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

Case 1:04-cv-01565-SLR

Document 170

Filed 08/20/2007

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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 Bankrptcy Estates of
) ) )
)

CORA HEALTHCARE CORP. and CORA
INC.,

) Civ. Action No. 04-cv-1565(SLR)
Plaintiff,
v.
) ) )

DANIEL D. CROWLEY, et a/.,
Defendants.

) ) ) )

BRIEF IN SUPPORT OF TRUSTEE'S MOTION IN LIMINE UNDER RULE 408 TO EXCLUDE EVIDENCE OF THE TRUSTEE'S SETTLEMENT WITH THE OUTSIDE DIRECTORS

Dated: August 20, 2007

Richard A. Barkasy (#4683) Michael J. Bare (#4684)

SCHNADER HASON SEGAL & LEWIS LLP
824 N. Market Street, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone)
(302) 888-1696 (facsimile)

OF COUNSEL:

Bar E. Bressler (admitted pro hac vice)
Wilbur L. Kipnes (admitted pro hac vice)
Nancy Winkelman (admitted pro hac vice)

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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 Bankrptcy Estates of

CORA

HEALTHCARE CORP. and CORA INC.

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TABLE OF CONTENTS
Page

i. NATU AN STAGE OF PROCEEDINGS ...................................................................... 1
II. SUMY OF ARGUMENT .... ....... ........ ..... .... ........ ....... ......... ..... .... ............ ................ ..... 1
III. FACTUAL BACKGROUN ......... ........ ..... ......... ........ ....... .............. .... .......... ..... ........ .......... 2

IV. ARGUMENT ..........................................................................................................................2

V. CONCLUSION .......................................................................................................................6

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TABLE OF AUTHORITIES

FEDERA CASES
Affliated Mfrs. v. Aluminum Co. of Am., 56 F.3d 521 (3d Cir. 1995).................................3

Branch v. Chevron Intl Oil Co., 783 F.2d 1289 (5th Cir. 1986).........................................3
Inline Connection Corp. v. AOL Time Warner, Inc., 470 F. Supp. 2d 435
(D. DeL. 2007) ................................................................................................................3

McInnis v. A.MF., Inc., 765 F.2d 240 (lst Cir. 1985).........................................................3
Quad/Graphics, Inc. v. Fass, 724 F.2d 1230 (7th Cir. 1983) ..............................................3
Sweeten v. Layson's Home Improvements, Inc., Civ. A. No. 04-2771, 2007 U.S. Dist. LEXIS 28826 (M.D. Pa. Apr. 19,2007) ..............................................3
Young v. Verizon Allsteel Press Co., 539 F. Supp. 193 (E.D. Pa. 1982) .............................3

STATE CASES
Alexander v. Cahill, 829 A.2d 117 (DeL. 2003) ...............................................................3,4
Wright v. Moore, No. 329,2007 DeL. LEXIS 290 (DeL. July 2,2007)................................4

FEDERA RULE
Fed. R. Evid. 408 ..................... .... ............ ............ ............ ..... ......... ...... ................................3

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I. NATURE AND STAGE OF PROCEEDINGS
Arlin M. Adams, the Chapter 11 Trustee ofthe Post-Confirmation Banptcy

Estates of Coram HeaIthcare Corp. and Coram, Inc. (collectively, "Coram"), filed this action on
December 29,2004, alleging that defendants Daniel D. Crowley, Coram's former CEO and
President, and certain former members of Coram's Board of

Directors (the "Outside Directors")

breached their fiduciar duties to Coram.

Several motions are now pending before this Cour. Both paries have fied

sumar judgment motions, which are fully briefed, with oral arguent requested. (D.!. 122,

123, 128, 129, 133, 137, 143, 145, 148, 150, 151.) Crowley has filed a motion to strke from the

Trustee's sumar judgment papers evidence of, and references to, the previous findings and
conclusions ofthe Banptcy Cour. That motion also is fully briefed and oral arguent has
been requested. (D.!. 146, 147, 152, 153, 154.) Trial is scheduled for September 17,2007. The
Trustee now moves in limine to exclude as inad.11issible evidence of

his settlement with the

Outside Directors.

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

Evidence seeks to encourage settlement

by prohibiting paries from using at tral offers of compromise, or statements made in fuherance
of such offers, to prove the invalidity or the amount of a claim. The Trustee has settled with the

Outside Directors. The Trustee seeks to bar Crowley from introducing evidence of or

mentioning that settlement because Crowley has no permissible reason to do so. None ofthe
limited exceptions in which cours have permitted jures to lear of settlements with co-

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defendants exists here. To the contrar, mention of

the settlement with the Outside Directors

would only confuse or mislead the jury and have the prejudicial effects of: (1) leading the jur to
believe that the Trustee's claim against Crowley is not valid because other people have accepted

responsibility for it; and/or (2) having the jur place a dollar amount on damages based upon the
settlement figue. Both of

these reasons are impermissible under Rule 408.

III. FACTUAL BACKGROUND
The facts relevant to this motion are few. The Trustee's Complaint contained two

breach of fiduciary duty counts: one against Crowley and one against the Outside Directors.
(D.I. 1.) On or about April

5, 2006, the Trustee and the Outside Directors entered into a

settlement that disposed of all ofthe Trustee's claims against them. (D.I. 72.) Under the
settlement, the Outside Directors consented to an entr of

judgment in the amount of$9.55

milion and assigned their rights under a D & 0 insurance policy to the Trustee. (Id.) The
Trustee agreed that he would seek to recover the judgment only from the Outside Directors'
~__n____ £7-1\ A_ A_~l '1A '1f\f\L f"i.~_'LT..;i~_lIlf__.TII'. VVallaill _.L+i._n_l_...___D~_l._._+~.. YlT_i__+i. Vi llll; ui;iavvaii; UaillUpi,-y 11l::WI;I::. vu.) VLL riplll ~"', ~VVV, '-1111;1 JUUCI; iviaiy

Cour approved the Trustee's settlement with the Outside Directors, finding that it was fair and
reasonable.

IV. ARGUMENT
The Trustee's settlement with the Outside Directors is inadmissible under Federal
Rule of Evidence 408. i Rule 408 is designed to foster open settlement negotiations. See

1 Rule 408 provides:
Evidence of

the following is not admissible on behalf of any pary,
(footnote continued on next page)

when offered to prove liability for, invalidity of, or amount of a

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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). The Rule
recognzes that paries often settle for reasons that have nothing to do with fault, thereby
rendering settlement agreements irrelevant to liability. FED. R. EVID. 408 advisory committee's

note.

Rule 408 bars evidence of settlements between plaintiffs and former co-

defendants, just as it bars evidence of settlements between plaintiffs and defendants. See, e.g.,

Branch v. Chevron Intl Oil Co., 783 F.2d 1289, 1294 (5th Cir. 1986); McInnis v. A.MF., Inc.,
765 F.2d 240,247 (1st Cir. 1985); Quad/Graphics, Inc. v. Fass, 724 F.2d 1230, 1235 (7th Cir.

1983); Sweeten v. Layson's Home Improvements, Inc., Civ. A. No. 04-2771,2007 U.S. Dist.
LEXIS 28826, at *5 (M.D. Pa. Apr. 19,2007). As the United States District Cour for the
Eastern Distrct of

Pennsylvana has explained, evidence of a settlement between plaintiff and a

former co-defendant is "precisely the forbidden frit excluded by operation of

Rule 408" because
has been made whole by the

such evidence could permit the jur to beìieve that the plaintiff

settlement. Young v. Verizon Allsteel Press Co., 539 F. Supp. 193, 195 (E.D. Pa. 1982).

(footnote continued from previous page)

claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction:

(1) fushing or offering or promising to fush--r accepting or offering or promising to accept-a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or statements made in compromise negotiations regarding the claim. . . .

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The Delaware Supreme Cour recently made clear the line between permissible

and impermissible disclosures of settlements with former co-defendants. In Alexander v. Cahil,
829 A.2d 117 (DeL. 2003), plaintiff

was a passenger in a school bus involved in a multi-vehicle

accident.2 Plaintiff settled with two ofthe defendants (who were joint tortfeasors with the nonsettling defendants) prior to triaL. The jur leared ofthat settlement in two ways - the first
permissible, the second not. First, the judge mentioned the settlement during his jury charge in

order to inform the jury how to apportion liability. Second, the non-settling defendant asked the

plaintiffs mother whether she and her husband had settled with the other two defendants and
whether they "have or will receive moneys for releasing liabilities against (the two settling

defendants) . . .?" (The mother answered "Yes.") !d. at 127. The jur retured a verdict in favor
of plaintiff, apportioning only 2% of

the liability to the non-settling defendant.

The Delaware Supreme Cour held that it was permissible for the judge to inform
the jur that a settlement had occured in order to avoid jur confusion, in view of the fact that

the jury was being asked to apportion liability. Ià. at 124. In contrast, the Supreme Court held
that the tral cour committed reversible error in allowing the question about the settlement

because the question "had no purose other than to suggest the invalidity ofthe plaintiffs claim
or to discount damages." Id. at 127. See also Wright v. Moore, No. 329,2007 DeL. LEXIS 290
(DeL. July 2,2007) (reversing defense verdict where trial cour permitted questions of

plaintiff

Evidence, not the Federal Rules. However, Delaware Rule 408 is virtally identical to Federal Rule 408, and, as the Delaware Supreme Cour noted in Alexander, the federal cours apply that rule in the same way that the
2 Alexander was decided under the Delaware Rules of

Delaware courts do. See Alexander, 829 A.2d at 124.

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about release given in connection with a settlement and allowed defense counsel to argue durng

closing that plaintiff already had been compensated for her injures).

Here, the Trustee's settlement with the Outside Directors has no relevance to any
issue in the case, has no probative value, and there is no reason why the jury needs to or should

know about it. The jur will not be asked to apportion liability among the defendants, but only
to determine whether Crowley breached his fiduciar duty and, if so, the amount of damages his
breach caused Coram.

Thus, any mention ofthe settlement would only be for an impermissible and

prejudicial purose. It could, for example, suggest that Crowley is not liable for the harm to
Coram because other persons (namely, the Outside Directors) already have accepted

responsibility for that harm. It also could suggest that the $9.55 million dollar settlement is

relevant to the amount of damages the jur should award, either because Coram already has been

compensated (or parially compensated) for the har Crowley caused it, or because the
settlement amount provides a guideline relevant to the amount of damages to be awarded against

Crowley. In short, there is no permissible reason for the evidence, it would have a highly
prejudicial effect, and so it should be excluded.

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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 jur the settlement

agreement between the Trustee and the Outside Directors.
Respectfully submitted,

Dated: August 20, 2007

Isl Michael J. Bare Richard A. Barkasy (#4683) Michael J. Bare (#4684) SCHNADER HARSON SEGAL & LEWIS LLP 824 Market Street Mall, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (telecopier)

mbare03schnader.com
OF COUNSEL:

Bary 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

Arlin M Adams, Chapter 11 Trustee of the Post-

Confrmation Bankrptcy Estates of CORA
HEALTHCARE CORP. and CORA INC.

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