Schnader Succeeds in Coram Bankruptcy MatterOn November 5, 2007 by Schnader in News
On November 5, 2007, Chief Judge Mary Walrath of the U.S. Bankruptcy Court for the District of Delaware approved a settlement awarding $15,380,000 to Judge Arlin Adams, as Chapter 11 Trustee of Coram Healthcare Corp. and Coram, Inc., in settlement of Trustee’s claims of breach of fiduciary duty and conflict of interest against former CEO Daniel Crowley and the former Coram outside directors. At time of settlement, the parties’ liability, damages, and coverage claims were in litigation in two federal district courts, in Delaware and Colorado, and (within the litigation) in the bankruptcy court in Delaware, originally filed in December 2004. Proceeds of the settlement will be applied to Coram, Inc. for costs of the litigation; payment of post-petition interest to unsecured creditors of the Coram debtors, which have already received payment of all the principal amount of their claims; and payment to former shareholders of Coram Healthcare – an additional $10 million – over and above their other distributions under the Trustee’s confirmed plan of reorganization.
Our involvement in the underlying bankruptcy began on March 7, 2002, when Judge Adams was appointed Chapter 11 Trustee to operate and reorganize Coram Healthcare, a publicly traded provider of home infusion services. Coram had filed for bankruptcy protection in August, 2000, and submitted two proposed plans of reorganization in 2000 and 2001. On each occasion, Judge Walrath denied confirmation of the debtor’s plans based on the chief executive officer’s conflict of interest. As Trustee, Judge Adams submitted a proposed plan of reorganization in May 2003, which was supported by the noteholders and creditors. An official Committee of Equity Security Holders – including Samstock, Ltd., a financial software company that handles the private investments of real estate magnate, Sam Zell – submitted a competing plan. The Equity Committee plan proposed to maintain public ownership of Coram, and to assert claims under the RICO Act, as well as breach of fiduciary duty claims against the noteholders, Coram’s former chief executive officer, and board members. The key issues at the confirmation trial – fought in the bankruptcy court and lasting for months – included: whether the Trustee’s Plan was more fair and equitable and feasible than the Equity Committee’s Plan; the confirmation value of Coram; and, the reasonableness of the proposed settlement with the noteholders. The Bankruptcy Court issued an opinion which confirmed the Trustee’s plan and denied confirmation of the Equity Committee’s Plan, leading the Committee to seek a stay pending appeal, which was denied by the Bankruptcy Court, United States District Court for the District of Delaware, and the Court of Appeals for the Third Circuit. The Trustee’s Plan was then implemented and the Equity Committee withdrew its appeals.
During the bankruptcy, Barry Bressler was lead counsel for the Trustee. The Schnader bankruptcy team, which included Richard Barkasy and Michael Barrie, devised the bankruptcy strategy and conducted the confirmation hearing on conformability and feasibility of the Trustee’s Plan, the reasonableness of settlements with a bankrupt subsidiary of Coram and the Internal Revenue Service (IRS), and all other bankruptcy issues, as well as handling several other hearings before the Bankruptcy Court. Will Kipnes directed the litigation team and tried the issues of the reasonableness of the settlement with the noteholders and the valuation of Coram at the confirmation hearing. Others gave persistent efforts crucial to this victory: Nancy Winkelman and David Pelletier in connection with the post-hearing motions for stay of confirmation, argued before the Bankruptcy and District Courts by Barry Bressler; Joseph Devine and Al Dandridge, who handled the extensive corporate and securities work during the bankruptcy proceedings and in taking the company private; Tom Arbogast for his help with negotiating and settling disputes with the IRS, reducing the tax claim by more than $8 million, and participating in the tax structuring of the reorganization.
Will Kipnes and Barry Bressler served as lead counsel in the recently settled Crowley, outside directors and Genesis actions, leading a team including Rich Barkasy, Nancy Winkelman, Chad Cooper, and Michael Barrie, in the negotiations leading to the settlement.