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

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 1 of 10

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,
Plaintiff,
v.

) Civ. Action No. 04-cv-1565(SLR)
) ) )

DANIEL D. CROWLEY, et ai.,
Defendants.

)
)

) )

BRIEF IN SUPPORT OF MOTION IN LIMINE UNDER RULE 408 TO EXCLUDE EVIDENCE OF SETTLEMENT NEGOTIATIONS BETWEEN THE PARTIES
Richard A. Barkasy (#4683) Michael J. Barie (#4684)

Dated: August 20, 2007

SCHNADER HARSON SEGAL & LEWIS LLP 824 N. Market Street, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (facsimile)
OF COUNSEL:
Barry E. Bressler (admitted pro hac vice)

Wilbur L. 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

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 2 of 10

Arlin M Adams, Chapter 11 Trustee of

the Post-

Confirmation Bankruptcy Estates of CORAM

HEALTHCARE CORP. and CORAM, INC

2

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 3 of 10

TABLE OF CONTENTS
Page

i. NATUR AN STAGE OF PROCEEDINGS ...................................................................... 1
II. SUMMARY OF ARGUMENT.............................................................................................. 1

III. FACTUAL BACKGROUN ................................................................................................. 2
iv. ARGUMENT ..........................................................................................................................4
V. CONCLUSION .... .......... .... ........... ............... ............. .............. ..................... ........... ..... ..... ...... 6

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 4 of 10

TABLE OF AUTHORITIES

FEDERA CASES
Affliated Mfrs. v. Aluminum Co. of Am., 56 F.3d 521 (3d Cir. 1995).................................5
In re Coram Healthcare Corp. and Coram, Inc., 271 B.R. 228 (Bankr. D. DeL. 2001) ....................................................................................................3
In re Coram Healthcare Corp. and Coram, Inc., 315 B.R. 321 (Bankr. D. DeL. 2004) .............................................................................................. ..3, 4

. Inline Connection Corp. v. AOL Time Warner, Inc., 470 F. Supp. 2d 435
(D. DeL. 2007) ................................................................................................................5

Massager v. Delmarva Power & Light Co., 723 F. Supp. 1019 (D. DeL. 1989)..................5

FEDERA RULE
Fed. R. Evid. 408 .................................................................................................................5

FEDERAL TREATISE
Federal Practice and Procedure § 5303 (1980) ....................................................................5

11

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 5 of 10

i. NATURE AND STAGE OF PROCEEDINGS
Arlin M. Adams, the Chapter 11 Trustee of

the Post-Confirmation Bankptcy

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.

Several motions are now pending before this Court. Both parties have filed
summary judgment motions, which are fully briefed, with oral argument requested. (D.I. 122,
123, 128, 129, 133, 137, 143, 145, 148, 150, 151.) Crowley has filed a motion to strike from the
Trustee's summary judgment papers evidence of, and references to, the previous findings and
conclusions of

the Bankuptcy Court. That motion is also fully briefed and oral argument has

been requested. (D.I. 146, 147, 152, 153, 154.) The Trustee now moves in limine to exclude as

inadmissible evidence of settlement negotiations between the Trustee and Crowley.

II. SUMMARY OF ARGUMENT
1. Rule 408 of the Federal Rules of

Evidence seeks to encourage settlement

by prohibiting parties from using at trial offers of compromise, or statement made in furtherance

of such offers to prove the invalidity or the amount of a claim. After the Trustee was appointed

by the Banptcy Court, Crowley sought to receive $17.3 million in bonus payments that he
believed Coram owed him. The Trustee disputed this amount. The parties then attempted to
negotiate a settlement. The Trustee offered to release Crowley from all claims that the Trustee had against him, and, in return, Crowley offered to reduce his bonus claim from $17.3 millon to
$2 million. The parties memorialized the terms of their proposed settlement in a letter of intent.
The letter of

intent made clear that the settlement was subject to Bankptcy Court approvaL. But

1

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 6 of 10

because the Bankptcy Court refused to extend his employment, Crowley resigned from Coram.

The parties thus never presented their settlement to the Banruptcy Court, the Bankptcy Court
never approved it, and the parties never settled. Evidence concerning the letter of intent, and the
terms of

the proposed settlement between the Trustee and Crowley, is inadmissible under Rule

408.

III. FACTUAL BACKGROUND
Because the parties have set forth the underlying facts in their fiings to date, the
Trustee focuses here only on those facts relevant to this motion in limine.

In November 1999, Crowley signed a three-year agreement to serve as Coram's

CEO and President. (Ex. A (Employment Agreement). The contract was amended in April

2000. (Ex. B (Amendment to Employment Agreement). Coram paid Crowley a base salary of
$650,000 per year. Crowley also was eligible to receive performance-based bonuses based upon

Coram's EBITA. (Id.)

In August 2000, Coram filed a Chapter 11 bankruptcy petition along with a
proposed plan of

reorganization. Following a confirmation hearing conducted over five days, the

Bankptcy Court rejected the proposed plan because, while Crowley was serving as Coram's
CEO and President, he also maintained an employment relationship with Cerberus Partners, L.P.,
one of

Coram's three noteholders. (Ex. C (Dec. 21, 2000 Hrg. Tr.) at 87-89.) The Bankptcy
interest. (Id. at 89.)

Court held that Crowley's dual relationships constituted an actual conflict of

After seeking the advice of an independent restructuring advisor, Coram proposed
a second plan of

reorganization. The Bankptcy Cour rejected that plan as well due to

2

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 7 of 10

Crowley's continued conflict of

interest. See In re Coram Healthcare Corp. and Coram, Inc.,

271 B.R. 228 (Bank. D. DeL. 2001). The Bankptcy Court then appointed Arlin M. Adams as
Chapter 11 Trustee to oversee Coram's operations and assist the company through the
reorganization process. In re Coram Healthcare Corp. and Coram, Inc., 315 B.R. 321, 328
(Bank. D. DeL. 2004).

Crowley thereafter sent the Trustee a letter, in which Crowley sought to receive a

$17.3 million bonus that he asserted was due him under his employment agreement. (Ex D (Sims Letter J. When he learned of Crowley's $17.3 million claim, the Trustee "almost hit the

roof." (Ex. E (Feb. 25, 2003 Adams Dep.) at 216:4 - 217:11.) In fact, the Trustee refused even
to consider anything that high. (Id. at 217:12-19.)

However, intent on settling with as many claimants as possible in order to

maximize the possibility of plan approval, the Trustee thereafter entered into settlement

negotiations with Crowley. The Trustee and Crowley eventually reached agreement on
settlement terms that were memorialized in a letter of intent. The letter of intent provided that, in
exchange for Crowley relinquishing his $17.3 million claim, the Trustee would pay him

$2 million and would release all claims against him. The letter made clear that the settlement
was "subject to a formal agreement being drawn and subject, of course, to approval of

the

Bankuptcy Cour." (Ex. F (Letter of

IntentJ.

The Trustee later explained his reasons for agreeing to the settlement terms set

forth in the letter of intent as that he "was wiling to go along with it in order to get rid of the

claim that (Crowley) had in the amount of$17 milion." (Ex. G (Mar. 27, 2007 Adams Dep.) at
84:15-17.) However, the Trustee was displeased with the terms of

the agreement, likening the
3

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 8 of 10

release that Crowley would have received to a tooth extraction: "I agree to the extraction, but it

hurts." (Id. at 96:2-3.) But with the $17.3 million albatross hung around Coram's neck, the
Trustee was concerned that he would have been unable to sell the company or remove it from
bankptcy unless he settled with Crowley. (Id. at 95:12-17.)

However, the settlement never was formalized or consummated and was never

1 The Trustee now seeks to exclude evidence of the
approved by the Bankruptcy Court.

settlement negotiations between the Trustee and Crowley.

iv. ARGUMENT
Federal Rule of

Evidence 408 provides:

the following is not admissible on behalf of any party, Evidence of when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction:
(1) furnishing or offering or promising to furnish-or accepting or

offering or promising to accept-a valuable consideration in
vUlllplUl111~111b Vi aL.l.\....l1pL1115 i.v \"v.U.1l'iv.u.l.1~\" U.1\, '-.1u..1.1.u, c..uiu.
......_.._..~ l"~.. rr r... t"+ta"1"It~., rr fA ~("'..Yn"\,.r"t'Y~ C"ø thø f'1 l:1m. l:11r1

(2) conduct or statements made in compromise negotiations regarding the claim. . .

1 The settlement actually became moot before it ever was presented to the Bankptcy Court.
After the Trustee and Crowley had reached the agreement that was memorialized in the letter of intent, the Equity Committee fied a motion with the Banptcy Court to terminate Crowley's employment. The Trustee, in turn, filed a motion that would have allowed Coram to continue to
employ Crowley for a short transition period during the confirmation process. However, the

Bankuptcy Court denied the Trustee's motion because it "(did) not believe (Crowley) is honest" and because it did not "want (the Trustee's) reputation or (the Court's reputation) sullied by
approving continuing employment of an employee that (the Cour did) not believe to be an honest person." (Ex. H (Mar. 3,2003 Hrg. Tr.) at 195-97.) When the Bankptcy Court refused to extend his employment with Coram, Crowley resigned and his settlement with the Trustee became a moot point.

4

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 9 of 10

The purpose of Rule 408 is to encourage open discussions regarding compromise.
See Affliated Mfrs. v. Aluminum Co. of Am., 56 F.3d 521,526 (3d Cir. 1995); see also Inline
Connection Corp. v. AOL Time Warner, Inc., 470 F. Supp. 2d 435,440 (D. DeL. 2007)

("Introducing details of settlement negotiations into the court record has a chillng effect on the
parties' willingness to enter into settlement negotiations.").

Rule 408 prohibits evidence of the settlement negotiations between the Trustee
and Crowley, as memorialized in the letter of intent. .

See Inline Connection, 470 F. Supp. 2d at

444 (holding that memo offering valuable consideration to compromise disputed claim falls
within Rule 408); see also 23 CHARLES ALAN WRIGHT & KENNETH W. GRAHAM, JR., FEDERAL
PRACTICE AND PROCEDURE § 5303 (1980) (statements of intent fall within meaning of

Rule 408

because the word "offer" includes indications of desire to resolve dispute by agreement).

The only reason that the Trustee was amenable to the settlement was to put an end

to the dispute with Crowley. This is precisely why Rule 408 disallows such evidence - because
parties often settle for reasons that have nothing to do with fault, thereby rendering settlement

agreements irrelevant to liability. FED. R. EvlD. 408 advisory committee's note. See Massager
v. Delmarva Power & Light Co., 723 F. Supp. 1019, 1022 (D. DeL. 1989) (settlement offers

inadmissible under Rule 408 because they may be the result of a party seeking to end litigation

peacefully, not due to a weakness of position). Such evidence would only have the
impermissible effect of inviting the jury to draw a conclusion as to the validity of

the Trustee's

claim against Crowley and the amount of damages. This is just why Rule 408 prohibits it.

5

Case 1:04-cv-01565-SLR

Document 174

Filed 08/20/2007

Page 10 of 10

v. CONCLUSION
For these reasons, the Trustee respectfully requests that the Court enter an Order

prohibiting Crowley from introducing into evidence or mentioning to the jury the settlement
negotiations between the parties, including the letter of intent expressing the terms of a
settlement agreement between the Trustee and Crowley.
Respectfully submitted,

Dated: August 20, 2007

Isl Michael J. Barre Richard A. Barkasy (#4683) Michael J. Barre (#4684)

SCHNADER HARSON SEGAL & LEWIS LLP 824 Market Street Mall, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (telecopier)
mbare(£schnader. com

OF COUNSEL:
Barry E. Bressler (admitted Wilbur L. Kipnes (admitted

pro hac vice) 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 PostConfirmation Bankruptcy Estates of CORAM

HEALTHCARE CORP. and CORAM, INC

6