12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 1 of 17

Main Document

Ned H. Bassen Kathryn A. Coleman HUGHES HUBBARD & REED LLP One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 Attorneys for Steven H. Davis UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re DEWEY & LEBOEUF LLP, Debtor. Chapter 11 Case No. 12-12321(MG)

LIMITED OBJECTION BY STEVEN H. DAVIS TO DEBTORS MOTION FOR ENTRY OF AN ORDER, PURSUANT TO BANKRUPTCY RULE 9019 AND 11 U.S.C. 105(a) AND 362, APPROVING PARTNER CONTRIBUTION SETTLEMENT AGREEMENTS AND MUTUAL RELEASES FOR PARTICIPATING PARTNERS

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 2 of 17

Main Document

TABLE OF CONTENTS Page Preliminary Statement ..................................................................................................................... 1 The Proposed Release and Injunction are Overbroad ..................................................................... 3 The Debtors Motion Fails to Disclose the Identities of the Participating Partners ....................... 9 The Cooperation Provision of the PCP is Unduly Burdensome ................................................... 11 Conclusion .................................................................................................................................... 13

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 3 of 17

Main Document

TABLE OF AUTHORITIES Page(s) CASES In re Adelphia Commns Corp., 322 B.R. 509 (Bankr. S.D.N.Y. 2005) .........................................8 In re Adelphia Commcns Corp., 364 B.R. 518 (Bankr. S.D.N.Y. 2007) (REG)............................5 In re Adelphia Commcns Corp., 368 B.R. 140 (Bankr. S.D.N.Y. 2007) (REG)............................6 Castaneda v. Burger King Corp., 2009 WL 2382688 (N.D. Cal. July 31, 2009) ..........................11 In re Chemtura Corp., 439 B.R. 561 (Bankr. S.D.N.Y. 2010) (REG) .............................................6 Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005) .............................................................................................5 In re Drexel Burnham Lambert Group Inc., 995 F.2d 1138 (2d Cir. 1993) ....................................4 In re Enron Corp., 02 CIV. 8489 (AKH), 2003 WL 230838 (S.D.N.Y. Jan. 31, 2003) ..................5 Geltzer v. Andersen Worldwide, S.C., No. 05-Civ.-0339 (GEL), 2007 WL 273526 (S.D.N.Y. Jan. 30, 2007)..........................................................................................................10 In re Granite Partners, 194 B.R. 318 (Bankr. S.D.N.Y. 1996) ........................................................8 In re Masters Mates & Pilots Pension Plan & IRAP Litig., 957 F.2d 1020 (2d Cir. 1992) .............4 McHale v. Alvarez (In re The 1031 Tax Group, LLC), 397 B.R. 670 (Bankr. S.D.N.Y. 2008) (MG) ................................................................................................................................5 In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010) (MG) ................................................................................................................................5 Nixon v. Warner Commcns, Inc., 435 U.S. 589 (1978) .................................................................9 In re Oldco M Corp., 466 B.R. 234 (Bankr. S.D.N.Y. 2012) (MG) ......................................... 9, 10 In re Residential Capital, LLC, 474 B.R. 112 (Bankr. S.D.N.Y. 2012) (MG) ................................6 SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992) .............................................................................................5 In re Telcar Group, Inc., 363 B.R. 345 (Bankr. E.D.N.Y. 2007) ...................................................12 U.S. v. Amodeo, 71 F.3d 1044 (2d. Cir. 1995)................................................................................9 Williams by Williams v. Niske by Niske, 81 N.Y.2d 437 (1993) ...................................................7 ii

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 4 of 17

Main Document

STATUTES AND RULES 11 U.S.C. 105(a) ...........................................................................................................................1 11 U.S.C. 107 ..............................................................................................................................10 11 U.S.C. 107(a) .........................................................................................................................10 11 U.S.C. 107(b) .........................................................................................................................10 11 U.S.C. 362 ................................................................................................................................1 Bankruptcy Rule 9019 .....................................................................................................................1 Bankruptcy Rule 9019(a) .................................................................................................................4 Disciplinary Rule 7-109 .................................................................................................................12 Federal Rule of Bankruptcy Procedure 9018 .................................................................................10 New York General Obligations Law 15-108 ................................................................................7 OTHER AUTHORITIES http://www.americanlawyer.com/PubArticleFriendlyALD.jsp?id=1202567637510 ......................7

iii

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 5 of 17

Main Document

Steven H. Davis, by his attorneys Hughes Hubbard & Reed LLP, files this limited objection1 to the Debtors motion for entry of an order, pursuant to Bankruptcy Rule 9019 and 11 U.S.C. 105(a) and 362, approving partner contribution settlement agreements and mutual releases for participating partners [Docket No. 399] (the Debtors Motion)2 and respectfully states that: Preliminary Statement Mr. Davis, a creditor and formerly the Chairman and a Member of the Executive Committee of the Debtor, is the only partner who was denied the opportunity to participate in the Partner Contribution Settlement Agreements and Mutual Releases for Participating Partners (PCPs) that are the subject of the Debtors Motion.3 Notwithstanding that he was denied the opportunity to participate,4 Mr. Davis does not object to the Debtors Motion as a whole. Instead, Mr. Davis merely seeks to preserve his rights. Future litigation against Mr. Davis will likely allege that he and other members of senior management are solely responsible for the Debtors decisions. Mr. Davis disputes any such allegations. However, if Mr. Davis is found to be partially responsible for any harm caused (which he should not be), he should not be liable for more than his proportionate share. While the Bar Order construct contained in the PCPs, which the Debtor does not seek approval of at

Mr. Daviss deadline for filing this objection was extended until 12:00 pm on September 14, 2012. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Debtors Motion. Incredibly and inaccurately, the Debtors Motion claims that all former partners were allowed to participate in the discussions and meetings regarding the PCPs. (Debtors Motion at 4.) This is false as Mr. Davis was not permitted to participate in such discussions. Mr. Davis reserves any and all claims at law, in equity or otherwise relating to the Debtors intentional exclusion of Mr. Davis from such denial of participation.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 6 of 17

Main Document 2

this time, preserves the concept of proportionate liability,5 the Proposed Release and the Proposed Injunction (each as defined below) fail to do so. Therefore, Mr. Davis objects on a limited basis to incorporate the concept of proportionate liability into the releases and injunctions requested by the Debtors Motion. As noted above, the proposed release and injunction would prevent Mr. Davis as a third party from defending against claims brought against him (as the Debtors Motion threatens) or to limit his alleged liability to his proportionate share of any harm. This is inequitable. Accordingly, the Order should be limited to ensure that Mr. Davis will not be prevented from invoking any available proper avenues of defense in current or future litigation.6 Next, the Debtors Motion improperly fails to disclose the identities of Participating Partners (as defined in the PCPs) for unspecified reasons of confidentiality. To the extent the Debtor seeks to seal the identities of the Participating Partners, it would need to file a motion to seal the participant list and carry a heavy burden of establishing its need to do so, which it has not done. Therefore, the Debtors should be required to disclose the identities of the Participating Partners and allow Mr. Davis to adequately prepare his defense. Finally, the cooperation provision contained in the PCPs is inappropriate because it bars the Participating Partners from cooperating with Mr. Davis as he defends against the Debtors action against him. It is per se inequitable to condition a partners release, which under the PCP that partner has paid for, on his or her refusal to assist Mr. Davis in his defense.
5

See PCPs 4(a) ([I]f the Debtor obtains any judgment against any such person or entity based upon, arising out of, or relating to the Debtor Released Claims for which such person or entity and any of the Releasees are found to be jointly liable, such person or entity shall be entitled to a judgment credit equal to an amount that corresponds to the Releasees' percentage of responsibility for the loss to the Debtor.). Although the Debtors Motion is clear that the Debtor is not seeking approval of the Bar Order at this time, Mr. Davis also objects to approval of the Bar Order on the limited basis set forth herein.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 7 of 17

Main Document 3

Unless the Debtor modifies its Motion to address these three concerns, granting the Debtors Motion would substantially and unjustifiably prejudice Mr. Davis. Mr. Davis therefore requests that the Court modify the Debtors proposed Order to address the foregoing limited objections. The Proposed Release and Injunction are Overbroad 1. The Debtors Motion seeks approval of release and injunction provisions that

limit Mr. Davis ability to defend himself in future litigation. The Debtor releases set forth in paragraph 2 of the PCPs (the Proposed Release) provide, in relevant part, that: the Debtor . . . shall and hereby does waive, release, acquit, and forever discharge . . . claims, obligations, demands, actions, and causes of action . . . whether held directly or derivatively . . . relating in any way or manner to the Debtor . . . [including] claims or causes of action arising from or relating to: i. any or all indebtedness, obligation, or liability of or relating to the Debtor or any of the Predecessor Entities or a Related Entity or arising from the business or operations of the Debtor or any of the Predecessor Entities or a Related Entity or other claims or rights against the Debtor or any of the Predecessor Entities or a Related Entity, whether asserted or not (including claims or rights of contribution or indemnification by current or former equity or salaried partners of the Debtor or its Predecessor Entities or Related Entities) other than Permitted Claims (defined below); such Participating Partner's status as a partner or employee of the Debtor or any of the Predecessor Entities or a Related Entity; any liability to any holder of a claim in the Bankruptcy Case arising from or related to the Debtor or its affairs or, any of the Predecessor Entities or a Related Entity or its affairs; and the conduct of the affairs of the Debtor or any of the Predecessor Entities or a Related Entity, whether before or after the commencement of the Bankruptcy Case.

ii.

iii.

iv.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 8 of 17

Main Document 4

(Emphasis supplied.) 2. The proposed injunction set forth in Paragraph 3 of the PCPs (the Proposed

Injunction) provides, in relevant part, that it: enjoins and bars all persons and entities from commencing or continuing any and all past, present or future claims or causes of action and from asserting any and all allegations of liability or damages, of whatever kind, nature or description. against the Participating Partner and/or Partner Parties [] based on, relating to, or arising from, the Debtor Released Claims including: i. the commencement or continuationof any suit, action or other proceeding; ii. the enforcement, levy or attachment, collection or other recovery on any judgment, award, decree or other order...; iii. the creation, perfection or other enforcementof any encumbrance; iv. the set-off or assertion in any manner of a right to seek reimbursement, indemnification, contribution from or subrogation against or otherwise recoupany amount; and v. any act to obtain possession of property or exercise control over the property. (Emphasis supplied.) 3. Although Rule 9019(a) allows a bankruptcy court to approve a settlement

agreement after notice and a hearing, the Second Circuit has made it clear that any endorsement of a settlement agreement that affects the rights of third parties, such as the PCPs, must take into account whether the settlement treats such third parties fairly. See In re Drexel Burnham Lambert Group Inc., 995 F.2d 1138, 1146 (2d Cir. 1993) ([T]he district court is obligated to make an examination of how the accord affects the rights of third parties.) (citing In re Masters Mates & Pilots Pension Plan & IRAP Litig., 957 F.2d 1020, 1026 (2d Cir. 1992) ([W]here the rights of one who is not a party to a settlement are at stake, the fairness of the settlement to the

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 9 of 17

Main Document 5

settling parties is not enough to earn the judicial stamp of approval.)). Moreover, any attempt by the parties to a settlement agreement to prejudice the independent rights of the third party is ineffective. See In re Enron Corp., 02 CIV. 8489 (AKH), 2003 WL 230838 at *3 (S.D.N.Y. Jan. 31, 2003) (recognizing that settling parties lack power to affect the separate and independent rights of non-settling third parties). 4. Moreover, the Second Circuit applies a strict approach in dealing with third-party

releases. While a court may enjoin a creditor from suing a third party, provided the injunction plays an important part in the debtors reorganization plan (SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285, 293 (2d Cir. 1992)), it is clear that such a release is proper only in rare cases (Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 141 (2d Cir. 2005)). Indeed, [t]he Second Circuit imposes significant limitations on bankruptcy courts ordering nondebtor releases and injunctions . . . . In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685, 694 (Bankr. S.D.N.Y. 2010) (MG). Specifically, the Metromedia court noted that: [A] nondebtor release is a device that lends itself to abuse. By it, a nondebtor can shield itself from liability to third parties. In form, it is a release; in effect, it may operate as a bankruptcy discharge arranged without a filing and without the safeguards of the Code. The potential for abuse is heightened when releases afford blanket immunity. Metromedia, 416 F.3d at 142. As a result, [c]ases make clear that the bankruptcy courts in this Circuit have very limited power to approve settlements or chapter 11 plans containing permanent or channeling injunctions in favor of non-debtors. McHale v. Alvarez (In re The 1031 Tax Group, LLC), 397 B.R. 670, 687 (Bankr. S.D.N.Y. 2008) (MG) (citing Metromedia, 416 F.3d at 141; In re Adelphia Commcns Corp., 364 B.R. 518, 529 (Bankr. S.D.N.Y. 2007) (REG)); see also, In re Residential Capital, LLC, 474 B.R. 112, 122 (Bankr. S.D.N.Y. 2012) (MG) (noting

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 10 of 17

Main Document 6

that [t]hird-party non-debtor releases raise many difficult legal and factual issues.) (internal citations omitted). 5. Courts in this district have previously considered and rejected injunctions and/or

releases based upon arguments such as those presented here by the Debtor that seek to justify such relief based upon the benefits of a settlement, supposedly extraordinary efforts in reaching the settlement, or give-ups as part of the settlement. See, e.g., In re Chemtura Corp., 439 B.R. 561 (Bankr. S.D.N.Y. 2010) (REG); In re Adelphia Commcns Corp., 368 B.R. 140 (Bankr. S.D.N.Y. 2007) (REG). As Judge Gerber noted in denying proposed exculpation provisions and third-party releases in Chemtura: The give-ups that parties made were of rights to recover that were subject to fair debate. In the case of creditors, even those that are Settling Parties, they were merely striking the kinds of deals with respect to their shares of the pie that chapter 11 contemplates. I dont doubt that in this case the Settling Parties engaged, as the Plan Proponents argue, in tireless efforts to come together to work out a global compromise aimed at resolving these cases. But thats not unique. Its something creditors have to do in every chapter 11 case, at the risk of destroying themselves (or their recoveries in the case) with their own quests for incremental recoveries. Similarly, the releases dont become acceptable because they were part of the Global Settlement. I dealt with this too in Adelphia. In language as applicable here as it was then, I said: [n]or can I accept the notion that the releases pass muster under Metromedia because the Settling Parties elected to make them an element of their deal . . . [i]t would set the law on its head if parties could get around it by making a third party release a sine qua non of their deal, to establish a foundation for an argument that the injunction is essential to the reorganization, or even an important part of the reorganization. Chemtura, 439 B.R. 561, 611 (citing Adelphia, 368 B.R. at 268-269). 6. The circumstances here provide no justification for approving an injunction,

prior to the proposal of a plan of reorganization, that would bar Mr. Davis, a non-consenting creditor, from defending and limiting claims to his proportionate share of any harm in pending or

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 11 of 17

Main Document 7

future litigation with the Debtor.7 As noted, Mr. Daviss defense in this litigation will rest in part on limiting any alleged liability to his proportionate share of any harm, and the PCPs limit this right in two separate ways. 7. The Proposed Release and Proposed Injunction could be read to prevent Mr.

Davis from asserting an argument that any finding of liability on his part should be limited under New York General Obligations Law, or other similar state statutes, to his equitable share.8 Although paragraph 4(a) of the PCPs contains language that grants Mr. Davis a judgment credit with respect to the Bar Order (which the Debtors are not seeking approval of at this time),9 there is no similar constraint on the Proposed Release and Proposed Injunction. Indeed, the Proposed Release and the Proposed Injunction are drafted broadly enough to limit Mr. Daviss right to assert this statutory defense as appropriate. 8. Moreover, in the event statutory law does not apply to limit the claims asserted

against Mr. Davis to his proportionate share, it is critical that Mr. Davis retain the right to seek

Mr. Davis is currently facing several claims that assert, among other things, breaches of duty while acting in his capacity as the Chairman and Member of the Executive Committee of the Debtor, and the Debtor has publicly stated its intention to pursue further claims against Mr. Davis. See, e.g., Sara Randazzo, Though Responses Lag, Dewey Advisers See Settlement Proposal Succeeding, The Am Law Daily, August 15, 2012, http://www.americanlawyer.com/PubArticleFriendlyALD.jsp?id=1202567637510 (quoting lead Dewey bankruptcy lawyer Albert Togut: notable people believed to be part of the reason why this law firm failed are expressly excluded from PCP participation. Claims against them will continue to exist, are not going to be dropped, and will be pursued.). Under New York General Obligations Law 15-108, when a tortfeasor obtains a release, it reduces the claim of the releasor against the other tortfeasors to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, or in the amount of the released tortfeasors equitable share of the damages under article fourteen of the civil practice law and rules, whichever is the greatest. See also Williams by Williams v. Niske by Niske, 81 N.Y.2d 437, 442 43 (1993). Paragraph 4(a) of the PCPs provide that if the Debtor obtains any judgment against any such person or entity based upon, arising out of, or relating to the Debtor Released Claims for which such person or entity and any of the Releasees are found to be jointly liable, such person or entity shall be entitled to a judgment credit equal to an amount that corresponds to the Releasees percentage of responsibility for the loss to the Debtor.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 12 of 17

Main Document 8

common law indemnity or contribution against Participating Partners. The Proposed Release and the Proposed Injunction explicitly waive these rights. Although paragraph 5 of the PCPs provides that the Proposed Release and the Proposed Injunction do not release or require the Debtor to obtain an order enjoining any claim that is not derivative of a claim or right assertable or belonging to the Debtor or is not otherwise property of the Debtors estate, this does not necessarily preserve such common law indemnity or contribution claims against the Participating Partners. For example, courts in this district have held that a claim for contribution of one partner against another for breach of fiduciary is a classically derivative, breach of fiduciary duty claim. In re Adelphia Commns Corp., 322 B.R. 509, 529 (Bankr. S.D.N.Y. 2005); In re Granite Partners, 194 B.R. 318, 325 (Bankr. S.D.N.Y. 1996). 9. The effect of these provisions is a draconian, non-consensual third party release

and injunction against Mr. Davis. The Debtor claims only that the Proposed Injunction is both appropriate and necessary because, without it, the $71 million in pledged settlement payments would not have been attainable. (Debtors Motion at 23.) Yet the Debtor fails to provide sufficient evidence to carry the heavy burden required to warrant imposition of such a broad-ranging release and injunction under the well-established law in this Circuit described herein. 10. Based upon the foregoing, the Proposed Release and Proposed Injunction should

be limited by adding the following provisions to the Order granting the Debtors Motion. First, Mr. Daviss right to obtain a judgment credit in any future litigation should be preserved:

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 13 of 17

Main Document 9

Notwithstanding anything to the contrary herein, in the event Debtor obtains any judgment against any person or entity for which such person or entity and any of the Partner Parties are found to be jointly liable, such person or entity shall be entitled to take all steps necessary to obtain a judgment credit equal to an amount that corresponds to the Partner Parties percentage of responsibility for the loss to the Debtor. 11. Second, in the event such a credit is not available under applicable law, Mr.

Daviss right to assert rights of indemnification, contribution, or setoff should be preserved: Notwithstanding anything to the contrary herein, nothing in this Order or the PCPs shall be deemed to enjoin, bar, or restrain any claim or action for indemnification, contribution, or any other right of set-off, by a person or entity not released by this Order against (i) the Debtor or its successors or assigns, or (ii) any Participating Partner and/or the Partner Parties and their respective successors and/or assigns (including the Debtor). The Debtors Motion Fails to Disclose the Identities of the Participating Partners 12. For approval of its Motion, the Debtor should also be required to disclose the

identities of the Participating Partners. Although the Debtors Motion claims that the names of the participants are confidential (Debtors Motion at n. 11), it fails to say why that is so and fails to even move to seal such information, let alone carry its burden in doing so, all in contravention of well established law. 13. There is a strong presumption and public policy in favor of public access to court

records. In re Oldco M Corp., 466 B.R. 234, 236 (Bankr. S.D.N.Y. 2012) (MG) (citing Nixon v. Warner Commcns, Inc., 435 U.S. 589, 597-598 (1978); U.S. v. Amodeo, 71 F.3d 1044, 1048 (2d. Cir. 1995). This right of public access is rooted in the publics first amendment right to know about the administration of justice. Oldco, 466 B.R. at 236. (internal citations omitted.) Where, as here, a party acts in a fiduciary capacity for another, such as a trustee in a bankruptcy case, [t]he public interest in openness of court proceedings is at its zenith. Id. This

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 14 of 17

Main Document 10

presumption of open access is codified in section 107 of the Bankruptcy Code. Id. at 237 (citing 11 U.S.C. 107(a)). 14. Under limited circumstances, however, section 107(b) of the Bankruptcy Code

empowers a bankruptcy court to seal documents that would normally be available to the public. Id. Nevertheless, the exception to the general right of access in section 107(b) is narrow, requiring the existence of compelling or extraordinary circumstances. Id. (internal citations omitted). But when a trustee seeks to settle a claim on behalf of a bankruptcy estate, the public policy of open access to court records comes fully into play, and a searching judicial inquiry is required before approving the settlement. Id. at 238 (internal citation omitted). 15. Obtaining an order sealing any court filing under section 107(b) requires a

motion under Federal Rule of Bankruptcy Procedure 9018 . . . . Id. On any such motion, [t]he moving party bears the burden of showing that the information is confidential. Id. (internal citation omitted.) Here, the Debtor has failed to even bring such a motion to seal the Participating Partners identities, let alone carry its burden in doing so. 16. The Debtors refusal to disclose the Participating Partners identities makes it

impossible for Mr. Davis to fully assess the impact of the proposed injunction and therefore denies Mr. Davis and other parties in interest due process. As the Court noted in Oldco M Corp., [t]he press and public could hardly make an independent assessment of the facts underlying a judicial disposition, or assess judicial impartiality or basis, without knowing the essence of what the court has approved. Id. (quoting Geltzer v. Andersen Worldwide, S.C., No. 05-Civ.-0339 (GEL), 2007 WL 273526 at *2 (S.D.N.Y. Jan. 30, 2007)). Moreover, Mr. Davis will be limited in his ability to prepare and assert defenses that involve Participating Partners if their identities are concealed. This will materially prejudice Mr. Daviss defense.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 15 of 17

Main Document 11

17.

It is therefore fundamentally unfair for the Court to approve the form of, and

ultimately issue, an injunction that would effectively release certain claims and defenses of third party nonparticipants, like Mr. Davis, against unknown entities. To address this limited objection, Mr. Davis respectfully requests that any Order granting the Debtors Motion contain the following provision: This Order shall not become effective with respect to any Participating Partner unless, with respect to such Participating Partner, the Debtor shall have filed with this Court a writing disclosing the identity of such Participating Partner; provided, however, that the upon such disclosure by the Debtor, any nonParticipating Partner (excluding the Debtor) shall have 14 days from the date of such disclosure to file an objection to the granting of any injunction or release with respect to such Participating Partner, and such injunction or release shall not be granted unless any objections have been overruled or withdrawn. The Cooperation Provision of the PCP is Unduly Burdensome 18. The PCPs also provide that a Participating Partner shall not knowingly

participate in, consult with in support of, knowingly instigate or recommend the commencement of, nor solicit any assertion of . . . any defense by a third-party of a claim or cause of action of the Debtor or the Debtors Chapter 11 estate . . . . This broad gag order will cause irreparable harm to Mr. Daviss defense. 19. First, the Cooperation Provision flies squarely in the face of public policy. A

defendant is entitled to conduct a legitimate investigation, including witness interviews and document collection, to prepare his case for trial. See Castaneda v. Burger King Corp., 2009 WL 2382688, at *4, 8 (N.D. Cal. July 31, 2009) (where plaintiff improperly instructed third parties to not speak with defendants attorneys, [s]uch tactics obviously interfere with [defendants] legitimate investigation, and corrupt the case preparation process); ABA Model Rules of Professional Conduct 3.4, Cmt. 1 (The procedure of the adversary system contemplates that the

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 16 of 17

Main Document 12

evidence in a case is to be marshalled competitively by the contending parties.). Yet the Cooperation Provision would obstruct Mr. Daviss access to witnesses and documents by penalizing Participating Partners who come forward with information relevant to Mr. Daviss defense. This Court should not approve a provision that so fundamentally violates public policy. See, e.g., In re Telcar Group, Inc., 363 B.R. 345, 354-55, 357-58 (Bankr. E.D.N.Y. 2007) (denying trustees application for settlement because it violated Disciplinary Rule 7-109 and public policy by making a settling partys reimbursement contingent on the success of trustees litigation against a third party). 20. Second, the Cooperation provision would unduly burden Mr. Daviss ability to

defend himself in litigation that the Debtor has threatened to commence against him. Mr. Davis would be required to jump through innumerable hoops, such as defending challenges to any subpoenas he serves, in order to obtain information that a Participating Partner would otherwise be inclined to provide. Absent his consent, it is inequitable to require him to do so. 21. To address the foregoing limited objection, Mr. Davis requests that any Order

granting the Debtors Motion include the following provision: Notwithstanding the foregoing, nothing in this Order, the PCPs or otherwise shall be deemed to (i) prohibit any Participating Partner from or (ii) deny such Participating Partner the benefit of this Order for cooperating or providing documents or information to any past or present partner or employee of the Debtor not released by this Order relating to or arising from such person's dealings with, interest in and/or employment by the Debtor.

12-12321-mg

Doc 450

Filed 09/13/12 Entered 09/13/12 23:10:49 Pg 17 of 17

Main Document 13

Conclusion WHEREFORE, Mr. Davis respectfully requests that the Court (A) revise the proposed Order attached to the Debtors Motion to the extent provided herein; and (B) grant Mr. Davis such other relief as is just and proper.

Dated: New York, New York September 13, 2012 HUGHES HUBBARD & REED LLP

By:

/s/ Kathryn A. Coleman Ned H. Bassen Kathryn A. Coleman One Battery Park Plaza New York, New York 10004 Telephone: (212) 837-6000 Facsimile: (212) 422-4726 bassen@hugheshubbard.com kcoleman@hugheshubbard.com Attorneys for Steven H. Davis