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FWA
few ihaughis
Page
of2
Crowley From
Sent
Dan
Dan
2003
Crowley
Friday March07 Scott Schreiber
1115AM
To
Subject
FW
Few
thaughts
Dan
-----Oiiginal
Message
Will
From
Sent
Kipnes Thursday
xnailto
March
06
[email protected] 2003 256 PM
To
Crowley
Dan
few thaughts
Subject
Dear
RE
Dan
the
appreciate ruling leave
it still
sentiment
very
much
legal
We
did
the
very
best
we could
was shockedand disappointed
by
at
the
to
dont
undersland.the
underpinnings
Not wishing lobe deposed
Mr Levy
think
it
best
that
wish you
all
the
best.
l.know
you
wont be down
for
long
Wilt
--Oi1ginai
Message
From Crowley Sent Thursday
Dan
March
06
2003
540 PM
[email protected]
To Cc
[email protected]
Scott
Schreiber
[email protected]
Subject
RN
few thaughts
1-ugh
Importance
Dear
Judge
Adams Mr
Breeder
and
Mr
lipnes
First
want
to the dearly
personafly
thank you
situation to
for the the
professional that
thoughtful related to
approached because always always
Coram
wished
and
the
Motions
through
me
other
and
sincere
manner
in
which
the
you outcome
will
am
side
most sad about leading
see
process
and be on the
Coram
So
first
You
and
have
my deepest
thank
respect
and
admiration
fur the
way you handled
everything
you
to rely
Secondly
professional
want
you
upon
the
fact
that
it
is
my
intention
to
depart
Coram
thing to
in
the
most
respectful
its
and
people
positive
manner.
important
Simply said work
that
earnestly
wish every you
in
good
efforts
for
Coram
mission
its
wonderful Chapter
and
the
remains
for
your
help
Comm
emerge from
11
fairly
have
received
several
notes
like
the
one
below
EXHIBIT
ban Crowley
______
3/7/2003
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rW
few ihaughis
Page
of
----Original
Message
From MaxsonBen Sent Thursday March
06
2003
1059
AM
To
Crowley
Dan
few thaughts
Subject
Dear
Mr
Crowley
am
because
ol
sure
was
not
the
only
one
dissapointed
by todays
news
came
to
Comm
not
only
the dedication
outstanding
reputation
It
had
in
the
Infusion
Industry
but
because
saw
the
hard work
and
each
person
had
that
woiked
for
the
company
People
dont
put
in
long hours
and
weekends
unless
they
really believe
in
something
After
working
here
for
over
year
learned what
each
manager
believed
in
IT
WAS YOU
You have
he
talent
to
inspire
people
could
see
it
not
only
through
my boss Debbie Meyer
but
through
your
Senior
Management
Team
which
someday
aspired
to
be
part
ofi
Companies which
put
are macfe
up
of
people
An employee
is
only
as
strong
as
the
person
above
them
lot
of responsability
on
you
No
matter
how we
spin
this
this
company
will
not
be
the
same
without
you
Please
take
my
heart
felt
thanks
for giving
.me
job
when
needed
it
most thank you
for believing
in
mewhen
was on
with and
for
the
road
kept saying
cant
let
people
down
and
for giving
me
the
opportunity
to
work
you
truly
hope
may have
the
opportunity
to
work
for
you again
someday
With deepest
appreciation
Warm Regards
Ben Maxson
3fl/2003
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IN
TIlE
UN1TED STATES BANKRUPTCY COURT FOR THE DESTRICT OF DELAWARE
IN
RE
and
Chapter 11
CORAM HEALTHCARE CORP CORAM INC
Debtors
Case Nos
00-3299
through 00-3300
MFW MFW
Under
Jointly
Administered
00-3299
________________________________________
Case
No
MEW
EXPERT
REPORT
OF JERO1E
SHESTACK ESQUIRE
Dated
September
2003
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Scope
of
Engagement
been
retained
as
testiting expert by
theChapter
11
Trustee
of the
Debtors Arlin
.M Adams
in
order
to
ascertain
whether
the
proposed
settlement
of
Coram
Healthcare
Corporations
and
Coram
Inc.s
collectively
Coranf
Credit
potential
claims
against Cerberus
Partners
L.
CCerberus
Goldman
Sachs
Partners
L.P
Goldman Sachs
Feinberg
Foothill
Capital
Corp Foothill
of Cerberus
collectively
the
Noteholders
reaionable
and Stephen
Feinberg
the
CEO
is
within
the
range
of
settlements
The Proposed
The
Noteholders
Settlement
and
the
Trustee
have
entered
intO
plan funding
and
settlement
agreement
which
entails
the
Noteholders
providing
financing
to
Coram
in the
amount
of
approximately
$56 million
dollars
to
fund
the Trustees
plan
in
exchange
for
release
of
all
claims
against
the
Noteholders
and
Fcinberg
The Trustee
estimates
that
after
making
all
payments pursuant
to his
plan approximately
$28
million
dollars
will
be
paid
to
the
equity
shareholders
The Noteholders
will
become
the
sole
shareholders and
sole
holders
of
the
indebtedness
of Reorganized
Coram
The Equity Committee
believes
that
this
proposed
settlement
is
not
reasonable
in light
of
its
belief
that
Corain
has
been damaged
by
the
actions of
the
Noteholders
Feinberg
and
others
in
the
amount
of
$320
million dollars which
could
potentially
be
trebled
under
RICO
Further
the
Equity
Committee
believes
the
settlement
is
worth
less
than
$56
million
dollars
because among
other things
$10 million
dollars
of
the
proposed
settlerneniwill
be
retained
by Coram
as
working
capital
which
will
revert
to the
Noteholder
as
they
will
be
the
owners of the
reorganized
Coram
and
the
Noteholders
will
be
entitled
to
recover
the
proceeds
of pending
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litigation
as
well
as
proposed
litigation
against
Crowley and
the
othe.r
directors
The Trustee
notes
that
the
Noteholders
are
also
waiving
their
right
to
be
paid
the.current
amount oftheir loan
which
is
worth
approximately
$9 million dollars
Moreover
have
been
advised
that
the
Trustee
will
be
amending
his
plan
to
provide
the
equity
shareholders
with
any recovery
achieved
by
Corarn
attributable
to
pending
litigation
or
claims
against
Crowley and other directors
IlL
Credentials
have
been
in
private
practice
since
1955
My
the
practice
has concentrated
on
complex
commercial
trial
and
appellate
litigation
around
nation
have extensive
trial
experience
and
have
also
settled
hundreds
of cases
am
listed
in
more than 200
opinions
as
trial
or appellate
counsel
Currently
am
the chair of
the
Litigation
Department
of
Wolf Block
Schorr
and
Solis.Cohen
LLP
in
Philadelphia
was President
of the American
BarAssociation
during
1997
1998
My
curriculum
vitae
is
attached
as
Exhibit
which
sets
forth
my
credentials
in greater
detail
IV
Documents
Reviewed
have
reviewed
the following
materials
in
connection
with
my opinion
First
December
21 2000 172001
Transcript
of Closings
and
R.ulings
rL
Confirmation
Hearings
December
Transcript
of Closings
re Second
Confirmation
Hearings
December21 2001
Opinion
Denying
Confirmation
of
Second
Plan
May 62002 Memorandum
Subject Legal Issues
from
David
Bradford
to
File
re
In
re
CorajnHealthcare
re Proposed
Complaint
May 10 2002 May 20 2002
Draft
of Proposed
Complaint
Draft
of Proposed
Complaint
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May 29 2002 Memorandum
Tomashefsky
Healthcare
to
from Richard
Levy
David
Bradford Wilbur
Kipnes
Steven re Corarn
Non
Arlin
Adams
Barry
Bressler
Corporation
June
2002
CerberusJteinberg
Memorandum
in
Opposition
to
Proposed
Derivative
Complaint
9.
June
19 2002 Memorandum
Committees
Draft
from Weil
Gotshal
Manges
LLP
re Responseto
Sachs
the
Equity
Complaint Alleging
Corporation
Claims
against
Goldman
Credit
Partners
LP
and
Foothill Capital
10
Appendix Complaint
of Exhibits
to
GSCPs
and
Foothills
Response
to the
Equity
Committees
Draft
11
July
10 2002
Letter
from Boris Feldman
of
to
Hon
A.rlin
Adams re Coram
Healthcare
Corporation
review
Proposed Derivative
Complaint re Coram
12
August
14 2002
Letter
from
Scott
Schreiber
to
Barry
Bressler
Healthcare
Corporation
13
August
2002
Comments
to
Responses
to
Draft
Complaint
14
Equity Plan
Committees
Disclosure
Response
Statement
to
Cerberus dated
Paithers
First
Set of
Intertogatories
Regarding
and
April25
2003
15
quity
Committees
First
Supplemental
Responses
to
Cerberus
First
Set of
Interrogatories
dated
June
2003
16
Equity
Committees
Response
to
Fcinbergs
First
Set of
Interrogatories
dated
April
25
2003
17
Equity
Committees 2003
Amended Response
to
Feinbergs
Interrogatory
Number
Four
dated
May27
18
Equity
Committees
Second
Amended
Response
to
Feinbergs
Interrogatory
Number
Four
19
Plan
of Reorganization
Creditors
Valuation of Corain
Analysis
Presentation
to
the
Official
Committee December
of
Unsecured 2000
Healthcare
Corp
and
Coram Inc
dated
11
Prepared
by
UBS
Warburg of December L.P
20
Coram
I-Iealthcare
Corporation
Enterprise B.emiss
Valuation and
Analysis Capital
as
112002
Prepared
by
Ewing
Monroe
Co
SSG
Advisors
21
Coram
Behalf
11
Healthcare of
the
Corporation
Valuation of Equity
Analysis Security
as of
March
in
31 2003
Connection
Prepared with
on
Official
Committee
Holders
Chapter
Bankruptcy
Proceedings
by Deloitte
Touche
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22
May
2003
Disclosure
Statement
with
Respect
to
the
Chapter
ii
Trustees
Joint Plan
of
Reorganization
23 24
June
17 2003
Chapter
11
Trustees
Amended
Joint
Plan
of Reorganization
June
24 2003 Second
Amended
Amended
Disclosure
Statement
with
Respect
to
the
Chapter
Trustees
Joint
Plan of Reorganization
25
December
Holders of
19 2002 Coram
Disclosure
1-Iealthcai-e
Statement
of
the
Official
Committee
of Equity
Security
Corp
and
Coram Inc
the
26
May 15 2003
in
Disclosure with
the
Statement
of
Equity
Committee
of of
Coram Coram
Healthcare Healthcare
Corp Corp
Connection
First
Amended
Plan
of Reorganization
and
Corani Inc
27
June
17 2003 Second
Security Holders
Amended
of
Plan
of Reorganization
of
the
Official
Committee
of
Equity
Coram Healthcare
Disclosure with the
Corp
and Corarn Inc Committee Coram
of
28
June
24 2003
Third
in
Amended
Connection and
Statement
of
the
Equity
of
Healthcare
Corp
Second
Amended
Plan of Reorganization
Coram
Heahhcare Corp
Coram Inc
Support
for
.29
CoramlBankniptcy March
Documentary
Complaint
BCW
Undated
In
30
28 2003
Adversary
Complaint Inc
for
Equitable
Subordination-
me Corarn
Holders Credit
Healthcare of
.Corp and
Healthcare
Comm
The
Official
Committee
of Equity Security Sachs
Coram
Corporation Capital
Cerberus Corporation
Partners
L.P Goldman
Partners
L.P and
Foothill
31
December
Daniel
2000 Transcript Crowley
of Proceedings
Cross
of Bernard
Pump
Direct
of
32
December Crowley
15 2000
Transcript
of Proceedings
CrossfRedirectfRccross
of Daniel
33
December Crowley
13
2001
Transcript
of Proceedings
Cross/Redirect/Recross
of Daniel
Direct
of Daniel
Lynn
-.DirectfVoir Dire/CrossfRecross of Daniel
34
December
Fischel
14
2001
Transcript
of Proceedings
35
March
2003 Transcript
of Trustees
Motion -Testimony of Arlin
Adams Daniel
Jay
Crowley Michael
Saracco Deborah NI
Meyer
Vito
Ponzio
and
Victor
ArgumentfRebuttalfDecision
36 37
November
28 2000
2001
Deposition
Transcript
of Stephen
Feinberg
November
Deposition
Transcript
of Stephen
Feinberg
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38 39 40 41 42 43
.44
Decemberl
October
2000
Deposition
Transcript
of Daniel
Crowley
25
2001
Deposition
Transcript
of Daniel
Crowley
February
27
2003
Deposition
Transcript
of Daniel
Crowley
December
2000
Deposition
Transcript
of
Don Arnaral Don Amaral
December
20
26
2000
Deposition
Transcript
of
October
2001
Deposition
Transcript
of
Don Amaral
of Peter
September 24 2001 September 28 200 September 29 2001 December
Deposition
Transcript
Smith
45 46 47 48 49
Deposition
Transcript
of William
Casey
Deposition
Transcript
of Sandra
Smoley
13
2001
Deposition
Transcripts
of DanieL
Fischei
Vois
and
II
February
25 2003
Deposition
Transcript
of
I-Ion
Arlin
Adams
Advisor Goldin
September 42001 Updated Report L.L.C Associates
of Independent
Restructuring
Procedural
Background 2000
and
also
Corarn
filed
voluntary
petition
for relief
under
Chapter
ii
August
flied
aJoint
Plan
of Reorganization
The
Joint
Plan
would
have given
ownership
of
Coram
to
the
Noteholders
paid $2 million
dollars
to
the
general unsecured
creditors
of Corarn
Healthcare
Inc whose claims
totaled
approximately
$7.66
million dollars
and
allowed
the
claims
of
Coram
Inc.s
general unsecured
creditors
to
pass
through
the
bankruptcy
unimpaired
It
did not provide
any
recovery
to
the equity
shareholders
Ob December
21 2000
the
Court
rejected
the
Joint
Plan.flnding
that
it
had
not
been
proposed
in
good
faith
because
the
then
CEO
of
Coram
Daniel
Crowley had
conflict
of
interest
due
to his
relationship
with
one of
the
Noteholders
which
had
not been
disclosed
to
Coram
Corarn
subsequently
filed
Second
Plan
of Reorganization
The
Second
Plan
provided
that
$10 million
dollars
would be paid
to
the
equity
shareholders
if
they
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voted
in
favor of
the
plan
The
creditors
would
have
been
paid
in
full
and
the
Noteholders
would
have
ownership
of
the
reorganized
Coram The
majority of
the
shares
were
not voted
in
favor
of
the
plan and
second
contested
confirmation
hearing
was held
in
December
of200l
On
December
212001
the
Court refused
to
confirm
the
Second
Plan
finding
that
nothing had
changed
since
the
First
Plan
as
Crowleys
conflict
of
interest
continued
The Court appointed
Arlin
Adams the Trustee
Plan of Reorganization
as
Coranis Chapter
II
Trustee
on
March
2002 The
amended
Trustee
filed
Joint
on May
2003
which was
subsequently
on June
17 2003
The proposed
settlement
will
be
used
to
fund
the
Trustees
Amended
Joint
Plan
of
Reorganization
In
December
of
2002
the
Equity
Committee
also
filed
its
own
plan of
reorganization
which
has been
amended
twice
The Equity Committees
plan proposes
to
make
the
same payments
to
creditors
as
the
Trustees
plan
and
will
fund
the
plan by borrowing
fUnds
if
necessary
VI
Background
Regarding
Proposed
Claims
The Equity Committee
both
in
its
disclosure statements
and
in
draft
complaint
ii
prepared
contends
hat
the
Noteholders
engaged
in
scheme
to
steal
Coram
that
began
in late
1991
or
early
1998
The Noteholders
had
inkially
bought
the
existing
debt
of
Corain valued
at
$250
million dollars
in
April
of 1997
In
early
1998
Donald Arnaral
then
Corams
CEO
CEO
to
sought
to
restructure
the
debt
due
to
Corams
poor
financial
condition
Feinberg
the
of
Cerberus
allegedly
arranged
for
one
million
dollar
bonus
to
be
paid
to
Amaral
in order
ensure
his
layaity
to
the
Noteholders
if the
restructuring
was successful
The
restructuring
of
the
debt
was accomplished
by
Securities
Exchange
Agreement
which was executed
in
May
of
1998
The
Securities
Exchange
Agreement had provisions
that
would
allow
the
Noteholders
to
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declare
default
and
accelerate
the
principal
balance
due
on any Notes
then
outstanding
if
Arnaral
ceased
being
CEO
The
Securities
Exchange
Agreement required
the
Noteholders
to
exchange
their
existing
Notes and Warrants
for Series
and
Series
Notes
The Noteholders
and
Feinberg
allege
that
the
restructuring
was
at
Corams
request and
that
the Noteholders
gave
up valuable
rights
in
connection
with
that
exchange
Most notably
he
interest
rate
on
the
notes
was Teduced
from
16.75%
to
875% on
the
Series
Notes
and
8% on
the
the
Series
Notes
In
addition
Feinberg
was not on the Board of Coram
at the
time
that
Securities
Exchange
Agreement
was executed
and
Coram was on
owed
the
other
side
of
the
negotiating
table
The
Noteholders
arid
Feinberg
therefore1
no
fiduciary
duties
to
Coram
at
that
time
Shortly
after
the
agreement
was executed
in
May 1998
Feinberg
became
director
of
Coram in
order
to
represent
the
interests
of
the
Notcholders
Feinberg
claims
he
fulfilled
his
duties
as
board
member
by always
acting
in
Corarns
best
interest
and
he did not
control
the
board
or
bias
the
board
toward
the Noteholders
In
situations
where there was
potential
conflict
between
Coram
and CerbcrusFeinberg always
recused
himself
The
other
members
of
the
Board
at
that
time
were Amaral
William
Casey
Peter
Smith and
Richard
Fink
When
Amaral did
in fact
cesse
being
CEO
default
in
April of
1999
for
unanticipated
personal
reasons
the
Noteholders
did not declare
nor did they
accelerate
the
Notes
as
they
were
entitled
to
do
under
the
terms of the Securities
Exchange
Agreement
Instead
Amaral was replaced
by
his
second-in-command
Richard
Smith The
Equity
Committee
does
not allege
that
Smith was
part
of
the
alleged
scheme
to
control
Corarn
Rather
they
affirmatively
allege
that
Smith
was
independent
of
the
Noteholders
and
wanted
to
grow Corams
business
and increase
the
value
of
the
company
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The
Equity
Committee
alleges
that
Amarals
unanticipated
departure and
his
replacement
with
an
independent
CEO
the
conflicted
with
the
Noteholders
plan
to
take conhro
of
Corarn so
Feinberg
acting
for
Noteholders
developed
plan
to
replace Smith
with another
CEO who
in
like
Amaral
would
act
under
his
direction
and in the Noteholders
interests
rather
than
Corams
As
part
of
this
plan
the
Equity
Committee
alleges
that
Feinberg
on behalf
oIthe
Noteholders entered
into
secret
oral
agreement
in.July
1999
pursuant
to
which
Crowley
agreed
to
work
exclusively
for
Cerberus
for
three years
at
salary
of
$80000
per
month
pl
us
expenses
and other benefits
After
Crowley agreed
to
become
Cerberus
exclusive
employee
Feinberg
recommended
to
Corams
Board
that
Coram
hire
Crowley
as
consultant
to
Smith
It
was disclosed
to
Corams
board
that
Crowley had an economic
relationship
with
CLrberus but
the
terms
of
the
arrangement
were not disclosed
to
the
Board
At
the
end
ofNovembcr
1999
Crowley signed
an
employment
agreement
with Coram
to
become
its
CEO
for
salary
of
$650000
year plus options
on one million shares
of
Coram
stock
Crowley
also
signed
written
employment
agreement
which
stated
that
he would devote
his
entire
business
time
attention1
skill
and
energy
exclusively
to
Cerberus by performing
duties
to.be
assigned
by
Feinberg
in
exchange
for
base
salary
of
$960000
plus
potential
for
sizeable
bonuses
The
written agreement
also
provided
that
Cerberus
could
terminate
all
of
Crowleys
rights
to
receive
these
payments
if
he
did not follow
Feinbergs
instructions
Because
Crowleys
stock
optionswould
be
worthless
as
part
of
the
alleged
scheme
to
drive
Coram
into
bankruptcy
the Equity
Committee
alleges
that
Feinberg
as
Chairman
of
the
Coram
Boards
Compensation
Committee
renegotiated
Crowleys employment
agreement
even
though
that
agreement
had
been
signed
only
three or four
months
earlier
and
even
though
Crowley had no
right
to
renegotiate
his
contract
at that
time Crowley
testified
that
he
initiated
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the
renegotiation
after
he discovered
that
Coram
was
in far
worse shape
than
he
initially
believed
and
required
far
more work
than
he anticipated
The renegotiated
agreement
was signed
on
Corarns
behalf
by
Feinberg
as
chairman
of
the
compensation
committoc and
by
Peter
Smith
as
director
of
the
compensation
committee
The renegotiated
agreement
provided
Crowley with
sizeable
bonuses
if
Coram performed
Committee
claims
well
and met
certain
EBLTDA
numbers
The Equity
that
Crowley and
the Noteholders
used
the
pretext
011
El
in
the Notes
maturing and
ii
deadline
looming under
federal
statute
known
as
Stark
order
to
push through
the Joint Plan
of Reorganization
with
little
resistance
in
order
to
eliminate
the equity
shareholders
interests
V/bile
the Equity
Committee
claims
that
the
solution
to
the
Stark
11
problem was simply
for
the
Noteholders
to
convert
the
Notes
to
preferred
stock
the
Noteholders
were under
no obligation
to
do so
At the conclusion
of
hearing
on
the
Debtors
Joint
Plan
the
Court
found
that
Crowleys
consulting
agreement
with
Cerberus
created
an
actual
conflict
of
interest
on
his
part The
of
Court
further
held
that
Crowleys
conflict
of
interest
has
tainted
the
Debtors restructuring
its
debt the Debtors negotiations
towards
plan even
the
Debtors restructuring
of
its
operations
Accordingly
the
Court
denied
confirmation
of the
Joint
Plan
because
it
was not proposed
in
good
faith
After
the
Court
denied
confirmation
of
the
Joint
Plan the Debtors with the Courts
approval
retained
Goldin
Associates
L.L.C
GoldinH
to
evaluate
their
affairs
and Crowleys
relationship
with
Cerbems
Courts
Crowley was continuing
to
receive
monthly payments from
Cerbenis
after
the
flnding
that
Crowley had
conflict
of
interest
as
result
of
these
payments
Neither
Goldin nor
the
Board of Directors
asked
whether
Crowley was continuing
to
receive
the
payments
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At
the
head ngon
the
Second
Plan
the
court
found
that
Crow
ley
was not honest
and
had
made
several
statements
regarding
his
employment
contract
with
Cerberus
that
the Court
found
to
be untrue
Following
this
hearing
Crowley did not terminate
his
contract with
Cerberus
but
merely
suspended
it
The
contractual
relationship
was not formally terminated
until
September
242002
The Equity Committee
claims
that
Crowleys impact
in
managing Coram
for
the
Noteholders
benefit
encompassed
not only
bad decisions
that
he
made
but
also
favorable
opportunities
that
he
did not
pursue
However
despite
his
conflict
it
is
not disputed
that
Crowley did
good job operationally
in
helping
to
turn
the
debtor
around
The Equity
Committee
contends
that
an
unconflicted
CEO
would
have
done
better
and
that
the
measure of
damages
it
suffered
due
to
the
conflict
of
interest
is
the
difference
between
Corams.actual
performance
and
that
of
its
peers1
who
did not have
conflicted
CEOs
VII
Legal
Standard
For Approval
of Settlements
in
Bankruptcy
Proceeding
Settlements
are
favored
in
bankruptcy
proceedings
as
they minimize
litigation
and
expedite
the
administration
of the estate
In
the
Matter
of
Jasmine
Ltd 258 B.R L19
393
123
D.N.J
1999
jjjn
Myers
Martin
In
re
Martin
91
F.3d
389
3d
Cir 1996
Settlements
are
subject topproval
pursuant
to
Rule
9019
of the Federal Rules
of Bankruptcy
Procedure
There
aie
four
criteria
that
bankruptcy
court uses
in
determining
whether
or not
to
approve
settlement
the
probability of success
in the
litigation
the
likely
difficultins
in
colletion
the complexity
of the
litigation
involved
and
the
expense inconvenience
and
delay necesari1y
attending
it
and
the
paramount
interest
of
the
creditors
Protective
Committee
for
Independent
Stockholders
of
TMT
Trailer
Ferry
Inc
Anderson
390 U.S
414
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20 L.3d
211 8gS.Ct
1157
1968
is
In
re
Martin
91
F.3d
at
393 Thecourt
is
not required
to
determine
that
the
sefflement
the
best
that
can
be
achieved
for
the
debtor
but
rather
to
canvas
theissues
and
see whether
the
settlement
fall
re
below
the
lowest point
in the
range
of
reasonableness
Cosoffv
Rodman In
464 F.2d
W.T
Grant
Co 699
F.2d
599
608
2d
the
Cir 1983
quoting
Newman
Stein
689 693 2d Cir 1972
factors in
have
evaluated
reasonableness
of
the
proposed
settlement
with
those
mind
VIII
Effect
of
Bankruptcy
Courts
Prior
Rulings
and
Collateral
Estoppel
The
legal
doctrine
of collateral
estoppel
generally
prevents
defendant
from contesting
facts
that
have
previousl been
decided
in
judicial
proceeding
in
which
the
defendant
participated
However
in
order
for
the doctrine
to
apply
the
following
factors
must exist
the
issues
sought
to
be precluded
are
the
same
as
the
issues
in the
prior
action
the
issues
sought
to
be
precluded
were
actually
litigated
in
the
prior
action
the
issues
sought
to
be
precluded
were determined
by
valid
and
final
judgment
and
the
determination
of
the
issues
sought
to
be
precluded
were
essential
to
the
priorjudgment
Woistein
Docteroff
133
F.3d
210 214 3d Cir 1997
The Equity Committee
believes
that
in
the
proposed
litigation
the
following
facts
will
have
been
conclusively
established
In July
to
1999
Crowley and Feinberg
struck
an
oral
agreement
by
which Cerberus
to
agreed
month plus expenses to serve as consultant pay Crowley $80000 hl stake Shorty thereafter in August companies in which Cerberus
suggestion
distressed at the
1999
of Cerberus
the
Debtors
hired
Crowley
as
consultant
to
their
CEO
agreement with
as
InNovember
the
1999
the
Debtors
executed tothat
restructuring the
and Debtors
forbearance agreed
to
Noteholders
As
condition
agreement
hire
Crowley
their
new
CEO
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On November
Feinberg Cerberus
12
1999
while
negotiating
letter contract
his
contract
with
the
Debtors Crowley Sent
compensation
Personal
for
Confidential
requesting with
the
additional
from
signing an
employment
Dcbors
On November
the
19
1999
the
day
after-he
signed
three-year
employment
agreement
with under
to
Debtors Crowley entered into which Crowley was to receive have such
attention
the right duties skill to as
written Consulting per
Agreement
to
with Cerberus
$80000
month and pursuant
and
to
which
Crowley was
business
were
assigned
by Feinberg
to
devote
his In
entire addition
Lime had
the
and
energy exclusively
Cerberus including
business
Cerberus follow
terminate
Crowley for cause
of Cerberus
Crowleys failure
to
reasonable
instructions
or Feinberg
The
Cerberus.Crowley
agreement
dealt with
Crowleys
services
as
the
Debtors
CEO
Neither
Crowley nor Feinberg
the
who
at
the to
time
the
was one
of
Corams
directors disclosed
the terms of
Consulting
Agreement
Debtors
After
the
Bankruptcy
the
Court denied
confirmation
of
the
Debtors
first
plan of study
act the to hire
reorganization Cerberus-Crowicy Goldin
to
Coram
conflict
Board formed
of interest water
SpeciaL
Committee
to sole
The Special Committees
Neither
to
its
was
sprinkle
holy
on the Situation
the
Special
Coniniittec
nor
Goldin ever asked
after
whether
Cerberus
was continuing
payments
in
pay Crowley $80000 December
month
the Court harshly
criticized
those
21 2000
ruling
The
Cerberus-Crowley
agreement
created
conflict
of
interest
with
respect
to
the
Debtors
The
Debtors
were
harmed by the Cerberus-Crowley
conflict
of
interest
The harm from
Cerberus-Crowley
first
the
Cerberus-Crowley agreement hearing
conflict
of
interest in
did
not
cease
when
the for the
was publicly disclosed
the course
of discovery
confirmation
The Debtors
agreements
should
have
asked
as
for
full
disclosure and of continued
their
required
that
Crowky
sever
all
with Cerbcrus
failure to
condition not
employment
duty
to
The Special
these estates
Committees
do so does
fulfill
fiduciary
Crowley
is
not an
honest
man
would Whether
The Noteholders
and
Feinberg
dispute
that
collateral
estoppel
apply
the
Equity
Committee
can
establish
each
of
the
four required
factors
for collateral
estoppel with
respect
to
each
of
the
factual
findings
would
have
to
be
litigated
in the
proposed
litigation
There
arc
significant
legal
issues
that
would
have
to
be
rsolved before
any court
cduld
apply
the
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doctrine
For
example
the
Court
found
that
the
prcposed
plans were
not
made
in
good
faith
due
to
Crowleys
conflict
of
interest
However
the
good
from
faith
standard
is
not one
which
would
apply outside
of bankruptcy
and
it
is
not
clear
the
record which
party
carried
the
burden
of establishing
that
Crowley had
conflict
of
interest
or what
legal
standard
was
applied
to
detci-rnine
that
such
conflict
of
interest
existed
For
collateral
estoppel
to
apply
the
ruling
must
have
been
made
under
the
same
legal
standard
It
is
also not
readily
apparent
that
each
of
the
alleged
facts
was necessary
to
the
Courts
determination
that
the
plan
was not proposed
in
good faith
Coram
would
also
have
to
establish
that
the
Noteholders
and
Feinberg
had
full
and
fair
opportunity
to
litigate
issues
surrounding
Crowicys
breach
of
fiduciary
duty
in the
confirmation
hearing
In
addition
if collateral
estoppel
were
to
apply
it
may
also
encompass
factual
findings
that
the
Court
made
regarding
Comms
financial
difficulties
and
Crowleys
abilities
as
CEO
that
are
not helpful
to
the
Equity
Committees
theories
Nevertheless
for
purposes
of
my
analysis have
assumed
fr
the
most
part
that
the
above
facts
are
established
by
collateral
estoppet
Even
with
collateral
estoppel
however
the
facts
that
the Equity
Committee
believes
would
be
established
through
collateral
estoppel
are
not
sufficient
in
and
of themselves
to
establish
liability
and
damages
against
Feinberg
or
the
Noteholdcrs
LX
BreachofFiduciaryDutyCiaims
In
its
plan The Equity
Committee
proposes
instituting
litigation
against
the
Noteholders
and
Feinberg
for
breach
of fiduciary
duty
Generally
breach
of
fiduciary
duty occurs
when
the
defendant
and
plaintiff
were
in
fiduciary relationship
the
defendant
breached
fiduciary
duty
owed
to
the
plaintiff
the
plaintiff
incurred
damages
or
losses
and
the
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defendants
breach
of
fiduciary
duty
was
cause
of
the
plaintiffs
damage
of proof
In
re
DFOods
Inc
144
B.R 121
162
Cot 1992
It
will
be
Corarns burden
to establish
each
of
these elements
with
preponderance
of evidence
The Equity
Committee
claims
that
the
burden
of proof
with
respect
to
the
damages
element
of
the
breach
of
fiduciaty
duty claim
shifts
to
defendants
where mismanagement
is
alleged
However
as
the Equity
Committee
itself
ncknowledges
the
plaintiff
bears
ihe
initial
burden
of proving
breach
of
fiduciary
duty and
resulting
loss
plaintiff
also
has
the
burden
of establishing
with
reasonable
degree
of
certainty
the
maximum amount of damages
not
This alleged
burden
shifting
with regard
to
damages
does
eliminate
the
need
to
establish
causation
One
count
of
the
proposed
derivative
complaint
alleges
that
Feiriberg
breached
his
fiduciary
duties
to
Comm
Flis
alleged
breaches
are
lumped together with those alleged
to
have
been
committed by Crowley
The proposed
complaint
alleges
that
Feinberg
as
director
of
Coram
when
adopted
business
strategy
that
focused
on
liquidation
of
assets
and
reduction
of debt
such
actions were
taken
primarily
for
the
benefit
of the Noteholders
failed
to
explore
opportunities
for
growth delayed
in
implementing
steps
necessary
to
comply
with government
regulations
prolonged
Corarns time
in
bankruptcy approved
Crowleys
excessive
salary
whitewashed
Crowleys
conflict
of
interest
failed
to
use business
judgment
in
negotiating
with
the
Noteholders used
cash
to
pay down debts
failed
to
preserve
shareholder
equity
and engaged
in
self-dealing
Feinberg
was
director
ot
Coram
from
June
of
1998
through
July of
2000
After
his
resignation
Feinberg
no longer owed
any
duties
to
Coram
to
make
any disclosures regarding
Cerberus
relationship
with
Crowley and
was
entitled
to
act
solely
in his
own
interest
and
in the
interest
of
Cerberus The primary
wrongdoing
that
Feinberg
as
director
of
Coram
engaged
in
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was
failing
to
disclose
the
terms
of Crowle.ys
employment
agreement
with
Cerbems
to
the
other
board
members
when
he prpposed
Crowley
as
CEO coach
the
and
later as
the
CEO
of
Coram
as
well
as
participating
in the
alleged
scheme
of
Noteholders
to
take
over
Corarn
However1
the
roposed
complaint
and
the
Equity
Corninitees
discloure
statement
does
not address
the
impact
of
Corams
entering
into
zone
of
insolvency
where
fiduciary
duties
were owed
to
the
creditors
of
Coram
as
well
as
to the
corporation
and
its
shareholders
The
Equity
Committee
does
not explain
how
this will
affect
its
arguments
that
Coram
should
have
been
engaged
in
activities
that
sought
to
maximize
return
for
the shareholders
potentially
at
the
expense
of
the
Noteholders
and
that
it
was
breach
of
fiduciary
duty
to
do
anything
that
did not
seek
to
maximize growth
factfinder
may
determine
that
this
duty
to
the
creditors
would
have
prevented
some
of
the
strategies
for
growth
that
the
Equity
Committee
argues
that
Corarn
should
have
engaged
in if the
CEO
did
were unconflicted
or that
its
financially
untroubled
peers
were
able
to
engage
in that
Coram
not
Another
count
in the
proposed
Complaint contends
that
Feinberg
and
Crowley were
agents
of Cerberus
and
that
Cerberus
is therefore
liable
for
the
actions of
its
agents
in
breaching
their
fiduciary duties
There
are
problems
with
this
theory
Cerberus
owed
no
fiduciary duty
to
Coram
and
therefore
even
under
respondeat
superior
argument
it
cannot
be
liable
for
breach
of fiduciary duty
that
it
did not
owe
If
Feinberg
and
Crowley owed
fiduciary
duties
to
Coram1
those
duties
did not
arise
because
they were
agents
of
Cerberus Rather those
duties
were independent
of
their
relationship with
Cerberus However given
that
the
proposed
complaint
alleges
that
the purpose
of the
employment
agreement
between
Cerberus
and
Crowley
was
for
Crowley
to
become
CEO
in
order
to
drive
the
company
into
bankruptcy
this distinction
may be meaningless
as
Cerberus
could
be
liable
under
an aiding
and
abetting
theory
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There
is
little
credible
eidence
that
supports
the
theory
that
Goldman
Sachsand
Foothill
owed
any
fiduciary
duties
to
Coram
directly
The proposed
Complaint
addresses
this
problem by
asserting
two breach
of
fiduciary
duty claims
against
Goldman
Sachs
and
FoothIll
on
the
theory
that
Feinberg
was
the
agent
of
Goldman
Sachs
and
Foothill
or
that
Goldman
Sachs
and
Foothill
exercised
de
facto
control
of
Coram
through
Feinberg
There
has not been
any evidence
despite
voluminous depositions
which
demonstrates
that
Goldman
Sachs
or
Foothill
were
able
to
control
Feinberg
or
that
they
actually
asserted
any
control
over
him
Two
additional
counts
of the proposed
Complaint
allege
that
Feinberg
and
Cerberus
aided
and
abetted
Crowleys breach
of
fiduciary
duty and
Goldman
Sachs
and
Foothill
aided
and
abetted
Crowleys
breach
of
fiduciary
duty
The elements
for
aiding and
abetting
breach
of
fiduciary duty
are
the
existence
of
fiduciary
relationship
breach
non-fiduciarys
knowing
participation
in the
breach
and
damages
to
the
plaintiff
as
result
of the concerted
action
of the
fiduciary
and
the
non-fiduciary
There
are
no
facts
that
demonstrate
that
Goldman
Sachs
and
Foothill knowingly
participated
in
causing
either
Crowley or Feinberg
to
breach
their
fiduciary duties
Goldman
Sachs
and
Foothill
were
not paying
Crowley and
there
is
no
evidence
that
either
was aware
of
the
terms of the agreement
between
Cerberus
and
Crowley
The claim
against
Feinberg
and
Cerberus
for
aiding andabetting
is
stronger
as
Cerberus
was paying
CrowLey $8OOJO
month
This
may be compelling
circumstantial
evidence
of
knowing
participation
in
Crowicys
breach
of
fiduciary
duty
as
it
was
his
acceptance
of
this
payment
without
disclosing
the
terms of
his
agreement which
caused
the
Cowl
to
find
conflict
existed
For
this
reason
the
claims
of aiding
and abetting
against
Cerberus
may
resonate
with
jury
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RICO
Courts
Claims
look
critically
at
RICO
claims
that
arise
out of ordinary
commercial dealings
While
often
pled
by
plaintilts
in
order
to
inject
the
specter
of
treble
damages
into
proceeding
it
has been
my
experience
that
such
claims
rarely
make
it
to
trial
Indeed
the
Equity
Committee
itself
acknowledges
that
it
is
the
exceptional
case
in
which
elements
of
RiCO
can
be
readily
satisfied
Some
courts
even
require
special
case
information
statements
regarding
the alleged
RiCO RICO
activity
in
order
to
quickly
eliminate
some of these claims
In
this
case
the
proposed
claims
are
asserted
against
Feinberg
and
Cerberus
only
and
not
Goldman
Sachs
or
Foothill
In
order.to
establish
IUCO
violation
plaintiff
must prove
pattern of racketeering
to
acquire and
maintain
interests
in
and
control
of an
enterprise
Section
1962b
or
to
conduct
the
affairs
of an
enterprise
Section
1962c
The Equity
Committee
attempts
tO
establish
this
pattern
by contending
that
Feinberg
and Cerberus
have
cngaged.in
virtually
identical
scheme
in
connection
with
other
companies
The Equity
Committee
alleges
that
Feinberg
and Cerberus
have
engaged
in
similar activities
with
regard
to
Cerberuss takeover
of
company
known
as
WSNet
Holdings
mc
cable-TV
programming
providcr
in
Austin Texas
which
is
the subject of
lawsuit
captioned
Becky
Cerberus
Capital
Mgmt No GN
in
200604
District
Ct
Travis
Cty Texas
Feinberg
and
Cerbertis
deny any wrongdoing
connection
with
WSNet
Holdings
and
affirmatively
allege
that
they
were defrauded
investors
in that
corporation
That
litigation
is
currently
ongoing
arid
there have
been
no
findings
with
regard
to
any of
the
Equity
Committees
allegations
The Equity Committee
hasalso
pointed
to
Cerberus
involvement
in several
other ongoing
lawsuits
as
evidence
of
pattern
The RICO claims
Trustees
are
also
asserted against
the
Crowley
However
any claims
he
is
not
party
to
the
settlement
and
Trustee
is
nPt releasing
against
him
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In order
to
establish
the
pattern
requircncnt
utilizing
other companies
will
require
the
equivalent
of
trial
within
trial
and
will
add
extensive
delay and
complexity
to
the
proposed
claims
Without
delving
into
the
factual
nature
of those claims
there
is
insufficient
evidence
to
establish
whethei
those
allegations
have
credibility
and
can
form
the
basis
for
pattern
argument
It
is
my
opinion
that
judge
will
be
reluctant
to
permit
series
of
mini-trials
with
regard
to
unrelated
corporations
The Equity Committee
also
contends
that
it
can
establish
the
pattern
requirement
based
solely
upon
the
conduct
of Cerberus
and Feinberg
directed
at
Corarn
However
Cerberus
and
Feinberg
dispute
that
single
scheme
to
acquire
company
can
ever
satisfy
the
pattern
requirement
Another
significant
hurdle
that
the
Equity
Committee
must
overcome
in
order
to
prevail
on
the
RICO
claims
is
the
issue
of whether
the
corporation
can
be both
the
enterprise
arid
victim
bringing
the
RICO
claim
under
1962c
The Third
Circuit
has
definitively
stated
that
it
may not
Jaguar
Cars inc
Royal
Oaks Motor
Car
Co. Inc.
46
F.3d 258
3d
Cir
1995
The
potential
litigation
is
likely
to
be
brought
in the
Third
Circuit
and
this
is
significant
roadblock
to
the
proposed
RICO
claims
Accordingly
it
is
extremely
uncertain
that
Corarn
could
prevail
under
the
RICO claims
The Equity
Committee
attempts
to
avoid
this
problem
by
also
asserting
that
the
association-in-fact
of
the
Noteholders would
qualify
as
an
enterpris
However
this
approach
also has problettis
as
there
has been
little
evidence
to
support
the
assoiatibn-in-fact
theory
XL
Factual
Roadblocks
In
addition
to the
legal
roadblocks
identified
above
there
are
also
significant
factual
roadblocks
that
Comm
would
have
to
overcome
in
order
to
prevail
at trial
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The
facts
surrounding
the
hatching
of
the
alleged
secret
plan do
not appear
persuasive
The Equity Committee
alleges
that
in
1997
or
1998
Feinberg
and
Cerberus
began
to
execute
scheme
to
take
control
and
ownership
of
Coram
for
the
Noteholders
benefit
The
start
of
the
scheme
is
allegedly
evidenced
by
Amaral arranging
for
Coram
to
execute
the
Securities
Exchange
Agreement
with
provisions
that
would
allow
the
Noteholders
to
declare
default
and
seize
Coram
if
Amaral ceased
being
CEO
In
exchange
Feinberg
purportedly
arranged
for
Aniaral
to
receive
bonus
from Corarn even
though
Feinberg
was not
director
of
Coram
at
that
time
However Amaral
did cease
being
CEO
of
but
the
Noteholders
did
not declare
default
and
accelerate
the
debt
in
order
to
take
control
Coram Accordingly
could be associated
it
is
difficult
to
see
how
the
scheme
or any
harm
that
arose
from
the
scheme
with
thi
time-frame
The evidence
presented
by the Equity
Committee
more strongly
suggests
that
any
scheme
began
with
the agreement
between Cerberus
and
Crowley
The
fact
that
Fcinberg
joined
the
Board
to
represent
the
interests
of
the
Noteholders
does
not
appear
unusual
Directors
are
often
put on
Board
to
represent
particular
interests
and the Noteholders
were
large
creditors
with
significant
interest
in the
affairs
of
Coram
When
the
restructuring
was discussed
and
it
involved
restructuring
the
debt Feinberg
recused
himself
from
those discussions
The Equity Cominittees
scheme
he
relies
heavily
on
the
allegation
that
Feinberg
and
Cerberus
needed
to
replace
Smith because
was independent
and
wanted
to
grow
the
business
However
or
Smith
resigned
voluntarily
and
there
has been
no
evidence
that
he
wa.s
asked
to
leave
was forced out
Smith may have
been
resentful
of
Crowleys
role
as
consultant
but
jury
would
have
to
believe
that
the
Noteholdcrs
and
Fcinberg
knew
that
Crowleys
presence
would
cause
Smith
to
resign
in
order
to
prove
that
this
action
furthered
the
scherne
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ThEquity Committee
contendsthat
Crowley allegedly
stopped
Smiths plan
to
grow the business
However under Smiths
direction
Coram
was continuing
to
lose
money
Coram
had
deficit
of $9.5
million
dollars
in
1999
when
the
company
was run by Smith
as
compared
positive
$42.6
million
dollars
under
Crowley
Given
its
precarious
financial
situation
there
is
no
explanation
as
to
why
responsible
CEO
than
with
company
in
the
zone
of
insolvency
would
not
make
efforts
to
stern
losses
rather
embarking
on questionable growth
strategies
Crowley
is
also alleged
not
to
have
pursued
favorable
business
opportunities
But
the
Equity
Committee
cannot
point
to
single
opportunity
that
Crowley
failed
to
pursue
which
will
make
it
difficult
for
ajufy
to
accept
this
proposition
If
Crowley
failed
to
pursue
profitable
business
opportunities
that
the
comparable
companies did pursue one would
expect
that
at
least
some
if
not
alt
of those
opportunities
could
be
identified
Moreover
the
Equity
Committees
attorney
stated
to
the
Court
previously
that
he
could
not prove
that
an
unconflicted
CEO
would
have
performed
better
and
Professor
Fischel
testified
that
it
was impossible
to
know
whether
an
uncoaflicted
CEO
would
have.run
Coram
in
exantly
the
same way
The Equity Committee
also
alleges
that
Fcinberg
approved
additional
compensation
from
Coram
to
Crowley
in
order
to
insuie
Crowleys
loyalty
to
the
Notcholders
interests
It
should
be
nocd
that
Crowley had options on
million shares
of Coram
stock
and
therefore
had
an
interest
himself
in
the equity
The Equity Committee
claims
that
because
Crowley
realized
that
his
options
would
be worthless
if
the
scheme
to
drive Corarn
into
bankruptcy
was successful
he
demanded
more compensation
from
Feinberg
This begs
the
question of
why
Crowley would
enter
into
the
scheme
without
the
employment
contract
providing
for
adequate
compensation
as
his
role
from
his
first.day
as
CEO
was
allegedly
to
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drive
Coram
into
bankruptcy
factfinder
would
have
trouble
accepting
that
an
individual
such
as
Crowley would
not ensure
that
his
financial
self-interests
were
protected
j_c
to
signing
the
agreement
with
Corani
if
he
intended
to
drive
the
company
into
bankruptcy
rather
than
assuming
that
he could
renegotiate
the
agreement
at
later
date
The Noteholders
point
out that
while
Feinberg
renegotiated
the
employment
agreement
on Corams behalf
he did so
in his
capacity
as
chairman
of
the
compensation
committee
for
Coram
and
the
amended
agreement
was
also
approved
by another
director
Thejuzy may find
it
more credible that
as
Crowley
testified
it
was Crowley who
initiated
the
renegotiation
of
his
employment
agreement
with
Coram
once
he
realized
that
the
CEO
benefits
position
would
entail
more workthan
he
originally
anticipated
and
he
wanted
to
reap
the
of
his
efforts
Further
the renegotiation
provided
Crowley with
strong
incentives
to
increase
the
companys
earnings
but did not
alter
his
base
salary
undercutting
again
the
notion
that
Crowley was hired
to
drive
the
company
into
bankruptcy
The
Equity
Committee
alleges
that
part
of
the
scheme
to
steal
Corarn
was
that
the
bankruptcy
was
filed
under
the
pretext
that
the notes
were
maturing
and
deadline
was looming
under
Stark
II
The Equity
Committee
claims
that
both
pretexts
were
false
because
the
notes
were not maturing
for
nearly
nine
months and Coram had plenty of cash
to
pay
its
debts
in the
normal course
for
the next nine
months
The Equity
Committee
contends
that
the
Stark
Ii
problem could
have
been
easily
solved
However
if
Corams
alleged
solution
to
the
Stark
II
problem was
for
the Noteholders
to
convert
their
notes
to
preferred
stack
there
has been
no
explanation
as
to
why
the Notcholders
would
be
obligated
to
do
this
or
why
their
failure
to
do
so
would
constitute
scheme
to
steal
Corarn
This
is
not
complete
list
of
all
of the
factual
disputes
that
would
have
to
be
resolved
rather
it
is
intended
to
higjilight
the
differing
conclusions
that
individuals
could
reach
when
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reviewing
the
facts
and
to
show
the
evidentiary
and
factual
roadblocks
that
Coram
would
have
to
overcome
not believe
that
the
Equity
Committees
presentation
of thefacts
is
so
persuasive
that
jury
would
be
unable
to
find
otherwise
Rather
see
significant
risk
to
Coram
at
trial
if
no other
facts
were
developed
to
support
its
case
While
Coram
may be able
to
persuade
jury
with regard
to
some of these
factual
disputes
especially
those
involving
Crowleys
conflict
significant
risk
exists
that
ajuiy
ultimately
may
not be persuaded
about
the
alleged
scheme
to
steal
Corarn
XII
Damages
Assuming
that
the
Equity
Committee
can
establish
that
there
was
breach
of
fiduciaxy
duty
on the
part
of
the
Noteholders
or Feinberg
or
that
RICO
claim
may
be
maintained
they
must
also
establish
the
damages
that
flowed
from
such
alleged
breaches
In
my
opinion
the
most
significant
problem
with
the proposed
claims
is
the
difficulty
in
proving
damages
in the
range
of
$320
million dollars
The Equity
Cormnitiee
is
unable
to
set
forth
with
specificity
what
antions
were taken
or not taken
that
could
have
increased
the value
of
Comm
by $320
million
dollars
They
do not dispute
that
under
Crowley
the
company
performed
substantially
belier
and
its
financial
picture
improved
considerably
Rather
the
Equity
Commitiec
is
in
the
difficult
position
of having
to
prove
that
despite
the
improvements
Comm
would have
been
worth
$320
million
dollars
more than
it
is
today
without
identifing
these
missed
opportunities
or
failures
on
the
part
of
Crowley
The
Equity
Committee
sets
fOrth
some
specific
instances of conduct
that
it
claims
show
harm purported
caused
by Crowleys
conflict
of
interest
However
as
those
alleged
damages
do not even
begin
to
approach
the
$320 million
dollars
in
damages
the
Equity
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Committee
also
relies
upon
yardstick
approach
of calculating
damages
which uses
the
earnings
of comparable
companies
to
detemiine
damages
The Equity
Committee
has
identified
the
following
instances
in
which
Coram
suffered
hann
asa
result
of
the
alleged
breaches
of fiduciary
duty
the
payment of Crowleys salary
the
$6.3
million
dollar
cash
payment
made
to
the Noteholders
on the
eve
of
bankruptcy
the
sale
of
Coram
Prescriptive
Services
CPS
He
and
the delay
in
Corarns emergence from bankruptcy
Crowley signed
his
employment
agreement
on November
29
1999
that
provided
for
an
annual
salary
$650000
per
year
received
this
salary
up
until
the
Court
rejected
the
Trustees
motion
to
extend
his
employment
agreeiiient
in
March
of
2003
Accordingly
he
received
approximately
$2112500
be
in
salayfromCoram
of
An
appropriate
remedy
for
breach
of
fiduciary duty
may
the
return
all
salary
paid
to
the
disloyal
employee
or officer
for the
period
of
disloyalty
even
absent
showing
of
actual
injury
to
the
employer Further
one
who
induces
the breach
of
fiduciary
duty
may
also
be
liable
for
the
amount of the
salary
paid
to
the
disloyal
employee
Accordingly
Crowleys
salary
in
its
entirety
may
be an
element
of the
damages
for
the
breach
of fiduciary duty recoverable
from
either
Feinberg
or
the
Noteholders
if
it
is
determined
that
one
of
them caused
the
disloyalty
Crowley caused
$6.3
million
dollar
cash
interest
payment
to
be
made
to
the
Noteholders
in
July of
2000
while
Coram
was contemplating
bankruptcy
While
the
timing
of
the
payment
may have
been
improvident
and
designed
to
favor
the
Noteholders
it
is
not disputed
that
the
Noteholders
were
in fact
owed
this
money
and
under
both
the
Trustee
and
the
Equity
Crowley payments
included
testified for
that
in
addition
lii
to
his
base
salaiy
of $650000
he
also
received which
other benefits
for
2002
his
W-2
reflected
earnings of and
$921298.08 emoluments
simply
his
gross-ups
the
corporate
facilities
life
insurance
other
Tr
at
86
Accordingly
actual
damages
may
be
somewhat
higher than
$650000
salary
DSCH7OL3.I/COIt2o2.l
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Committees
plan
the
money
will
not be
treated
as
preference
as
all
creditors
are
being
paid
in
full
Accordiriglyit
is
not
entirely
clear
whether
Coram
would
be
able
to
recover
this
payment
in the
proposed
litigation
and
Corams
Coram
best-case
scenario
in
any
litigation
would
be
the
recovery
of
the
$6.3
million doihirs
If
were
to
recover
this
payment
in the
proposed
litigation
it
would
increase
the
liability
it
owe4
to
the
Noteholders
by
the
same 6.3
million dollars
It
will
be
much
harder
for
Coram
to
prove
that
the
sale
of
CPS was
the
result
of
the
alleged
conflict
of
interest
and
that
Corarn
suffered
damages
as
result
of
the
sale
The Equity
Committee
acknowledges
that
at
the
time
Crowley joined
Coram
the
sale
of
CES was
already
being
considered
Smith
the
CEO whom
it
is
acknowledged
was independent
participated
in
the
decision
to
sell
CPS Comms
Board had received
independent
advice
from an investment
binker
Deutsche
Bane
Alex Brown
DBAB
be worth
regarding
the
sale
The investment
banker
had
originally
estimated
that
CPS might
obtain
$100 million dollars but
felt
there
was no market
for
an
IPO
and
wa
unable
to
value
above
$40 million
dollars
after
an
auction
DBAB
retarned
contacted
45
potential
purchasers
and 24 Were
sent
confidentiality
agreements sixteen
the
agreements
and
were sent the offering memorandum
eight
potential
purchasers
submitted
non-binding
bids
In
the
end two
written
offers
were
submitted
one
of
which
had
substantial
holdbacks
and
little
cash
Crowley subsequently
negotiated
better
all
cash
deal with
one
of
the
final
bidders
at
higher price
of42
million
DBAB
submitted
written
opinion
declaring
the
sale
price
to
be
fair
and
the
decision
to
sell
was unanimously
approved
by
Corams
board
of
directors
Indeed
the
highest
price
the
investment
banker
was
able
to
obtain
was
rejected
by
Crowley
as
being
too
low
Wbile
CPS may
have
been
described
as
crown jewel
by one
Coram
employee
there
is
no
doubt
that
it
would have
required
substantial.cash
infusions
in order
to
survive
over
the
next
several
years and
that
the
sale
price
was
the
best
offer
received
for the
DSCH77013.l/COR.202-213212
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company
Given tht Coram
was
in
the Zone
of insolvency
at the
tithe
CPS was sold
cash
it
would
be
difficult
to
establish
that
the
sale
of CPS
was improper given
its
dire
need
for
As
the
court
found
company
contemplating
bankruptcy
needs
to
preserve
its
cash not spend
it
on
business
that
is
losing
money
and
is
not expected
to
become
profitable
until
years
later
Accordingly
Coram.would
have
difficulty
at
trial
in establishing
that
the
sale
of
CPS was
improper
and
that
it
suffered
damages
as
result
of
the
sale
because
it
received
the market
value
for
the sale
following
an auction
that
was conducted
by an independent
party
Further
it
did
not
suffer
the
losses or put cash
into
CPS
in
order
to
make
it
profitable
In
an
apparent
recognition
that
the
few
instances
in
which
they can
actually
show
some
damages
do not approach
the
S320 million
dollars
claimed
the
Equity
Committee
believes
that
such
damages
figure
can
be reached
by comparing
Coraxns
performance
during
the
relevant
time period
with
the
performance
of Corams own
self-selected
industry
peer
group
This
yardstick
approach
is
intended
to
show
how much
better
Coram
may
have
performed
if
it
had
an
unconflicted
CEO
clear
There
are
significant
roadblocks
with regard
to
this
approach
It
is
not
that
this
yardstick
damages
approach
would survive
Daubert
motion
The admissibility of
proffered
experts
testimony
is
measured
under
the
standards
established
in
Daubert
Merrell
Dow
Pharmaceuticals
Inc.
509
U.S 579 589
113
S.Ct 2786 125
L.Ed.2d
469
1993
238
and
Kumho
tire
Company
Carmichael 526 U.S 137
151.52
119
S.d
the
1167
143
L.Ed.2d
1999
is
Daubert
holds
that
when
expert witiess
testimony
is
offered
cowl
must
insure
that
ii
both
relevant
to
the
instant
dispute
and
based
on
credible
scientific
methodologies
Kumho
Tire
holds
that
the
same standard
applies
when
the
court
reviews
non-
scientific
expert
testimony
The Equity
Committee
has
identified
its
expert
in this
area
as
DSCHT1013.I/COR202-2132fl
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Professor Daniel
Fischel
but
his
expert
report
with
regard
to
the
calculation
oldamages
has
not
yet
been
made
available
Even
without
viewing
Professor
Fischels
report
there
are
preliminary
problems
that
would
raise
questions
in
Daubert
analysis
The yardstick
approach
envisioned
by
the
Equity
Committee
eliminates
the
causation
requirement
for
proving
damages
in this cofltext
Even
in
the context
of
antitrust
cases
the
yardstick
approach
does
not
establish
causation
in
and
of
itself
The Equity
Committee
believes
that
it
can
simply
rely
upon
the
fact.that
other
companies
without
conflicted
CEOs
did
better
than
Coram
without
having
to
prove
that
Crowleys
conduct
caused
those
damages
While
this
yardstick
approach
is
acceptable
in
some
antitrust
cases
because
of the generalized
proof
of
damages
permitted
in
those cases
it
does
not appear
to
be
accepted
in
breach
of
fiduciary
duty cases
Further
it
is
not
substitute
for
causation
Indeed
the
approach
has not gained
widespread
acceptance
outside
the
confines of
antitrust
and
believe
that
courts
would
be
reluctant
to
extend
this
measure
of
damages
to this type
of
case
While
there have
been
some
cases
that
do
apply
similar
type
analysis
those
cases do
not
arise
in
the
same
factual
scenario
as
is
presented
here
By way of example
one case
ited
by
the
Equity
Committee
for
the proposition
that
the
yardstick
approach
is
acccptcd
outside
of
antitrust
is
case
that
utilized
REIT
index
to
approximate
the
damages
suffered
from
fraudulent
real
estate
investment
Maiz
Virani
253
F.3d 641
11th Cit
2001
The
court focused
heavily
on the issue of proximate
cause finding that
recover
plaintiff
damages
for that
an
the
injuty
sustained
as
result
of
RICO
loss to
violation
its
must prove
violation the
proximately
in
caused
business
or
property
is
The touchstone
rule
of
inquiry
other
words
is
proximate
profits
cause
lost
there
no automatic
if
against the recovery cause
is
of any type of
lost
or
value
damages Id
proximate
shown
at
662-63
internal
citations
omitted
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In
the
MJi
case
the
plaintiffs
established
at
trial
that
but
for the
defendants
fraud
they
would have
invested
their
funds
in
United
States
real
estate
and
REIT
index
was an appropriate
yardstick
for
measuring
the
performance
of
real
estate
during
the
period
in
question
In
this
case
the
Equity
Committee
has not offered
proof
that
but
for
Crowleys
conflict
it
would
have
performed
the
same
as
the
comparable
companies
The
proximate
cause
is
simply
missing
The
Equity
Committee
is
attempting
to
use
the
comparable
companies
to
establish
causation
j
that
since comjarable
companies presumably did not have
conflicted
CEOs
the
those
companies
earnings
establish
that
Crowley damaged
Coram
as
it
did not perform
same
as
those
companies
without
conflicted
CEOs
However
that
is
not
the
holding
ofi which
damages
for lost profits
emphasizes
that
proximate
cause
must be established
in
order
to
obtain
Additionally
the
Equity
Committee
has not provided
an
explanation
as
to
why
the
damages
cannot
be determined
with
more precision
An
expert could
certainly
study
Crowleys
actions and
determine
what actions he took
that
were adversc
to
Coramn
or
what actions he
failed
to
take
that
would
have
been
favorable
for
Coram
In
any
event
there
are
some serious
preliminary
questions raised
by
this
yardstick
approach
that
believe
will
raise
Daubert
issue
Free Appendix - District Court of Delaware - Delaware
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| Date: | April 17, 2007 |
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| State: | Delaware |
| Category: | District Court of Delaware |
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| URL |
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