438 F. Supp. 2d 1122 (C.D. Cal. 2006) ...........................6
PUZZ v. United States Department of
Interior, Civ. A. No. 80-2908, 1984 U.S. Dist. LEXIS 23096 (N.D. Cal. Oct. 2, 1984).................................................................4
RoN v. Five Platters, Inc., 918 F.2d 1439 (9th Cir. 1990) ..................................................4
Estate of
Smith v. Marasco, 318 F.3d 497 (3d Cir. 2003) ...................................................7
United States v. Boulware, 384 F.3d 794 (9th Cir. 2004)....................................................6
United States v. Sine, 483 F.3d 990 (9th Cir. 2007) ............................................................6
United States v. Syme, 276 F.3d 131 (3d Cir. 2002) ............................................................8
STATE CASES
Hicks v. Best Buy Co. of Minn. , Inc., Civ. A. No. 01C-LO-268, 2003 DeL. Super. LEXIS 436 (DeL. Super. Ct. Jan. 28, 2004) ...................................................................7
Kaye v. Pantone, Inc., 395 A.2d 369 (DeL. Ch. 1978) ........................................................7
Petsinger v. Doyle, Civ. A. No. 01A-12-005, 2002 DeL. Super. LEXIS 254 (DeL.
Super. Ct. Oct. 9, 2002) ................................................................................................. 7
11
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FEDERA RULES
Federal Rule of Evidence 80 1 (c) .........................................................................................6
Federal Rule of Civil Procedure 56( d) .................................................................................4
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I. NATURE AND STAGE OF PROCEEDINGS
Arlin M. Adams, the Chapter 11 Trustee of
the Post-Confirmation Banptcy
Estates of Coram Healthcare Corp. and Coram, Inc. (collectively, "Coram"), filed this action on
December 29,2004, alleging that defendant Daniel D. Crowley, Coram's former CEO and
President, breached his fiduciary duties to Coram. On April
17, 2007, the Trustee filed a motion
for sumary judgment on the ground that the Banptcy Court's findings following two
contested confirmation hearngs precluded Crowley from re-litigating whether he had breached
his fiduciary duties, or in the alternative, required that certain facts be deemed established under
Federal Rule of
Civil Procedure 56(d). (D.I. 128.) Crowley also filed a motion for summary
judgment. (D.I. 122.) The summary judgment motions have been fully briefed. (D.I. 123, 129;
133, 137; 143, 148.)
On May 15, 2007, when the paries filed their reply briefs in support of
their
respective motions for summary judgment, Crowley fied a motion to strike from the summary
judgment record all of
the Trustee's references to the Bankptcy Court's "statements from the
bench, all orders or opinions in In re Coram Healthcare, and all references to the Bankptcy
Cour's factual findings and legal conclusions." (D.I. 147 at 1.) The Trustee submits this brief
in opposition to Crowley's motion to strike.
II. SUMMARY OF ARGUMENT
1. Crowley properly concedes that the Trustee may use the Bankptcy Court's
findings and determinations for their preclusive effect. (D.I. 147 at 3 n.2.) Yet then, in a
perverse twist of
reasoning, Crowley asserts that the Trustee's motion for summary judgment
Chief Judge Walrath's
should be denied because it relies only upon the preclusive effect of
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findings. (See D.I. 147 at 5.) Because the Trustee's summary judgment motion is based solely
on collateral estoppel -- a basis Crowley himself concedes is permissible -- to the extent
Crowley's motion seeks to strike material cited in the Trustee's summary judgment motion, it
should be denied.
2. Similarly, Crowley misstates the basis ofthe Trustee's opposition to Crowley's
motion for summar judgment. The Trustee's opposition does not rely "almost completely" on
the Banptcy Court's factual findings and legal conclusions. (D.I. 147 at 3.) To the contrary,
the record demonstrates that there are numerous genuine issues of material fact that preclude
Crowley from obtaining sumar judgment, even without regard to the Bankptcy Court's
factual findings and legal conclusions. Indeed, the Trustee's opposition brief contains eight
pages of facts with numerous record citations before even mentioning that the Bankptcy Court
denied Coram's first proposed plan of
reorganization. (D.I. 137 at 4-11.)
3. The Bankuptcy Court's opinions are not hearsay because the Trustee does not
intend to offer them for the truth of the statements they contain. The significance of
the
Banptcy Court opinions and findings is that they exist, not whether they were correct. When
the Banptcy Cour denied Coram's first proposed plan of
reorganization, Crowley and the
debtor-in-possession had to assess (and should have conformed) their conduct in the context of
that fact. Moreover, the Trustee's damages theory is based on the expenses and business losses
Coram sustained because it did not emerge from bankptcy. The Trustee will not seek to
introduce the opinions to show that Crowley had a conflict, but rather to show that because of
Crowley's relationship with Cerberus, Coram remained in banptcy much longer than it would
have had Crowley had no relationship with Cerberus.
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4. Crowley's argument that the opinions are unduly prejudicial and should be
precluded under Federal Rule of
Evidence 403 is substantively deficient. Crowley relies on the
also
mistaken belief
that the Trustee will seek to introduce the opinions for their trth. Crowley
gives no consideration to the Cour's ability to provide an appropriate limiting instruction,
something that courts do every day, and does not discuss the prejudice to the Trustee were the
opinions and all references to them excluded as he requests.
5. The motion to strike should be denied for the separate and independent reason
that it is premature. Because Crowley's Rule 403 argument is concerned with the prejudice that
might arise from the admission of evidence, the Court need not decide the question now.
Crowley can raise this issue by way of a motion in limine at the appropriate time.
III. STATEMENT OF FACTS
The Trustee has set forth the relevant facts for this brief
both in his opening brief
in opposition to Crowley's motion
in support of
summary judgment and in his answering brief
for summary judgment. (D.I. 129, 137.)
iv. ARGUMENT
1. Crowley's Motion to Strike Evidence Cited in the Trustee's Summary
Judgment Motion Should be Denied Because the Trustee's Motion is Based Entirely on Collateral Estoppel.
Because Crowley muddies the waters on a simple, yet critical, issue, one point
needs to be clarified at the outset: the Trustee bases his motion for sumary judgment only upon
the preclusive effect ofthe facts found by the Banptcy Court. (D.I. 129 at 3 n.1.) Although
he disputes the import of those factual findings, Crowley "does not contend that the Trustee is
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prohibited from arguing that Judge Walrath's findings or determinations have a preclusive effect
in this matter." (D.!. 147 at 3 n.2.)
Crowley, of course, is right not to contest this point because he has no basis for
arguing otherwise. As set forth in the Trustee's reply brief in support of
his motion for summary
judgment, cours routinely grant summary judgment based on collateral estoppel. (See D.I. 148
at 9-10.) Moreover, courts also rely on collateral estoppel to deem the precluded facts admitted
for purposes of Federal Rule of
Civil Procedure 56(d) (which is the alternative basis for the
Trustee's motion). See, e.g., Robi v. Five Platters, Inc., 918 F.2d 1439, 1442 (9th Cir. 1990)
(affirming district cour decision to adopt prior court's findings of
fact based on Rule 56(d) under
doctrine of collateral estoppel "in its summary adjudication of issues"); see also Bernstein v.
Travelers Ins. Co., Civ. A. No. 05-1528,2006 WL 2567875, at *4 (N.D. Cal. Sept. 5,2006)
(granting, in part, summary judgment motion under Rule 56( d) based on collateral estoppel);
Nal'l Union Fire Ins. Co. of Pittsburgh, Pa. v. I.E. Myers Co. Group, 937 F. Supp. 276,286
(S.D.N.Y. 1996) (same); Puzz v. United States Dept. of Interior, Civ. A. No. 80-2908, 1984 U.S.
Dist. LEXIS 23096, at *24 (N.D. Cal. Oct. 2, 1984) (same).
2. Crowley's Motion to Strike Evidence Cited in the Trustee's Opposition
to Crowley's Summary Judgment Motion Should be Denied Because the Trustee Does Not Rely Solely on the Bankruptcy Court's Findings.
Crowley argues that if
there is no reference to the Banptcy Court decisions, he
is entitled to summar judgment because the Trustee's opposition does not advance any
admissible evidence to demonstrate any genuine issue of
material fact. (D.I. 133 at 7.) That is
reveals.
plainly wrong, as even a cursory glance at the Trustee's opposition brief
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To take one particularly egregious example on a pivotal point, Crowley states that
the Trustee's only evidence that Crowley failed to disclose to Coram's Board the terms of
his
Cerberus Employment Agreement is the Banptcy Court's finding to that effect. (D.I. 147 at
4-5.) Yet, in his Statement of
Facts, under the heading Crowley's Failure To Disclose His
Conflict Of Interest, the Trustee does not refer to the Bankptcy Court's finding on this point at
all, but, rather, quotes Crowley's own sworn testimony:
Q. Let's get some timing on that. You first said the Board approved your employment agreement (with Coram). That would have been back in November 1999?
A. Approximately.
Q. At that time the Board did not know that you were
receiving $80,000 a month from Cerberus, is that correct?
A. That is correct.
(D.I. 137 at 6-7 (citing (Dec. 13,2001 Hrg. Tr.) at 425:9-16.)
to Crowley's motion for summary judgment
The Trustee's opposition brief
contains a lengthy and detailed statement of numerous facts with numerous citations to the
record and relies on record evidence wholly independent of and unrelated to the Bankptcy
Cour's findings. (See D.I. 137 at 4-17.) Thus, Crowley's position that the Trustee relies upon
the Banuptcy Cour's findings to create a genuine issue of material fact is simply
wrong.
3. Crowley's Motion to Strike Should be Denied Because the Bankruptcy
Court's Opinions are Not Hearsay.
The Trustee does not take issue with the general proposition that judicial opinions
offered for the truth of the statements contained in the opinions are inadmissible hearsay.
However, this general proposition has no relevance here because the Trustee does not offer the
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Bankptcy Court opinions to prove the truth of
the Banptcy Court's findings. For example,
the Trustee does not assert that Crowley had a conflict because the Banptcy Court said he had
a conflict. Rather, the Trustee asserts that Crowley had a conflict because the facts show that he
had a conflict. Moreover, the fact of
the opinions denying confirmation is important and relevant
the Trustee's claim
because it explains why Coram stayed in banptcy, which is the basis of
for damages.
To constitute hearsay, the out-of-court statement must be "offered in evidence to
prove the truth of
the matter asserted." FED. R. EVID. 801(c). However, as the Advisory
Committee notes make clear, "(i)fthe significance of an offered statement lies solely in the fact
that it was made, no issue is raised as to the truth of anything asserted, and the statement is not
hearsay." FED. R. EVID. 801(c) Advisory Committee note. Accordingly, "verbal acts and verbal
pars of acts, in which the statement itself affects the legal rights of
the parties or is a
circumstance bearing on conduct affecting their rights," are not hearsay. Id. Statements offered
to show the effects on the listener and statements that have relevance simply because they are
made are not hearsay. See Marks v. Marina Dist. Dev. Co., App. A. No. 05-3619,2007 App.
LEXIS 479, at *10-*11 (3d Cir. Jan. 10,2007); see also Lorraine v. Markel Am. Ins. Co., Civ. A.
No. 06-1893,2007 WL 1300739, at *35 (D. Md. May 4,2007). "A prior judgment is not
hearsay. . . to the extent that it is offered as legally operative verbal conduct that determined the
rights and duties of
the parties." United States v. Boulware, 384 F.3d 794, 805-06 (9th Cir.
2004); see also Orthotec v. Reo Spineline, LLC, 438 F. Supp. 2d 1122, 1129 n.9 (C.D. Cal. 2006)
(permitting reference to state court judgment because outcome of state cour judgment was not
hearsay). In fact, in one of
the cases on which Crowley relies, United States v. Sine, 483 F.3d
990 (9th Cir. 2007), the Court stated that judicial orders can properly be admitted for purposes
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other than to prove the truth of the matters asserted. See id. at 1005 n.13 (noting that governent
could have used prior order to prove that defendant's actions were not made in good faith).
Ilustrative of the permissible use of judicial opinions -- and highly relevant here
-- is the use of opinions in malicious prosecution cases. To prevail in a malicious prosecution
action, a plaintiff
must show, among other things, that the underlying proceeding that serves as
the basis for the malicious prosecution claim terminated in the plaintiffs favor. See, e.g., Estate
of
Smith v. Marasco, 318 F.3d 497,521 (3d Cir. 2003); Kaye v. Pantone, Inc., 395 A.2d 369,372
(DeL. Ch. 1978). The independent fact of
the prior litigation and the judicial opinions that it
generated is what is important -- not the trth of
what the opinions say. Accordingly, a court
faced with a malicious prosecution claim necessarly must consider what happened in the
underlying proceedings -- and no court ever would suggest that such is inadmissible hearsay.
See DiBella v. Borough of
Beachwood, 407 F.3d 599, 601 (3d Cir. 2005); see also Hicks v. Best
Buy Co. of
Minn., Inc., Civ. A. No. 01C-LO-268, 2003 DeL. Super. LEXIS 436, at *3 (DeL. Super.
Ct. Jan. 28, 2004); Petsinger v. Doyle, Civ. A. No. 01A-12-005, 2002 DeL. Super. LEXIS 254, at
*8 (DeL. Super. Ct. Oct. 9, 2002).
Just as in the malicious prosecution context, the underlying Bankptcy Court
opinions are necessary here to show the fact of the prior litigation. The Bankptcy Court
litigation affected the legal rights and duties of the paries. Indeed, those opinions serve to
explain the very reason why the Trustee was appointed and is the plaintiff
here. They influenced
what Coram and its Board did in response to the Banptcy Cour's denial-- on two occasions
-- of Coram's reorganization plans. They form the basis of
the Trustee's claim for damages.
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In short, the Bankptcy Cour opinions are relevant to the Trustee's claims.
Because they are not offered to prove the truth of any matter asserted therein -- including the
pivotal fact that Crowley had a conflict -- they are admissible.
4. Crowley Will Not Be Prejudiced if the Opinions are Permitted for a
Limited Purpose.
Crowley asserts that it would be prejudicial for the jury to hear that the
Bankptcy Court concluded that Crowley had a conflct. This argument is a nonstarter for a
number of reasons.
First, Crowley wholly ignores the curative instructions the Court could give, and
provides no reason why a curative instruction would not cure any potential prejudice, given the
limited use for which the Trustee seeks to use the opinions. And of course, a court presumes that
a
jury will follow its instrctions. United States v. Syme, 276 F.3d 131, 155 (3d Cir. 2002).
Second, Crowley's Rule 403 argument relies largely on the incorrect premise that
the Trustee will offer the opinions for their truth. As set forth above, that is not so. The fact of
the Bankruptcy Court's rulings are relevant to explain the conduct of Crowley and the Board and
the Trustee's damages. Crowley ignores the incalculable prejudice to the Trustee if
the opinions
are excluded. The Trustee asserts that because of
Crowley's conflict, Coram was damaged
because it was forced to remain in bankptcy. The proof that Coram remained in bankptcy
because of
Crowley's conflct is as a factual matter -- the Banptcy Court's rulings on Coram's
two proposed plans of reorganization. If there can be no reference to the Banptcy Cour's
findings and conclusions, as Crowley urges, it would be difficult even to explain why there is a
Trustee, in this case an innocuous fact. To grant this motion would be to allow Crowley to
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escape responsibility for damage plainly caused by what one trier of fact has already concluded
was an impermissible conflict of interest.
5. Crowley's Motion to Strike is Premature.
Crowley's motion to strike is premature. There is no need at this time to decide
whether the Bankptcy Court opinions will be admissible at triaL.
First, as discussed above, Crowley concedes that the opinions may be considered
for their preclusive effect, but that use does not raise admissibility questions. There clearly is no
need to strike the Trustee's references to the Bankuptcy Court's opinions in his summary
judgment briefs. Second, with respect to Crowley's summar judgment motion, the Trustee does
not rely solely on the opinions to defeat that motion, but, rather, relies on the actual factual
record.
In short, the Court can consider the merits of
both paries' motions for summary
judgment without reference to the trth of
the statements contained in the Banptcy Cour's
motion in limine at the
prior findings and rulings. Crowley can raise this issue by way of
appropriate time. The Court need not deal with this evidentiary issue in a vacuum.
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CONCLUSION
For all of
the reasons set forth above, the Trustee respectfully requests that the
Court deny Crowley's motion to strike.
Respectfully submitted,
Dated: June 4, 2007
Isl Michael 1. Barre
Richard A. Barkasy (#4683) Michael 1. Barre (#4684) SCHNADER HARRSON SEGAL & LEWIS LLP 824 Market Street Mall, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (telecopier)
mbarre(fschnader.com
OF COUNSEL:
Barr E. Bressler (admitted pro hac vice) Wilbur 1. Kipnes (admitted pro hac vice) Nancy Winkelman (admitted pro hac vice)
SCHNADER HARRSON SEGAL & LEWIS LLP 1600 Market Street, Suite 3600 Philadelphia, P A 19103 (215) 751-2400 (telephone) (215) 751-2205 (facsimile)
Counsel to Plaintif
Arlin M Adams, Chapter 11 Trustee of the Post-
Confirmation Bankrptcy Estates of CORA
HEALTHCARE CORP. and CORAM, INC.
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
ARLIN M. ADAMS, Chapter 11 Trustee of the Post-Confirmation Bankrptcy Estates of
CORAM HEALTHCARE CORP. and CORAM,
) )
INe.,
Plaintiff,
v.
) )
)
) Case No. 04-1565 (SLR)
)
) )
DANIEL D. CROWLEY, et aI.,
Defendants.
)
)
CERTIFICATE OF SERVICE
I, Michael 1. Bare, hereby certify that I am at least eighteen years of age and that
on June 4,2007, I caused a true and correct copy of the Memorandum of
Chapter 11 Trustee
Arlin M. Adams in Opposition to Motion to Strke Evidence Cited in the Trustee's Motion for
Sumary Judgment and Opposition to Defendant's Motion for Summary Judgment, to be served
upon the following:
Jeffrey C. Wisler, Esquire Christina M. Thompson, Esquire Connolly Bove Lodge & Hutz LLP 1007 N. Orange St., P.O. Box 2207 Wilmington, DE 19899 (via CM/ECF and hand delivery)
Elliot R. Peters, Esquire Laurie Carr Mims, Esquire Keker & Van Nest, LLP 710 Sansome Street San Francisco, CA 94111 (via CM/ECF, email and overnight mail)
SCHNADER HARRSON SEGAL & LEWIS LLP
Dated: June 4, 2007
By: Isl Michael J. Barre
Richard A. Barkasy (#4683) Michael 1. Barre (#4684) 824 N. Market Street, Suite 1001 Wilmington, DE 19801
Telephone: (302) 888-4554
Facsimile: (302) 888-1696
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OF COUNSEL:
Barr E. Bressler (admitted pro hac vice) Wilbur 1. Kipnes (admitted pro hac vice)
Nancy Winkelman (admitted pro hac vice)
SCHNADER HARRSON SEGAL & LEWIS LLP 1600 Market Street, Suite 3600 Philadelphia, PA 19103
(215) 751- 2400 (telephone)
(215) 751-2205 (facsimile)
Counsel to Plaintif
Arlin M. Adams, Chapter 11 Trustee of
the Post-
Confirmation Bankptcy Estates of CORA HEALTHCAR CORP. and CORA, INC.