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

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
ARLIN M. ADAMS, Chapter 11 Trustee of
the Post-Confirmation Bankruptcy Estates of CORAM HEALTHCARE CORP. and CORAM, INC.,
) ) )

)

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

DANIEL D. CROWLEY, et at.,
Defendants.

) )

) )

BRIEF IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT ON LIABILITY OR, IN THE ALTERNATIVE, FOR THE COURT TO DEEM CERTAIN FACTS ESTABLISHED
Dated: April 17, 2007
Richard A. Barkasy (#4683) Michael J. Barrie (#4684) SCHNADER HARRISON SEGAL & LEWIS LLP 824 N. Market Street, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (facsimile)
OF COUNSEL: Bary E. Bressler (admitted pro hac vice) Wilbur L. Kipnes (admitted pro hac vice) Nancy Winkelman (pro hac vice admission pending)

SCHNADER HARRISON SEGAL & LEWIS LLP 1600 Market Street, Suite 3600 Philadelphia, P A 19103 (215) 751-2400 (telephone) (215) 751-2205 (facsimile)

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Counsel to Plaintif

Arlin M Adams, Chapter 11 Trustee of the PostCORAM Confrmation Bankruptcy Estates of HEALTHCARE CORP. and CORAM, INC.

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TABLE OF CONTENTS
Page
INTRODUCTION ...........................................................................................................................1 NATURE AND STAGE OF PROCEEDINGS ...............................................................................1 SUMMARY OF ARGUMENT .......................................................................................................2
FACTS .............................................................................................................................................3

A. Background..........................................................................................................................3 B. Crowley's Conflict Of Interest.............................................................................................4
C. The Bankuptcy Court's Denial Of

Reorganization Because Of Crowley's Conflict Of Interest....................................................................................... 6
Coram's First Plan Of Coram's Second Plan Of

D. The Bankuptcy Court's Denial Of

Reorganization Because Of Crowley's Conflict Of Interest ......................................................................... 8

E. The Bankuptcy Court's Approval Of

The Trustee's Proposed Plan Of Reorganization.................................................................................................................. .12

F. The Current Litigation..................................................................................................... ..13

ARGUMENT .................................................................................................................................13

1. STANDARD OF REVIEW................ ...................................................... .............. ..13
II. THIS COURT SHOULD GIVE COLLATERAL ESTOPPEL EFFECT TO THE BANKRUPTCY COURT'S FINDINGS........................................................ .14
A. Collateral Estoppel Applies To Crowley Because He Was A Party
In The Bankptcy Proceedings And Had A Full And Fair

Opportunity To Litigate The Issues Sought To Be Precluded.................. 16
B. The Issues Sought To Be Precluded Are The Same As The Issues

In The Prior Bankptcy Court Action. .................................................... 19
C. The Issues Sought To Be Precluded Were Actually Litigated In

The Prior Banptcy Court Action.......................................................... 20
D. The Banptcy Court's Decisions Are Valid And FinaL....................... 21
E. The Determination Of

The Issues Sought To Be Precluded Were

Essential To The Bankptcy Court's Judgment. .....................................22

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III. THE BANKRUPTCY COURT'S FINDINGS THAT ARE TO BE GIVEN

PRECLUSIVE EFFECT ENTITLE THE TRUSTEE TO SUMMARY JUDGMENT ON LIABILITY. ............................................................................... .23

IV. IN THE ALTERNATIVE, THIS COURT SHOULD DEEM THE FACTS THAT THE BANKRUPTCY COURT FOUND TO BE ESTABLISHED FOR
PURPOSES OF THIS LITI GA TION. .................................................................... ..25
CONCLUSION....................................................................................................................... ...... .28

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TABLE OF AUTHORITIES
FEDERAL CASES
Amtrak v. Pa. Public Utilty Committee, 288 F.3d 519 (3d Cir. 2002)..................14,15,22
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ......................................................14

Bruszewski v. United States, 181 F.2d 419 (3d Cir. 1950) ................................................18

Burlington N R.R. Co. v. Hyundai Merchant Marine Co., Ltd., 63 F.3d 1227 (3d Cir. 1995).................................................................................................................... .21
Cohen v. Board Of Trustees of

the University of Medical and Dentistry and

Dentistry ofNJ, 867 F.2d 1455 (3d Cir. 1989) ..........................................................26
Corestates Bank, NA. v. Huls America, Inc., 176 F.3d 187 (3d Cir. 1999) ......................14
DeL. River Port Authority v. FOP, Penn-Jersey Lodge 30, 290 F.3d 567 (3d Cir.

2002) ........................................................................................................................... .18

Dyndul v. Dyndul, 620 F.2d 409, 412 (3d Cir. 1980) ........................................................21

First Jersey Nat. Bank v. Brown (In re Brown), 951 F.2d 564, 569 (3d Cir. 1991) .........21
Harper v. DeL. Valley Broadcasters, 743 F. Supp. 1076 (D. DeL. 1990)...........................15

Horwitz v. Alloy Automobile Co., 992 F.2d 100 (7th Cir. 1993) .......................................18

In re Bowman, 181 B.R. 836 (Ban. D. Md. 1995)..........................................................24
In re Hampton Hotel Investors, L.P., 270 B.R. 346 (Bank. S.D.N.Y. 2001) ...................24

In re Heritage Hotel Partnership I, 160 B.R. 374 (B.AP. 9th Cir. 1993) ........................18
In re Insulfoams, Inc., 184 B.R. 694 (Bank. W.D. Pa. 1995) ...........................................24
In re Integrated Health Services, Inc., 258 B.R. 96 (Bank. D. DeL. 2000) ......................24

In re Kham & Nate's Shoes No.2, Inc., 97 B.R. 420 (Bank. N.D. IlL. 1989) ...................15

In re Performance Nutriton, Inc., 239 B.R. 93 (Bank. N.D. Tex. 1999) ........................24

In re Tel-Net Hawaii, Inc., 105 B.R. 594 (Ban. D. Haw. 1989).....................................24
In re Teltronics Services, Inc., 762 F.2d 185 (2d Cir. 1985) .............................................17

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Jean Alexander Cosmetics, Inc. v. L 'Oreal USA, Inc., 458 F.3d 244 (3d Cir. 2006) ........................ ............................................................................................. .15, 22

Katchen v. Landy, 382 U.S. 323 (1966).............................................................................14

McDowell v. Del State Police, Civ. A No. 95-129, 1999 U.S. Dist. LEXIS 3105 (D. DeL. Nov. 15,1999) .........................................................................15
Natl State Bank v. Fed. Reserve Bank, 979 F.2d 1579 (3d Cir. 1992) .............................14
O'Shea v. Amoco Oil Co., 886 F.2d 584 (3d Cir. 1989)....................................................15
Ray

tech Corp. v. White, 54 F.3d 187 (3d Cir. 1995) ...................................................19, 22

Studiengesellschaft Kohle, mbHv. USXCorp., 675 F. Supp. 182 (D. DeL. 1987)............15

Suppan v. Dadonna, 203 F.3d 228 (3d Cir. 2000).............................................................19

United States v. Schnick, 66 B.R. 491 (Ban. W.D. Mo. 1986) ................................;......17

STATE CASES
ATR-Kim Eng. Finance Corp. v. Araneta, Civ. A No. 489-N, 2006 DeL. Ch. LEXIS 215 (DeL. Ch. Dec. 21, 2006)...........................................................................24
Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (DeL. 1993).............................................23

Emerald Partners v. Berlin, 787 A2d 85 (DeL. 2001).......................................................23
Malone v. Brincat, 722 A2d 5 (DeL. 1998) .......................................................................23

McMulln v. Beran, 765 A.2d 910 (DeL. 2000)..................................................................23
Weinberger v. UOP, Inc., 457 A2d 701 (DeL. 1983) ........................................................24

FEDERAL STATUTES
11 U.S.C. § 11 09(b) ...........................................................................................................17

11 U.S.C. § 1129(a)(3).......................................................................................................19

FEDERAL RULES
FED. R. CiV. P. 5 6( a) .....................................................................................................1, 13
FED. R. CiV. P. 56( c) ........................................................................................................ ..14

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FED. R. CIV. P. 56( d) ......................................................................................................... .26
FED. R. CIV. P. 56( e) ............................ ........ .................................................................... ..14

OTHER AUTHORITIES
18 CHARLES ALLAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE § 4425.............19

RESTATEMENT (SECOND) OF JUDGMENTS § 27.................................................................. .14

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INTRODUCTION
Plaintiff, Arlin M. Adams, as Chapter 11 Trustee ("Trustee") of

the Post-

Confirmation Bankptcy Estates of Coram Healthcare Corporation and its wholly-owned
subsidiar Coram, Inc. (collectively, "Coram"), moves for summary judgment on liability under

Federal Rule of Civil Procedure 56(a). The basis for the Trustee's motion is that in contested

confirmation hearings involving Coram as a debtor-in-possession, the United States Bankptcy
Cour for the District of Delaware made certain factual findings and resolved certain issues that
should be given preclusive effect in this case, thereby entitling the Trustee to summary judgment

on liability. In the alternative, the Trustee requests that this Court deem the Banptcy Court's
factual findings as established under Rule 56( d), so limiting the factual issues to be tried.

NATURE AND STAGE OF PROCEEDINGS
The Trustee fied this action on December 29, 2004, alleging that defendant
Daniel D. Crowley, the former Chairman and CEO of Coram, breached his fiduciary duties of

care, loyalty, disclosure, and good faith to Coram. Pursuant to the Court's April 25, 2006
Scheduling Order, the Trustee moves for summary judgment on liability or, in the alternative, to
have certain facts deemed established.

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SUMMARY OF ARGUMENT

The Trustee is entitled to sumary judgment on liability because:

1. The Banptcy Cour made a number of specific factual findings in prior
opinions that have a preclusive effect on Crowley in this litigation.

2. Specifically, the Banptcy Court twice found that Crowley's

relationship with a major creditor of

the debtor-in-possession created an actual conflict of

interest. The Bankptcy Court further found that Crowley breached his fiduciary duty to Coram

because of that actual conflct of interest.

3. The issues in this litigation -- including whether Crowley had a conflct of

interest and whether he breached his fiduciary duty to Coram -- were previously litigated in the

Bankptcy Court proceedings in which Crowley was a party and had a full and fair opportunity
to litigate the issues.

4. The issues sought to be precluded in this litigation are the same as the
issues that were litigated in the prior Bankptcy Court proceedings, and those issues were
actually litigated in those proceedings.

5. The decisions of the Bankptcy Court are valid and final and the

determinations made by the Bankptcy Court that are sought to be precluded here were essential
to its decisions.

6. The Banptcy Cour's Findings that are to be given preclusive effect-including Crowley's actual conflict of interest and his breach of

fiduciary duty -- entitle the

Trustee to sumary judgment on liability.

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In the alternative, under Federal Rule of

Civil Procedure 56(d), this Court may

deem certain facts to be established and so limit the scope of matters to be contested. The

Banptcy Court made a number of factual findings that are entitled to preclusive effect under
the doctrine of collateral estoppel and so should be deemed established here.

FACTS!

A. Background
Coram was a publicly-traded home health care company. As a result of
acquisitions in the mid-l

990s, Coram became a leading provider of alternative site infusion

therapy services in the United States.2 In re: Coram Healthcare Corp., 271 B.R. 228,230
(Ban. D. DeL. 2001).

Cerberus Partners, L.P., along with two other noteholders (collectively, "the

Noteholders"), held unsecured notes issued by Coram in the face amount of approximately $250
milion. Id. Cerberus owned approximately 36% of

the Notes. Id. In 1998, the Noteholders

exercised their right under the applicable loan documents and designated Stephen Feinberg,
General Partner of Cerberus, to sit on Coram's Board of

Directors as their representative. See id.

this summary judgment motion, the Trustee relies only upon facts from the Banptcy Court's findings in the two contested confirmation hearings brought while Coram
was a debtor-in-possession. As set forth in this brief, those findings should be given collateral

! For puroses of

estoppel effect here and, therefore, are not and cannot be disputed.
2 Infsion therapy involves the IV administration of

nutrition, anti-infective therapy, HIV medications, blood factor therapies, pain management, chemotherapy, and other therapies.

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B. Crowley's Conflict Of Interest

In 1998, Crowley met Feinberg and became associated with Cerberus. See 271
B.R. at 230. In early 1999, Crowley joined Cerberus as one of

the CEO consultants available to

work for Cerberus with troubled companies on a project-by-project basis. /d.
In July 1999, Crowley and Feinberg struck an oral agreement by which Cerberus

agreed to pay Crowley $80,000 a month plus expenses to serve as a consultant to distressed

companies in which Cerberus had a stake. Id. at 230. On or about June 28, 1999, Feinberg
requested that Crowley serve on Coram's Board of

Directors as Cerberus' representative.

Thereafter, at Feinberg's suggestion, Coram hired Crowley as a consultant. 271 B.R. at 230.
Crowley served in that capacity until Coram's then-CEO, Richard Smith, resigned in October

1999. (A2-A3 (Dec. 1,2000 Hrg. Tr.).
his

On November 12, 1999, while Crowley was negotiating the terms of

employment at Coram with Donald Amaral, Coram's then-Chairman and interim CEO, he sent a

"Personal & Confidential" letter to Feinberg, seeking additional compensation from Cerberus to

induce Crowley to become CEO of Coram. 271 B.R. at 231. Crowley asked Feinberg to
increase the bonus to which he would be entitled for his work as Chairman of Winterland, a private company in which Cerberus had a substantial ownership interest.
Crowley signed a three-year agreement to serve as Coram's Chairman and CEO

on November 18,1999. Id. The very next day, he executed a written Employment Agreement
with Cerberus under which he would receive a base salary of $80,000 a month and performance-

based bonuses for his work on Winterland and other Cerberus portfolio companies. Id. The
Employment Agreement increased Crowley's bonus compensation for Winterland, as he had

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requested in his "Personal and Confidential" letter to Feinberg. /d. The Employment Agreement
with Cerberus also provided that Feinberg would assign or delegate duties to Crowley, that

Crowley would devote "his entire business time, attention, skil and energy exclusively to the
business of (Cerberus)," and that Crowley would use "his best efforts to promote the success of

(Cerberus)." Id. The Agreement further provided that Cerberus could terminate Crowley for
cause, which included Crowley's failure to follow Feinberg's instructions. Id.
his Employment Agreement with Cerberus
interest were to be

Crowley did not disclose the terms of

to Coram. Id. Despite Coram's corporate policy that actual conflicts of

avoided and that any action creating a conflict of interest was to be disclosed and approved in
advance, Crowley neither disclosed nor sought approval of

his Cerberus agreement. See id. at

235 n.1 O. To the contrary, there was evidence presented at the Banptcy Court's hearing on
Coram's proposed second plan of

reorganization that Crowley's agreement with Cerberus

constituted a violation of Coram's express corporate policy requiring that actual conflcts be
avoided and that actions which might create a potential conflict of interest must be disclosed and
approved in advance. Id.

In early July 2000, Crowley directed that Coram make a $6.3 milion interest

payment in cash to the Noteholders for their unsecured Notes. Id. at 231. "Under the terms of
the Notes, Coram could have paid the interest payment 'in kind,' i.e., by adding it to the
outstanding principal balance of

the Notes." /d. Crowley did not disclose to the Coram Board,

or to Coram's bankptcy counsel, the $6.3 milion cash payment to the Noteholders until after it
had been made. Id.

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Then, at the end of July 2000, Coram completed the sale of its specialty pharmacy
division, generating approximately $38 milion in net cash proceeds. Id. Crowley directed that
approximately $28.5 milion of

those proceeds be used to pay down Coram's secured revolving

line of credit, which had been provided by the Noteholders. The remaining $9.5 milion was
used to reduce the principal balance on the unsecured notes. Id.
On August 8, 2000, within weeks of Crowley having paid a total of more than $44
milion to the Noteholders, Coram fied a petition under Chapter 11 of

the Bankuptcy Code,

together with a proposed plan of reorganization ("the First Plan"). Id. The First Plan provided
for Coram to become a private company owned by the Noteholders. Under the First Plan,
Coram's general unsecured creditors were to receive about 30 cents on the dollar and Coram's

shareholders were to receive nothing. Id. at 232.

C The Bankruptcy Courrs Denial Of Coram's First Plan Of Reorganization Because
Of Crowley's Conflict Of Interest
The Banptcy Court (Honorable Mary F. Walrath) appointed an Equity
Committee to protect the interests of

Coram's shareholders. The Equity Committee opposed

Coram's proposed plan. 271 B.R. at 232. Discovery conducted by the Equity Committee

uncovered Crowley's Employment Agreement with Cerberus. See id.
In December 2000, the Bankptcy Court conducted a confirmation hearing over
a period of five days. Crowley's relationship with Cerberus was a central focus of

the hearing.

Crowley testified at length over a period of two days.

On the day when Crowley was cross-examined, he was personally represented by

Philip Warden, Esquire, from the Pilsbur Madison firm in California. (A34-A35 (Dec. 15,

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2000 Bankptcy Court Sign-In Sheet).) Warden also had defended Crowley at his deposition
prior to the hearing. The issue of Crowley's conflict of interest due to his relationship with
Cerberus was explored at length in both his direct and cross-examination.

For example, Crowley testified about how his relationship with Cerberus began,

the provisions of his Cerberus employment contract, and his request for additional compensation

from Cerberus with respect to Winterland, as compensation to him for his work for Coram. (A5-

A14; A17-A28; A29-30 (Dec. 15,2000 Hrg. Tr.).) He was questioned regarding the $6.3 milion
cash payment that he had directed Coram to make to the Noteholders in July 2000. (A31-A33
(Dec. 15,2000 Hrg. Tr.). He also testified that he did not inform Coram's Board of

Directors

that he was receiving a salary of

nearly $1 milion per year from Cerberus. (A15-A16 (Dec. 15,

2000 Hrg. Tr.).)

After considering all the evidence, the Bankptcy Court rejected Coram's
proposed plan of

reorganization. In the Court's view, Crowley's employment contract with

Cerberus "tainted the debtors' restructuring of its debt, the debtors' negotiations towards a plan,
even the debtors' restructuring of

its operations." (A38 (Dec. 21,2000 Hrg. Tr.).) Therefore, the

Court concluded that the plan had not been submitted in good faith as required by Section
1129(a)(3) of

the Banptcy Code. Moreover, the Cour specifically found that Crowley had

"an actual conflict of

interest." (A39 (Dec. 21, 2000 Hrg. Tr.).) As the Court explained:
I think that the contractual relationship between Cerberus and the CEO, Mr. Crowley, did taint the process. . . I don't think I can confirm a plan based on that fact because I think that because of the process being tainted by this relationship which began in November of 1999, and perhaps in August of 1999, has so tainted the debtors' restructuring of its debt, the debtors' negotiations towards a plan, even the debtors' restructuring of its operations. . .

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. . . I think that the actions of Mr. Crowley to hide the relationship,
and I think that (his November 12 Personal & Confidential

letter to

FeinbergJ did show an intent to hide the relationship and to hide his request for additional compensation in Winterland in exchange for his efforts here did at least evidence that he, himself, believed that this relationship should not be disclosed and, therefore, did, in fact, taint his ability to serve as CEO of the debtor.
(A37, A39 (Dec. 21, 2000 Hrg. Tr.J See also 271 B.R. at 232 ("At the conclusion of

the

(December 2000J confirmation hearings, we found that Crowley's Consulting Agreement with
Cerberus created an actual conflict of

interest on his par. . . . We concluded. . . that (the

banptcy process J had been tainted by Crowley's actual conflct of interest. As a result, we

concluded that we were unable to find that the Debtors had proposed their plan in good faith.").

D. The Bankruptcy Courrs Denial Of Coram's Second Plan Of Reorganization

Because Of Crowley's Conflict Of Interest
Following the denial of the First Plan, a committee consisting of Coram's four

outside directors retained Goldin Associates as an independent restructuring advisor. 271 B.R. at
232. In its report, Goldin concluded that: (1) the full extent of Crowley's relationship with

Cerberus should have been disclosed to the Coram Board; (2) Crowley's failure to do so
constituted a breach of

his fiduciary duty to Coram; (3) Crowley advanced the interests of

Cerberus at Coram's expense by making the $6.3 milion cash payment to the Noteholders at a

time when Coram was considering banptcy and should have been conserving cash resources;
and (4) Coram suffered damages as a result of

Crowley's conflict. Id. at 233. Goldin made
reorganization, which included a $7.5 milion

recommendations concerning a second plan of

reduction in Crowley's bonus compensation. Id. Goldin's review did not, however, examine whether Crowley's actual conflict continued after December 2000. Id. at 234. In fact, Crowley
continued to receive his compensation of almost $1 milion per year under his Employment

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Agreement with Cerberus in the year after the First Plan had been rejected -- a fact that he did

not disclose to the Board members. See id.
Coram's outside directors decided to incorporate Goldin's recommendations into
Coram's second proposed plan of

reorganization ("the Second Plan"). Under the Second Plan,
Coram's stock; the shareholders would receive a $10 the revised plan; and the general

the Noteholders again would receive all of

milion cash distribution provided their class voted in favor of

unsecured creditors would receive approximately 40 cents on the dollar. Id. at 234. The Equity
Committee opposed the Second Plan, just as it had opposed the First Plan. Id.

In late 2001, the Banptcy Cour conducted hearings on the Second Plan over a
period of seven days. Once again, Crowley's conflct of interest was a critical issue explored at
the hearing. Crowley again testified at length regarding his relationship with Cerberus. Crowley

continued to be separately represented by the Pilsbury firm in connection with the Coram
banptcy matter. Between January 2001 and December 2001, Crowley personally paid

$203,595 in legal fees to the Pilsbury firm for its representation of

him relating to Coram. (See

A53 (Schedule of Attorneys' Fees).) his testimony during the second

Crowley's conflict was also a central focus of

confirmation hearing. Crowley admitted that Coram's Board did not know that he was being paid $80,000 per month at the time it approved his Employment Agreement with Coram. (A52

(Dec. 13,2001 Hrg. Tr.). He further testified that he did not recall telling Goldin that he was
continuing to receive $80,000 per month from Cerberus after confirmation of

the First Plan was

denied. (A51 (Sec. 13,2000 Hrg. Tr.). He was cross-examined at length concerning the stark
contrast between the testimony of Coram's outside directors that they were not aware that

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Crowley was continuing to be paid his salary by Cerberus until they were deposed by the Equity Committee, on the one hand, and Crowley's testimony that he had informed the outside directors

that he was stil being paid, on the other. (A43-A50 (Dec. 13,2001 Hrg. Tr.).) The Court
rejected Crowley's testimony.

After the conclusion of the confirmation hearing, the Banptcy Court again

concluded that it could not confirm the Second Plan because it was not submitted in good faith.

271 B.R. at 240. In the Court's view, "(n)othing, in fact, has changed since the first confirmation
hearing. Crowley continues to receive almost $1 milion a year from one of

the Debtors' largest

creditors, while serving as the Debtors' CEO and President. Under this agreement with
Cerberus, he is required to obey its instructions or risk having the agreement terminated and

losing his $1 milion. This is an actual conflict of interest, as we concluded at the first

confirmation hearing." Id. at 235.

In concluding that Crowley had an "actual conflct of

interest," the Bankptcy

Court made a number of specific factual findings that are relevant to this action:
the Debtors, has a fiduciary duty to the estate, which includes the duty of loyalty and an obligation to avoid any direct actual conflict of interest. In this case, Crowley's actual conflict of interest goes beyond the mere appearance of impropriety. Crowley cannot serve the interests of both the Debtors and a large creditor, Cerberus. Under the Consulting Agreement, Cerberus has the discretion to fire Crowley if he fails to follow its instructions, resulting in the loss of $1 milion per year in compensation to Crowley. That control over Crowley, and indirectly the Debtors, is simply not proper." Id. at 236.
Executive Officer and President of

. "Crowley, as Chief

. "Crowley asserts. . . that the Consulting Agreement with Cerberus dealt

not with his services as CEO of the Debtors but for work which he is performing for Cerberus in connection with another company, Winterland. We, quite simply, do not believe this. Crowley testified that he is working 'more than full time' on the Debtors' affairs for a base compensation of

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$650,000. This is in contrast to compensation of $1 milion allegedly for serving only as chairman of the board ofWinterland. We do not accept Crowley's assertion that his compensation from Cerberus under the Consulting Agreement is solely for his work for Winterland." Id.

· "Crowley himself demonstrated the insidious effect of (the J conflct when
he caused the Debtors to pay in cash, rather than Notes, the $6.3 milion interest payment due to the Noteholders immediately before the
banptcy fiing. Crowley's explanation that the payment was made to

maintain the Noteholders' support is unconvincing." Id.
. "Although Crowley testified that he told the Board of Directors that he continued to receive compensation from Cerberus, we do not credit that testimony. All of the directors testified in their depositions that he did not tell them (nor did they ask him) whether he continued to receive that compensation." Id. at 234 n.1 O.
. "As we noted in the first confirmation hearing, given the actual conflict of

interest, which the Debtors' CEO has, we are unable to conclude that any action taken by the Debtors which may impact on the rights of Cerberus were taken without any undue consideration of the interests of Cerberus." /d. at 237.
. "(TJhere is really no evidence that there was no harm resulting from

(Crowley's J conflict of interest. In fact, Mr. Goldin concluded that the Crowley's conflct because it caused a delay in confirmation of the Debtors' First Plan. . . . Furthermore, although Mr. Goldin concluded that the $6.3 millon payment to the Noteholders on the eve of banuptcy did not cause harm to the Debtors, we disagree. All reasonable advisors to companies contemplating a bankuptcy filing recommend that cash be conserved (not spent) on the
Debtors did suffer harm as a result of eve of

banruptcy. . ." Id. at 237-38.

. "(TJhere is absolutely no evidence from which the Cour can conclude that

the Debtors have suffered no har from Crowley's continued conflict of interest. Mr. Goldin's assertion that there must be no harm since the disclosure of the relationship was caused by Crowley when the relationship was hidden was not logical, nor is it borne out by the facts. Crowley did cause harm to the Debtors while his relationship with Cerberus was hidden and there is no reason to assume he did not cause harm to the Debtors when that relationship was disclosed." Id. at 238.
Just as it had the year before, Crowley's conflct of interest led the Court to "easily conclude
from the totality of circumstances surrounding the Second Plan that a continuous conflict of

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interest by the CEO of the Debtors precludes the Debtors from proposing a plan in good faith

under 1129(a)(3)." Id. at 240.
Finally, the Court determined that "Crowley's conflct of interest is a violation of
his fiduciary duty to the Debtors and estate and is so pervasive as to taint the 'Debtor's

restructuring of its debt, the Debtors' negotiations of its debt, the Debtors' negotiations towards a
plan, even the Debtors' restructuring of its operation,''' and that Coram's "hiring of

Goldin to

'sprinkle holy water on the situation' failed to cure the conflict or show good faith." Id. (quoting
Hrg. Tr. at 88, Dec. 21, 2000).

E. The Bankruptcy Court's Approval Of

The Trustee's Proposed Plan Of

Reorganization
After it rejected Coram's Second Plan, the Banuptcy Court granted a motion to
appoint Arlin M. Adams as Chapter 11 Trustee to oversee Coram's operations and assist the

company in proceeding through the reorganization process. See In re: Coram Healthcare Corp.,
315 B.R. 321, 328 (Ban. D. DeL. 2004). Subsequently, both the Equity Committee and the

Trustee fied reorganization plans. /d.
The Trustee's plan provided for a settlement with the Noteholders under which
they would agree to relinquish all of

their claims and interests and contribute $56 milion to
the company and a release from the Trustee of any

Coram's estate in return for ownership of

claims that Coram may have against them. Id. at 328. Crowley had by that time resigned as
Coram's CEO, so the problem of his conflict that had precluded confirmation of

the prior plans

was not present. In October 2004, the Banptcy Court confirmed the Trustee's reorganization
plan. /d. at 327. As part of

the confirmed plan, the Trustee specifically preserved his right to fie

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claims on behalf of Coram's estate (including the general unsecured creditors and former

shareholders) against Crowley. Id. at 337.

F. The Current Litigation

In accordance with the confirmed plan, the Trustee fied this suit against Crowley

for breach of his fiduciar duties.3 As alleged in the Complaint, Crowley owed Coram fiduciary
duties of care, loyalty, disclosure, and good faith, including the duty to avoid conflcts of interest

and to disclose actual and potential conflcts of interest. This action seeks damages for those
breaches.

Because the Bankuptcy Court's findings have preclusive effect and establish that
Crowley breached his fiduciary duties to Coram under Delaware law, the Trustee now moves for

summary judgment on liability. In the alternative, should the Court conclude that the preclusive
effect of

the Bankuptcy Cour's findings do not entitle him to judgment on liability against

Crowley, the Trustee requests that this Court deem the Bankptcy Court's specific findings of
fact to be established, so limiting the issues to be tried.

ARGUMENT

I. STANDARD OF REVIEW
Federal Rule of

Civil Procedure 56(a) provides: "A party seeking to recover upon

a claim. . . may. . . move with or without supporting affidavits for a summary judgment in the

3 This lawsuit also alleged that Coram's outside directors had breached their fiduciary duties to

Coram. On June 1, 2006, this Court entered an Order approving a joint stipulation and motion that entered judgment in favor of the Trustee and against the outside directors for $9.5 milion based on a settlement agreement that had been reached between the Trustee and the outside
directors. (D.1. 72.)

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party's favor upon all or any part thereof." To prevail on a motion for summar judgment, the

moving party must demonstrate "that there is no genuine issue as to any material fact and that the
moving pary is entitled to ajudgment as a matter oflaw." FED. R. CiV. P. 56(c). When the

moving party bears the burden of persuasion at trial, the moving pary must point to evidence in
the record that supports the movant's version of all material facts and demonstrates the absence
of any genuine issue of

material fact. Natl State Bankv. Fed. ReserveBank, 979 F.2d 1579,

1582 (3d Cir. 1992). If the movant has produced evidence in support of summar judgment,
then the opponent may not rest on the allegations set forth in its pleadings but must counter with
evidence that demonstrates a genuine issue of

fact. FED. R. CiV. P. 56(e). This, in turn, requires

the opponent to "set forth specific facts showing that there is a genuine issue for triaL." Id. Thus,

an opponent may not prevail merely by discrediting the credibility ofthe movant's evidence; it
must produce some affirmative evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,256-57
(1986).

II. THIS COURT SHOULD GIVE COLLATERAL ESTOPPEL EFFECT TO THE BANKRUPTCY COURT'S FINDINGS.
The standards for the application of collateral estoppel are well-established.

"When an issue of fact or law is actually litigated and determined by a valid and final judgment,

and the determination is essential to the judgment, the determination is conclusive in a

subsequent action between the paries, whether on the same or a different claim." Amtrak v. Pa.
Pub. Util. Comm., 288 F.3d 519, 525 (3d Cir. 2002) (quoting RESTATEMENT

(SECOND) OF

JUDGMENTS § 27 (1980)). The doctrine applies equally to a prior judgment arising from a

banuptcy court proceeding as it does to any other proceeding, Katchen v. Landy, 382 U.S 323,

334 (1966); Corestates Bank, NA. v. Huls Am., Inc., 176 F.3d 187,194-95 (3d Cir. 1999), and

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specifically applies to issues that were litigated in confirmation hearings. In re Kham & Nate's
Shoes No.2, Inc., 97 B.R. 420, 426 (Bankr. N.D. IlL. 1989).4 The primary purpose of

collateral

estoppel is to avoid relitigation of issues already adequately determined. 0 'Shea v. Amoco Oil

Co., 886 F.2d 584, 593 (3d Cir. 1989).

The requirements for application of collateral estoppel are: "( 1) the issue sought
to be precluded (is) the same as that involved in the prior action; (2) that issue (was) actually
litigated; (3) it (was) determined by a final and valid

judgment; and (4) the determination (was)

essential to the prior judgment." Amtrak, 288 F.3d at 525 (citations omitted). In addition, the
pary against whom the doctrine is to be applied must have had a "full and fair opportunity" to
litigate the issues sought to be precluded. Jean Alexander Cosmetics, Inc. v. L 'Oreal USA, Inc.,
458 F.3d 244, 249 (3d Cir. 2006); see also Studiengesellschaft Kohle, mbH v. USX Corp., 675 F.
Supp. 182, 186 (D. DeL. 1987).

As discussed above, on two separate occasions, the Bankptcy Court ruled on a
number of the issues currently pending before this Court and made a number of factual findings
with respect to those issues. Under the principles of collateral estoppel, Crowley cannot

relitigate the issues that already were resolved in Bankptcy Cour. The Banptcy Court's
2000 and 2001 opinions are discussed and summarized above. Based on those opinions, the
specific findings and issues that are entitled to collateral estoppel effect here are:

4 Collateral estoppel is an appropriate basis for granting summary judgment. See, e.g.,
McDowell v. DeL. State Police, Civ. A. No. 95-129, 1999 U.S. Dist. LEXIS 3105 (D. DeL. Nov.

15, 1999). Because the prior judgment here arises from a bankuptcy court proceeding, the
federal

law of collateral estoppel applies. See Harper v. DeL. Valley Broadcasters, 743 F. Supp. 1076, 1082 (D. DeL. 1990). However, the Delaware test for collateral estoppel is "substantially

the same as the federal standard." Id. at 1082 n.3.

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1. The employment agreement between Crowley and Cerberus whereby

Coram's largest creditors created an actual conflct on Crowley's par. (A37-A39 (Dec.
Crowley received almost $1 millon a year from one of

21,2000 Hrg. Tr.J); 271 B.R. at 235.
2. Crowley's actual conflict of interest tainted Coram's restructuring of

its

debt, its negotiations of a plan, and the restructuring of its operations. (A37-A39 (Dec. 21,2000 Hrg. Tr.J); 271 B.R. at 240.
3. Crowley did not disclose to Coram the terms of his agreement with

Cerberus. (A37-A39 (Dec. 21, 2000 Hrg. Tr.J); 271 B.R. at 231.
4. Crowley did not disclose to the Board of Directors the $6.3 milion cash payment to the Noteholders until after it had been made. 271 B.R. at 231.
5. After denial of

the first plan, Crowley continued to receive compensation from Cerberus. Id. at 234 n. 7.

6. After denial of

the first plan, Crowley did not inform the Board of Directors that he continued to receive compensation from Cerberus. Id.

7. Crowley's agreement with Cerberus required that Crowley obey the

instructions of Cerberus and Feinberg. Id. at 234-35.
8. Cerberus paid Crowley for his work for Coram. Id. at 236.
9. Crowley's conflct of interest was a violation of

his fiduciary duties to

Coram. Id. at 240.

A. Collateral Estoppel Applies To Crowley Because He Was A Party In The

Bankruptcy Proceedings And Had A Full And Fair Opportunity To Litigate The Issues Sou2ht To Be Precluded.
As a threshold matter, the principles of collateral estoppel apply to Crowley for
two reasons. First, he was a "party in interest" to both the 2000 and 2001 confirmation hearings.
Second, as Coram's CEO and the sponsor of

both the First Plan and the Second Plan, Crowley's

interests were totally aligned with Coram's interests. Therefore, Crowley was in privity with
Coram. In order to pursue its proposed plans of reorganization, Coram had to -- and did -litigate the issue of Crowley's conflict.

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The Bankptcy Code defines a "party in interest" to include "the debtor, the
trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity

security holder, or any indenture trustee." 11 U.S.C. § 1109(b) (2005). A pary in interest "may
raise and may appear and be heard on any issue in a case under this chapter." Id.

Crowley was a "party in interest" because, having fied proofs of claim in the

Coram bankptcies, he was a creditor of the bankptcy estate. Therefore, he had the right to
paricipate in the proceedings to the extent he wished. (By way of example, the Noteholders --

who were also creditors -- were represented by counsel and participated fully in both

confirmation hearings.) As noted, Crowley's personal counsel was in the courtroom when
Crowley testified on cross-examination during the confirmation hearings on the First Plan. Crowley could have had his counsel participate in all of the proceedings, much as the

Noteholders did. That is precisely the opportunity to litigate an issue that is required by the
collateral estoppel doctrine.

In order for collateral estoppel to apply, it was not necessary that Crowley have

his personal counsel attend each and every moment of the hearings, which would have just
duplicated the efforts of Coram's counseL. Crowley testified for two days at the first

confirmation hearing and for one day at the second confirmation hearing. He literally took
extensive advantage of the opportunity to advocate his position that he did not have a conflict of

interest and that he was not paid by Cerberus for his work at Coram. The fact that he lost -twice -- does not mean that he was deprived of

the opportunity to prevaiL.

Moreover, as CEO, Crowley sponsored both plans and his interests were

completely aligned with Coram's. Therefore, he stood in privity with Coram. Coram as debtor-

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in-possession would be estopped from contesting the findings of the Bankptcy Cour. Because

Crowley's interests were identical with Coram's, he is also estopped -- even putting aside the
fact that he was a pary himself. See Bruszewski v. United States, 181 F.2d 419,423 (3d Cir.

1950). In a bankruptcy proceeding, the debtor's president is deemed to be adequately

represented by the company. United States v. Schnick, 66 B.R. 491, 494 (Bank. W.D. Mo.
1986) (citing Pollardv. Cockrell, 578 F.2d 1002 (5th Cir. 1978)). Collateral estoppel prevents not only paries from relitigating issues adjudicated in
a prior action, but also those who stand in privity with a party. See DeL. River Port Auth. v. FOP,
Penn-Jersey Lodge 30, 290 F.3d 567,572 (3d Cir. 2002) ("Under the doctrine of

issue

preclusion, a determination by a court of competent jurisdiction on an issue necessary to support
its judgment is conclusive in subsequent suits based on a cause of action involving a party or one

in privity."). See Horwitz v. Alloy Auto. Co., 992 F.2d 100,103 (7th Cir. 1993); see also In re
Teltronics Servs., Inc., 762 F.2d 185, 190 (2d Cir. 1985) (finding founder, president, chairman

and shareholder of Chapter 11 company to be in privity, and therefore barred from litigating

previously-litigated claims); In re Heritage Hotel P'ship I, 160 B.R. 374, 377 n.4 (B.AP. 9th
Cir. 1993) (recognizing that paries subject to the res judicata effect of a Chapter 11 plan include
creditors, equity holders, principals of

the debtor, and parties in privity or successors in interest).

Coram's objective was to have its plans of

reorganization confirmed. In order for

those plans to be confirmed, Coram had to persuade the Bankptcy Cour that Crowley's
relationship with Cerberus did not preclude a finding that the plans had been submitted in good

faith. Coram vigorously litigated its position that Crowley did not have a conflict through
testimony, briefing, and argument. Coram lost. Crowley is now estopped from relitigating the

question because he was in privity with Coram.
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B. The Issues Sought To Be Precluded Are The Same As The Issues In The

Prior Bankruptcy Court Action.

The issues that were litigated before the Bankptcy Court are the same as the
issues now before this Court. "Identity of issues is established by showing that the same general
legal rules govern both cases and that the facts of both cases are indistinguishable as measured
by those rules." Suppan v. Dadonna, 203 F.3d 228,233 (3d Cir. 2000) (quoting 18 CHARLES

ALLAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE § 4425, at 253 (1981)). A slight
difference in legal standards is not sufficient. To defeat a finding of identity of

the issues for

preclusion purposes, the difference in the applicable legal standards must be substantiaL. Ray

tech

Corp. v. White, 54 F.3d 187, 191 (3d Cir. 1995).

At both confirmation hearings, the most critical

legal issue before the Bankptcy

Cour was whether Coram had proposed its plans of reorganization in good faith as required by
11 U.S.c. § 1129(a)(3). In order to make that determination, the Bankptcy Cour had to ensure

that the plan was "proposed with honesty, good intentions and a basis for expecting that a
reorganization can be effected with results consistent with the objectives and purposes of the

Banptcy Code." 271 B.R. at 234 (internal citations and quotations omitted).
The Bankptcy Court denied confirmation of both plans because the Court found
that Crowley's relationship with Cerberus constituted an impermissible conflct of interest that
precluded the Court from concluding that Coram's proposed plans of

reorganization had been

submitted in good faith. In reaching the conclusion that Crowley had an actual conflct of

interest, the Banuptcy Court considered the very same facts and evidence upon which the
Trustee would rely, should there be a need for trial here.

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C. The Issues Sought To Be Precluded Were Actually Litigated In The Prior

Bankruptcy Court Action.
As discussed above, whether Crowley had a conflict of interest was actually

litigated in the Bankptcy Court in connection with the confirmation hearings on both the First
Plan and the Second Plan. At the conclusion ofthe hearing on the Debtor's First Plan, the
Bankptcy Court concluded that Crowley had an actual conflct of interest "by virtue of

the fact

that he had a separate employment contract with one ofthe Debtors' largest creditors under

which he was being paid almost $1 milion per year." 271 B.R. at 234-35. Because the Cerberus
Employment Agreement required that Crowley obey the instructions of Cerberus and because the compensation being paid him under that Agreement was not insubstantial, the Court concluded
that the Agreement created an "actual conflct of

interest." Id. at 235.

As to the Debtor's Second Plan, the Bankptcy Court published a detailed
opinion setting forth numerous specific factual findings that are at issue in this litigation. The

Banuptcy Court considered that Crowley, as CEO and Chairman of Coram, had a fiduciary
duty to the estate, which included the duty of loyalty and an obligation to avoid any direct actual

conflct of interest. Id. at 236. It considered testimony from Crowley on his actual conflct and
his relationship with Cerberus. See id. at 235-236. It specifically restated its position that the
relationship between Crowley and Cerberus is an actual conflict and "is simply not proper." Id.
at 236. And the Banptcy Court specifically found that "Crowley's conflct of interest is a
violation of

his fiduciary duty to the Debtors and estate." Id. While Crowley may not agree with

the findings of the Banuptcy Court, he canot argue that the issues related to his actual conflict
were not litigated and considered by that Cour.

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D. The Bankruptcy Court's Decisions Are Valid And FinaL.

The "concept of finality for puroses of' collateral estoppel does not require the
entry of a judgment final in the sense of being appealable'; rather, collateral estoppel applies

'whenever an action is suffciently firm to be accorded conclusive effect. ", Burlington N R.R.
Co. v. Hyundai Merchant Marine Co., Ltd., 63 F.3d 1227, 1233 n.8 (3d Cir. 1995) (quoting In re
Brown, 951 F.2d 564,569 (3d Cir. 1991)). The requirement of

finality, for puroses of collateral

estoppel, is a more "pliant" concept than it is in other contexts. First Jersey Nat. Bank v. Brown
(In re Brown), 951 F.2d 564,569 (3d Cir. 1991) (citing Dyndul v. Dyndul, 620 F.2d 409,412 (3d

Cir. 1980)). "Finality 'may mean little more than that the litigation of a particular issue has
reached such a stage that a court sees no really good reason for permitting it to be litigated
again.'" Dyndul, 620 F.2d at 412 (quoting Lummus Co. v. Commonwealth Oil Refinery Co., 297
F.2d 80,89 (2d Cir. 1961)).

The Banptcy Court's 2000 and 2001 decisions are sufficiently firm to be given

preclusive effect. In 2000, the Court denied confirmation, after making extensive findings on the
record. In 2001, the Court again denied confirmation, issuing a twenty-five page written opinion

that provided detailed reasons for its decisions. The Bankptcy Court then confirmed the
Trustee's proposed plan of

reorganization in October 2004. The Equity Committee appealed the
the plan in both

Banuptcy Court's ruling and unsuccessfully sought to stay implementation of

the District Court and the Third Circuit. (After the Third Circuit denied the Equity Committee's
stay request, it withdrew its appeaL.) Accordingly, the Banptcy Court's 2000 and 2001

decisions clearly are final decisions for puroses of collateral estoppel.

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E. The Determination Of

The Issues Sought To Be Precluded Were Essential To The Bankruptcy Court's Jud2ment.

An issue deemed necessary to the resolution of the case is one that is vigorously

contested by the parties and, therefore, it is fair to give preclusive effect to such issues. See Jean
Alexander Cosmetics, 458 F.3d at 250. The necessity rule ensures that collateral estoppel is

applied only to those issues that receive the court's close attention. Id. A fact is considered
necessary to a judgment when, without the fact, the judgment would lack sufficient factual
support to sustain the judgment. Ray

tech Corp. v. White, 54 F .3d 187, 193 (3d Cir. 1995). A

court faced with collateral estoppel issues should look to whether the issue decided by the first

court was critical to the judgment or merely dicta. See Amtrak, 288 F.3d at 527.
interest was essential to the

As discussed above, the issue of

Crowley's conflct of

Bankptcy Court's denial of Coram's proposed reorganization plans in both 2000 and 2001;
indeed, it was the sole reason for the Court's denial of the plans. In denying confirmation of

the

First Plan, the Bankruptcy Court found that it could not conclude that the plan had been

submitted in good faith because "I think that the contractual relationship between Cerberus and

the CEO, Mr. Crowley, did taint the process, and I think that, if anything, the ultimate fairness of

the process in banruptcy is a paramount principle to be protected by the Banptcy Court."
(A37 (Dec. 21, 2000 Hrg. Tr.). In denying the Debtor's Second Plan, the Court again

emphasized that it was Crowley's conflict of interest that prevented confirmation:

As we noted in the first confirmation hearing, given the actual conflict of interest which the Debtors' CEO has, we are unable to conclude that any action taken by the Debtors which may impact on the rights of Cerberus were taken without any undue
consideration of

the interests of Cerberus. Consequently, we must

once again deny confirmation of the Debtors' Plan because we are

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unable to determine under all of the circumstances that the Debtors' Second Plan has been proposed in good faith.
271 B.R. at 237; see also id. at 240 ("We easily conclude from the totality of

the circumstances

surrounding the Second Plan that a continuous conflict of interest by the CEO of the Debtor
preclude the Debtors from proposing a plan in good faith under 1129(a)(3).").

Clearly, the reason that the Banptcy Cour concluded that the proposed plans
of reorganization were not submitted in good faith -- the question before it -- was because
Crowley had an actual conflict of

interest. The Court's determination that Crowley had a

conflct of interest was essential to its determination that both plans failed to meet the
requirements of Section 1129(a)(3) of

the Bankptcy Code.

III. THE BANKRUPTCY COURT'S FINDINGS THAT ARE TO BE GIVEN PRECLUSIVE EFFECT ENTITLE THE TRUSTEE TO SUMMARY JUDGMENT
ON LIABILITY.

As detailed above, the Banptcy Cour's findings related to Crowley's conflict

of interest and breach of fiduciary duty are binding here. Those findings establish that the
Trustee is entitled to summary judgment on liability.

Under Delaware law, corporate directors and officers "are charged with an
unyielding fiduciary duty to protect the interests of the corporation and to act in the best interests
of its shareholders." Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 360 (DeL. 1993). The
Delaware Supreme Court has articulated a "triad" of

these fiduciary duties: due care, loyalty,

and good faith. Emerald Partners v. Berlin ("Emerald Partners II''), 787 A.2d 85, 90 (DeL.
2001); see also McMulln v. Beran, 765 A.2d 910, 917 (DeL. 2000); Malone v. Brincat, 722 A.2d
5, 10 (DeL. 1998); Cede, 634 A.2d at 361.

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Crowley had a duty of loyalty "to act in the best interests of the corporation and

its shareholders and in a maner such that there would be 'no conflct between (his J duty and
(hisJ selfinterest.'" ATR-Kim Eng. Fin. Corp. v. Araneta, Civ. A. No. 489-N, 2006 DeL. Ch.
LEXIS 215, at *57 (DeL. Ch. Dec. 21, 2006) (quoting Guth v. Loft, Inc., 5 A.2d 503,510 (DeL.

1939)). "(TJhe duty ofloyalty precludes (a fiduciaryJ from accepting any position in actual
conflct with the interests of

the corporation." In re Integrated Health Servs., Inc., 258 B.R. 96,

102 (Ban. D. DeL. 2000). "There is no 'safe harbor' for such divided loyalties in Delaware."
Weinberger v. UOP, Inc., 457 A.2d 701, 710 (DeL. 1983).

Furhermore, the officers and directors of a debtor in possession in a Chapter 11

case owe the same fiduciary duties as a trustee, including a duty of loyalty to the banptcy
estate. In re Performance Nutrition, Inc., 239 B.R. 93, 111 (Bank. N.D. Tex. 1999); In re

Insulfoams, Inc., 184 B.R. 694,703 (Bank. W.D. Pa. 1995). The duty ofloyalty includes an
obligation to "avoid self-dealing, conflicts of interest and the appearance of impropriety." In re

Bowman, 181 B.R. 836,843 (Bank. D. Md. 1995); see also In re Hampton Hotel Investors, L.P.,
270 B.R. 346, 362 (Bankr. S.D.N.Y. 2001). The insider of a debtor in possession "cannot

adequately serve two masters." In re Tel-Net Hawaii, Inc., 105 B.R. 594, 595 (Ban. D. Haw.
1989).

The Bankptcy Cour determined that "Crowley's conflict of interest is a
violation of

his fiduciary duty to the Debtors." 271 B.R. at 240. As set forth above, that finding

is binding in this case and entitles the Trustee to summar judgment on liability.

Even if the Bankptcy Court had not made the specific determination that
Crowley had breached his fiduciary duty, the underlying factual findings of

the Banptcy

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Court -- which are preclusive and so cannot be contested here -- clearly demonstrate that

Crowley breached his fiduciary duties to Coram. Crowley had an actual conflct of interest
because he: (1) was employed by Cerberus, one of

Coram's largest creditors; (2) was

contractually obligated to devote his entire business time, attention, skil and energy, to
Cerberus, not Coram; (3) could be terminated by Cerberus ifhe disobeyed its instructions; and

(4) was compensated by Cerberus for services that he rendered to Coram. As the Bankptcy
Cour found, Crowley's conflct necessarily tainted every action that Crowley took or did not
take at Coram, every decision he made, every step of

the way. The Banuptcy Court further

determined that Crowley intentionally failed to disclose the conflct. Consequently, summary
judgment should be entered against Crowley on the issue ofliability.5

iv. IN THE ALTERNATIVE, THIS COURT SHOULD DEEM THE FACTS THAT THE BANKRUPTCY COURT FOUND TO BE ESTABLISHED FOR PURPOSES OF THIS LITIGATION.
As set forth above, the Banptcy Court ruled on two occasions on a number of

the issues that are currently pending before this Court, and made a number of factual findings

that are identical to facts that the jury would have to find here. It is for those reasons that the

Trustee believes he is entitled to summary judgment on liability. However, should this Court
disagree with the Trustee that the preclusive effect of

the Bankuptcy Court's findings entitle him

to judgment, then, at the least and in the alternative, the Court should deem the Bankptcy
Court's factual findings to be conclusively established for purposes of

this action.

5 As noted above, the Trustee's Complaint also asserts that Crowley breached other fiduciary

duties in addition to the duty of loyalty, but does not seek summary judgment for those other breaches.

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Federal Rule of Civil Procedure 56( d) provides the procedural mechanism by

which this Court can so limit the issues to be tried. That rule provides that a court may "make an
order specifying the facts that appear without substantial controversy. . .. Upon the trial of

the

action the facts so specified shall be deemed established, and the trial shall be conducted
accordingly." FED. R. CiV. P. 56(d).6 The rule "empowers the court to withdraw some issues

from the case and to specify those facts that really canot be controverted." Cohen v. Bd. Of
Trustees of

the Univ. of Med. and Dentistry and Dentistry ofNJ, 867 F.2d 1455, 1463 (3d Cir.

1989).

The specific facts that this Court should deem established pursuant to its authority
under Rule 56(d) are (as set forth also supra at pages 16):

1. The employment agreement between Crowley and Cerberus whereby

Crowley received almost $1 milion a year from one of Coram's largest

6 Federal Rule of

Civil Procedure 56(d) provides in full:

If on motion under this rule judgment is not rendered upon the whole case or for all the relief asked and a trial is necessary, the court at the hearing of the motion, by examining the pleadings and the evidence before it and by interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted.

It shall thereupon make an order specifying the facts that appear without substantial controversy, including the extent to which the amount of damages or other relief is not in controversy, and directing such fuher proceedings in the action as are just. Upon the trial of the action the facts so specified shall be deemed established, and the trial shall be conducted accordingly.

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creditors created an actual conflct on Crowley's part. (A37-A39 (Dec.
21,2000 Hrg. Tr.J); 271 B.R. at 235.
2. Crowley's actual conflict of interest tainted Coram's restructuing of

its

debt, its negotiations of a plan, and the restructuring of its operations. (A37-A39 (Dec. 21,2000 Hrg. Tr.J); 271 B.R. at 240.
3. Crowley did not disclose to Coram the terms of

his agreement with Cerberus. (A37-A39 (Dec. 21, 2000 Hrg. Tr.J); 271 B.R. at 231.

4. Crowley did not disclose to the Board of Directors the $6.3 milion cash payment to the Noteholders until after it had been made. 271 B.R. at 231.
5. After denial of

the first plan, Crowley continued to receive compensation from Cerberus. Id. at 234 n.7.

6. After denial of

the first plan, Crowley did not inform the Board of Directors that he continued to receive compensation from Cerberus. Id.

7. Crowley's agreement with Cerberus required that Crowley obey the

instructions of Cerberus and Feinberg. Id. at 234-35.
8. Cerberus paid Crowley for his work for Coram. Id. at 236.
9. Crowley's conflct of interest was a violation of

his fiduciary duties to

Coram. Id. at 240.

27

Case 1:04-cv-01565-SLR

Document 129

Filed 04/17/2007

Page 35 of 35

CONCLUSION
For all of

the reasons set forth above, the Trustee respectfully requests that

summary judgment be entered in his favor and against Defendant Crowley on the issue of

liability. In the alternative, the Trustee respectfully requests that the specific facts found by the

Banptcy Court and outlined above be deemed established for purposes of this litigation.

Respectfully submitted,

Dated: April 17, 2007

Isl Michael 1. Barrie Richard A. Barkasy (#4683) Michael 1. Barie (#4684) SCHNADER HARRISON SEGAL & LEWIS LLP 824 Market Street Mall, Suite 1001 Wilmington, DE 19801 (302) 888-4554 (telephone) (302) 888-1696 (telecopier)
mbarrie(ischnader. com

OF COUNSEL:

Bary E. Bressler (admitted pro hac vice)
Wilbur L. Kipnes (admitted

pro hac vice)

Nancy Winkelman (pro hac vice admission pending) SCHNADER HARRISON 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 PostCORAM HEALTHCARE CORP. and CORAM, INC
Confirmation Bankruptcy Estates of

28