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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: GENESIS HEALTH VENTURES, INC., et al.,

Case No. 00-2692 (PJW) Jointly Administered

Debtors,

RICHARD HASKELL, et al., Plaintiffs. v. GOLDMAN, SACHS & CO., et al., Defendants.

Adv. Pro. No.: 04-53375 (PJW)

DEFENDANTS' JOINT MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR LEAVE TO APPEAL Teresa K.D. Currier (3080) Peter J. Duhig (4024) BUCHANAN INGERSOLL & ROONEY, P.C The Brandywine Building 1000 West Street, Suite 1410 Wilmington, Delaware 19801 (302) 552-4200 Attorneys for Defendant Mellon Bank, N.A. Steven Russo SIVE, PAGET & RIESEL, P.C. 460 Park Avenue New York, New York 10022 (212) 421-2150 Attorneys for Defendant Mellon Bank, N.A. with respect to plaintiffs Charles L. Grimes, Louis IG Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin Menachem O. Zelmanovitz John Franchini Erica Cline Blackledge MORGAN, LEWIS & BOCKIUS LLP 101 Park Avenue New York, New York 10178 (212) 309-6000 Attorneys for Defendant Mellon Bank, N.A. with respect to all Plaintiffs other than Charles L. Grimes, Louise IG Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin

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Steven K. Kortanek (No. 3106) Christopher A. Ward (No. 3877) Morton R. Branzburg KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19809-3062 (302) 426-1189 - and Sheldon Raab Eric A. Hirsch FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP One New York Plaza New York, New York 10004-1980 (212) 859-8000 Attorneys for Defendant Goldman, Sachs & Co. Robert S. Brady (No. 2847) YOUNG CONAWAY STARGATT & TAYLOR LLP 1000 West Street, 17th Floor Wilmington, Delaware 19899-0391 (302) 571-6690 - and Paul V. Shaloub WILLKIE FARR & GALLAGHER LLP 787 7th Avenue New York, New York 10019-6099 (212) 728-8000 Attorneys for Defendant George V. Hager

Daniel K. Hogan THE HOGAN FIRM 1311 Delaware Avenue Wilmington, Delaware 19806 (302) 656-7540 - and Paul Lackey Michael Aigen LACKEY, HERSHMAN LLP 3102 Oak Lawn Ave., Suite 700 Dallas, Texas 75219 (214) 560-2206

Attorneys for Defendant Highland Capital Management, L.P.

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES .......................................................................................................... ii PRELIMINARY STATEMENT .....................................................................................................1 I. STATEMENT OF THE FACTS NECESSARY TO AN UNDERSTANDING OF THE QUESTIONS TO BE PRESENTED BY THE APPEAL....................................................3 A. B. C. D. E. II. III. The Genesis Bankruptcy Proceedings .....................................................................3 Over Two Years Later, Plaintiffs Filed This Action................................................5 The Bankruptcy Court Dismissed Plaintiffs' Complaint .........................................5 On Appeal, the District Court Affirmed in Part and Remanded in Part ..................6 The December 13 Order...........................................................................................7

QUESTIONS TO BE RAISED BY THE APPEAL AND THE RELIEF SOUGHT..........8 STATEMENT OF THE REASONS WHY APPEAL SHOULD BE GRANTED .............9 A. B. C. The Bankruptcy Court's Holding Concerning Section 1144 Involves a Controlling Question of Law .................................................................................10 Substantial Grounds Exist For a Difference of Opinion as to the Proper Application of Section 1144 ..................................................................................11 An Immediate Appeal of This Issue Will Materially Advance the Ultimate Termination of This Action ...................................................................................17

IV.

THERE ARE ADDITIONAL GROUNDS TO APPEAL THE DECEMBER 13 ORDER THAT MAY BE CONSIDERED IF LEAVE TO APPEAL IS GRANTED ....................19

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

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TABLE OF AUTHORITIES CASES In re 680 Fifth Ave. Assocs. v. EGI Co. Services, Inc., 209 B.R. 314 (Bankr. S.D.N.Y. 1997).....................................................................................16 Beckley Coal Mining Co. v. United Mine Workers of Am., 98 B.R. 690 (D. Del. 1988) ...........................................................................................9, 10, 19 Browning v. Prostok, 165 S.W.2d 336 (Tex. 2005) .......................................................... 11, 14-16 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997) ............................21 n.12 Calhoun v. Yamaha Motor Corp., U.S.A., 40 F.3d 622 (3d Cir. 1994).........................................19 CareFirst of Md., Inc. v. Care First Transp., Inc., No. Civ. A. 02-229 (MPT), 2002 WL 31500927 (D. Del. Nov. 1, 2002) .......................20 n.11 In re Circle K Corp., 171 B.R. 666 (Bankr. D. Ariz. 1994)...........................................................17 In re Circle K Corp., 181 B.R. 457 (Bankr. D. Ariz. 1995)......................................... 12-13 n.7, 16 Consolidated Express, Inc., v. New York Shipping Ass'n, 602 F.2d 494 (3d Cir. 1979), vacated on other grounds, 448 U.S. 902 (1980) .......................19 In re Crown-Globe, Inc., 107 B.R. 60 (Bankr. E.D. Pa. 1989)........................................... 16 & n.9 Debakey Corp. v. Raytheon Serv. Co., No. 14947, 2000 WL 1273317 (Del. Ch. Ct. Aug. 25, 2000)..................................................21 In re Emmer Bros. Co., 52 B.R. 385 (D. Minn. 1985)................................................. 12 n.7, 16-17 In re Genesis Health Ventures, Inc., 266 B.R. 591 (Bankr. D. Del. 2001), ............................................................................... 4-5, 13 In re Genesis Health Ventures, Inc., 324 B.R. 510 (Bankr. D. Del. 2005)...................... 5-6, 13, 17 In re Genesis Health Ventures, Inc., 340 B.R. 729 (D. Del. 2006) ............................ 1 n.1, 6 & n.5 GSC Partners CDO Fund v. Washington, 368 F.3d 228 (3d Cir. 2004) .......................................21 In re Hechinger Investment Co., No. 99-002261-PJW, Civ. 00-973, SLR, 2004 WL 724960 (D. Del. Mar. 28, 2004), aff'd., 2005 WL 1793503 (3d Cir. July 29, 2005) ...................................................................22

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Hotel Corp. of the South v. Rampart 920, Inc., 46 B.R. 758 (E.D. La. 1985), aff'd without op., 781 F.2d 901 (5th Cir. 1986).................11, 14 In re Ikon Office Solutions, Inc. Sec. Litig., 277 F.3d 658 (3d Cir. 2002)....................................21 Johnson v. Alldredge, 488 F.2d 820 (3d Cir. 1973) ......................................................................19 Katz v. Carte Blanche Corp., 496 F.2d 747 (3d Cir. 1974) ............................................... 10, 18-19 Levine v. United Healthcare Corp., 285 F. Supp.2d 552 (D.N.J. 2003), aff'd, 402 F.3d 156 (2005).................................................................................................................10 In re Marvel Entm't Group, Inc., 209 B.R. 832 (D. Del. 1997) ..............................................10, 18 In re Microsoft Corp. Antitrust Litig., 274 F. Supp. 2d 741 (D. Md. 2003), rev'd on other grounds, 355 F.3d 322 (4th Cir. 2004)..............................................................................................................19 Miller v. Meinhard-Commercial Corp., 462 F.2d 358 (5th Cir. 1972) .........................................14 Naporano Iron & Metal Co. v. American Crane Corp., 79 F. Supp. 2d 494 (D.N.J. 1999) ............................................................................................21 In re Newport Harbor Assocs., 589 F.2d 20 (1st Cir. 1978) .........................................................13 Official Comm. of Unsecured Creditors of Lois/USA, Inc. v. Conseco Finance Servicing Corp., 264 B.R. 69 (Bankr. S.D.N.Y. 2001)............................................................................22 In re Orange Tree Assocs., 961 F.2d 1445 (9th Cir. 1992)...................................................... 11-12 In re Pelullo, Nos. Civ. A 98-MC-53, Civ. A. 98-MC-55, 1998 WL 767483 (E.D. Pa. Nov. 3, 1998) ......................................................................................................................................10 In re Public Service Co. of New Hampshire, 43 F.3d 763 (1st Cir. 1995) ........................ 11-14, 16 In re Public Service Co. of New Hampshire, 148 B.R. 702 (Bankr. D.N.H. 1992), aff'd, 848 F. Supp. 318 (D.R.I. 1994), aff'd, 43 F.3d 763 (1st Cir. 1995)......................................................................................................13 In re Sandenhill, Inc., 304 B.R. 692 (E.D. Pa. 2004).......................................................................9 In re Sullivan, No. Civ. A. 99-5501, 1992 U.S. Dist. LEXIS 3954 (E.D. Pa. Mar. 31, 1992)........................10

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STATUTES AND RULES 11 U.S.C. § 1129............................................................................................................................11 11 U.S.C. § 1141............................................................................................................................11 11 U.S.C. § 1144.................................................................................................................... passim 28 U.S.C. § 1292(b) .........................................................................................................................9 28 U.S.C. § 158(a) .......................................................................................................................1, 9 Fed. R. Bankr. P. 7009.................................................................................................................2, 8 Fed. R. Bankr. P. 8001.....................................................................................................................1 Fed. R. Bankr. P. 8003.....................................................................................................................1 Fed. R. Civ. P. 9(b) ............................................................................................................2, 7, 8, 20 Fed. R. Civ. P. 12(b)(6)....................................................................................................................7

OTHER AUTHORITIES 19 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE § 203.32 [3][a] (3d ed. 1997 & Supp. 2006).....................................................................................................19 2 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE § 9.03[3] (3d ed. 1997 & Supp. 2006) ............................................................................................21 n.12 7 COLLIER ON BANKRUPTCY § 1129.01 [1] (15th ed. rev. 2006) ..................................................11 8 COLLIER ON BANKRUPTCY § 1144 04 [02] (15th ed. rev. 2006) ..........................................12 n.7

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Defendants Mellon Bank, N.A. ("Mellon Bank"), Goldman, Sachs & Co. ("Goldman Sachs"), Highland Capital Management, L.P. ("Highland"), and George V. Hager ("Mr. Hager")1 jointly submit this Memorandum of Law in Support of their motion, pursuant to 28 U.S.C. § 158(a) and Rules 8001 and 8003 of the Federal Rules of Bankruptcy Procedure, for leave to appeal the December 13, 2006 order of the Bankruptcy Court denying in part and granting in part Defendants' motion to dismiss Plaintiffs' Complaint. PRELIMINARY STATEMENT In this adversary proceeding, 275 Plaintiffs, who were holders of subordinated debentures at the time of the Genesis bankruptcy cases in 2001, effectively seek a "do-over" of the bankruptcy plan by means of a collateral damages action against Genesis' senior lenders (the "Senior Lenders"). Two years after the plan was confirmed and distributions effected, Plaintiffs commenced this action alleging that Genesis and Defendants engaged in a fraudulent scheme during the bankruptcy proceedings to depress Genesis' EBITDA2 projections and to secure confirmation of the Plan of Reorganization ­ which they claim provided an unduly large distribution to Genesis' Senior Lenders at the expense of subordinated debentureholders. By this motion, Defendants seek leave to appeal the December 13, 2006 order of the Bankruptcy Court (the "December 13 Order") denying Defendants' motion to dismiss the Complaint. The motion was based on the strict 180-day time-bar provided in § 1144 of the

1

The dismissal of the Complaint as against the Debtor, Genesis Health Ventures, Inc. ("Genesis"), was affirmed by the District Court on a prior appeal. In re Genesis Health Ventures, Inc., 340 B.R. 729, 733 (D. Del. 2006). Thus, Genesis is no longer a party to this action. EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization and is used as a measure of financial performance.

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Bankruptcy Code,3 as well as principles of res judicata, collateral estoppel, and the requirements of Fed. R. Civ. P. 9(b) and Fed. R. Bankr. P. 7009. The issue of the proper application of § 1144 has previously been the subject of an appeal to the District Court, which, after it affirmed the Bankruptcy Court's determination that § 1144 applied to Plaintiffs' claims against the Debtor, remanded to the Bankruptcy Court to determine, inter alia, whether § 1144 barred Plaintiffs' claims against the remaining Defendants. The subject matter of the appeal is the Bankruptcy Court's decision on remand. By allowing this action to proceed against the remaining Defendants, the Bankruptcy Court has opened the door to an entire second proceeding challenging the distributions among creditors. The Bankruptcy Court's ruling thus extirpated one of the bedrock principles of the bankruptcy law ­ the principle that 180 days after confirmation of a plan of reorganization, the distributions under that plan cannot be relitigated, whether or not that litigation alleges "fraud" and whether or not it takes the form of a damages action by a creditor seeking to readjust distributions under the plan. All requirements for leave to appeal are clearly met here. The Bankruptcy Court's decision determined controlling issues of law ­ concerning § 1144 as well as res judicata and collateral estoppel. Any of these determinations, if later reversed, would result in a dismissal of this action. (Indeed, this Court's prior ruling on § 1144 with respect to the Debtor resulted in the termination of all claims against the Debtor.) Substantial grounds exist for a difference of opinion, as shown (inter alia) by the decisions of three appellate-level courts that have found that the paramount principles of certainty and finality embodied in § 1144 bar untimely claims of

3

Section 1144 provides (in pertinent part): "On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation, and after notice and a hearing, the court may revoke such order if and only if such order was procured by fraud." 11 U.S.C. § 1144.

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fraud against participants in a bankruptcy proceeding. Nor can there be any question that appellate review at this time could materially advance the ultimate termination of this action. Should the District Court determine that § 1144 (or res judicata or collateral estoppel) operates to bar Plaintiffs' claims in their entirety, a decision at this stage, rather than a later stage, would save enormous time that would necessarily be consumed in the relitigation of the valuation issues of the Genesis bankruptcy (as well as saving significant resources for all parties and the trial court). All parties to a bankruptcy ­ not only the debtor ­ rely on the finality which § 1144 affords to a confirmed plan in agreeing to the compromises that are essential to a successful reorganization. Section 1144's time-bar reflects a Congressional balancing of principles of justice and finality, thereby assuring a reasonable period of time to challenge the plan but otherwise assuring the parties that the propriety of distributions under a confirmed plan cannot be relitigated 180 days after entry of the confirmation order. The Bankruptcy Court's ruling, as a practical matter, vitiated the finality afforded by § 1144 to the Genesis confirmed plan, thus implicating a matter of fundamental bankruptcy policy and threatening to perpetuate bankruptcy proceedings for years after they are ostensibly concluded. An interlocutory appeal is appropriate to review the decision so as to clarify the legal standard as soon as possible for the purposes of the instant case, as well as to provide guidance for other cases in this District and this Circuit. I. STATEMENT OF THE FACTS NECESSARY TO AN UNDERSTANDING OF THE QUESTIONS TO BE PRESENTED BY THE APPEAL A. The Genesis Bankruptcy Proceedings

On June 22, 2000, Genesis, its majority-owned subsidiary, The Multicare Companies, Inc. ("Multicare"), and a number of their direct and indirect subsidiaries (collectively, the "Debtors") commenced chapter 11 cases in the United States Bankruptcy Court for the District

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of Delaware.4 Compl. ¶ 2. Mellon Bank was the administrative agent for the Senior Lenders under the Debtors' pre-petition and post-petition credit agreements. Id. ¶ 21. Goldman Sachs and Highland were two of the Senior Lenders, and Mr. Hager was Genesis' chief financial officer. Id. ¶¶ 18-19, 22. Plaintiffs are 275 investors who collectively held over $205 million of Genesis' subordinated debentures. Id. ¶ 1. During the course of the bankruptcy proceedings, presided over by Judge Wizmur, Plaintiffs were very active, extensively challenging the distributions proposed and later effected by the Plan. Indeed, the focus of the two-day hearing on confirmation of the Plan was the objections of Charles Grimes, one of the Plaintiffs in this action and holder of approximately $20 million in Genesis subordinated debt, and GMS Group, LLC ("GMS") (an affiliate of GMS Investment Advisors, Inc., the brokerage firm of many of the Plaintiffs, which held approximately $170-180 million in junior debt). See In re Genesis Health Ventures, Inc., 266 B.R. 591, 598 (Bankr. D. Del. 2001). During the Plan confirmation hearing, testimony was presented and challenged regarding the Debtors' projected EBITDA, the assumptions, risks, and adjustments on which the projected EBITDA was based, and the Debtors' enterprise valuation. Id. at 613. Counsel for Plaintiffs GMS and Grimes both offered expert testimony in an attempt to refute the proposed enterprise value proposed by the Debtor. Id. at 613-616. After considering the evidence presented at the confirmation hearing and reviewing the reasonableness of the projections used in the Debtors' valuation, the Bankruptcy Court (Wizmur, J.) issued a lengthy opinion confirming the Plan. The Bankruptcy Court adopted the Debtors' proposed enterprise value, found that the Plan was proposed in good faith and was "fair and equitable," and overruled the Plaintiffs' objections relating to the Debtors' valuation. Id.
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The Debtors were leading providers of health care and support services to the elderly. Including its subsidiary, Multicare, Genesis had two primary business segments: pharmacy services and in-patient services.

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The Bankruptcy Court focused squarely on the issues raised by Plaintiffs as to "whether the reorganized enterprise value of [the Debtors] . . . provides a recovery to . . . the Senior Lenders, that is greater than 100% of their claim." Id. at 612. After carefully reviewing the evidence, the Bankruptcy Court concluded that "under the debtors' plan, the Senior Lenders will not recover 100% of their claims. Accordingly, there is no violation of the absolute priority rule." Id. at 616. The Bankruptcy Court entered the Confirmation Order on September 20, 2001, expressly incorporating each of the Plan's provisions. Id. at 621. B. Over Two Years Later, Plaintiffs Filed This Action

On January 24, 2004, more than two years after the Plan was confirmed, Plaintiffs filed the Complaint in the Supreme Court for the State of New York, asserting claims for common law fraud (Count I), conspiracy to commit fraud (Count II), and gross negligence (Count III). That action was removed by Defendants to the United States District Court for the Southern District of New York. With the parties' stipulation, that Court ordered the action transferred to the United States District Court for the District of Delaware, which subsequently referred the case to the United States Bankruptcy Court for the District of Delaware, where the case was assigned to Judge Wizmur, who at the time was still presiding over matters in this District related to the Genesis bankruptcy. C. The Bankruptcy Court Dismissed Plaintiffs' Complaint

Defendants moved to dismiss the Complaint and, after full briefing and argument, Judge Wizmur ­ the same bankruptcy judge who presided over the Genesis bankruptcy ­ granted Defendants' motion in its entirety. In re Genesis Health Ventures, Inc., 324 B.R. 510 (Bankr. D. Del. 2005). Specifically, Judge Wizmur concluded that the claims against the Debtor were

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"barred by operation of section 1144 and the order of confirmation." Id. at 513.5 As to the remaining Defendants, Judge Wizmur held that Plaintiffs' claims were "barred by the doctrines of res judicata and collateral estoppel." Id. at 513. Judge Wizmur's opinion did not address whether § 1144 would bar the claims against the non-debtor Defendants. D. On Appeal, the District Court Affirmed in Part and Remanded in Part

Plaintiffs appealed to the District Court from the Bankruptcy Court's order dismissing the Complaint. On March 29, 2006, the District Court (Jordan, D.J.) rendered its decision, affirming in part and remanding in part. In re Genesis Health Ventures, Inc., 340 B.R. 729 (D. Del. 2006). The District Court agreed with the Bankruptcy Court that § 1144 barred the Complaint against the Debtor because "to award money damages against Genesis would be to `redivide the pie, to upset the confirmed plan, and to negatively affect innocent parties and creditors.'" Id. at 733 (quoting In re Genesis Health Ventures, Inc., 324 B.R. at 517). The District Court, however, vacated the Bankruptcy Court's finding that the Plaintiffs' claims were barred by res judicata and collateral estoppel against the remaining Defendants because "the Bankruptcy Court did not appear to take into account all of the allegations in the Complaint." Id. In particular, the Court questioned whether the Bankruptcy Court considered the allegation that, "subsequent to the confirmation of the Plan, disturbing information was disclosed . . . that cast into doubt, for the first time, the veracity of the EBITDA data that had been used in support of the Plan." Id. at 734. The Court remanded this case "for further proceedings consistent with this opinion, including consideration of whether § 1144 bars relief against all Defendants." Id. at 735.

5

Additionally, Judge Wizmur held that the claims against the Debtor were barred by the release provisions of the Plan. Id. at 525.

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E.

The December 13 Order

On remand from the District Court, the Defendants again moved to dismiss the Complaint on the grounds that § 1144, res judicata, and collateral estoppel barred Plaintiffs' claims and that Plaintiffs' allegations of fraud, civil conspiracy, and gross negligence failed to state a claim for relief under Fed. R. Civ. P. 12(b)(6) and 9(b). On December 13, 2006, the Bankruptcy Court (Walsh, J., to whom the case was reassigned) entered an order granting in part and denying in part Defendants' motion and issued an opinion finding that Plaintiffs' claims against the remaining non-Debtor Defendants were not barred under § 1144. Although the Bankruptcy Court dismissed most of Plaintiffs' allegations of fraud, finding that they were barred by the principles of claim preclusion (December 13 Opinion at 31), the Bankruptcy Court found that Plaintiffs had sufficiently alleged a claim for fraud based on "allegation[s] of fraudulent concealment of EBITDA manipulation" with respect to four items, based on Plaintiffs' claim "that such concealment prevented Plaintiffs from bringing those claims during the confirmation proceedings." December 13 Opinion at 32. The Bankruptcy Court held that such concealment prevented Plaintiffs from bringing those claims during the confirmation proceedings, and therefore fell within a "fraud exception" to claim preclusion. Id. In its opinion, the Bankruptcy Court rejected Defendants' argument that the provisions of Section 1144, and the Congressional judgment underlying that statute ­ the need for certainty and finality in bankruptcy confirmation proceedings ­ would be frustrated by a ruling that fraudbased claims seeking to reexamine creditor distributions determined by a confirmed Plan of Reorganization may be brought after the 180-day time bar established by Section 1144. The Bankruptcy Court held, contrary to three appellate-level courts in other jurisdictions that have considered the issue, that § 1144 does not bar a late-filed action for fraud if it "is based on the

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post-confirmation discovery of fraudulent conduct . . . ." that would potentially result in "an independent money judgment against a creditor guilty of fraud." December 13 Opinion at 9, 14. II. QUESTIONS TO BE RAISED BY THE APPEAL AND THE RELIEF SOUGHT Defendants request leave to raise the following questions on appeal: 1. Whether the Bankruptcy Court erred in holding, contrary to the public policy

­ the need for certainty and finality in confirmation proceedings ­ and contrary to the relevant case law, that Plaintiffs' claims against the Defendants survive the application of the 180-day time bar of § 1144. 2. Whether the Bankruptcy Court erred in holding that notwithstanding

principles of claim preclusion and issue preclusion, a "fraud exception" permits a collateral attack ­ after the 180-day period ­ on the propriety of the Bankruptcy Court's determination of enterprise value and its award of creditor distributions under a confirmed plan. 3. Whether the Bankruptcy Court erred in holding that Plaintiffs have

sufficiently alleged facts as required by Fed. R. Civ. P. 9(b) and Bankruptcy Rule 7009 demonstrating (i) that the Defendants fraudulently concealed material information during the bankruptcy proceedings; (ii) that the projections and estimates submitted by Genesis in the bankruptcy proceedings were not made in good faith; (iii) that the Defendants acted with scienter; and (iv) that the Plaintiffs acted with justifiable reliance. 4. Whether the Bankruptcy Court erred in holding that Plaintiffs have stated a

claim for civil conspiracy where Plaintiffs have failed to plead their underlying fraud claim with particularity under Rule 9(b). 5. Whether the Bankruptcy Court erred in holding that Plaintiffs have stated a

claim for gross negligence under Delaware law where Defendants, as senior creditors in a bankruptcy, owed no duty to junior creditors of the Debtor, including Plaintiffs.

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Should leave to appeal the December 13 Order be granted, Defendants would seek the following relief on appeal: A ruling that the December 13 Order be reversed and that the Bankruptcy Court be directed to dismiss this action as to the Defendants with prejudice and in its entirety. III. STATEMENT OF THE REASONS WHY APPEAL SHOULD BE GRANTED Pursuant to 28 U.S.C. § 158(a), a party must seek leave of the court to appeal from an interlocutory order of a bankruptcy court such as the December 13 Order.6 Neither 28 U.S.C. § 158(a) nor the Federal Rules of Bankruptcy Procedure sets forth the standard a district court should use in determining whether to grant leave to appeal from interlocutory bankruptcy orders. Courts in this District and this Circuit have held that the criteria set forth in 28 U.S.C. § 1292(b) (concerning interlocutory appeals from a district court) apply to a motion for leave to appeal under § 158(a). See Beckley Coal Mining Co. v. United Mine Workers of Am., 98 B.R. 690, 692 (D. Del. 1988) ("In other cases involving interlocutory appeals from the Bankruptcy Court, this Court has held that it will apply by analogy the criteria set forth in 28 U.S.C. § 1292(b)."); see also In re Sandenhill, Inc., 304 B.R. 692, 693-94 (E.D. Pa. 2004) ("[M]any courts, including courts in this district, have borrowed the language of 28 U.S.C. § 1292(b) which defines the scope of appellate jurisdiction over interlocutory appeals from the district courts, to apply to appeals from interlocutory orders of the bankruptcy courts."). The Bankruptcy Court's ruling concerning § 1144 presents a clear instance where the Court should grant leave to appeal. The order at issue "(1) `involves [] controlling question[s] of law' upon which there is (2) `substantial ground of difference of opinion' and (3) when `an

6

See 28 U.S.C. § 158(a) ("The district courts of the United States shall have jurisdiction to hear appeals . . . with leave of the court, from other interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.")

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immediate appeal from the order may materially advance the ultimate termination of the litigation.'" Beckley, 98 B.R. at 692 (quoting 28 U.S.C. § 1292(b)); see also Levine v. United Healthcare Corp., 285 F.Supp.2d 552, 556-57 (D.N.J. 2003) ("exceptional circumstances" exist for an interlocutory appeal if elements under § 1292(b) are met), aff'd, 402 F.3d 156 (2005); In re Pelullo, Nos. Civ. A 98-MC-53, Civ. A. 98-MC-55, 1998 WL 767483, at *1 (E.D. Pa. Nov. 3, 1998); In re Marvel Entm't Group, Inc., 209 B.R. 832, 837 (D. Del. 1997); In re Sullivan, No. Civ. A. 99-5501, 1992 U.S. Dist. LEXIS 3954, at *10-12 (E.D. Pa. Mar. 31, 1992). A. The Bankruptcy Court's Holding Concerning Section 1144 Involves a Controlling Question of Law

A controlling question of law is an issue that "would result in a reversal of a judgment after final hearing . . . ." Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974); Marvel Entm't Group, 209 B.R. at 837 ("A controlling question of law at the very least encompasses a ruling which, if erroneous, would be reversible error on final appeal."). There can be no dispute that this element is satisfied here. If Defendants are correct that the protections of Section 1144 apply to them, then Plaintiffs' claims are barred in their entirety and the litigation should be terminated. Without question, therefore, there is here a "controlling question of law." Likewise, the Bankruptcy Court's holding that four of Plaintiffs' claims were not barred by res judicata and collateral estoppel, if reversed on appeal, would result in a termination of this action and therefore also constitute controlling questions of law. See Marvel Entm't Group, 209 B.R. at 837; Beckley, 98 B.R. at 692-93 (finding controlling question of law existed where appellant contended that "the Bankruptcy Judge applied the improper standards in determining whether [appellant] should be granted relief"). Accordingly, it is entirely appropriate for the December 13 Order to be

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reviewed by an appellate court now, before the parties and the Bankruptcy Court expend the massive amount of time and resources necessary to litigate this action through trial. B. Substantial Grounds Exist For a Difference of Opinion as to the Proper Application of Section 1144

There are substantial grounds for a difference of opinion as to the proper application of § 1144. There is no controlling Third Circuit case law on point. Three appellate-level courts that have considered the issue, however, have all held that the principles of certainty and finality are of such paramount importance in a reorganization process that claims based on fraud brought more than 180 days after confirmation are irrevocably barred. See In re Public Service Co. of New Hampshire, 43 F.3d 763 (1st Cir. 1995); Hotel Corp. of the South v. Rampart 920, Inc., 46 B.R. 758 (E.D. La. 1985), aff'd without op., 781 F.2d 901 (5th Cir. 1986); Browning v. Prostok, 165 S.W.3d 336 (Tex. 2005). In each of these cases, the claims were barred against all parties, not just debtors. Here, the self-same claims that were barred against Genesis were permitted to proceed against the other Defendants. Nothing in the language of § 1144 makes such a distinction between debtors on the one hand, and creditors on the other. The time-bar language of § 1144 is focused on the confirmation order itself rather than on any specific party. Just as § 1144 protects one of the two primary determinations of a confirmation order ­ the discharge of the debtor ­ it also protects the other primary determination ­ the distribution each creditor will receive in satisfaction of its claims. See generally 11 U.S.C. §§ 1129, 1141; 7 COLLIER ON BANKRUPTCY ¶ 1129.01[1] (15th ed. rev. 2006). The policy underlying the time-limitation of § 1144 is the need for certainty and finality in confirmation proceedings. See In re Orange Tree Assocs., 961 F.2d 1445, 1147 (9th Cir. 1992) ("Congress has determined that a 180-day limitations period strikes the appropriate

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balance between the strong need for finality in reorganization plans and the interest in affording parties in interest a reasonable opportunity to discover and assert fraud.") Certainty and finality are important not only to the parties in the reorganization proceeding at issue, but are essential to secure the willingness of parties in future bankruptcy proceedings ­ principally, the creditors ­ to forge the consensus necessary to the success of such proceedings. Later suits that threaten to undermine a bankruptcy judgment are not merely the concern of the individual litigants; the willingness of future claimants and creditors to compromise in chapter 11 proceedings depends on giving the reorganization court's approval a due measure of finality. And in determining how much finality is due, equitable considerations and policy concerns can properly justify results that are not literally compelled by statutory language. In re Public Service, 43 F.3d at 768. The leading Bankruptcy treatise also recognizes that in enacting § 1144, Congress determined that the principles of finality are of paramount importance in a bankruptcy proceeding and bar belated challenges even if based on allegations of "fraud": The 180-day deadline applies even if fraud is not discovered until after the expiration of the 180-day period. This deadline can sometimes be harsh in that fraud by its very nature is difficult to discover and may not be discovered, or even discoverable, until the 180-day period has elapsed. While there is a strong bankruptcy policy against allowing a chapter 11 plan procured by fraud, there is an equally strong policy in favor of the finality of a confirmation order. An order confirming a plan is res judicata with regard to all matters dealt with by the plan. The confirmation order typically starts the debtor off on its post-chapter 11 existence and parties dealing with the debtor after confirmation come to expect that the order establishing that existence is settled and will not be disturbed. Congress chose to continue the 180-day time period established by the Bankruptcy Act as the cut-off period for seeking revocation of confirmation orders. While the cut-off might occasionally lead to an inequitable result, it is necessitated by the need for finality. 8 COLLIER ON BANKRUPTCY ¶ 1144.04 [02], at 1144-7 (15th ed. rev. 2006).7

7

The Bankruptcy Court, in the December 13 Opinion, cited another section of the Collier treatise in support of the proposition that a party may be able to bring an action alleging money damages for fraud after § 1144's 180-day time period. See December 13 Opinion at 11 (citing 8 COLLIER ON BANKRUPTCY ¶ 1144.04[2][a]). This section of the treatise refers to both In re Emmer Bros. Co., 52 B.R. 385 (D. Minn. 1985) and In re Circle

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The circumstances surrounding the confirmation of the Plan in this bankruptcy proceeding demonstrate the importance of this policy. Although the Bankruptcy Court determined in confirming the initial Plan that the Senior Lenders' claims exceeded the enterprise value of the Debtor, the Senior Lenders agreed to reallocate a portion of their distribution to junior creditors under the Plan to facilitate a consensual plan of reorganization. See Genesis Health Ventures, 266 B.R. at 616. Certainly, they would not have done so if they believed that the compromise could be undone at a later date. Thus, this case is prototypical of why undermining the certainty and finality of a consensual resolution would undermine the purpose and functionality of bankruptcy proceedings. See Genesis Health Ventures, 324 B.R. at 517 (Wizmur, J.) ("[u]ncertainty of continued operations, injected by a Sword of Damocles in the form of fraud allegations which can be filed at any time in the future, would render meaningless the whole purpose of a Chapter XI proceeding.") (quoting In re Newport Harbor Assocs., 589 F.2d 20, 24 n.6 (1st Cir. 1978)). The First Circuit, in strikingly similar circumstances, dismissed a post-bankruptcy fraud complaint for damages brought by former shareholders of the debtor alleging that certain information in the debtor's bankruptcy disclosure statement, including financial projections and valuations, was inaccurate. In re Public Service, 43 F.3d at 767 n.2. The bankruptcy court granted motions by the debtor and by the other defendants, who were creditors and holders of other securities of the debtor, to enjoin the new action and the district court affirmed. In re Public Service Co. of New Hampshire, 148 B.R. 702 (Bankr. D.N.H. 1992), aff'd, 848 F. Supp. 318 (D.R.I. 1994), aff'd, 43 F.3d 763 (1st Cir. 1995). In affirming the lower court decisions, the Court of Appeals stated: "[W]e think it evident that allowing such an attack would disrupt
K Corp., 181 B.R. 457 (Bankr. D. Ariz. 1995), cases that Defendants believe are distinguishable (see pp. 16-17 infra) and, if not, are irreconcilable with the appellate-level courts that have considered the issue.

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Congress' detailed scheme for approval of . . . reorganizations, and would frustrate the proper administration of the Bankruptcy Code." In re Public Service, 43 F.3d at 767-68. The Fifth Circuit has also barred untimely claims of fraud designed to collaterally attack a confirmed plan. In Hotel Corp. of the South, the United States District Court for the Eastern District of Louisiana found that fraud claims brought against non-debtors were barred by § 1144. See Hotel Corp. of the South, 46 B.R. at 770-71. The decision was subsequently affirmed on appeal (without opinion) by the Fifth Circuit. Hotel Corp. of the South v. Rampart 920, Inc., 781 F.2d 901 (5th Cir. 1986). Like the First Circuit in Public Service, the district court found that the principles of finality in a bankruptcy proceeding trumped plaintiffs' claims of fraud: "To allow Plaintiffs to collaterally attack the Bankruptcy reorganization on grounds of fraud is to allow them to do indirectly what they no longer may do directly because of 11 U.S.C. § 1144." Hotel Corp. of the South, 46 B.R. at 770-71.8 In addition to the two United States Courts of Appeals to consider the issue, the Texas Supreme Court, in Browning v. Prostok, also dealt with the application of § 1144 to claims of fraud brought against non-debtors. In Browning, as here, a junior creditor argued in an action for fraud damages that the debtor, the debtor's officers and directors, and a senior creditor engaged in misconduct during the bankruptcy proceedings by understating the debtor's enterprise value. See Browning, 165 S.W.3d at 346. The court found the claim was barred under § 1144 against all defendants, holding that plaintiffs' action "challenges the integrity of the [confirmation] order and results in a review, perhaps a recalculation, of the bankruptcy determinations of the assets to which some claimants are entitled." Id. at 346-47 (citing Miller v. Meinhard-Commercial Corp., 462 F.2d 358, 360 (5th Cir. 1972)).
8

The Bankruptcy Court did not address either Public Service or Hotel Corp. of the South in the December 13 Opinion.

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In reaching its holding, the court in Browning looked to the nature of the claims and the requested relief to find that plaintiff's claims were a collateral attack on the confirmation order barred by § 1144. "To calculate the damages incurred by [plaintiff] and the Junior Bondholders he represents, a court would need to determine not only how much larger the bankruptcy estate would have been but for the defendants' conduct, but also what percentage of the estate each class of creditors would have been entitled to if the bankruptcy court had considered the larger estate." Id. at 346-347. That too is the case here. Plaintiffs allege that they would have received "the full face value of their debentures, plus accrued interest" in form of a distribution of Genesis stock in the bankruptcy proceeding "but for" the Defendants' actions. Compl. ¶¶ 10, 189, 193, 197. Thus, despite being couched in terms of monetary damages, Plaintiffs' Complaint is nonetheless a collateral attack on the Confirmation Order as any relief "necessarily turns upon what the judgment of the bankruptcy court should have been." Browning, 165 S.W.3d at 347. In the December 13 Opinion, the Bankruptcy Court distinguished Browning on the basis that the fraud alleged by Plaintiffs, unlike the fraud alleged in Browning, "was not ­ and could not have been ­ actually adjudicated" in the bankruptcy proceeding. December 13 Opinion at 13. However, the Browning plaintiff, like Plaintiffs here, did allege that his claims of fraud were based on "fraudulent conduct occurring post-confirmation" that "could not have been subject to the confirmation order." Browning, 165 S.W.3d at 350. Specifically, the Browning plaintiff alleged that "during the course of the bankruptcy proceedings, the Senior Bondholders, the Officers and Directors, and their financial advisors intentionally undervalued National Gypsum by concealing a plan to dramatically reduce the company's operating expenses." Id. at 341-42. He further alleged that the "costs-savings plan resulted in an increase in market value of New NGC's outstanding stock from $350 million to almost $1 billion." Id. at 342.

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Holding that there can be no independent action for fraud "when maintenance of the action would violate established finality doctrines or constitute an impermissible collateral attack on the confirmation order," (id. at 344) the Texas Supreme Court barred plaintiff's claim under § 1144: The post-confirmation conduct to which Prostok refers is the delayed implementation of a cost-savings plan. However, it is the misrepresentation of the proper valuation of National Gypsum, by failing to reveal this cost-savings plan to the bankruptcy court during the bankruptcy proceedings, that is ultimately the basis of Prostok's alleged damages. Id. at 350 (citing In re Public Service, 43 F.3d at 768) (emphasis in original). In addition to these appellate-level decisions, bankruptcy courts in In re 680 Fifth Ave. Assocs. v. EGI Co. Services, Inc., 209 B.R. 314, 321 (Bankr. S.D.N.Y. 1997) and In re CrownGlobe, Inc., 107 B.R. 60 (Bankr. E.D. Pa. 1989) relied on § 1144 in dismissing claims against debtors and creditors. See 680 Fifth Avenue, 209 B.R. at 321 (where the § 1144 deadline has passed "the usually accepted `discovery of the fraud' exceptions to a limitations period are not available"); In re Crown-Globe, 107 B.R. at 62 (finding that an equitable subordination action brought against a creditor more than 180 days after confirmation "should be dismissed as an untimely attempt to revoke confirmation of debtor's chapter 11 plan").9 The Bankruptcy Court's holding allowing Plaintiffs' claims to proceed despite § 1144 is based on In re Emmer Bros. Co., 52 B.R. 385 (D. Minn. 1985) and In re Circle K Corp., 181 B.R. 457 (Bankr. D. Ariz. 1995). Emmer, however, "[did] not involve an attempt to `redivide
9

The Bankruptcy Court distinguished Crown-Globe on the grounds that only the equitable subordination claim in that case was found to be barred under § 1144. However, there is no indication that the defendant in CrownGlobe raised the issue of whether the plaintiff's claims of conversion, breach of a third party beneficiary contract, and intentional and negligent misrepresentation were barred by § 1144. The opinion in Crown-Globe only indicates that the defendant raised the § 1144 argument in response to plaintiff's equitable subordination claim. Id. at 61-62. And, most significantly, in barring the equitable subordination claim under § 1144, the bankruptcy court rejected plaintiff's argument that it discovered the alleged fraud only after the debtor's plan was confirmed. Id. at 62 ("we must reject plaintiff's defense that it discovered the fraud after debtor's plan was confirmed and after the 180 day time limitation expired.")

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the pie' by a disgruntled participant in the plan. Rather, it involve[d] a dispute about an additional asset that did not figure in to the reorganization plan." In re Emmer Bros., 52 B.R. at 392. Emmer has nothing to do with the reallocation of assets that were already allocated pursuant to a confirmed plan of reorganization. As for Circle K, the action there was in fact filed within 180 days of the confirmation order in the Circle K bankruptcy, and was brought as an application to revoke the order under Section 1144. See In re Circle K Corp., 171 B.R. 666 (Bankr. D. Ariz. 1994). Plaintiffs were then permitted to amend their complaint to assert a claim for money damages. Id. at 668. Because the action was timely filed, § 1144 could not have barred the plaintiffs' claims, and thus, Circle K, even within its own terms, does not support an action brought outside the 180-day limit. See also In re Genesis Health Ventures, 324 B.R. at 516 (Wizmur, J.) (distinguishing Emmer and Circle K). Thus, the Bankruptcy Court's December 13 Opinion is in direct conflict with at least three appellate-level decisions, as well as with several bankruptcy court decisions and the position taken by the leading text in the field. Without doubt, substantial grounds for a difference of opinion exist. C. An Immediate Appeal of This Issue Will Materially Advance the Ultimate Termination of This Action

A successful appeal of the December 13 Order is certain to advance the ultimate termination of this litigation. If Defendants prevail, Plaintiffs' Complaint would necessarily be dismissed. By contrast, if this case proceeds without an interlocutory appeal, it will result in a time-consuming and expense-intensive relitigation of the prior bankruptcy proceeding in a number of significant respects. In the December 13 Opinion, the Bankruptcy Court found that Plaintiffs had stated claims based on the alleged fraudulent concealment of four items during the

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Genesis bankruptcy.10 The litigation of these claims will involve (i) whether, and to what extent, each allegedly concealed item was validly reflected in EBITDA; (ii) whether information relevant to any item validly reflected in EBITDA was concealed; (iii) if information relating to any of the four items was concealed, the extent of the knowledge of each Defendant separately as to what was concealed; (iv) the participation or lack thereof of each Defendant in any such concealment and the scienter or lack thereof of each such Defendant; (v) the monetary impact of the failure to disclose any item that was fraudulently concealed; (vi) the effect of any fraudulently concealed item on the valuation of Genesis; and (vii) the actual effect, if any, on Plaintiffs' bankruptcy claims and the "slice of the pie" that they would have received had any item found to be intentionally concealed not been concealed, bearing in mind that the Senior Lenders had not insisted on the full extent of their priority in order to effect a compromise. The litigation of this action will undoubtedly involve exhaustive fact discovery as well as exhaustive expert testimony, both pretrial and at trial, all to reconstruct issues that were previously litigated over five years ago. Not only will enormous time be expended, but very significant expenses will be incurred. The Third Circuit has held that courts considering interlocutory orders should consider "the avoidance of harm to a party pendente lite from a possibly erroneous interlocutory order and the avoidance of possibly wasted trial time and litigation expense." Katz, 496 F.2d at 756; In re Marvel Entm't Group, 209 B.R. at 837 (finding appeal would advance the termination of the litigation, and that "a decision by this court that the bankruptcy court erred would obviate the
10

The remaining four items involve (i) whether Genesis had a reasonable basis for posting insurance reserves equal to its total stop loss limits; (ii) whether it was reasonable for Genesis to reserve amounts held in escrow pending the outcome of an arbitration where, allegedly, "it was never probable" that Genesis would suffer an adverse result in the arbitration (Compl. ¶ 116); (iii) whether the negotiation of a contract had reached a point where the contract was certain to be executed by Genesis and a third party debtor in bankruptcy and certain to be approved by the third party's bankruptcy court; and (iv) whether Genesis' estimates concerning the costs of pharmacy goods sold were reasonable when made. See December 13 Opinion at 32.

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need for the bankruptcy court to conduct a fact-intensive hearing"); Beckley, 98 B.R. at 692 (quoting Katz); see also In re Microsoft Corp. Antitrust Litig., 274 F. Supp. 2d 741 (D. Md. 2003) ("There would be a senseless waste of private and public resources and an unconscionable delay in the final resolution of these proceedings if the Fourth Circuit were not given the opportunity to decide the collateral estoppel issues on an interlocutory appeal and ultimately were to find I had erred in my ruling."), rev'd on other grounds, 355 F.3d 322 (4th Cir. 2004). Thus, it is clear that an appeal, if successful, would materially advance the ultimate termination of this action, save enormous time of the courts and the litigants, and eliminate the huge expense attendant on relitigating five-year old issues. IV. THERE ARE ADDITIONAL GROUNDS TO APPEAL THE DECEMBER 13 ORDER THAT MAY BE CONSIDERED IF LEAVE TO APPEAL IS GRANTED If the Court grants leave to appeal, it should then review other aspects of the December 13 Order. See Calhoun v. Yamaha Motor Corp., U.S.A., 40 F.3d 622, 626 (3d Cir. 1994) ("Section 1292(b) requires. . .that we decide an appeal from an interlocutory order. . . . and [we] may address any issue that is necessary to decide the appeal before us."); Consolidated Express, Inc., v. New York Shipping Ass'n, 602 F.2d 494, 502 (3d Cir. 1979) (reaching issues raised in the parties' briefs which were not issues certified pursuant to 28 U.S.C. 1292(b)), vacated on other grounds, 448 U.S. 902 (1980); Johnson v. Alldredge, 488 F.2d 820, 822-23 (3d Cir. 1973) (same); see also 19 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE § 203.32 [3][a] (3d ed. 1997 & Supp. 2006) (on an interlocutory appeal, "[t]he court considers the order appealed from as well as any other orders and any other questions, although themselves interlocutory and not otherwise appealable, that underlie and that are inextricably involved with the order being appealed."). The December 13 Order raises a number of additional appealable issues, which are set forth below in summary fashion.

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There is no applicable "fraud exception" here to res judicata or collateral estoppel. If § 1144 is to be given its full effect, there can be no "fraud exception" to res judicata and collateral estoppel for a collateral attack on a confirmed plan 180 days after entry of the confirmation order. In the December 13 Opinion, the Bankruptcy Court held that there is a "fraud exception" in the bankruptcy context to the principles of claim preclusion. December 13 Opinion at 32. (The Bankruptcy Court did not separately address the subject of issue preclusion ­ i.e., collateral estoppel ­ which was a separate basis for the motion to dismiss.) Based on this holding, the Bankruptcy Court allowed Plaintiffs' allegations concerning four EBITDA "manipulations" that were allegedly fraudulently concealed during the plan confirmation proceedings to survive the motion to dismiss. December 13 Opinion at 32. We believe this determination to be erroneous. First, Section 1144 requires that any claim of fraud be brought within 180 days of plan confirmation ­ without exception. In effect, Section 1144 is the "fraud exception" ­ and the only one ­ permitted by Congress. Second, Plaintiffs' allegations that the four EBITDA issues that survived the motion to dismiss were fraudulently concealed during the bankruptcy proceedings is refuted by the record of those proceedings, which may be properly considered on a motion to dismiss, but to which the Bankruptcy Court made no reference whatsoever.11 The Bankruptcy Court erred when it found that Plaintiffs' fraud claim satisfied Federal Rule of Civil Procedure 9(b). The Bankruptcy Court accepted as well-plead Plaintiffs' fraud allegations that (i) failed to state with specificity each Defendants' role in the alleged

11

In the December 13 Opinion, the Bankruptcy Court appeared to limit itself to considering the allegations in the Complaint. But the court was entitled to, and should have considered, the record of the bankruptcy proceedings before Judge Wizmur in making a determination as to whether Plaintiffs' claims were barred by res judicata or collateral estoppel. See CareFirst of Md., Inc. v. Care First Transp., Inc., No. Civ. A. 02-229 (MPT), 2002 WL 31500927, at *3 (D. Del. Nov. 1, 2002) (court may take judicial notice of the prior proceedings conducted before it).

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fraud; (ii) lacked any fact-based allegations that demonstrated the falsity of the challenged projections, estimates and budgets at the time they were made; (iii) alleged scienter based on allegations that the Defendants had a motive and opportunity to acquire a monetary gain in the ordinary course of business; and (iv) failed to allege facts showing justifiable reliance. This determination is directly contrary to relevant case law in this Circuit.12 See Naporano Iron & Metal Co. v. American Crane Corp., 79 F. Supp. 2d 494, 511 (D.N.J. 1999) ("A plaintiff must plead fraud with particularity with respect to each defendant, thereby informing each defendant of the nature of its alleged participation in the fraud"); In re Ikon Office Solutions, Inc. Sec. Litig., 277 F.3d 658, 673 (3d Cir. 2002) (holding that defendant could not be liable for violating federal securities laws because accounting judgments were believed to be true when made and knowledge gained by hindsight was irrelevant); GSC Partners CDO Fund v. Washington, 368 F.3d 228, 237-38 (3d Cir. 2004) (rejecting fraud allegations based on fact that defendant stood to receive underwriting and financial advisory fees in connection with consummated merger as insufficient under Rule 9(b)) (citing cases); Debakey Corp. v. Raytheon Serv. Co., No. 14947, 2000 WL 1273317, at *25 (Del. Ch. Ct. Aug. 25, 2000) (noting that "[a]n essential element of a claim for fraud is that the alleged victim be ignorant of the true facts that are misrepresented"). Plaintiffs' civil conspiracy claim falls with their fraud claim. The Bankruptcy Court's determination that Plaintiffs stated a civil conspiracy claim is based on its erroneous conclusion
12

Further as to Mellon, although the Bankruptcy Court found that "the Complaint does not provide details as to Mellon's motive," (December 13 Opinion at 45-46 n.13) it did not dismiss the claims against Mellon, thus improperly placing the burden on Mellon to prove the negative ­ the lack of motive. See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997); see also 2 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE § 9.03[3], at 9-28.2-28.3 (3d ed. 1997 & Supp. 2006) (Third Circuit "require[s] a pleader to allege the circumstances that provide a strong, or at least some, foundation for the pleader's belief that someone had the requisite intent or other condition of mind.") As to the other Defendants, the Bankruptcy Court found that scienter was adequately alleged by assertions in the Complaint that the Senior Lenders desired "to make a high return" by buying debt and accepting equity for their debt (December 13 Opinion at 44) and that Mr. Hager, Genesis' chief financial officer, desired to secure the approval of the Senior Lenders for a "lucrative compensation package" and to retain his position (id. at 43) ­ thereby making virtually all creditors who accept equity in satisfaction of their claims and all members of management vulnerable to such allegations.

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that that Plaintiffs alleged an actionable fraud claim. See December 13 Opinion at 47-48 Accordingly, the Bankruptcy Court's conclusion that Plaintiffs stated a civil conspiracy claim is also incorrect. The Bankruptcy Court's conclusion that Plaintiffs have stated a claim for gross negligence is contrary to Third Circuit precedent. Concededly relying on dicta in Official Comm. of Unsecured Creditors of Lois/USA, Inc. v. Conseco Finance Servicing Corp., 264 B.R. 69 (Bankr. S.D.N.Y. 2001), the Bankruptcy Court held that "a creditor that assumes control of a debtor assumes a duty to deal fairly with the other creditors." December 13 Opinion at 48. The holding of Unsecured Creditors of Lois is inconsistent, however, with existing Third Circuit precedent dealing with claims of negligence by one creditor against another. See In re Hechinger Investment Co., No. 99-002261-PJW, Civ. 00-973, SLR, 2004 WL 724960 (D. Del. Mar. 28, 2004) ("In the absence of the presence of the badges of fraud, to require something less than actual knowledge of the part of the defendants would result in the imposition of a duty as between a secured lender and prior unsecured creditors of the debtor. Such a duty, the Court finds, does not have a basis in law."), aff'd, 2005 WL 1793503 (3d Cir. July 29, 2005). Accordingly, if leave to appeal is granted, there are a number of other issues raised in the December 13 Order which can and should be resolved on that appeal.

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CONCLUSION For all the foregoing reasons, good cause exists for granting immediate leave to appeal the December 13 Order, and Defendants respectfully request that such leave be granted. Dated: December 26, 2006 Wilmington, Delaware /s/ Christopher A. Ward Steven K. Kortanek (No. 3106) Christopher A. Ward (No. 3877) Morton R. Branzburg KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19809-3062 (302) 426-1189 - and Sheldon Raab Eric A. Hirsch FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP One New York Plaza New York, New York 10004-1980 (212) 859-8000 Attorneys for Defendant Goldman, Sachs & Co. /s/ Daniel K. Hogan Daniel K. Hogan THE HOGAN FIRM 1311 Delaware Avenue Wilmington, Delaware 19806 (302) 656-7540 - and Paul Lackey Michael Aigen LACKEY, HERSHMAN LLP 3102 Oak Lawn Ave., Suite 700 Dallas, Texas 75219 (214) 560-2206 Attorneys for Defendant Highland Capital Management, L.P.

/s/ Robert S. Brady Robert S. Brady (No. 2847) YOUNG CONAWAY STARGATT & TAYLOR LLP 1000 West Street, 17th Floor Wilmington, Delaware 19899-0391 (302) 571-6690 - and Paul V. Shaloub WILLKIE FARR & GALLAGHER LLP 787 7th Avenue New York, New York 10019-6099 (212) 728-8000 Attorneys for Defendant George V. Hager

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/s/ Peter J. Duhig Teresa K.D. Currier (3080) Peter J. Duhig (4024) BUCHANAN INGERSOLL & ROONEY, P.C The Brandywine Building 1000 West Street, Suite 1410 Wilmington, Delaware 19801 (302) 552-4200 - and Steven Russo SIVE, PAGET & RIESEL, P.C. 460 Park Avenue New York, New York 10022 (212) 421-2150 Menachem O. Zelmanovitz John Franchini Erica Cline Blackledge MORGAN, LEWIS & BOCKIUS LLP 101 Park Avenue New York, New York 10178 (212) 309-6000 Attorneys for Defendant Mellon Bank, N.A. with respect to all Plaintiffs other than Charles L. Grimes, Louise IG Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin

Attorneys for Defendant Mellon Bank, N.A. with respect to plaintiffs Charles L. Grimes, Louis IG Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin

Attorneys for Defendant Mellon Bank, N.A.

542629

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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: GENESIS HEALTH VENTURES, INC., et al., Debtors. RICHARD HASKELL, et al., Plaintiffs, v. GOLDMAN, SACHS & CO., et al., Defendants. Adv. Pro. No.: 04-53375 (PJW) Case No. 00-2692 (PJW) Jointly Administered

COMPENDIUM OF UNREPORTED CASES CITED IN DEFENDANTS' JOINT MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR LEAVE TO APPEAL

Buchanan Ingersoll & Rooney, P.C. Teresa K.D. Currier (Del. Bar No. 3080) Peter J. Duhig (Del. Bar No.4024) The Brandywine Building 1000 West Street, Suite 1410 Wilmington, Delaware 19801 (302) 552-4200 Attorneys for Defendant Mellon Bank, N.A. SIVE, PAGET & RIESEL, P.C. Steven Russo 460 Park Avenue New York, New York 10022 (212) 421-2150 Attorneys for Defendant Mellon Bank, N.A. with respect to plaintiffs Charles L. Grimes, Louis I G Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin

MORGAN, LEWIS & BOCKIUS LLP Menachem O. Zelmanovitz John Franchini Erica Cline Blackledge 101 Park Avenue New York, New York 10178 (212) 309-6000 Attorneys for Defendant Mellon Bank, N.A. with respect to all Plaintiffs other than Charles L. Grimes, Louise IG Ireland Trust, C. Yvonne Cooke, Jane G. Brown, Serena R. Schwartz and Gordon W. Chaplin Daniel K. Hogan 1311 Delaware Avenue Wilmington, Delaware 19806 (302) 656-7540 - and -

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KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP Steven K. Kortanek (Del Bar No. 3106) Christopher A. Ward (Del. Bar No. 3877) Morton R. Branzburg KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP 919 N. Market Street, Suite 1000 Wilmington, Delaware 19809-3062 (302) 426-1189 - and FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP Sheldon Raab Eric A. Hirsch One New York Plaza New York, New York 10004-1980 (212) 859-8000 Attorneys for Defendant Goldman, Sachs & Co.

LACKEY, HERSHMAN LLP Paul Lackey Michael Aigen 3102 Oak Lawn Ave., Suite 700 Dallas, Texas 75219 (214) 560-2206 Attorneys for Defendant Highland Capital Management, L.P.

YOUNG CONAWAY STARGATT & TAYLOR LLP Robert S. Brady (Del. Bar No. 2847) 1000 West Street, 17th Floor Wilmington, Delaware 19899-0391 (302) 571-6690 - and WILLKIE FARR & GALLAGHER LLP Paul V. Shaloub 787 7th Avenue New York, New York 10019-6099 (212) 728-8000 Attorneys for Defendant George V. Hager

Dated: December 26, 2006 Wilmington, Delaware

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