Free Reply Brief - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT 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 Bankruptcy Case No. 02-13396 (PJW) Jointly Administered

Adversary Proceeding No. 04-57060 (PJW)

Civil Case No. 07-00799

REPLY BRIEF IN SUPPORT OF THE 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 ...........................................1 ARGUMENT ........................................................4 A. B. Defendants Are Attempting An Impermissible Collateral Attack On The Jury Trial Opinion. ..........4 The Bankruptcy Court Properly Rejected All Of Defendants' Attacks On Plaintiff's Jury Rights On The Merits. ........................................9 1. A Jury Right Exists Where, As Here, Any "Legal" Claims Are Present Or "Legal" Relief Is Sought. ................................9 Controlling Case Law Is Clear That Each Claim Must Necessarily Be Part Of The Claims-Allowance Process In Order To Result In An Implied Jury Waiver. ...............11 Contractual Jury Waivers Are Narrowly Construed; The Bankruptcy Court Properly Limited The One Before It. ......................13 The Bankruptcy Court Properly Favored The Protection Of Plaintiff's Basic Constitutional Rights. ..........................16

2.

3.

4.

C.

Defendants' Request For Special Powers To Revisit Tactical Decisions They Knowingly Made Should Be Rejected. ..................................17

CONCLUSION .....................................................20

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TABLE OF AUTHORITIES CASES Aetna Ins. Co. v. Kennedy, 301 U.S. 389 (1937) .................................. 14, 15 Am. Universal Ins. Co. v. Pugh, 821 F.2d 1352 (9th Cir. 1987) ............................. 4 Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959) ...................................... 16 Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242 (3d Cir. 1994), cert. denied, 513 U.S. 999 (1994) ........................................... 11, 12 Brown v. Citicorp USA, Inc. (In re FoxMeyer Corp.), No. 99-705 (GMS), 1999 WL 33220040 (D. Del. Dec. 1, 1999) .................................................. 4, 8 Cantor v. Perelman, No. 97-586-KAJ, 2006 WL 318666 (D. Del. Feb. 10, 2006) .................................................... 10 Celotex Corp. v. Edwards, 514 U.S. 300 (1995) ....................................... 5 City of New York v. Beretta U.S.A. Corp., 317 F. Supp. 2d 193 (E.D.N.Y. 2004) ...................... 16 Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992) ....................................... 5 In re Crown Vantage, Inc., No. 02-03836, 2002 U.S. Dist. LEXIS 26109 (N.D. Cal. Dec. 16, 2002) ........................................... 12 Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) ................................ 2, 9, 10 Dastgheib v. Genentech, Inc., 457 F. Supp. 2d 536 (E.D. Pa. 2006) ...................... 11 EEOC v. Blue Star Foods, Inc., No. 78-5-W, 1980 U.S. Dist. LEXIS 11131 (S.D. Iowa Mar. 7, 1980) ............................................ 16

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EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) ...................................... 14 Educ. Testing Servs. v. Katzman, 670 F. Supp. 1237 (D.N.J. 1987) .......................... 16 First Union Nat'l Bank v. United States, 164 F. Supp. 2d 660 (E.D. Pa. 2001) ...................... 15 In re Franklin Towne Lodge Ltd. P'ship, No. 91-2702, 1992 U.S. Dist. LEXIS 18817 (E.D. Pa. Nov. 25, 1992) ........................................... 12 Germain v. Conn. Nat'l Bank, 988 F.2d 1323 (2d Cir. 1993) ............................. 12 In re Globe Parcel Serv., Inc., 75 B.R. 381 (E.D. Pa. 1987) .............................. 12 Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) .................................... 9, 10 Hays v. Equitex, Inc. (In re RDM Sports Group), 260 B.R. 915 (Bankr. N.D. Ga. 2001) ...................... 12 Lindsey v. Ipock, 732 F.2d 619 (8th Cir. 1984), cert. denied, 469 U.S. 881 (1984) ................................................ 5 M&E Contractors v. Kugler-Morris Gen. Contractors, 67 B.R. 260 (N.D. Tex. 1986) ............................. 12 McClelland v. Braverman Kaskey & Caprara, P.C. (In re McClelland), 332 B.R. 90 (Bankr. S.D.N.Y. 2005) ....................... 12 Mirant Corp. v. Southern Co., 337 B.R. 107 (N.D. Tex. 2006) ............................ 12 NDEP Corp. v. Handl-It, Inc. (In re NDEP Corp.), 203 B.R. 905 (D. Del. 1996) .............................. 12 Official Comm. of Unsecured Creditors v. TSG Equity Fund L.P. (In re EnvisioNet Computer Servs.), 276 B.R. 1 (D. Me. 2002) .................................. 4 Pereira v. Farace, 413 F.3d 330 (2d Cir. 2005), cert. denied, 126 S. Ct. 2286 (2006) .......................................... 11

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Ross v. Bernhard, 396 U.S. 531 (1970) .................................. 11, 12 Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775 (9th Cir. 2007) .............................. 7 Texas v. United States, 523 U.S. 296 (1998) ..................................... 19 Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212 (3d Cir. 2007) ...................... 14, 15, 19 Tray-Wrap, Inc. v. Six L's Packing Co., 984 F.2d 65 (2d Cir. 1993) ............................... 17 Turner v. Johnson & Johnson, 809 F.2d 90 (1st Cir. 1986) .............................. 16 United States v. McAlister, 630 F.2d 772 (10th Cir. 1980) ............................ 16 Urban Outfitters, Inc. v. 166 Enter. Corp., 136 F. Supp. 2d 273 (S.D.N.Y. 2001) ...................... 15 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 (D. Del. July 11, 2002) ...................................... 18 In re White Farm Equip. Co., 38 B.R. 718 (N.D. Ohio 1984) .............................. 5 Williams Elecs. Games, Inc. v. Garrity 366 F.3d 569 (7th Cir. 2004) ............................. 10 STATUTES AND RULES 28 U.S.C. § 157(d) ......................................... 6, 19 28 U.S.C. § 158(a) ....................................... 1, 6, 8 OTHER AUTHORITIES U.S. CONST. amend. VII ..................................... passim

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Plaintiff1 respectfully submits this Reply Brief to further support Plaintiff's motion to withdraw the reference and to address Defendants' December 3, 2007 opposition thereto (the "Defendants' Brief"; cited herein as "Def. Br. at __"). PRELIMINARY STATEMENT As explained in the Opening Brief, two factors combine to form the "cause" needed to withdraw the reference: (1) the Bankruptcy Court's cogent and comprehensive Jury Trial Opinion and (2) numerous considerations of judicial economy. Credit Suisse does not contest, and in fact agrees with, Plaintiff's analysis of the latter point. at 9 n.3.) (See Def. Br.

Rather, Credit Suisse throws forth an all-out

onslaught on the Jury Trial Opinion, but ­ amazingly ­ never addresses the Bankruptcy Court's reasoning. This collateral

attack is inappropriate, both procedurally and substantively. The Jury Trial Opinion is a legal ruling made by a federal court, possessing proper jurisdiction, after full and fair briefing. Thus, if Defendants dispute the Bankruptcy Court's

interlocutory decision and wish to challenge it before another federal court, they must follow the clear procedures for doing so. In fact, Credit Suisse has already initiated that process

by moving for "leave" to appeal under 28 U.S.C. § 158(a).2
1

All capitalized terms used but not otherwise defined in this Reply Brief have the meaning given such terms in Plaintiff's initial motion to withdraw the reference (the "Opening Brief"). (See Adv. Proc. D.I. Nos. 213-215.) Plaintiff has submitted a lengthy answer in opposition to Defendants' request for a premature interlocutory appeal, a true and correct copy of which

2

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Defendants' blatant attempt to argue their would-be interlocutory appeal in the Defendants' Brief is improper and should be quickly rejected. Even if this Court does consider

Defendants' arguments on the merits, though, it should reject each one, for exactly the reasons the Bankruptcy Court did. First, Defendants' attempt to implode two of Plaintiff's claims, as support for a "mixed relief" theory, is unwarranted. Defendants cannot rewrite the borders of

Plaintiff's claims and remedies or erase their inherently "legal" nature. Further, even on its own terms, this "mixed

relief" theory is akin to the "incidental" construct rejected long ago by Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962). Second, Defendants' categorical "waiver" theory, under which there are no jury rights when debtors or trustees sue in bankruptcy court, is likewise contrary to Supreme Court precedent, as well as case law in this Circuit. The proper

inquiry is whether every one of Plaintiff's counterclaims is in the "claims-allowance process." Here, Defendants simply

ignore how three counterclaims are unrelated to CSS's claims. Third, Defendants also try to seek asylum in a contractual jury waiver. But they overlook the inconvenient

truth that this waiver was limited in scope and was only signed by a handful of the parties to this action. Plus, even

if that contractual waiver could somehow be read to apply

is attached as Exhibit "A" to the accompanying Declaration of Whitman L. Holt. Plaintiff hereby incorporates all the arguments in that answer and again requests that leave to appeal be denied.

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here, Defendants have failed yet again to meet their burden of proving that the waiver was enforceable in the first instance. Credit Suisse made the very same arguments to the Bankruptcy Court, and that court rejected them all. In so

doing, the Bankruptcy Court devoted its judicial resources to crafting a 28-page opinion explaining why Defendants' position is contrary to controlling case law. While Credit Suisse

would prefer just to ignore them, the reasons detailed by the Bankruptcy Court make clear that this is not a close case. Even if it were, however, the Bankruptcy Court correctly deferred to the long-standing principle that close cases are resolved in favor of protecting parties' fundamental rights. The final gambit in the Defendants' Brief is a plea for this Court to let Credit Suisse revisit several tactical decisions they, and their sophisticated counsel, knowingly made in the face of a valid jury demand which they never moved to strike. Defendants offer no basis in fact or law for such Indeed, Defendants simply ignore the clear

remarkable relief.

case law holding that they could have moved to strike Plaintiff's jury demand at any point, even up to the eve of trial. Further, Defendants do not address the substantial

delay, cost, and prejudice that will befall Plaintiff if Defendants are permitted to claim an effective "mulligan" in this litigation. In the final analysis, Defendants should not

be heard to complain because Plaintiff chose to protect its constitutional rights and promptly moved to withdraw the reference as soon as the "cause" for doing so crystallized.

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ARGUMENT At bottom, the Defendants' Brief raises three issues: Opinion? (1) Can Defendants collaterally attack the Jury Trial (2) Was the Bankruptcy Court wrong on the merits?

(3) Can Defendants now reverse course on their prior pointed statements that this matter is "trial ready"? As explained in

turn below, the answer to each question is a resounding "no." A. Defendants Are Attempting An Impermissible Collateral Attack On The Jury Trial Opinion. Although Defendants already had their day before the Bankruptcy Court, they seek to ignore the learned Jury Trial Opinion and get a second bite at the apple before this Court. Such tactics not only are procedurally improper, as Defendants themselves recognize, but also are extraordinary in that they effectively make believe that the Bankruptcy Court did not already consider and reject each of Defendants' arguments. Defendants do not contend that the Bankruptcy Court lacked jurisdiction to decide the jury issue ­ nor could they in light of the case law supporting such authority3 ­ or that they were denied a fair opportunity to present their position. Rather, the crux of Defendants' opposition is that the Jury Trial Opinion is a mere legal nullity, with "no binding effect

3

See Brown v. Citicorp USA, Inc. (In re FoxMeyer Corp.), No. 99705 (GMS), 1999 WL 33220040, at *1 (D. Del. Dec. 1, 1999) ("Either this court or the Bankruptcy Court can determine whether [parties] are entitled to a jury trial."); accord, e.g., Am. Universal Ins. Co. v. Pugh, 821 F.2d 1352, 1355 (9th Cir. 1987); Official Comm. of Unsecured Creditors v. TSG Equity Fund L.P. (In re EnvisioNet Computer Servs.), 276 B.R. 1, 6-7 (D. Me. 2002).

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on this Court," which means Defendants get to reargue the whole issue anew before this Court. (See Def. Br. at 10-11.)

Unfortunately for Defendants, the Jury Trial Opinion is more than "the Bankruptcy Court's belief that Plaintiff has a jury trial right" (Def. Br. at 2 (emphasis added)); it is a ruling by a federal court that carries the force of law.4 And

because the Jury Trial Opinion is a proper judicial order, it bears the weight of law unless reversed on appeal and cannot be collaterally attacked as part of the instant motion practice. Indeed, the Supreme Court previously rejected just

such a play in Celotex Corp. v. Edwards, 514 U.S. 300 (1995), in which parties attempted to collaterally attack a bankruptcy court order in a different federal court. The Court strongly

rebuked these tactics, noting that if the parties were "dissatisfied with the Bankruptcy Court's ultimate decision," then they should follow the appellate procedures set forth in 28 U.S.C. § 158. See id. at 313. The parties' choice "not to

pursue this course of action, but instead to collaterally attack the Bankruptcy Court's [order]" threatened to "seriously undercut[] the orderly process of the law."
4

Id.5

While the Jury Trial Opinion and associated order may be an interlocutory, rather than final, decision, that fact merely alters the methods of appeal available to Defendants. See generally Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992). See also, e.g., Lindsey v. Ipock, 732 F.2d 619, 622 (8th Cir. 1984) (refusing to allow collateral attack on bankruptcy court's orders in subsequent proceedings; objecting party either had to appeal or "was obligated to obey these orders even if they were in error"); In re White Farm Equip. Co., 38 B.R. 718, 722-23 (N.D. Ohio 1984) (explaining why party's failure to appeal an

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The Defendants' Brief represents an analogous threat to the rule of law; after receiving an unfavorable ruling from a federal court, Defendants hope either to ignore or to attack that ruling before this Court. If Defendants disagree with

the Bankruptcy Court's legal analysis, however, the correct remedy is to seek proper appellate review. In fact, Credit

Suisse knows this, and has already moved for "leave" to appeal under section 158(a). As discussed in Plaintiff's answer to

their specious motion for leave, Defendants cannot establish all (or even one) of the four required conditions for a premature interlocutory appeal. Nevertheless, the appellate

procedures carefully crafted by Congress should not be shortcircuited via an inappropriate collateral attack on a valid judicial order. Although Defendants disguise their attack as

a "belt-and-suspenders" approach (see Def. Br. at 11 n.4), their attempt to reargue the full jury issue on the merits, as if the Jury Trial Opinion never existed, should be rejected. Several pages of the Defendants' Brief are spent justifying Defendants' procedurally defective posture. Def. Br. at 10-12.) (See

Defendants' position collapses, however.

First, contrary to Defendants' suggestion, the Jury Trial Opinion encroaches on neither 28 U.S.C. § 157(d) nor Rule 5011(a). The ultimate decision whether to withdraw the

reference always remains in this Court's hands, and open

unfavorable bankruptcy court ruling "constitutes a waiver of the issue and a bar to a collateral attack in the context of this [District] Court's withdrawal of reference" analysis).

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issues of "cause" still must be determined by this Court.6 For instance, two open issues must be resolved here: (1) Is the case "trial ready"? and (2) Do considerations of judicial economy create "cause" to withdraw the Adversary Proceeding "in whole," rather than certain counterclaims "in part"? Both issues were discussed in the Opening Brief, and

the fact that Defendants happen to agree with Plaintiff's analysis of the latter point (see Def. Br. at 9 n.3) does not render the issue perfunctory. While Defendants are wrong

about the "trial ready" analysis, see pp. 17-20, infra, this Court must still reach a conclusion about that disputed issue. In fact, bankruptcy courts regularly decide issues bearing on whether "cause" exists to withdraw the reference, such as whether (i) a proceeding is "core"; (ii) parties are properly joined to an action; or (iii) certain claims survive motions to dismiss or for summary judgment. Credit Suisse is

simply incorrect in its bald assertion that affording such rulings "any deference" runs "counter to the express direction of the Bankruptcy Code and Rules." (See Def. Br. at 11.) To

the contrary, such determinations have the force of law unless and until they are reversed following proper appellate review.
6

In this respect, the present framework differs dramatically from Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775 (9th Cir. 2007), which case invalidated a local rule providing that the reference was to "be automatically withdrawn" following rulings by bankruptcy judges, thereby bypassing the district courts completely. See id. at 784-85. No such problem exists here; the ultimate decision to "withdraw" vel non always remains with this District Court, and there has been no improper usurpation of the Court's ability to analyze "cause" upon motion.

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Second, the main case Defendants cite to support their contorted procedures, Brown v. Citicorp USA, Inc. (In re FoxMeyer Corp.), No. 99-705 (GMS), 1999 WL 33220040 (D. Del. Dec. 1, 1999), undermines their disregard of the Jury Trial Opinion. In FoxMeyer, parties moved to withdraw the reference

and, like Defendants, argued that the District Court is the only court that can decide jury rights. This Court disagreed,

holding "that the Bankruptcy Court should determine, at least in the first instance, whether the [parties] are entitled to a jury trial." See id. at *2. Further, the Court noted that

the standard practice after a disputed jury ruling would be to appeal pursuant to 28 U.S.C. § 158(a).7 See id. at *2 n.6.

Although the Court remarked that "potential inefficiency might warrant" consideration of disputed bankruptcy rulings with a withdrawal motion, this comment was limited to rulings based on "purely legal" issues. See id. (emphasis added). This

possible exception to the standard practice does not apply here in any event since, as discussed below, the Bankruptcy Court made factual findings in the Jury Trial Opinion. In sum, Defendants' thinly-disguised collateral attack on the Jury Trial Opinion ought to be rejected. If

Credit Suisse disagrees with the Bankruptcy Court's ruling, they must seek and obtain "leave" for an interlocutory appeal. They should not be allowed to ignore rulings of the Bankruptcy

7

Which appeal, of course, would require the putative appellant to prove all four of the required conditions for an interlocutory appeal under 28 U.S.C. § 158(a), none of which are present here.

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Court (such as the Jury Trial Opinion) merely by behaving before this Court as though such rulings were never made. B. The Bankruptcy Court Properly Rejected All Of Defendants' Attacks On Plaintiff's Jury Rights On The Merits. While Defendants' attempt to reargue the merits anew should not be countenanced, this Court might review the Jury Trial Opinion to ensure that "cause" for withdrawal exists. If so, the Court should adopt the entire Jury Trial Opinion.8 1. A Jury Right Exists Where, As Here, Any "Legal" Claims Are Present Or "Legal" Relief Is Sought. As the Supreme Court explained in Dairy Queen, Inc. v. Wood, "[i]t would make no difference if the equitable cause clearly outweighed the legal cause so that the basic issue of the case taken as a whole is equitable. As long as any legal 369

cause is involved the jury rights it creates control." U.S. 469, 473 n.8 (1962) (emphasis added) (citation and

quotation omitted); see also Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989) (underscoring the key distinction between "suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered" (bolded emphasis added) (citation and quotations omitted)).
8

The Bankruptcy Court correctly applied these cases

The page limitations for reply briefs restrict Plaintiff's ability fully to develop the merits analysis in this Reply Brief. Thus, to the extent that the analysis contained herein does not completely address the Court's concerns, Plaintiff respectfully asks the Court to consider the more detailed analysis set forth in (i) Plaintiff's answer to Defendants' motion for leave to appeal (Holt Decl. Ex. "A") & (ii) the Jury Trial Opinion itself.

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by rejecting Defendants' "mixed relief" theory in light of the many "legal" elements here. (See Jury Trial Opinion at 10-17.) First, Credit Suisse cannot contest that claims for negligence and breach of implied contract are historically "legal" claims. Instead, Credit Suisse desperately tries to

recast Plaintiff's whole case by asserting that these two claims "exactly track" or are "duplicative" of the breach of fiduciary duty claim. (See Def. Br. at 17-19.) This is a

mistake; as the Bankruptcy Court held, the three counterclaims are not coextensive. (See Jury Trial Opinion at 10-11.)

Hence, the inextricably "legal" nature of two claims alone creates jury rights under Diary Queen and Granfinanciera.9 Second, the Bankruptcy Court properly performed the "remedy" analysis. Plaintiff does not seek "equitable" relief

­ such as an accounting, constructive trust, or injunction ­ but rather an award of fungible damages; Plaintiff does not care where Credit Suisse gets money to pay a judgment. Thus,

as Judge Posner cogently explained in Williams Electronics Games, Inc. v. Garrity, Plaintiff's requested relief is "a legal remedy for a legal wrong, not [] an equitable remedy for a legal or an equitable wrong."
9

366 F.3d 569, 578 (7th Cir.

Defendants' perpetual reliance on Cantor v. Perelman, No. 97-586KAJ, 2006 WL 318666 (D. Del. Feb. 10, 2006) ­ a case properly distinguished by the Bankruptcy Court (see Jury Trial Opinion at 15-16) ­ is puzzling. The only claims at issue in Cantor were historically "equitable." Here, in contrast, there are additional causes of action that have always been "legal" in nature. Indeed, Judge Jordan expressly noted how the Cantor analysis would have been different "if at least one of Plaintiffs' claims [had been] legal rather than equitable." Id. at *7 n.7.

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2004); see also, e.g., Pereira v. Farace, 413 F.3d 330, 339-41 (2d Cir. 2005); Dastgheib v. Genentech, Inc., 457 F. Supp. 2d 536, 543-46 (E.D. Pa. 2006). After thoroughly discussing the

authorities and weighing the history of a proceeding pending before it for three years, the Bankruptcy Court reached the same conclusion. (See Jury Trial Opinion at 13-17.) Credit

Suisse offers no reason to believe the Bankruptcy Court erred. 2. Controlling Case Law Is Clear That Each Claim Must Necessarily Be Part Of The Claims-Allowance Process In Order To Result In An Implied Jury Waiver. The thrust of Credit Suisse's next argument (which is bifurcated to tumesce their brief) is that the combination of claim objections with affirmative litigation before the Bankruptcy Court somehow made the entire Adversary Proceeding part of the "claims-allowance process" or otherwise triggered categorical submission to "equitable jurisdiction." Br. at 19-25.) (See Def.

The Bankruptcy Court properly rejected these (See Jury Trial Opinion at 17-22.)

overreaching theories.

First, the Supreme Court has clearly instructed that "legal claims are not magically converted into equitable issues by their presentation to a court of equity." Ross v.

Bernhard, 396 U.S. 531, 538 (1970). The Third Circuit has similarly expressed its belief that a waiver theory based solely on a bankruptcy forum "raises as many questions as it answers," and the mere "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

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dispute at issue is necessarily part of the process of the disallowance and allowance of claims." See Billing v. Ravin,

Greenberg & Zackin, P.A., 22 F.3d 1242, 1251-52, n.14 (3d Cir. 1994) (emphasis added).10 The Bankruptcy Court followed the

teachings of Ross and Billing and rejected a per se "waiver" theory whereby one can never sue in bankruptcy court without losing one's jury rights. (See Jury Trial Opinion at 21-22.)

Second, there is no reason to question the Jury Trial Opinion's focused review of the "claims-allowance process" itself. (See id. at 17-20.) As a threshold matter,

the Bankruptcy Court did what courts always do in this area: approach the issue claim-by-claim, in each instance asking whether a given cause of action bears a necessary logical relationship to the allowance or disallowance of a creditor's claim in bankruptcy. See, e.g., Germain, 988 F.2d at 1327-32;

Mirant Corp. v. Southern Co., 337 B.R. 107, 120-22 (N.D. Tex. 2006); In re Crown Vantage, Inc., No. 02-03836, 2002 U.S. Dist. LEXIS 26109, at *9-12 (N.D. Cal. Dec. 16, 2002).11
10

Other courts in this Circuit also reject Defendants' rigid forumbased rule. See, e.g., NDEP Corp. v. Handl-It, Inc. (In re NDEP Corp.), 203 B.R. 905, 912-13 (D. Del. 1996); In re Franklin Towne Lodge Ltd. P'ship, No. 91-2702, 1992 U.S. Dist. LEXIS 18817, at *8-10 (E.D. Pa. Nov. 25, 1992); In re Globe Parcel Serv., Inc., 75 B.R. 381, 383 (E.D. Pa. 1987). These cases are in accord with many other circuit-, district-, and bankruptcy-level authorities. See, e.g., Germain v. Conn. Nat'l Bank, 988 F.2d 1323, 1330 (2d Cir. 1993); M&E Contractors v. Kugler-Morris Gen. Contractors, 67 B.R. 260, 266-67 (N.D. Tex. 1986); Hays v. Equitex, Inc. (In re RDM Sports Group), 260 B.R. 915, 920-26 (Bankr. N.D. Ga. 2001). Courts reject the blunderbuss argument that the case's procedural posture ­ "counterclaims" to proofs of claim ­ results in a jury waiver. See, e.g., McClelland v. Braverman Kaskey & Caprara,

11

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Nor is there any real dispute about whether the Bankruptcy Court made the right finding. The basic problem

with Defendants' position below was their inability to explain why common law claims based upon misconduct beginning years before the contract underlying CSS's proofs of claim was executed have a necessary link to whether claims arising under that August 2002 contract should be allowed. The Defendants'

Brief makes no better effort to address this obvious problem ­ or to explain why all aspects of a many-year relationship must be crammed into a contract covering just 88 days ­ because it cannot be solved; all three of the counterclaims as to which the Bankruptcy Court affirmed Plaintiff's jury rights could be resolved apart from CSS's proofs of claim, and thus they are not necessarily part of the "claims-allowance process."12 3. Contractual Jury Waivers Are Narrowly Construed; The Bankruptcy Court Properly Limited The One Before It. In a final effort to avoid trying any part of this case to a jury, Defendants again point to a contractual jury waiver clause in the documentation for the "warehouse" credit
P.C. (In re McClelland), 332 B.R. 90, 95 (Bankr. S.D.N.Y. 2005) ("Unlike the act of filing a proof of claim, the assertion of a counterclaim by the debtor does not automatically result in waiver of the right to trial by jury on those counterclaims.").
12

As Plaintiff has argued, considerations of judicial economy create "cause" to withdraw all of Plaintiff's counterclaims in the Adversary Proceeding, including those for which there is no jury right. (See Opening Brief at 16-21.) While Defendants agree with this conclusion (see Def. Br. at 9 n.3), they never dispute Plaintiff's underlying premise ­ i.e., that the various counterclaims are not forever interwoven. The reason Defendants do not make this crucial argument is that the separate bases for the claims (see Jury Trial Opinion at 6-7) means they can not.

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facility used by the Oakwood Entities.

The Bankruptcy Court

rejected this contractual waiver argument for three separate reasons, any one of which would be sufficient to render that waiver inoperative here.13 (See Jury Trial Opinion at 22-28.)

The Bankruptcy Court's first problem with the purported waiver was that the relevant contracts were not executed by even close to all the parties to this litigation, either on Plaintiff's side or on Defendants' side. Trial Opinion at 22-25.) (See Jury

It is difficult to understand how

Defendants could dispute this factual conclusion, which explains why it goes unmentioned in their brief. See, e.g.,

EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) ("It goes without saying that a contract cannot bind a nonparty."). Indeed, among the Bankruptcy Court's conclusions was that the sole beneficiary of the purported waiver ­ "Credit Suisse First Boston, New York Branch" ­ is separate from the other Defendants. Credit Suisse has waffled on this point,

depending upon the context, but here they make no mention of this factual issue ­ perhaps because Defendants' counsel wants to continue their gamesmanship about whether "New York Branch" is a party here (see Holt Decl. ¶ 6) instead of stating facts that forthrightly respond to the Bankruptcy Court's ruling.
13

As explained below, all of the Bankruptcy Court's waiver analysis is well-supported. Critically, all that analysis was performed in light of the repeated instruction that, "[b]ecause the 'right of jury trial is fundamental, courts indulge every reasonable presumption against waiver.'" Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212, 222 (3d Cir. 2007) (emphasis added) (quoting Aetna Ins. Co. v. Kennedy, 301 U.S. 389, 393 (1937)).

14

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The Bankruptcy Court's second problem with the waiver was that it only applies to actions relating to one financing transaction, whereas this litigation "is about whether Defendants breached far broader duties, not arising from any written contract, by partaking in a myriad of alleged illicit transactions with the Oakwood Companies," which falls outside the scope of the purported waiver. Opinion at 25.) (See Jury Trial

Defendants offer no new reason to doubt the

Bankruptcy Court's narrow reading of the purported waiver's scope, which was required under both Aetna Insurance Co. and Tracinda. See also, e.g., Urban Outfitters, Inc. v. 166

Enter. Corp., 136 F. Supp. 2d 273, 275 (S.D.N.Y. 2001). The third part of the Bankruptcy Court's waiver analysis also goes unmentioned by Credit Suisse. This part

applied the framework of First Union National Bank v. United States, 164 F. Supp. 2d 660 (E.D. Pa. 2001), to this case's facts. (See Jury Trial Opinion at 26-28.) Under First Union,

the proponents of purported waivers must offer "evidence that there was not a gross disparity in bargaining power between" the parties, which is particularly important when the signatory corporation is in poor "financial straits at the time the documents were executed, [since] it is highly likely that there was a severe disparity in bargaining power" in such circumstances. See 164 F. Supp. 2d at 665. Here, the

Bankruptcy Court reviewed record testimony and concluded that "there is a good argument that the two Oakwood Companies were at a severely disadvantaged bargaining [position]" when they

15

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negotiated the purported waiver, and since "Defendants did not offer any evidence to the contrary," they failed to meet their burden of proof on this issue. 28.) (See Jury Trial Opinion at

The Bankruptcy Court's factual finding and stated need

for more evidence is critically important, because it can be reversed only if Credit Suisse offers contrary evidence. Defendants proffer no such evidence. But

Rather, as with the rest

of the Jury Trial Opinion, Defendants act as if the Bankruptcy Court's findings do not even exist. This evasion creates no

reason for the Court to doubt the Bankruptcy Court's findings, and provides absolutely zero grounds for a contrary result. 4. The Bankruptcy Court Properly Favored The Protection Of Plaintiff's Basic Constitutional Rights. As detailed above, the Jury Trial Opinion properly rejected all the strained arguments against a jury that Credit Suisse attempts to repackage ­ almost verbatim ­ here. Even

so, any "close call" by the Bankruptcy Court comports with the "guiding beacon . . . lit by the Supreme Court: when in doubt, grant a jury trial." City of New York v. Beretta U.S.A. (See Jury

Corp., 317 F. Supp. 2d 193, 196 (E.D.N.Y. 2004).14 Trial Opinion at 9.)

Defendants develop no argument as to why

this was improper, nor do they provide any compelling reasons for this Court to depart from such fundamental principles.

14

See also, e.g., Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510 (1959); Turner v. Johnson & Johnson, 809 F.2d 90, 99 (1st Cir. 1986); United States v. McAlister, 630 F.2d 772, 774 (10th Cir. 1980); Educ. Testing Servs. v. Katzman, 670 F. Supp. 1237, 1243 (D.N.J. 1987); EEOC v. Blue Star Foods, Inc., No. 78-5-W, 1980 U.S. Dist. LEXIS 11131, at *11 (S.D. Iowa Mar. 7, 1980).

16

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C.

Defendants' Request For Special Powers To Revisit Tactical Decisions They Knowingly Made Should Be Rejected. At the end of the Defendants' Brief lies the lone

argument the Bankruptcy Court did not already consider and reject, mainly because Defendants advanced the exact opposite position before the Bankruptcy Court. (See Holt Decl. Ex. "B"

at 6:13-15 ("I agree . . . that the case is essentially trial ready.").) Notwithstanding this unambiguous statement on the

record, Defendants now claim they are not really "trial ready" and think they have some novel rights to reopen discovery and motion practice, thereby burdening Plaintiff with potentially years of delay and gargantuan sums of additional costs, all because they made improvident choices by assuming there would be no jury trial. (See Defendants' Brief at 30-32.) This

desperate plea for unprecedented relief ­ in support of which Defendants can point to not a single statute, rule, case, or other authority15 ­ should be rejected for several reasons. First, as an initial matter, there can be no dispute that Credit Suisse was on notice of Plaintiff's timely jury demand ever since this proceeding began. Nor is there ­

despite Defendants' intimations ­ any colorable argument that "the meticulous provision made in [FRCP] 39 for jury waivers," which requires "a ritual that is almost sacramental" once demand is made, was followed here. See Tray-Wrap, Inc. v. Six
15

Nor do Defendants articulate why jury trials are so radically different from bench trials. Jury trials are a fundamental part of American legal practice, and if Defendants thought they are so different, they had notice and an opportunity to prepare for one.

17

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L's Packing Co., 984 F.2d 65, 68 (2d Cir. 1993).

The issue

thus becomes what response is reasonable to expect from a sophisticated party represented by sophisticated counsel. Plaintiff submits that the answer is obvious: Defendants and their counsel disputed the substance of Plaintiff's jury demand, or otherwise thought it "was simply surplus ink on a page" (Holt Decl. Ex. "B" at 14:16-17), then Defendants should have brought a motion to strike that demand, but they never should have casually relied on their own ­ clearly misguided ­ belief that the demand was of no import. Credit Suisse did not move to strike, however, or otherwise inform Plaintiff, Plaintiff's counsel, or the Bankruptcy Court of their intuition that the proper demand was meaningless "ink." Rather, Credit Suisse chose to allow the If

deadlines for expert discovery and dispositive motions to run, knowing full well that the case could be tried to a jury. Plaintiff, meanwhile, always intended to enforce its jury rights in the event that the claims as to which it has a jury right actually went trial, and never told Credit Suisse anything to the contrary. Still, Plaintiff knew 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). As such, when Defendants did not move to strike, Plaintiff

18

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raised the issue so it could be resolved contemporaneously with this case becoming "trial ready" after the close of discovery ­ which did not occur until October 22, 2007.16 Second, Credit Suisse's cries of unfairness ring particularly hollow when one considers how imbalanced their regime would be. As the Third Circuit has noted, "[p]arties

have a great deal of latitude on the timing of motions to strike a jury demand" and "a court has the discretion to permit a motion to strike a jury demand at any time, even on the eve of trial." Tracinda Corp. v. DaimlerChrysler AG, 502

F.3d 212, 226 (3d Cir. 2007) (citation and quotations omitted). In light of this rule, the Third Circuit rejected a

party's argument that "it would have conducted discovery differently had it known that it would be trying its case to the court rather than to a jury" and "was unable to modify its trial strategy in time because the District Court struck [its] jury demand only a few weeks before trial." 27. See id. at 226-

Defendants' proposed regime turns Tracinda inside out; it

would allow defendants not only to wait until the very last minute to move to strike, but also to take refuge in claims of unfairness where, as here, plaintiffs act proactively to fulfill proper jury demands as trial draws near.
16

Parity of

Then, promptly following the actual close of discovery and the Bankruptcy Court's issuance of the Jury Trial Opinion ­ i.e., once "cause" had crystallized and a motion under 28 U.S.C. § 157(d) would not have been premature or violated the ripeness doctrine, see generally Texas v. United States, 523 U.S. 296, 300-02 (1998) ­ Plaintiff filed the instant motion to withdraw the reference and to schedule a jury trial before this Court.

19

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reasoning requires a more principled result, and precludes Defendants' apparent fealty to some newfound sense of equity. Third and finally, the Court must not lose sight of the prejudice Plaintiff will face if Defendants' extraordinary request is granted. At this point, Defendants have already

examined Plaintiff's experts, reviewed certain proposed trial exhibits, and otherwise discovered details about Plaintiff's position while negotiating a draft pre-trial order. Letting

Defendants hit the "reset" button, while still retaining the knowledge they gained about Plaintiff's case, is fundamentally unfair. Equally important is how Defendants' requested relief

would undoubtedly extend an Adversary Proceeding which is over three years old well into the future, thereby multiplying the costs to the parties and further delaying a final distribution to Plaintiff's creditor-beneficiaries. There is no reason in

law or fact for this Court to permit such a pernicious result. In sum, Defendants' counsel was right when he told the Bankruptcy Court that this case is ready for trial; beyond withdrawing the reference and scheduling the jury trial to which Plaintiff has a Seventh Amendment right, there simply is nothing left to do. Defendants' multi-pronged effort to delay

trial on the merits ­ via unwarranted appeals or unprecedented demands to reopen long-closed matters ­ should not succeed. CONCLUSION For the reasons and based on the authorities presented above and in the Opening Brief, Plaintiff once again requests that its motion to withdraw the reference be granted.

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Respectfully submitted, Dated: December 10, 2007 Wilmington, Delaware

/s/Marla Rosoff Eskin MARLA ROSOFF ESKIN (No. 2989) KATHLEEN CAMPBELL DAVIS (No. 4229) CAMPBELL & LEVINE, LLC 800 N. King Street, Suite 300 Wilmington, DE 19801 (302) 426-1900 -andTONY CASTAÑARES (CA SBN 47564) STEPHAN M. RAY (CA SBN 89853) SCOTT H. YUN (CA SBN 185190) WHITMAN L. HOLT (CA SBN 238198) STUTMAN, TREISTER & GLATT, P.C. 1901 Avenue of the Stars, 12th Fl. Los Angeles, CA 90067 (310) 228-5600
Special Counsel for the OHC Liquidation Trust

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Appendix of Unpublished Decisions
1. Brown v. Citicorp USA, Inc. (In re FoxMeyer Corp.), No. 99-705 (GMS), 1999 WL 33220040 (D. Del. Dec. 1, 1999) Cantor v. Perelman, No. 97-586-KAJ, 2006 WL 318666 (D. Del. Feb. 10, 2006) In re Crown Vantage, Inc., No. 02-03836, 2002 U.S. Dist. LEXIS 26109 (N.D. Cal. Dec. 16, 2002) EEOC v. Blue Star Foods, Inc., No. 78-5-W, 1980 U.S. Dist. LEXIS 11131 (S.D. Iowa Mar. 7, 1980) In re Franklin Towne Lodge Ltd. P'ship, No. 91-2702, 1992 U.S. Dist. LEXIS 18817 (E.D. Pa. Nov. 25, 1992) 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 (D. Del. July 11, 2002)

2. 3.

4.

5.

6.

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Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 1999 WL 33220040 (D.Del.) (Cite as: Not Reported in F.Supp.2d) In re Foxmeyer Corp. D.Del.,1999. Only the Westlaw citation is currently available. United States District Court, D. Delaware. In re: FOXMEYER CORPORATION, Foxmeyer Drug Company, Healthcare Transportation System, Inc., Merchandise Coordinator Services Corporation, Foxmeyer Software, Inc. and Health Mart, Inc., Debtors Bart A. BROWN, Jr., As Chapter 7, Trustee, Plaintiff, v. CITICORP USA, INC., et. al., Defendants. No. 96-1329 (MBM), 96-1330(MBM), 961331(MBM), 96-1332(MBM), 96-1333(MBM), 961334(MBM), ADV. A98-279, CIV. A. 99-705 GMS. Dec. 1, 1999. Thomas L. Ambro, Richards, Layton & Finger, Wilmington, for Foxmeyer Corporation, debtors. Kathleen P. Makowski, Phillips, Goldman & Spence, P.A., Wilmington, for Bart A. Brown, Jr., as Chapter 7 Trustee, plaintiffs. Karen C. Bifferato, Connolly, Bove, Lodge & Hutz, Wilmington, for Noteholder Defendants, defendants. ORDER SLEET, J. I. INTRODUCTION *1 On August 27, 1996, the Debtors FN1 filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Pursuant to 28 U .S.C. § 157(a), the bankruptcy cases were referred from the United States District Court for the District of Delaware to the United States Bankruptcy Court for the District of Delaware ("the Bankruptcy Court"). On March 18, 1997, the Debtors' Chapter 11 cases were converted to cases under Chapter 7 of the Bankruptcy Code. On May 19, 1997, the Bankruptcy Court appointed Bart A. Brown, Jr. as Trustee for the Debtors ("the Trustee"). FN1. The Debtors are FoxMeyer

Page 1

Corporation, FoxMeyer Drug Company, Healthcare Transportation System, Inc., Merchandise Coordinator Services Corporation, FoxMeyer Software, Inc., and Health Mart, Inc. On June 9, 1998, the Trustee commenced an adversary proceeding (Adversary Proceeding No. A98-279) to recover approximately $370 million transferred from the Debtors to the Noteholder Defendants FN2 and the Bank Defendants FN3 (collectively, "the Defendants") on June 19, 1996. These payments were made as part of a refinancing transaction through which the Debtors replaced unsecured debt owed to the Noteholder and Bank Defendants with secured debt owed to a new group of lenders headed by General Electric Capital Corporation. The Trustee seeks to recover the $370 million transferred to the Defendants as avoidable preferences under 11 U.S.C. § 547(b). FN2. The Noteholder Defendants are Principal Life Insurance Company (f/k/a Principal Mutual Life Insurance Company), The Northwestern Mutual Life Insurance Company, The Variable Annuity Life Insurance Company, ReliaStar Life Insurance Company (f/k/a Northwestern National Life Insurance Company), Northern Life Insurance Company, ReliaStar Life Insurance Company of New York (successor in interest to The North Atlantic Life Insurance Company of America), William Blair & Company L.L.C., The Franklin Life Insurance Company, General American Life Insurance Company, The Ohio National Life Insurance Company, Provident Mutual Life Insurance Company (f/k/a Provident Mutual Life Insurance Company of Philadelphia), Provident Mutual Life and Annuity Company of America, Berkshire Life Insurance Company, Farm Family Casual Insurance Company (f/k/a Farm Family Mutual Insurance Company), Life Insurance Company of the Southwest, American Mutual Life Insurance Company, Manhattan Life Insurance Company, Union Central

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Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 1999 WL 33220040 (D.Del.) (Cite as: Not Reported in F.Supp.2d)

Life Insurance Company and Royal Maccabees Life Insurance Company. FN3. The Bank Defendants are Citibank, N.A., Citicorp USA, Inc., Paribas (f/k/a Banque Paribas), Wells Fargo Bank (Texas), National Association (f/k/a First Interstate Bank of Texas, N.A.), The Bank of TokyoMitsubishi, Ltd., Credit Suisse First Boston (f/k/a Credit Suisse), Bank of America, N.A. (successor in interest to The Boatman's National Bank of St. Louis, Bank of America, Illinois and NationsBank of Texas, N.A.), Bank of Nova Scotia, The Fuji Bank, Limited, PNC Bank, N.A. and U.S. Bank National Association (f/k/a First Bank National Association). Before the court are the Defendants' motions requesting withdrawal of the reference of this adversary proceeding to the Bankruptcy Court, pursuant to 28 U.S.C. § 157(d).FN4 For the reasons that follow, the court will deny the Defendants' motions. FN4. The Noteholder Defendants requested withdrawal in a motion filed September 10, 1999 (D.I.1). The Bank Defendants requested withdrawal in a "Memorandum in Support of Noteholder Defendants' Motion for Withdrawal of the Reference," filed on September 20, 1999. This memorandum was docketed in the Bankruptcy Court (Bankr.D .I. 69), but has not been docketed in this court. II. DISCUSSION The Defendants request for withdrawal is based upon their asserted rights to a jury trial in the District Court. In opposing withdrawal, the Trustee argues that the Defendants have lost any such rights they may once have had. Indeed, the Trustee has filed a motion in the Bankruptcy Court ("the Default Motion") requesting that court enter default judgments against the Defendants or, alternatively, to strike the Defendants' jury demands. The Trustee contends that this court cannot grant the Defendants' motions for withdrawal unless and until the Bankruptcy Court rules on the Default Motion. The Defendants argue that this court, rather than the Bankruptcy Court, should determine whether the

Defendants are entitled to a jury trial. A. The Bankruptcy Court Should Determine Defendants' Rights to a Jury Trial Either this court or the Bankruptcy Court can determine whether the Defendants are entitled to a jury trial. See, e.g., In re Washington Manufacturing Co., 133 B.R. 113, 116 (M.D.Tenn.1991) (noting that the bankruptcy court is normally an appropriate forum for determining whether a right to jury trial exists, but concluding that the district court can also decide that issue when the right to jury trial is the "cause" asserted in a motion to withdraw a reference to bankruptcy); In re TJN, Inc., 207 B.R. 499, 501 & n .1 (Bankr.D.S.C.1996) ( "Ordinarily, the Bankruptcy Court in which the adversary [proceeding] is pending is the forum in which the parties' right to jury trial is determined."(citations omitted)); see also28 U.S.C. § 157(b)(1) (bankruptcy judges may hear and determine all bankruptcy cases and core proceedings and may enter appropriate orders and judgments). *2 Under the circumstances of this case, the Bankruptcy Court is better positioned than this court to decide the jury trial issue. The parties appear to agree that, ordinarily, defendants in actions to avoid preferential transfers under 28 U.S.C. § 547(b) are guaranteed the right to a jury trial. See Langenkamp v. C.A. Culp, 498 U.S. 42, 43-44 (1990); Granfinanciera v. Nordberg, 492 U.S. 33 (1989). In this case, however, the Defendants' rights to a jury trial will turn, at least in part, on procedural defaults, discovery violations and/or waivers that have allegedly occurred in the course of the proceedings to date before the Bankruptcy Court.FN5These issues have been fully addressed in the briefing on the Trustee's Default Motion before the Bankruptcy Court. The Bankruptcy Court is more familiar with the proceedings to date in this case. It is also better positioned than this court to assess the extent of prejudice that may have occurred as a result of any alleged defaults or delays. Under these circumstances, the court concludes that the Bankruptcy Court should determine, at least in the first instance, whether the Defendants are entitled to a jury trial in this case.FN6 FN5. The Trustee asserts the following bases for denying the Defendants a jury trial: (1) default judgments should be entered against the Defendants (thus

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Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 1999 WL 33220040 (D.Del.) (Cite as: Not Reported in F.Supp.2d)

mooting the jury trial issue) due to their undisputed failure to timely file answers to the complaint and/or for other alleged procedural delays that occurred in the proceedings before the Bankruptcy Court; (2) the Defendants' jury demands should be stricken as sanctions in lieu of the entry of default judgments; (3) the Defendants' jury demands were not timely filed; (4) the Defendants waived their jury trial rights in exchange for the Trustee's agreement to excuse their defaults; (5) the Bank Defendants waived their jury trial rights in a clause in their debt contracts with the Debtors; and (6) one of the Noteholder Defendants and several of the Bank Defendants waived their rights to jury trial by submitting proofs of claims in the bankruptcy case. See Plaintiff's Response and Supplemental Response in Opposition to Defendants' Motion to Withdraw the Reference (Bankr.D.I. 70 and D.I. 5, respectively). FN6. The court recognizes that some inefficiency could result from this ruling, since the Bankruptcy Court's ruling may be appealed to this court pursuant to 28 U.S.C. § 158. See In re Washington Manufacturing Co., 133 B.R. 113, 116 & n. 1 (M.D.Tenn.1991). If the Defendants' jury trial rights turned on "purely legal" issues, such potential inefficiency might warrant this court's deciding the jury trial issue as part of its ruling on Defendants' motion to withdraw. As already noted, however, the jury trial issue in this case may turn largely on factual issues with which the Bankruptcy Court is likely to be familiar. Indeed, one of the disputed factual issues concerns what the Bankruptcy Court did or did not order in a June 1, 1999 teleconference. If the jury trial issue does reach this court on appeal, the court would greatly benefit from the Bankruptcy Court's factual findings in its ruling on the Default Motion. B. The Bankruptcy Court's "Joint Insolvency Trial" Order The Defendants have also argued that withdrawal should be granted immediately to prevent the Bankruptcy Court from prejudicing any jury trial

rights they may ultimately be able to establish. The cause of Defendants' concern is an Order issued by the Bankruptcy Court on September 16, 1999. See Reply Br. of Noteholder Defendants (Bankr.D.I.72) at 3 and Ex. A. In that Order, the Bankruptcy Court established procedures for a "joint insolvency trial" to determine certain issues of law and fact ("the insolvency issues") common to the instant adversary proceeding and more than thirty other adversary proceedings in which the Trustee seeks to recover preferential or fraudulent transfers allegedly made by the Debtors. The Order provides for joint discovery with respect to the insolvency issues and requires a joint pretrial stipulation to be filed by March 3, 2000. The Order anticipates that the joint trial will be held later that month, subject to modification as to defendants that request and are entitled to a jury trial. The Defendants do not object to participating in joint discovery, but they do not wish to participate in the joint insolvency trial. They contend that they cannot be ordered to do so because, as discussed above, they claim to be entitled to a jury trial in the District Court. They further argue that because such jury trial might not occur until well after March 2000, they should not be bound by the Bankruptcy Court's timetable for discovery and pretrial stipulations with respect to the insolvency issues. Of particular concern to the Defendants is a provision in the Order stating that all defendants in the avoidance actions "whether or not they elect to participate in discovery or trial (except any defendants as to whom another Court has taken jurisdiction of the Insolvency Issues) shall be bound by the findings of fact and conclusions of law made by the Court in connection with the Joint Insolvency Trial."Defendants construe this provision to mean that they will be bound by the Bankruptcy Court's findings unless this court first takes jurisdiction of this adversary proceeding by withdrawing the reference to bankruptcy. See Reply Br. of Noteholder Defendants at 3, 9. Given the anticipated joint trial in March 2000, the Defendants assert that this court must grant their motion immediately in order to protect their jury trial rights. See id. at 9. *3 The Order, however, does not purport to prejudice any jury trial rights that the Defendants may have. Indeed, the final paragraph of the Order provides that:

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nothing herein shall prejudice the rights of any party (I) to demand a jury trial or to oppose such a demand, or (ii) to seek or enforce, or to oppose the seeking or enforcement, of any asserted substantive or procedural right. Moreover, the court does not understand the Bankruptcy Court's Order to be as rigid as the Defendants suggest with respect to timing matters. Indeed, the Order expressly contemplates modification of the anticipated joint trial date for any defendants that are entitled to a jury trial. The court sees no reason to assume that the Bankruptcy Court intends to bind the Defendants to the outcome of the joint insolvency trial without first ruling on the Defendants' rights to a jury trial and allowing adequate opportunity for an appeal of such ruling. Defendants need not be concerned that they will be bound by the outcome of the joint insolvency trial, even if they are found to be entitled to a jury trial, unless this court first takes jurisdiction over this proceeding. If necessary to prevent such result, the Defendants are free to file a renewed motion to withdraw the reference once their jury trial right has been established (either by the Bankruptcy Court's ruling on the Default Motion or upon appeal therefrom). That is not to say that the court would, in that event, withdraw the reference to bankruptcy immediately. The Order provides that the Bankruptcy Court will retain jurisdiction over all pretrial issues relating to the insolvency trial, whether or not a defendant is entitled to a jury trial. The court finds nothing improper with that approach. See, e.g., In re Delaware & Hudson, 122 B.R. 887, 897 (D.Del.1991) (concluding that adversary proceeding in which defendant was entitled to a jury trial should be withdrawn just prior to trial to promote judicial economy); In re Hardesty, 190 B.R. 653, 656-57 (D.Kan.1995) ("Even if a jury trial may constitute cause for withdrawal, the district court may decline to withdraw the reference until the case is ready for trial."). This court would, however, "take jurisdiction" of this adversary proceeding if necessary to prevent the Defendants from being bound by the joint insolvency trial even though they had already established their rights to a jury trial in the District Court.FN7 FN7. The court does not believe that the Bankruptcy Court intended for this step to

be necessary. The court notes its willingness to "take jurisdiction" in the circumstances noted above only to allay the Defendants' concerns that their jury trial rights, if such rights exist, will be effectively lost unless the court withdraws the reference to bankruptcy immediately. III. CONCLUSION For the foregoing reasons, ORDERED that: IT IS HEREBY

1. The Noteholder Defendants' request for withdrawal of the reference to bankruptcy is DENIED; 2. The Bank Defendants' request for withdrawal of the reference to bankruptcy is DENIED; 3. Such denials are without prejudice to the Defendants' ability to renew their requests for withdrawal if the Bankruptcy Court rules that the Defendants are entitled to a jury trial in the District Court, or if such right to a jury trial is established upon appeal from the Bankruptcy Court's ruling. D.Del.,1999. In re Foxmeyer Corp. Not Reported in F.Supp.2d, 1999 WL 33220040 (D.Del.) END OF DOCUMENT

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Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2006 WL 318666 (D.Del.) (Cite as: Not Reported in F.Supp.2d)

Page 1

Cantor v. Perelman D.Del.,2006. Only the Westlaw citation is currently available. United States District Court,D. Delaware. Ronald CANTOR, Ivan Snyder and James A. Scarpone, as Trustees of the Mafco Litigation Trust, Plaintiffs, v. Ronald O. PERELMAN, et al., Defendants. No. Civ.A. 97-586-KAJ. Feb. 10, 2006.

as directors of Marvel and (2) that the remaining defendants aided and abetted those breaches. Jurisdiction is proper under 28 U.S.C. § 1334. Before me now is Defendants' Motion to Strike Plaintiffs' Jury Demand. (D.I. 433; the "Motion.") For the reasons that follow, the Motion will be granted.

II. BACKGROUND The background of this case has been set forth in earlier opinions. Cantor v. Perelman, 414 F.3d 430, 433-35 (3d Cir.2005); Cantor v. Perelman, 235 F.Supp.2d 377, 378-80 (D.Del.2002). Because the analysis of Plaintiffs' demand for a jury requires a careful consideration of Plaintiffs' claims, I will discuss that background in some detail again here.

Lawrence C. Ashby, Philip Trainer, Jr., Tiffany Geyer Lydon, Ashby & Geddes, Wilmington, Delaware, for Plaintiffs, Edward A. Friedman, Andrew W. Goldwater, Daniel B. Rapport, Emily A. Stubbs, Jonathan Gottfried, Friedman Kaplan Seiler & Adelman LLP, New York, New York, of counsel. Thomas J. Allingham, II, Anthony W. Clark, Paul J. Lockwood, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, for Defendants. MEMORANDUM OPINION JORDAN, J. I. INTRODUCTION *1 This case involves alleged breaches of fiduciary duty by former directors of Marvel Entertainment Co., Inc. ("Marvel"). The original complaint was filed by Marvel, which was then a debtor-inpossession in bankruptcy, against Ronald O. Perelman, William C. Bevins, Donald G. Drapkin, MAFCO Holdings Inc., MacAndrews & Forbes Holdings Inc., and Andrews Group Incorporated (collectively, "Defendants"). (Docket Item ["D.I."] 1.) Pursuant to the reorganization plan from the bankruptcy proceeding, Marvel assigned the claims in this case to the MAFCO Litigation Trust, and the trustees ("Plaintiffs") have been substituted as the plaintiffs in this action (D.I.120). In their Second Amended Complaint (D.I. 149, Ex. A; the "Complaint"), Plaintiffs alleged (1) that Perelman, Bevins, and Drapkin breached their fiduciary duties

A. Allegations in the Complaint Perelman was a director of Marvel and Chairman of Marvel's board. Cantor, 414 F.3d at 433. He also owned a controlling interest in Marvel through the following "chain of wholly-owned corporations": Perelman owned 100% of defendant MAFCO Holdings Inc., which owned 100% of defendant MacAndrews & Forbes Holdings Inc., which owned 100% of Marvel III Holdings Inc. ("Marvel III"), which owned 100% of Marvel (Parent) Holdings Inc. ("Marvel Parent"), which owned 100% of Marvel Holdings Inc. ("Marvel Holdings") (collectively, those five companies are referred to herein as the "Marvel Holding Companies").Id. (Complaint, at ¶ ¶ 18-19, 25.) The remaining defendant, Andrews Group Incorporated, was a wholly-owned subsidiary of MacAndrews & Forbes Holdings Inc. (Id. at ¶ 20.)"Marvel Parent and Marvel Holdings together held 60% to 80% of Marvel's publicly traded, outstanding shares during the relevant period."Cantor, 414 F.3d at 433. Bevins and Drapkin were also directors of Marvel, and Perelman, Bevins, and Drapkin comprised the entire board of each of the Marvel Holding Companies. Id. Plaintiffs alleged that, in 1993 and 1994, Defendants

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Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2006 WL 318666 (D.Del.) (Cite as: Not Reported in F.Supp.2d) caused Marvel Holdings, Marvel Parent, and Marvel III to issue three tranches of notes. Id. Defendants received $553.3 million in proceeds and pledged all of their stock in Marvel as collateral. Id."None of the proceeds went to Marvel or were used for Marvel's benefit."Id. Furthermore, in the note indentures, the issuing companies agreed, through Perelman's control of Marvel, to prevent Marvel from (1) issuing debt or preferred stock except under specified circumstances, (2) issuing stock that might dilute the holding companies' stake in Marvel, and (3) making "restricted payments," which were defined to include dividends and stock buybacks. Id. According to Plaintiffs, "[a]s a result of Perelman's agreement to these restrictions, Marvel's future access to the capital markets was inhibited, with no corresponding benefit to Marvel."(Complaint, at ¶ 34.) *2 Plaintiffs further alleged that Defendants artificially inf