Free Declaration - District Court of Delaware - Delaware

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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: Oakwood Homes Corporation, et al., Debtors. _______________________________ OHC Liquidation Trust, Plaintiff, vs. Credit Suisse (f/k/a Credit Suisse First Boston, a Swiss banking corporation), Credit Suisse Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC), Credit Suisse Holdings (USA), Inc. (f/k/a Credit Suisse First Boston, Inc.), and Credit Suisse (USA), Inc. (f/k/a Credit Suisse First Boston (USA), Inc.), the subsidiaries and affiliates of each, and Does 1 through 100, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Adv. Proc. No. 04-57060 (PJW)

MEMORANDUM OPINION
Mark D. Collins Russell C. Silberglied Lee E. Kaufman Christopher M. Samis Richards, Layton & Finger, P.A. 920 North King Street Wilmington, DE 19801 Marla Rosoff Eskin Kathleen Campbell Davis Campbell & Levine, LLC 800 N. King Street, Suite 300 Wilmington, DE 19801

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2 R. Paul Wickes Mary K. Warren Michael J. Osnato, Jr. J. Justin Williamson LINKLATERS 1345 Avenue of the Americas New York, New York 10105 Attorneys for Defendants, Special Counsel for the OHC Liquidation Trust Tony Castanares Stephan M. Ray Scott H. Yun Whitman L. Holt Stutman, Treister & Glatt P.C. 1901 Avenue of the Stars 12th Floor Los Angeles, CA 90067

Date: November 15, 2007

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3 Walsh, J. This opinion is regarding the motion of OHC Liquidation Trust ("Plaintiff" or "Trust") for determination of Plaintiff's right to a jury trial (Doc. # 198) in this adversary proceeding. Credit Suisse (f/k/a Credit Suisse First Boston, a Swiss banking corporation), Credit Suisse Securities (USA), LLC,(f/k/a Credit Suisse First Boston LLC), and Credit Suisse (USA), Inc. (f/k/a Credit Suisse First Boston (U.S.A.), Inc.) (collectively,

"Defendants") oppose the motion. For the reasons stated below, the Court will grant the motion. Background Oakwood Homes Corporation ("OHC") together with its

subsidiaries and affiliates ("Debtors" or "Oakwood Companies") designed and manufactured various models of homes at a modest or affordable price. (Doc. # 202, Decl. Murphy, Ex. A, ¶ 12). As

part of their business, Oakwood Companies also provided their customers with mortgage financing or retail installment sales contracts Companies (collectively obtained the "installment necessary contracts"). for the Oakwood installment

funds

contracts through a two-step, asset-backed securitization process. (Doc. # 202, Decl. Murphy, Ex. A, ¶ 14). Defendants were the underwriter for this process. 14). (Doc. # 202, Decl. Murphy, Ex. A, ¶

The asset-backed securitization process was commenced by

Oakwood Companies using the installment contracts as collateral to

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4 borrow against the warehouse facility ("Warehouse Facility")1. Warehouse Facility was a short-term facility used specifically to fund the mortgages for manufactured home buyers. Decl. Murphy, Ex. A, ¶ 17.b). (Doc. # 202,

Once the Warehouse Facility had

accumulated a sufficient amount of installment contracts, usually about $150 million to $200 million, the installment contracts were bundled and sold to private and institutional investors through a real estate mortgage investment trust. Ex. A, ¶ 14). The Warehouse Facility was one of three lines of credit Oakwood Companies used to finance their operations; they also had a revolving line of credit and a servicer advance facility. # 202, Decl. Murphy, Ex. A, ¶ 17.a-c). (Doc. (Doc. # 202, Decl. Murphy,

The Warehouse Facility was

provided by an affiliate of Bank of America until 2001. (Doc. # 202, Decl. Murphy, Ex. A, ¶ 17.b). Starting in 1999 the manufactured home industry was going through a difficult period, and Oakwood Companies' businesses were struggling. By the second half of 2000, Bank of America wanted to (Doc. # 202, Decl. Murphy,

cease its role as the warehouse lender. Ex. A, ¶ 26).

This was a critical junction for Oakwood Companies,

if they did not have the Warehouse Facility, their securitization business would have collapsed. (Doc. # 202, Decl. Murphy, Ex. A,

Defendants refer to the Warehouse Facility as the Loan Purchase Facility.

1

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5 ¶ 26). Eventually after some negotiations, Defendants agreed to On

assume the role of lender and agent on the Warehouse Facility.

February 9, 2001, Oakwood Companies and Defendants signed various documents to finalize Defendants' new role. Murphy, Ex. A, ¶ 26). (Doc. # 202, Decl.

The main document was a Class A Note

Purchase Agreement ("Note Purchase Agreement"). The business continued to slump. On November 15, 2002,

Oakwood Companies filed petition for bankruptcy protection under chapter 11 of title 11 of the United State Code, 11 U.S.C. §§ 101 et seq. four (Doc. # 202, Decl. Murphy, Ex. A, ¶ 37). of claim, seeking payments of Defendants filed and expenses

proofs

fees

stemming from an August 19, 2002 letter agreement ("Engagement Letter"). Pursuant to the Engagement Letter, Oakwood Companies

employed Defendants as the exclusive financial advisor for the contemplated restructuring transaction. (Doc. # 202, Decl. Murphy, Ex. B, ¶ 3). On November 13, 2004, Plaintiff commenced the adversary proceeding by filing an Objection to the Proof of Claim and Counterclaims. The objections and counterclaims are: (1) breach of fiduciary duty; (2) negligence; (3) unjust enrichment; (4)

equitable subordination; (5) avoidance and recovery of 90 day preferential transfers pursuant to 11 U.S.C. §§ 547, 550; (6) avoidance and recovery of one year preferential transfer pursuant to 11 U.S.C. §§ 547, 550; (7) avoidance and recovery of fraudulent

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6 transfers pursuant to 11 U.S.C. §§ 544, 550, and applicable state law; (9) breach of implied and express contract; and (10)deepening insolvency. (Doc. # 201, pp. 2-3). The alleged facts giving rise

to this extensive list occurred both prior to and after the Engagement Letter. (Doc. # 198, p. 2).

Plaintiff is prepared to litigate various causes of action arising from two sets of distinct nucleus of operative facts. The first set of facts is centered around the parties' According to Plaintiff: (1)

relationship pre-Engagement Letter.

Prior to the Engagement Letter, Oakwood Companies and Defendants "enjoyed a close and intimate relationship," (Doc. # 198, p. 2), which presumably is because of Defendants' role as the underwriter and then a secured lender to Oakwood Companies. Murphy, Ex. A, ¶ 11). (Doc. # 202, Decl.

(2) Plaintiff alleged that the trust and

confidence between the parties created both a fiduciary duty and an implied advisory contract. (Doc. # 198, p. 2). (3) Defendants,

however, did not exercise reasonable care in carrying out their obligations. (Doc. # 198, p. 3).

For Defendants' alleged failures, Plaintiff claims that they earned massive fees and caused substantial economic damage to the Oakwood Companies. (Doc. # 198, p. 3). For Defendants'

alleged breach of fiduciary duty, negligence, and breach of implied contract claims, Plaintiff is requesting recovery of all fees and other remuneration paid to Defendants, and actual and consequential

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7 damages. (See Doc. # 201, pp. 4-5). The second set of facts is based on the performance under the Engagement Letter. Plaintiff accuses Defendants of not

fulfilling their obligations under the Engagement Letter; therefore their claim should be disallowed. Plaintiff wants to be awarded

additional damages, and recovery under 11 U.S.C. §§ 547 & 548. (Doc. # 198, p. 3). Plaintiff's complaint asserts a right to a jury trial. Plaintiff has moved to have a jury trial for the causes of action related to the first set of operative facts. (Doc. # 198, pp. 3-4). The causes of action related to the second set of facts are not covered by the motion because they relate to the allowance of Defendants' claims. (Doc. # 198, pp. 3-4). Discussion Generally, "the bankruptcy court is an appropriate

tribunal for determining whether there is a right to a trial by jury of issues for which a jury trial is demanded." Official Comm. Of Unsecured Creditors v. TSG Equity Fund L.P. (In re EnvisionNet Computer Servs.), 276 B.R. 1, 6-7 (D. Me. 2002); In re Wash. Mfg. Co., 128 B.R. 198, 200-01 (Bankr. M.D. Tenn. 1991). Defendants put forth a number of grounds contesting Plaintiff's motion. First, the types of claims and forms of relief Plaintiff is raising are equitable rights, thus there is no right to a jury trial attached. Second, even if Plaintiff has the right

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8 to jury trial it is unenforceable because the claims are part of the "claims-allowance process." Third, in connection with the Note Purchase Agreement, several of the Oakwood Companies executed contracts in which they waived the right to a jury trial. Finally,

Defendants argue that because Plaintiff brought these actions in a court of equity, Plaintiff has forfeited its right to a jury trial. Right To a Jury Trial The right to a jury trial in a civil case is preserved in the Seventh Amendment of the U.S. Constitution. It states: "In

suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved...." U.S. Const. amend. VII. As for the meaning of "suits at common

law," the Supreme Court has interpreted it to mean "'suits in which legal rights were to to be ascertained where and determined, alone in were

contradistinction recognized, and

those

equitable

rights

equitable v.

remedies 492

were U.S.

administered.'" 33, 40-41 (1989)

Granfinanciera,

S.A.

Nordberg,

(quoting Parsons v. Bedford, 3 Pet. 433, 447 (1830)).

In other

words, a right to a jury trial attaches to those cases involving legal right and not those involving only equitable claims and remedies. Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d

1242, 1245 (3d Cir. 1994). The Supreme Court in Granfinanciera provided the

analytical framework to determine whether there is a right to a

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9 jury trial: First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. The second stage of this analysis is more important than the first. If, on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as fact finder. Granfinanciera, 492 U.S. at 43. federal law. The determination is a matter of

Simler v. Conner, 372 U.S. 221, 222 (1963); Byrd v. When a

Blue Ridge Rural Elec. Coop., 365 U.S. 525, 537-39 (1958).

court is deciding if there is a right to a jury trial, it must remember that because "the right to jury trial is a constitutional one, . . . while no similar requirement protects trials by the court, [the court's] discretion is very narrowly limited and must, wherever possible, be exercised to preserve jury trial. Beacon

Theatres, Inc. v. Westover, 359 U.S. 500, 510 (1959); Turner v. Johnson & Johnson, 809 F.2d 90,99 (1st Cir. 1986)("[I]f we must err, we choose to do so on the side of preserving plaintiffs' right to a jury trial."); Prudential Oil Corp. v. Phillips Petrol. Co., 392 F.Supp. 1018, 1022 (S.D.N.Y. 1975)("[T]he inescapable teaching of recent Supreme Court decisions is that there is a clear federal policy in light of the Seventh Amendment favoring jury trials and that, in doubtful cases, that policy should be favored.").

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10 First Stage: Legal or Equitable Claims For the first stage of the Granfinanciera analysis, this Court must determine whether Plaintiff's claims of negligence, breach of implied contract, and breach of fiduciary duty would have been considered legal or equitable claims in 18th century English courts. Plaintiff characterizes the negligence and breach of

implied contract claims as historically legal actions, while the breach of fiduciary claim as an equitable claim. 10) (Doc. # 198, p.

Defendants do not challenge the characterization in their (Doc. # 201, pp. 7-8). They do, however, contest that

brief.

because the negligence and breach of implied contract claims arose from the same nucleus of operative facts as the breach of fiduciary duty claim they are not separate and independent causes of action. (Doc. # 202, p. 11-12). Rather, they are just breach of fiduciary

duty claim in different names, hence, are equitable claims. I disagree. The notion that a single act of malfeasance

can violate several distinct equitable and legal duties is a fundamental principle of Anglo-American jurisprudence. See Germain v. Conn. Nat'l Bank, 988 F.2d 1323, 1329 (2nd Cir. 1993) (stating that both legal and equitable claims can arise from the same fact). For example, it is possible that a jury could conclude that although the parties enjoyed a close relationship, it was not enough to create a fiduciary duty. Such a finding would not

preclude a finding of negligence or of breach of contract with

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11 respect to an implied advisory contract. always owed Oakwood Companies a duty of Likewise, Defendants reasonable care in

rendering their services, the breach of which could give rise to damages even in the absence of any fiduciary relationship. See,

e.g., Balaber-Strauss v. N.Y. Tel. (In re Coin Phones, Inc.), 203 B.R. 184, 200-01 (Bankr. S.D.N.Y. 1996). Thus, the claims are each separate and independent, and must be characterized individually. Plaintiff's characterization of each claim is accurate. It has been well settled that tort claims, such as negligence, are legal actions. See City of Monterey v. Del Monte Dunes, 526 U.S.

687, 710 (stating that the Seventh Amendment covers all actions that "sound basically in tort"); Arkwright Mut. Ins. Co. v. Phila. Elec. Co., 427 F.2d 1273, 1275 (3d Cir. 1970)(stating in common law a jury is required for negligence cases); § 38.30. parties. 8-38 MOORE 'S FED . PRACTICE

This is applicable to persons as well as to corporate See, e.g., Ross v. Bernhad, 396 U.S. 531, 542

(1970)(explaining how a corporation "would have been entitled to a jury's determination, at a minimum, . . . of its rights against its own directors because of their negligence"). Claims for breach of contract, expressed or implied, are also legal rights under the common law. Donovan v. Robbins, 579

F.Supp. 817, 822 (N.D. Ill. 1984) (claims seeking "money damages for breach of express or implied contracts . . . are clearly legal and [] the Seventh Amendment would require a jury trial as to

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12 them"); 8-38 MOORE 'S FED . PRACTICE § 38.30 ("Actions for money damages for breach of contract are legal in nature and are triable to a jury."). Claims for breach of fiduciary duty, however, are

historically equitable rights.

Pereira v. Farace, 413 F.3d 330,

338 (2d Cir. 2005), cert denied, 126 S. Ct. 2286 (2006); In re Hutchinson, 5 F.3d 750, 757 (4th Cir. 1993). The best evidence in

support, as Defendants point out in their brief, is that the Delaware Chancery Court still has exclusive jurisdiction to hear breach of fiduciary duty cases. Omnicare, Inc. v. NCS Healthcare,

Inc., 809 A.2d 1163 (Del. Ch. 2002). With two legal rights and one equitable right Plaintiff has a mixture of claims. In such situation "a party will not be

denied a jury trial just because other claims arising out of the same facts are equitable." Germain, 988 F.2d at 1329. The "right

to jury trial on the legal claims . . . must not be infringed either by trying the legal issues as incidental to the equitable ones or by a court trial of a common issue existing between the claims." requires Ross, 396 U.S. at 538. that all factual Meaning, "the Seventh Amendment common to these claims be

issues

submitted to a jury for decision on the legal claims before final court determination of the equitable claims." Allison v. Citgo

Petroleum Corp., 151 F.3d 402, 422-23 (5th Cir. 1998); Mirant Corp. v. Southern Co., 337 B.R. 107, 120 (N.D. Tex. 2006)("[J]oinder of

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13 equitable claims with legal claims does not deprive a party of the right to a jury trial on the legal claim."). Consequently, even

though Plaintiff asserts an equitable right, under the first prong of the Granfinanciera analysis it still retains its right to a jury trial as to the two legal rights. Second Stage: Legal or Equitable Relief The second stage of the Granfinanciera analysis requires this Court to characterize the type of remedy sought. is more important than the first stage. at 42. This stage

Granfinanciera, 492 U.S.

Plaintiff argues that the relief it seeks is a legal remedy (Doc. # 198, pp. 11-

because it is for compensatory money damages. 12).

Even though Plaintiff has a mix of legal and equitable

claims, he argues that when the relief for the breach of fiduciary duty claim is a legal remedy, the "action assumes legal

attributes."

Mirant, 337 B.R. at 120.

Plaintiff cites the Second Circuit Court of Appeals's Pereira case in support. In Pereira, the bankruptcy trustee of

Trace International Holding, Inc. ("Trace") sued several former officers and directors of Trace for breach of fiduciary duty under Delaware state law. various claims for 413 F.3d at 335-37. monetary damages, The trustee asserted including for amounts Id.

improperly transferred by Trace under the defendants' watch. at 336.

The defendants maintained "that they were entitled to a

jury trial on the [t]rustee's beach of fiduciary duty claim because

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14 the nature of the underlying action was legal and the remedy sought was compensatory damages, not equitable restitution." The district court rejected this argument. Id. at 337.

It classified the

remedy as restitution, thus, equitable, and the defendants were not entitled to a jury trial. See id. at 339. The Second Circuit

reversed the district court's holding. Applying the Granfinanciera test, the court concluded that for the first stage the breach of fiduciary duty claim "would have been equitable in 18th century England." Id. at 339. For the second stage, the Second Circuit

looked to Great-West Life & Annuity Insurance Company v. Knudson, 534 U.S. 204 (2002), for guidance. In Great-West, the Supreme

Court stated that "`for restitution to lie in equity, the action generally must seek not to impose personal liability on the

defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.'" Pereira, 413 F.3d at 340 (quoting Great-West, 534 U.S. at 214). Because the trustee's claim was for compensatory damages, rather than any particular property in the defendants' possession, the second prong of the

Granfinanciera test rendered his suit legal in nature and required a jury trial. Id. at 341.

Here, Defendants contend that the relief sought is a mix of legal and equitable remedies, thus Plaintiff is not entitled to a jury trial. (Doc. # 202, pp. 8-11). Defendants try to

distinguish the Pereira case from the present case on account that

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15 the defendants in Pereira were not personally enriched from the breach of fiduciary duty, therefore, the relief was for damage. Whereas, in the present case Defendants enriched themselves and Plaintiff is seeking "classically equitable remedies, including disgorgement and equitable subordination." (Doc. # 201, p. 9).

For support, Defendants offer Cantor v. Perelman, No. Civ.A.97-586-KAJ, 2006 WL 318666 (D. Del. Feb.6, 2006). In Cantor, the trustee sued the directors of a corporation for breach of fiduciary duty and aiding and abetting in the breach. Id. at *2.

The trustee sought to recover "compensatory damages, including all benefits obtained by defendants as a result of their breaches of fiduciary duty or participation in breaches of fiduciary duty." Id. The court applied the Granfinanciera test. against right to a jury trial The first prong both of the The

weighed

because

plaintiff's claims were historically equitable.

Id. at *7.

second prong resulted in a mix of equitable and legal remedy. Id. at *9. The court concluded, after commenting on the Pereira

decision, that "compensatory damages" was legal in nature, while "benefits obtained by defendants" was an equitable remedy. *8-9. Id. at

In its final balancing the court held that where the claims

were equitable and the relief sought were both legal and equitable, it weighed against right to jury trial.

The Cantor case is not the proper comparison for the

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16 present case. First, in Cantor there were only two historically

equitable claims at issue; breach of fiduciary duty and aiding and abetting the same. The court noted that its analysis would have

been impacted "if at least one of Plaintiff's claims [had been] legal rather than equitable." here. Id. at *7 n.7. That is the case

Plaintiff has two causes of action that have always been Second,

legal in nature and one that is historically equitable.

the trustee in Cantor was clearly focused on recovering specific sums received by the directors in connection with certain See

transactions, see id. at *1, which made the remedy equitable. id. at *9.

Here, in contrast, the thrust of Plaintiff's case is on

remedying the alleged harm incurred by the Debtors, rather than on merely recovering illicit gains. from the present case. The more appropriate case for this Court to look to is Pereira. Plaintiff is seeking to recover fees and other Thus, Cantor is distinguishable

remuneration paid to Defendants, and actual and consequential damages. This relief is very similar to the relief the trustee in

Pereira sought; for monetary damage and improperly transferred fees. The Second Circuit held that to be legal relief. Applying

the Great-West test, the relief that Plaintiff is seeking is to impose personal liability on Defendants for the damage they have caused, it is not to recover any particular fund that Defendants have in their possession. Thus, the relief Plaintiff seeks is

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17 compensatory monetary damages, which is "the classic form of legal relief." Great-West, 534 U.S. at 210 (quoting Mertens v. Hewitt

Assocs., 508 U.S. 248, 255 (1993)); see also, e.g., Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477 (1962) ("[W]e think it plain that [a] claim for a money judgment is a claim wholly legal in its nature however the complaint is construed."); Billing, 22 F.3d at 1245. Ultimately, this Court must weigh the claims against the relief sought, with more weight on the latter, and determine if Plaintiff has right to a jury trial. Plaintiff in this case has

presented two legal and one equitable claim and is seeking legal relief. Thus, the weighing clearly favors Plaintiff having the In sum, after balancing the two prongs of

right to a jury trial.

the Granfinanciera analysis, this Court holds that Plaintiff has the right to a jury trial. Third Stage: Claim-allowance Process or Not The third step in the Granfinanciera analysis is to determine whether this is a matter that Congress has assigned to a non-Article III court for adjudication without a jury. The Third

Circuit has extrapolated from this prong an embedded limitation on the Seventh Amendment right. Billing, 22 F.3d at 1247. The

limitation arises when a cause of action "falls within the process of the allowance and disallowance of claims." neither the debtor's estate nor the Id. at 1253. has a There, Seventh

defendant

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18 Amendment right to trial by jury "because [the] claim has been converted from a legal one into an equitable dispute over a share of the estate." Id.; Germain, 988 F.2d at 1330 ("For waiver to

occur, the dispute must be part of the claims-allowance process.... Even there the right to a jury trial is lost not so much because it is waived, but because the legal dispute has been transformed into an equitable issue."). This limitation originated from Katchen v. The Supreme Court in Katchen noted

Landy, 382 U.S. 323 (1966).

that part of Congress's intent for the Bankruptcy Act of 1898 was to place the resolution of disputed claims in summary proceeding in the bankruptcy court rather than proceeding at law. see Billing, 22 F.3d at 1247. It was intended Id. at 329; to promote

expediency and judicial efficiency.

See Katchen,382 U.S. at 328.

Plaintiff asserts that the subject counterclaims are not part of the claim-allowance process and offers two reasons in support. First, the causes of action are unrelated to the

Engagement Letter and are not products of the Bankruptcy Code. Instead, they are state law claims that could have been asserted by Oakwood Letter. Companies against Defendants prior to the Engagement

(Doc. # 198, p. 18). counterclaims

Second, the success or failure of not affect the allowance or

Plaintiff's

would

disallowance of Defendants' claims under 11 U.S.C. § 502(d). (Doc. # 198, p. 18). If Plaintiff succeeds or fails on its non-

bankruptcy legal claims, only the size of the Debtors' estate would

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19 be affected. Defendants hold the opposing view. They contend that

Plaintiff's counterclaims are in response to Defendants' proofs of claim, and the relief Plaintiff seeks is a resolution of Defendants claims. (Doc. # 201, p. 18). They also argue that when Plaintiff

requested the Court to disallow or otherwise equitably subordinate Defendants' proofs of claim it has invoked and submitted to the equitable jurisdiction of this Court. (Doc. # 201, p. 15).

According to Defendants, the fact that Plaintiff seeks affirmative recovery on his counterclaims and could have brought his

counterclaims in other forum does not affect their conclusion. (Doc. # 201 pp. 15, 18). Claim-allowance process means that "the resolution of the dispute in which a jury trial is sought must affect the allowance of the creditors's claim in order to be part of that process." Germain, 988 F.2d at 1327. An action that "would augment the

estate but which have no effect on the allowance of a creditor's claim simply cannot be part of the claims-allowance process." Id.

The action is only augmenting the estate "if [the trustee] wins, the estate is enlarged, and this may affect the amount . . . creditors ultimately recover on their claims, but it has no effect whatever on the allowance of the [defendant's] claim." Id. Id.

Generally, lender liability actions augment the estate.

The Court is persuaded that the subject counterclaims are

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20 not part of the claim-allowance process. As Plaintiff carefully

points out in its motion, the claims that Defendants assert arise from the Engagement Letter, whereas the subject counterclaims that Plaintiff asserts originate from the period prior to the Engagement Letter. The subject counterclaims are based on the financial

institutions' alleged misconduct, separate from Defendants' proofs of claim for services performed pursuant to the Engagement Letter. Furthermore, Plaintiff's subject counterclaims only augment the estate. Plaintiff may raise the counterclaims in a separate trial, under applicable state law, and succeed on some or all of the counterclaims, yet it would not affect the allowance of Defendants' claims. The only effect that will result is that if it wins, the

estate will be augmented by the compensatory monetary damage from Defendants. Thus, Plaintiff's counterclaims are not part of the

claim-allowance process, and do not limit its right to a jury trial. Legal Claims in a Court of Equity As for Defendants' argument that Plaintiff submitted itself to the equitable jurisdiction of this Court by raising these counterclaims, the Court does not agree. Defendants argue that the Trust's choice to combine claim objections with affirmative

litigation before this Court somehow makes the entire adversary proceeding part of the claims-allowance process or otherwise

triggered a categorical submission to the equitable jurisdiction of

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21 this Court. Circuits are split on Defendants' core proposal - that any adversary proceeding filed by the representative of a debtor's estate in a bankruptcy court, rather than in some alternative forum, categorically eliminates any and all of the estate's jury trial rights forever. See Germain, 988 F.2d 1330 ("We conclude

that neither precedent nor logic supports the proposition that either the creditor or the debtor automatically waives all right to a jury trial whenever a proof of claim is filed."); In re Jensen, 946 F.2d 369, 373-74 (5th Cir. 1991) (debtor's petition in the bankruptcy court does not affect its right to a jury trial). But see N.I.S Corp. v. Hallahan (In re Hallahan), 936 F.2d 1496, 1505 (7th Cir. 1991) (holding debtor consented to jurisdiction by filing bankruptcy petition and thereby waived right to jury trial); Bayless v. Crabtree Through Adams, 108 B.R. 299, 305 (Bankr. W.D. Okla. 1998), aff'd, 930 F.2d 32 (10th Cir. 1991) (holding legal assertions, otherwise subject to jury trial, brought by trustee or debtor are "open to adjudication in equity by Bankruptcy Judges under their power to afford complete relief"). The Third Circuit has not adopted Defendant's position. The fact that the debtor may have voluntarily submitted itself to the bankruptcy court's equitable jurisdiction does not complete the analysis. A court must also ask whether the resolution of the particular dispute at issue is necessarily part of the process of the disallowance and allowance of claims. See Katchen, 382 U.S. at 336, 86 S.Ct. at 476.

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22 Billing, 22 F.3d at 1252, n. 14. This Court believes that

Defendants' core proposal flies in the face of the Supreme Court's clear instruction that "legal claims are not magically converted into equitable issues by their presentation to a court of equity." Ross, 396 U.S. at 538. position. Contractual Waiver of Jury Trial The last ground that Defendants raise in opposition is that Plaintiff contractually waived its right to a jury trial. In Thus, the Court rejects Defendants'

connection with the Note Purchase Agreement, on February 9, 2001, two Oakwood Companies (OHC and Oakwood Acceptance Corporation, LLC) executed agreements with a Credit Suisse entity. contain a jury trial waiver whereby each party HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL ACTION OR PRECEDING RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT RELATED HERETO AND FOR ANY COUNTERCLAIM THEREIN. (Doc. # 202, Decl. Murphy, Ex. E, p. 6). According to Defendants, Those agreements

Plaintiff, in charge of liquidating the Debtors' estates, is the successor in interest to these two Oakwood Companies, and is prohibited by the waiver from seeking a jury trial on any claims "related directly or indirectly to the Note Purchase Agreement or any of the contracts related thereto under the loan purchase facility." (Doc. # 201, p. 22).

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23 There are several reasons why this contractual waiver does not apply here. parties. The first is the identity of the contracting

The purported waiver only involves two of the Debtors.

The Trust succeeded to the rights of fifteen Debtor entities2 pursuant to a plan of reorganization that effected a substantive consolidation of all the Debtors. The Credit Suisse entity that is a party to the two agreements bears the name of "Credit Suisse First Boston, New York Branch," as agent for the warehouse

facility.

(Doc. # 202, Decl. Murphy, Ex. "D" at signature page, None of Defendants here bear that

Ex. "E" at signature page.) name.

In their answer to the complaint (Doc. # 132), Defendants very carefully note their separateness. answer states: The Defendants' use of "Defendants" to refer to the named Credit Suisse affiliated defendants is used for convenience only and is not an admission that any one of the Defendants is not a distinct and separate entity, or that any one of the Defendants is responsible for the liabilities of any other Defendant. Nor is any reference to "Defendants" an admission that any Defendant named or referenced in the Complaint Footnote 1 on p. 2 of the

These are: Oakwood Homes Corporation, Oakwood Mobile Homes, Inc., Oakwood Acceptance Corporation, LLC, HBOS Manufacturing, LP, Suburban Home Sales, Inc., FSI Financial Services, Inc., Home Service Contract, Inc., Tri-State Insurance Agency, Inc., New Dimension Homes, Inc., Dreamstreet Company, LLC, Golden West Leasing, LLC, Crest Capital, LLC, Oakwood Shared Services, LLC, Preferred Housing Services, LP, and Oakwood MHD4, LLC.

2

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24 participated in any of the acts alleged in the complaint, except as specifically admitted herein. In their response to the motion, Defendants specifically identify "Credit Suisse Securities (USA), LLC" as the target of the jury trial counts: "The remaining claims - on which the Trust now seeks a jury trial - are claims arising out of the relationship between Oakwood and [Credit Suisse Securities (USA), LLC] prior to August, 2002." (Doc. # 201, p. 7). Obviously, Credit Suisse Securities

(USA), LLC is not a party to the two agreements containing the jury trial waiver and thus it has no standing to enforce the waiver even if the Trust were bound by the commitment of two of the fifteen Debtors. It is fundamental that, "[g]enerally, a jury waiver provision in a contract or lease affects only the rights of the parties to that contract or lease," Hulsey v. West, 966 F.2d 579, 581 (10th Cir. 1992) (guarantor of corporate loan was not bound by jury waiver in an agreement that he did not execute in his personal capacity). Thus, Defendants, including Credit Suisse Securities

(USA), LLC, cannot all claim shelter in a waiver signed only by Credit Suisse First Boston, New York Branch. Nor can that waiver

diminish the rights of thirteen Debtors that did not sign it rights that now belong to the Trust.

Even

if

one

were

to

ignore

the

"New

York

Branch"

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25 identification, the result remains the same. If the two agreements are read to intend that the Credit Suisse entity is simply "Credit Suisse First Boston, a Swiss banking corporation," the caption of this case identifies "Credit Suisse (f/k/a Credit Suisse First Boston, a Swiss banking corporation)" as a Defendant, but

Defendants acknowledge that the target of the jury trial counts is the Defendant "Credit Suisse Securities (USA), LLC (f/k/a Credit Suisse First Boston, LLC)." The second problem relates to the scope of the waiver itself. At its broadest, the waiver pertains only to an action

"relating directly or indirectly to" the agreements establishing the Warehouse Facility. But the legal claims are not about any

breach of those agreements, or about whether Credit Suisse First Boston, New York Branch adequately performed thereunder. Rather,

it is about whether Defendants breached far broader duties, not arising from any written contract, by partaking a myriad of alleged illicit transactions with the Oakwood Companies. Because this action is about much more than the Warehouse Facility and related agreements, it falls outside the scope of the purported waiver. Other courts have reached the same conclusion in similar circumstances. See, e.g., Nichols Motorcyle Supply Inc. v. Dunlop Tire Corp., 913 F. Supp. 1088, 1146-47 (N.D. Ill. 1995) (broad jury waiver in "Distributor Agreement" did not encompass any "claims that do not directly arise or have their basis in the

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26 Distributor Agreement"); Nat'l Acceptance Co. v. Myca Prods., Inc., 381 F. Supp. 269, 269-70 (W.D. Pa. 1974) (jury waiver in loan agreement purporting to affect "any action" between the parties did not apply to claim alleging breach of a separate oral agreement); see also OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510, 519-20 (Bankr. D. Del. 2006) (indemnification provision of August 19 Contract does not apply to actions for breach of independent, non-contractual duties). purported contractual waiver is far too limited to apply here. The final problem with Defendants' contractual waiver theory is that Defendants have not proffered any evidence to meet their burden of showing that there was no gross disparity in power between the two Oakwood Companies and Credit Suisse First Boston, New York Branch. The Supreme Court and the Third Circuit all agree that "because the `right of jury trial [in a civil case] is fundamental, courts [should] indulge every reasonable presumption against The

waiver.'" Tracinda Corp. V. DaimlerChrysler AG., 2007 U.S. App. LEXIS 22221, *22-23 (3d Cir. Sept. 18, 2007) (quoting Aetna, Inc. v. Kennedy, 301 U.S. 3890, 393 (1937)); Collins v. Gov't of Virgin Islands, 366 F.2d 279, 284 (3d Cir. 1966). A valid, enforceable

waiver clause must meet the knowing and voluntary standard, which requires that: (1) there was no gross disparity in bargaining power between the parties; (2) the parties are sophisticated business

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27 entities; (3) the parties had opportunity to negotiate the contract terms; and (4) the waiver provision was conspicuous. First Union

Nat'l Bank v. United States, 164 F.Supp. 2d 660, 663 (E.D. Pa, 2001); Tracinda Corp., 2007 U.S. App. LEXIS 22221 at *23. Given

the presumption against waiver "the burden of proving that a waiver was done knowingly and intelligently falls upon the party seeking enforcement of a waiver . . . clause." F.Supp. 2d at 663. In this case Defendants bear the burden of proving the waiver clause is enforceable. Looking at the factors, there is no First Union Nat'l Bank, 164

question as to the sophistication and intelligence of the parties who entered into the agreements. Question arises, however,

regarding the bargaining positions of the parties when they entered into the Note Purchase Agreement. Plaintiff points to a video deposition by Mr. Douglas R. Muir, a officer of OHC. In the deposition Mr. Muir stated that

finding a successor facility to its then credit providers, Bank of America, was critical and had to be done. Ex. B, at 52:13-16). (Doc. # 204, Decl. Holt,

However, there was not "a half a dozen credit

providers lined up at the door, each of which was offering to do [the] transaction. in town." (Doc. At the time [Defendants] w[ere] the only game # 204, Decl. Holt, Ex. B, at 51:13-16).

Additionally, there was pressure from Bank of America to take it out of the facility, or it would have charged Oakwood Companies

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28 large fees. (Doc. # 204, Decl. Holt, Ex. B, at 52:6-12). Given

the critical nature of the transaction, the lack of candidates, and the pressure from Bank of America, there is a good argument that the two Oakwood Companies were at a severely disadvantaged

bargaining possession.

Thus, they did not have any leverage to

fairly negotiate the terms of the Note Purchase Agreement. Because Defendants did not offer any evidence to the contrary, Defendants failed to meet its burden of proof that the parties had equal bargaining position. Consequently, because this Court must

construe the waiver narrowly and any ambiguity is to be decided against the waiver, the waiver is not enforceable here. Conclusion For the reasons stated above, Plaintiff's motion for determination of Plaintiff's rights to a jury trial is granted. Plaintiff does have the right to a jury trial on three of its 10 counts.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) ) Oakwood Homes Corporation, et ) al., ) ) Debtors. ) _______________________________ ) OHC Liquidation Trust, ) ) Plaintiff, ) ) v. ) ) Credit Suisse (f/k/a Credit ) Suisse First Boston, a Swiss ) banking corporation), Credit ) Suisse Securities (USA), LLC ) (f/k/a Credit Suisse First ) Boston LLC), Credit Suisse ) Holdings (USA), Inc. (f/k/a ) Credit Suisse First Boston, ) Inc.), and Credit Suisse (USA), ) Inc. (f/k/a Credit Suisse First ) Boston (U.S.A.), Inc.), the ) subsidiaries and affiliates of ) each, and Does 1 through 100, ) ) Defendants. ) ) Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Adversary Proceeding No. 04-57060 (PJW)

PLAINTIFF'S MOTION TO WITHDRAW THE REFERENCE AND TO SET DATES FOR A PRE-TRIAL CONFERENCE AND JURY TRIAL BEFORE THE DISTRICT COURT

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TABLE OF CONTENTS Page PRELIMINARY STATEMENT ...........................................2 SUMMARY OF PROCEEDINGS BEFORE THE BANKRUPTCY COURT ..............3 ARGUMENT .......................................................11 A. B. C. Plaintiff Has A Seventh Amendment Right To A Jury Trial. ..........................................13 The Adversary Proceeding Is Now "Trial Ready." .......14 Considerations Of Judicial Economy Favor Withdrawing The Reference As To The Entire Adversary Proceeding. ................................16

CONCLUSION .....................................................22

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TABLE OF AUTHORITIES CASES In re Adelphi Inst., Inc., 112 B.R. 534 (S.D.N.Y. 1990) .............................. 12 Century Glove, Inc. v. First Am. Bank, 860 F.2d 94 (3d Cir. 1988) ................................ 21 Citicorp Venture Capital v. Comm. of Creditors Holding Unsecured Claims, 160 F.3d 982 (3d Cir. 1998) ............................... 17 Cong. Credit Corp. v. AJC Int'l, Inc., 42 F.3d 686 (1st Cir. 1994) ............................... 16 Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) ....................................... 19 Gray v. Solvay Polymers, Inc. (In re Dooley Plastic Co.), 182 B.R. 73 (D. Mass. 1994) ............................... 11 Growe v. Bilodard Inc., 325 B.R. 490 (D. Me. 2005) ................................ 11 In re Hardesty, 190 B.R. 653 (D. Kan. 1995) ............................... 11 Kowal v. Malkemus (In re Thompson), 965 F.2d 1136 (1st Cir. 1992) ............................. 21 Lumbermens Mut. Cas. Co. v. Franey Muha Alliant Ins. Servs., 388 F. Supp. 2d 292 (S.D.N.Y. 2005) ....................... 17 Michaelesco v. Shefts, 303 B.R. 249 (D. Conn. 2004) .......................... 12, 15 Mirant Corp. v. Southern Co., 337 B.R. 107 (N.D. Tex. 2006) ............................. 16 NDEP Corp. v. Handl-It, Inc. (In re NDEP Corp.), 203 B.R. 905 (D. Del. 1996) ........................... 11, 12 OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510 (Bankr. D. Del. 2006) ......................... 5 Peachtree Lane Assocs. v. Granader, 175 B.R. 232 (N.D. Ill. 1994) ............................. 11

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Shubert v. Julius Kraft Co. (In re Winstar Commc'ns, Inc.), 321 B.R. 761 (D. Del. 2005) ........................... 12, 15 Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539 (D. Del. 2005) ............................... 17 In re Tastee Donuts, Inc., 137 B.R. 204 (E.D. La. 1992) .............................. 16 Travelers Cas. & Sur. Co. v. Skinner Engine Co. (In re Am. Capital Equip., LLC), 325 B.R. 372 (W.D. Pa. 2005) .............................. 12 United Orient Bank v. Green (In re Green), 200 B.R. 296 (S.D.N.Y. 1996) .............................. 16 Wakefern (In No. (D. Food Corp. v. C&S Wholesale Grocers, Inc. re Big V Holding Corp.), 01-233 (GMS), 2002 U.S. Dist. LEXIS 12609 Del. July 11, 2002) ............................... 12, 13

STATUTES AND RULES 28 U.S.C. § 157(d) ......................................... passim 28 U.S.C. § 157(e) ............................................. 13 FED. R. CIV. P. 38(b) ............................................ 4 FED. R. BANKR. P. 5011(a) ........................................ 1 FED. R. BANKR. P. 9015(a) ........................................ 4 D. Del. LR 51.1(a) ............................................. 14 Del. Bankr. L.R. 5011-1 ......................................... 1

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Pursuant to 28 U.S.C. § 157(d), Federal Rule of Bankruptcy Procedure 5011(a), and Rule 5011-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware,1 Plaintiff OHC Liquidation Trust ("Plaintiff"), by and through its duly appointed trustee, Alvarez & Marsal, LLC, hereby moves to (1) withdraw the reference of the entire abovecaptioned adversary proceeding2 (the "Adversary Proceeding"), which is currently pending before the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"); and (2) set dates for a pre-trial conference and jury trial before the U.S. District Court for the District of Delaware (the "District Court") so that this case may proceed apace.

1

Although Plaintiff's right to a jury trial on three "trial ready" counterclaims, combined with basic considerations of judicial economy, provides the basis (or "cause") for withdrawal of the reference here, Plaintiff has nevertheless complied with Local Rule 5011-1 by filing a concurrent motion with the Bankruptcy Court to determine whether this proceeding is "core." Because the "core"/"non-core" distinction is not a basis to withdraw the reference in this particular instance, and because the resolution of that issue should not alter the outcome of the instant motion, Plaintiff has also requested that the Bankruptcy Court decline to require extensive briefing on the question and instead inform the District Court that the instant motion can be promptly decided solely on the basis of the papers filed with the District Court. Specifically, Plaintiff now moves to withdraw the reference as to Adversary Proceeding No. 04-57060 (PJW), currently pending before the Honorable U.S. Bankruptcy Judge Peter J. Walsh. Items on the docket sheet for the Adversary Proceeding are cited herein as "Adv. Proc. D.I. No. __"; a "Record Appendix" including copies of all the cited material will be provided to the District Court.

2

1

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PRELIMINARY STATEMENT This motion stems from an adversary proceeding that has been actively litigated before the Bankruptcy Court and is now ready for the final jury trial phase of the case. During

this time, (i) all the parties' consensual and court-approved deadlines for discovery and dispositive motions have passed; (ii) both sides affirmed to the Bankruptcy Court (and to each other) that they are "trial ready"; and (iii) the case was just weeks before trial in the Bankruptcy Court were that court to rule there was no right to a jury trial. Prior to

the entry of a pre-trial order, however, the Bankruptcy Court ruled that Plaintiff has a constitutional right to try certain claims against the Defendants in the Adversary Proceeding (collectively, "Defendants" or "Credit Suisse") before a jury. Because the Bankruptcy Court has not been authorized to conduct jury trials, and Credit Suisse will not consent to such a trial in any event, Plaintiff's Seventh Amendment rights will be validated only if a jury trial is conducted by the District Court. This fact constitutes sufficient (and in

this case dispositive) "cause" to withdraw the reference. Moreover, considerations of judicial economy clearly favor withdrawal as to the entirety of the proceeding. Thus, given

that both sides agree that the Adversary Proceeding is "trial ready," it is now proper for the reference to be withdrawn.

2

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SUMMARY OF PROCEEDINGS BEFORE THE BANKRUPTCY COURT On November 15, 2002 (the "Petition Date"), Oakwood Homes Corporation ("Oakwood") and certain of its affiliates (collectively, the "Debtors" and together with the non-Debtor affiliates, the "Oakwood Entities") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The

remaining Debtors filed for chapter 11 protection on March 5, 2004. The Debtors' chapter 11 cases were jointly administered

before the Bankruptcy Court as Case No. 02-13396 (PJW). By order entered on March 31, 2004, the Bankruptcy Court confirmed the Debtors' "Second Amended Joint Consolidated Plan of Reorganization of Oakwood Homes Corporation and Its Affiliated Debtors and Debtors in Possession" (the "Plan"). Plaintiff is the Debtors' successor

in interest pursuant to the Plan and the related Liquidation Trust Agreement dated April 13, 2004. Defendant Credit Suisse Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC) ("CSS") filed four identical proofs of claim in the Debtors' bankruptcy cases. In those

proofs of claim, CSS asserted an entitlement to various liquidated and unliquidated amounts, all of which stemmed from a certain letter agreement dated August 19, 2002 (the "August 19 Contract"), which agreement was attached as an exhibit to the rider CSS filed with its proofs of claim.

3

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Plaintiff commenced the Adversary Proceeding on November 13, 2004 via an objection to CSS's proofs of claim, which objection was coupled with ten counterclaims against the Defendants (the "Objection/Counterclaims" [Adv. Proc. D.I. No. 1]). Plaintiff's counterclaims included claims against CSS

and the other Credit Suisse Defendants for malfeasance unrelated to the August 19 Contract, including for breach of fiduciary duty, negligence, and breach of implied contract. (See Objection/Counterclaims at ¶¶ 47-54, 92-96.) The

Objection/Counterclaims contained numerous allegations of fact that pre-dated the parties' execution of the August 19 Contract. (See, e.g., id. at ¶¶ 11, 18-32.) The cover page

of the Objection/Counterclaims explicitly stated "JURY TRIAL DEMANDED," a point Plaintiff reiterated in the pleading's text (see id. at ¶ 3 ("Plaintiff demands a jury trial of any issue triable by a jury.")), and via a separately attached document entitled "DEMAND FOR JURY TRIAL" (see id. at p. 38). This

constituted a timely jury demand pursuant to Federal Rule of Civil Procedure 38(b), made applicable to the Adversary Proceeding by Federal Rule of Bankruptcy Procedure 9015(a). Defendants filed a motion to dismiss certain counts of the Objection/Counterclaims, which motion was denied by the Bankruptcy Court on March 31, 2006 as to all but one of Plaintiff's ten counterclaims (more specifically, the motion

4

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was left pending as to the claim for "deepening insolvency") [Adv. Proc. D.I. Nos. 127-128; see also OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510 (Bankr. D. Del. 2006)]. Defendants subsequently

filed their "Answer and Affirmative Defenses" (the "Answer" [Adv. Proc. D.I. No. 132]). In the Answer, Defendants denied that Plaintiff has any rights to a jury trial. (See id. at ¶ 3.) Nevertheless,

Defendants did not then move to strike Plaintiff's timely demand for a jury trial ­ indeed, they never moved to strike or otherwise raised the issue before the Bankruptcy Court. On July 7, 2005, the Bankruptcy Court entered a Scheduling Order (the "Scheduling Order" [Adv. Proc. D.I. No. 42]) to govern the timing of initial disclosures and fact discovery in the Adversary Proceeding. Pursuant to the

Scheduling Order, discovery in the form of document requests, interrogatories, depositions, and requests for admissions was to begin in August 2005 and conclude in November 2006. Although some contentious discovery disputes arose along the way, and although certain limited agreed exceptions allowed some fact discovery to proceed after November 2006, virtually all of the parties' fact discovery was completed by November 30, 2006, and all discovery was completed by October 22, 2007.

5

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In connection with a status conference before the Bankruptcy Court on September 25, 2006, the parties negotiated and filed a status conference report (the "2006 SCR" [Adv. Proc. D.I. No. 159]). In the 2006 SCR, the parties

consensually agreed to certain cut-off deadlines for the completion of expert discovery and for the filing of any motions for summary judgment. (See 2006 SCR at p. 2.) At the

September 25, 2006 status conference, the Bankruptcy Court approved the deadlines set forth in the 2006 SCR and preliminarily set the week of November 5, 2007 for trial. Following the September 25, 2006 status conference, the parties completed the remainder of the discovery process and engaged in multiple settlement discussions. Such talks

ultimately proved unsuccessful ­ the parties were not able to reach any consensual resolution of the Adversary Proceeding. In connection with the parties' settlement discussions, Defendants requested an extension of the expert discovery deadlines, which extension was (i) agreed to by Plaintiff and (ii) approved by the Bankruptcy Court. Adv. Proc. D.I. Nos. 172-173.) (See

Plaintiff served two initial (See Adv.

expert reports by the deadline on April 30, 2007. Proc. D.I. No. 175.)

Defendants filed no expert reports by

the April 30 deadline.

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In June 2007, the parties again attempted to settle the Adversary Proceeding. In connection with these

discussions, Defendants requested a second extension of the deadline for their submission of "rebuttal" expert reports. Plaintiff again agreed to, and the Bankruptcy Court again approved, Defendants' requested extension. D.I. Nos. 178-179.) (See Adv. Proc.

Notwithstanding this further extension,

Defendants filed no expert report by the July 18 deadline. Rather, Defendants filed a discovery motion, which motion the Bankruptcy Court resolved via a letter ruling dated September 13, 2007 (the "Letter Ruling" [Adv. Proc. D.I. No. 194]). Defendants timely completed a deposition of one of Plaintiff's experts, Dr. Alan Shapiro, by September 10, 2007. The deposition of the other expert, Dr. Michael Tennenbaum, was delayed on account of the Defendants' discovery motion. Following the Letter Ruling, the parties negotiated and filed a status conference report (the "2007 SCR" [Adv. Proc. D.I. No. 195]) in anticipation of a status conference before the Bankruptcy Court on October 4, 2007. In the 2007

SCR, the parties agreed that Defendants would depose Dr. Tennenbaum by October 22, 2007, and that "[f]ollowing the completion of the expert discovery process . . ., the parties believe that this adversary proceeding will be nearly 'trial ready.'" (See 2007 SCR at pp. 1-2.)

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The 2007 SCR further provided that, notwithstanding their repeated failure to meet the previously-agreed deadlines, Defendants would have until October 4, 2007 to decide whether to submit any expert "rebuttal" reports. id. at p. 1.) Via an e-mail dated October 3, 2007, (See

Defendants' counsel informed Plaintiff's counsel that Defendants decided not to submit any expert witness reports. The 2007 SCR also noted a residual issue which stemmed from the fact that "Plaintiff has timely demanded a jury trial on all issues triable by jury" but "Defendants do not consent to a jury trial conducted by this [Bankruptcy] Court." (See id. at p. 2.) Unmoved by this open issue,

Defendants stated in the 2007 SCR that they were "prepared to proceed to trial before this [Bankruptcy] Court on November 5, 2007, and object to any delay." (Id.)

The parties' long-agreed September 14, 2007 deadline for summary judgment motions passed without either side filing any motions for summary judgment. On October 4, 2007, the parties attended a status conference before the Bankruptcy Court.3 At this conference:

3

A true and correct copy of the official transcript for the October 4, 2007 status conference [Adv. Proc. D.I. No. 206] is attached as Exhibit "A" to the accompanying Declaration of Whitman L. Holt and is cited herein as "SC Tr. at __."

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· The parties informed the Bankruptcy Court of Defendants' decision not to rely on any expert witnesses, including as "rebuttal" witnesses to Plaintiff's experts. (See SC Tr. at 3:23 - 4:2.) · The Defendants' counsel explained to the Bankruptcy Court that Defendants had intentionally decided not to file any summary judgment motions by the parties' long-agreed deadline. (See id. at 8:9-13.) · The Defendants' counsel informed the Bankruptcy Court of Defendants' belief that the Adversary Proceeding was "essentially trial ready." (See id. at 6:13-15.) · Plaintiff's counsel likewise informed the Bankruptcy Court that Plaintiff believed the Adversary Proceeding would be "entirely ready for trial" following the close of expert discovery on October 22, 2007. (See id. at 4:2-8.) · Notwithstanding its readiness for trial, Plaintiff's counsel explained that Plaintiff believed it had a constitutional right to a jury and, since the matter was nearly "trial ready," would promptly move to withdraw the reference if the Bankruptcy Court so determined. (See id. at 4:7 ­ 5:12; 17:14-25.) · After a brief colloquy between the Bankruptcy Court and counsel, the Bankruptcy Court agreed to set an expedited briefing schedule whereby the parties could set forth their respective positions about Plaintiff's rights to a jury trial vel non. (See id. at 16:7 ­ 17:3; see also Adv. Proc. D.I. No. 200 (order setting forth briefing schedule regarding jury trial issue).) · Pending the outcome of the parties' briefing regarding the jury trial issue, the Bankruptcy Court scheduled preliminary dates for the submission of a pre-trial order, a pre-trial conference, and a bench trial before the Bankruptcy Court. (See SC Tr. at 18:17 ­ 19:13; see also Adv. Proc. D.I. No. 200 (order setting certain trial-related deadlines).)

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Consistent with the October 4, 2007 status conference and the Bankruptcy Court's subsequent order, the parties filed lengthy and detailed briefs setting forth their respective positions regarding whether Plaintiff has a constitutional right to a jury trial. Nos. 198, 201, 203.) (See Adv. Proc. D.I.

Likewise, Defendants completed their

final expert deposition (of Dr. Tennenbaum) by the October 22, 2007 deadline. Thus, as of the conclusion of that deposition,

all discovery in this Adversary Proceeding has been completed and all agreed deadlines for dispositive motions have run. On October 25, 2007 ­ one day prior to the deadline for the parties to file a draft pre-trial order ­ the Bankruptcy Court scheduled a telephonic conference at which the parties were informed of the Bankruptcy Court's tentative ruling that Plaintiff has a constitutional right to a jury trial on certain of its claims. Following this conference,

the parties agreed that deadlines related to the trial preparation process would be suspended pending the Bankruptcy Court's ruling and proceedings before the District Court. On November 15, 2007, the Bankruptcy Court issued a detailed memorandum opinion (the "Jury Trial Opinion" [Adv. Proc. D.I. No. 207; Holt Decl. Ex. "B"]) in which the Bankruptcy Court held that Plaintiff has the constitutional

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right to a jury trial with respect to three of its counterclaims; specifically, the counterclaims for breach of fiduciary duty, negligence, and breach of implied contract. ARGUMENT Pursuant to 28 U.S.C. § 157(d), the District Court "may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." A party's fundamental

right to a jury trial can, by itself, constitute sufficient "cause" to withdraw the reference.4 This conclusion follows

from the fact that "absent the express consent of both parties and a special designation of jurisdiction by the district court, the bankruptcy court may not hold a jury trial." NDEP

Corp. v. Handl-It, Inc. (In re NDEP Corp.), 203 B.R. 905, 908

4

See, e.g., Growe v. Bilodard Inc., 325 B.R. 490, 492 (D. Me. 2005) ("A bankruptcy court may not conduct a jury trial without the consent of the parties. Therefore, a valid jury demand can have the effect of mandating withdrawal to the District Court for trial." (citation omitted)); In re Hardesty, 190 B.R. 653, 655 (D. Kan. 1995) ("Sufficient cause for withdrawal of reference exists where the adversary proceeding concerns matters for which there is a right to a jury trial, a timely demand for a jury trial, and no mutual consent to trial before the bankruptcy court."); Gray v. Solvay Polymers, Inc. (In re Dooley Plastic Co.), 182 B.R. 73, 81 (D. Mass. 1994) (the fact "that the Bankruptcy Court is not authorized to conduct a jury trial . . . constitutes good cause for withdrawing the reference"); Peachtree Lane Assocs. v. Granader, 175 B.R. 232, 235 (N.D. Ill. 1994) ("Because the bankruptcy court may not conduct a jury trial, 'cause' to withdraw the reference automatically exists in cases where the party seeking withdrawal is entitled to a jury trial under the Seventh Amendment." (citation and quotations omitted)).

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(D. Del. 1996); see also id. at 914 ("Because the parties have not expressly allowed the bankruptcy court to hold a jury trial in this adversary proceeding and because this court has not made a special designation of jurisdiction, the bankruptcy court is not statutorily empowered to hold a jury trial in this matter. For this reason alone withdrawal is compelled."

(emphasis added)). Notwithstanding that a party's Seventh Amendment rights give rise to adequate "cause" for withdrawal of the reference, courts in this and other districts hold that "[w]ithdrawal of the reference based on the ground that a party is entitled to a jury trial should be deferred until the case is 'trial ready.'" Wakefern Food Corp. v. C&S Wholesale

Grocers, Inc. (In re Big V Holding Corp.), No. 01-233 (GMS), 2002 U.S. Dist. LEXIS 12609, at *17 (D. Del. July 11, 2002) (citing cases).5 Thus, even if a party has a jury right, the

5

See also, e.g., Travelers Cas. & Sur. Co. v. Skinner Engine Co. (In re Am. Capital Equip., LLC), 325 B.R. 372, 378 (W.D. Pa. 2005) ("It is appropriate, efficient, and logical that withdrawal of the reference in such circumstances can be deferred until the case is trial ready."); Shubert v. Julius Kraft Co. (In re Winstar Commc'ns, Inc.), 321 B.R. 761, 764 (D. Del. 2005) ("A district court may consider a demand for a jury trial insufficient cause for discretionary withdrawal if the motion is made at an early stage of the proceedings and dispositive motions may resolve the matter."); Michaelesco v. Shefts, 303 B.R. 249, 253 (D. Conn. 2004) ("The appropriateness of removal of the case to a district court for trial by jury, on asserted Seventh Amendment grounds, will become a question ripe for determination if and when the case becomes trial ready." (quoting In