Free Opening Brief in Support - District Court of Delaware - Delaware

Case 1:04-cv-00955-GMS

Document 153

Filed 07/21/2008

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWAR
DENNIS J. BUCKLEY, AS TRUSTEE OF THE DVI LIQUIDATING TRUST,
v.

No. 04-955-GMS

MICHAEL A. O'HANLON, et al.

DEFENDANT MICHAEL A. O'HANLON'S OPENING BRIEF IN SUPPORT OF HIS MOTION FOR PARTIAL SUMMARY JUDGMENT PURSUANT TO FED. R. CIV. P. 56(b) AND LOCAL CIVIL RULE 7.1.2

Noel C. Burnam, Esquire
(DE Bar J.D. No. 3483)

MONTGOMERY, McCRACKEN, WALKER & RHOADS, LLP 1105 Market Street, 15th Floor Wilmington, DE 19801-1607 (302) 504-7890
Counsel for defendant

Michael A. 0 'Hanlon

Of counsel:

Richard L. Scheff, Esquire Jeffrey S. Feldman, Esquire MONTGOMERY, McCRACKEN, WALKER & RHOADS, LLP 123 South Broad Street, 26th Floor Philadelphia, P A 19109-1099 (215) 772-1500

Date: July 21, 2008

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TABLE OF CONTENTS

TABLE OF CITATIONS ............................................................................................................ iiI

STATEMENT OF THE NATURE AND STAGE OF THE PROCEEDINGS........................1
SUMMARY OF ARGUMENT ...... ...............................................................................................2

CONCISE STATEMENT OF FACTS.........................................................................................2
I. Plaintiff's Complaint Alleges A Claim For Deepening

Insolvency. ..............................................................................................................2

ARGUMENT..................................................................................................................................2
I. Neither Delaware Law Nor The Law Of

This Federal Circuit

Recognizes A Claim For "Deepening Insolvency." .............................................3
CONCLUSION ..............................................................................................................................3

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TABLE OF CITATIONS
Pae:e(s)

Cases

In re Teleglobe Commc 'ns Corp., 493 F.3d 345 (3d Cir. 2007)......................................................3

N Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92
(DeL. 2007) ...........................................................................................................................2

Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del.Ch. 2006).......................3

Rules
Fed. R. Civ. P. 56( c) ................................ ............................................... ..................................... ....2

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STATEMENT OF THE NATURE AND STAGE OF THE PROCEEDING
This lawsuit involves claims brought by plaintiff

Dennis J. Buckley ("Buckley"), the

Trustee of

the DVI, Inc. ("DVI") Liquidating Trust (hereinafter, the "Plaintiff') against several

former offcers and directors of DVI and its affliates (hereafter, the "Companies"). The Plaintiff
has alleged twenty causes of action against defendant Michael O'Hanlon ("Mr. O'Hanlon") in its
Complaint (D.1. 1), including claims for common law fraud (First Claim For Relief), purportedly

breaching the fiduciary duties he owed to both the Companies and the Companies' respective
creditors in his capacity as a former offcer of

the DVI (Second through Tenth Claims For

Relief), purportedly breaching the fiduciary duties he owed to both the Companies and the
Companies' respective creditors in his capacity as a former director of the DVI (Eleventh

through Twentieth Claims For Relief), and by failing to reorganize or liquidate the Companies in a timely manner and thereby allegedly causing DVI to sink into a deeper insolvency (Twentieth
Claim For Relief).

Mr. O'Hanlon filed a Motion to Dismiss Plaintiffs claims that was granted in part due to
Plaintiffs lack of standing to assert claims on behalf of creditors of

DVI, including creditors that

had (and had not) assigned their claims to Plaintiff at the time of the filing of Plaintiff s
Complaint. (0.1.81). The Court dismissed all of Plaintiffs claims on behalf of

creditors ofDVI
has not

without prejudice due to Plaintiffs lack of standing to pursue such claims, and Plaintiff

amended its pleadings since the Court's Order was entered. Id., at 5, 17. i Mr. O'Hanlon now

i Any attempt by the Plaintiff to amend its pleadings at this late date would be inappropriate, if this Court dated October 31, not futile, since (a) any amended pleadings were, by prior Order of 2007, due to be fied approximately eight (8) months ago on or before November 19,2007 (D.I. 116); and (b) a recent decision of the Delaware Supreme Court has made clear that creditors cannot pursue direct claims for breach of fiduciary duty against directors of corporations that are in the zone of insolvency or are, in fact, insolvent, nor can they pursue derivative claims for
(continued. . .)
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moves for partial summary judgment on Plaintiffs deepening insolvency claim, and any crossclaims asserted against him on the basis of

liability under Plaintiffs deepening insolvency claim,

based upon relevant law.

SUMMAY OF ARGUMENT
1. Plaintiff s Twentieth Claim for Relief, based upon a theory of deepening

insolvency, should be dismissed because neither Delaware law nor the law of

the Third Circuit

Court of Appeals recognizes a claim for "deepening insolvency."

CONCISE STATEMENT OF FACTS
I. Plaintiff's Complaint Allee:es A Claim For Deepenine: Insolvencv.

Plaintiffs Complaint contains a claim for "deepening insolvency," which is in essence a
claim that the defendants failed to reorganize or liquidate the Debtors in a timely manner See

generally Complaint (D.1. 1), at irir 240-247 (Twentieth Claim for Relief). Defendants Harr T.J.

Roberts, John P. Boyle, Raymond D. Fear, Richard E. Miler, Gerald L. Cohn, and Anthony J.

Turek have asserted Cross-Claims against Mr. O'Hanlon that rely, in part, upon purorted
liability on Plaintiffs deepening insolvency claim. (D.1. 88,89,91,92,93,94).

ARGUMENT
The standard for ruling on a motion for summary judgment is well known. Federal Rule
of Civil Procedure 56(c) provides that summary judgment shall be rendered "if

the pleadings, the

discovery and disclosure materials on fie, depositions, and any affdavits show that there is no

(continued. . .)

breach of fiduciary duty against directors of corporations that are in the zone of insolvency. See
N Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (DeL. 2007).
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genuine issue as to any material fact and that the movant is entitled to judgment as a matter of

law." Fed. R. Civ. P. 56(c).

I. Neither Delaware Law Nor The Law Of

This Federal Circuit Recognizes A Claim

For "Deepenine: Insolvencv."

Subsequent to this Court granting Mr. O'Hanlon's Motion to Dismiss Plaintiffs
Complaint in part and denied it in part (D.1. 81), the Third Circuit Court of Appeals has made

clear that Delaware law does not recognize "deepening insolvency" claims as independent causes
of

action. See In re Teleglobe Commc'ns Corp., 493 F.3d 345,385 n.36 (3d Cir. 2007) ("In

Trenwick (Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168,205 (Del.Ch. 2006)), the

Vice Chancellor (i.e., Vice Chancellor Strine) put to rest the notion that there is such a thing as a

cause of action for so-called "deepening insolvency" in Delaware law.").

Accordingly, since Delaware law does not recognize a claim for "deepening insolvency,"

Mr. O'Hanlon is entitled to summary judgment on Plaintiffs Twentieth Claim for Relief. Mr.
O'Hanlon is also entitled to summary judgment with prejudice on any Cross-Claims asserted
against him by defendants Harr T.J. Roberts, John P. Boyle, Raymond D. Fear, Richard E.

Miler, Gerald L. Cohn, and Anthony J. Turek to the extent that such Cross-Claims are premised

upon Mr. O'Hanlon's alleged liability to Plaintiff on Plaintiffs Twentieth Claim for Relief. See
D.1. 88, 89, 91, 92, 93, 94.

CONCLUSION
For all the reasons set forth above, this Court should grant Mr. O'Hanlon's motion for
partial summary judgment and (1) dismiss Plaintiffs Twentieth Claim for Relief

against Mr.

O'Hanlon, which alleges a claim for "deepening insolvency", with prejudice, and (2) dismiss the

Cross-Claims asserted against Mr. O'Hanlon by defendants Harr T.J. Roberts, John P. Boyle,
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Raymond D. Fear, Richard E. Miler, Gerald L. Cohn, and Anthony J. Turek to the extent that
such Cross-Claims are premised upon alleged liability to Plaintiff on Plaintiff s Twentieth Claim
for Relief.

Respectfully submitted,

Date: July 21, 2008

. Bumha, 're
(D Bar I.D. No. 3483)
MONTGOMERY, McCRACKEN, WALKER & RHOADS, LLP 300 Delaware Avenue, Suite 750 Wilmington, DE 19801 (302) 504-7890
Counsel for defendant

Michael A. 0 'Hanlon

Of Counsel:

Richard L. Scheff, Esquire Jeffrey S. Feldman, Esquire MONTGOMERY, McCRACKEN, WALKER & RHOADS, LLP
123 South Broad Street, 26th Floor

Philadelphia, P A 19109-1099 (215) 772-1500

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

DENNIS J. BUCKLEY, AS TRUSTEE OF THE DVI LIQUIDATING TRUST,
v.

No. 04-955-GMS

MICHAEL A. O'HANLON, et al.

CERTIFICATE OF SERVICE
I, Noel C. Burnam, do hereby certify that a true and correct copy of defendant Michael
O'Hanlon's Motion for Partial Summary Judgment and Opening Brief

were electronically filed

with the Clerk of

Court on Monday, July 21, 2008 using CM/CF, which will send notification

of such fiing to the following counsel of record:

Richard Wiliam Riley, Esq. (rwriley(iduanemorris.com) Counselfor defendants John Boyle and Raymond D. Fear
Steven T. Davis, Esq. (steven.davis(iobermayer.com) Kellie Marie MacCready, Esq. (kellie.maccready(iobermayer.com) Counsel for defendant Gerald 1. Cohn

Francis A. Monaco, Jr., Esq. (fmonaco(iwcsr.com) Counsel for plaintif Dennis J. Buckley Martin James Weis, Esq. (mweis(idilworthlaw.com) Counsel for defendant Steven R. Garfnkel

David E. Brand, Esq. (DEBrand(iprickett.com) Counsel for defendant Richard Miler
Peter B. Ladig, Esq. (bankserve(ibayardfirm.com) Counsel for defendant Harry Roberts

David A. Felice, Esq. (dfelice(icozen.com) Counsel for defendant Anthony Turek

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I hereby further certify that on July 21,2008, I caused a copy of defendant Michael
O'Hanlon's Motion for Partial Summary Judgment and Opening Brief

to be served via electronic

mail / PDF to the following non-registered participants:

Willam J. Taylor, Esq. (wtaylor(icozen.com) John C. Bamoski, Esq. (jbamoski(icozen.com) Counsel for defendant Anthony Turek

Patricia M. Hamil, Esq. (phamil(icogr.com) Vincent T. Cieslik, Esq. (vcieslik(icogr.com) Counsel for defendant Richard Miler
Dennis J. Arese, Esq. (dartese(iandersonkil.com) Amy Francisco, Esq. (afrancisco(iandersonkil.com) Counsel for plaintif Dennis J. Buckley
Maura Fay McIlvain, Esq. (mmcilvain(idilworthlaw.com)
Counsel for defendant Steven R. Garfinkel

Robert E. Kelly, Esq. (rkelly(iduanemorris.com) Kelly D. Eckel, Esq. (kdeckel(iduanemorris.com) Counsel for defendants John Boyle and Raymond D. Fear

Julian W. Friedman, Esq. (jfriedman(istilmanfriedman.com) Elizabeth S. Weinstein, Esq. (eweinstein(istilmanfredman.com) Counsel for defendant Gerald 1. Cohn

Dated: July 21, 2008

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