In re Coram Healthcare Corp.

• Decision Date: 05 October 2004
• Docket Number: Nos.00-3299 (MFW),00-3300 (MFW).,s.00-3299 (MFW)
• Citation: 315 B.R. 321
• Parties: In re CORAM HEALTHCARE CORP. and Coram, Inc., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

315 B.R. 321

In re CORAM HEALTHCARE CORP. and Coram, Inc., Debtors.

Nos.00-3299 (MFW),00-3300 (MFW).

United States Bankruptcy Court, D. Delaware.

October 5, 2004.

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Kenneth E. Aaron, Esquire, Weir & Partners LLP, Laura Davis Jones, Rachel Lowy Werkheiser, Pachulski, Stang, Ziehl, Young & Jones, Etta Rena Wolfe, Smith, Katzenstein & Furlow LLP, Wilmington, DE, for debtors.

Bill B. Berke, Cape Coral, FL, Karen C. Bifferato, Esquire, Connolly Bove Lodge & Hutz LLP, Mark D. Collins, Shannon Stacy Frazier, Richard, Layton & Finger, Charlene D. Davis, Steven T. Davis, Obermayer, Rebmann, Maxwell & Hippel, LLP, John D. Demmy, Michael F. Duggan, Phillips, Goldman & Spence, Aaron A. Garber, Pepper Hamilton LLP, Carl N. Kunz III, Morris, James, Hitchens & Williams LLP, Gwendolyn M. Lacy, Connolly, Bove, Lodge & Hutz, Adam G. Landis, Landis, Rath & Cobb LLP, Thomas G. Macauley, Zuckerman and Spaeder LLP, Kevin J. Mangan, Monzack and Monaco P.A., Katharine L. Mayer, McCarter & English, Kerri K. Mumford, Landis, Rath & Cobb LLP, Francis J. Murphy, Murphy, Spadaro & Landon, Marc Jeffrey Phillips, Connolly, Bove, Lodge & Hutz LLP, Jason Custer Powell, Ferry & Joseph, Richard W. Riley, Duane Morris LLP, Donna L. Schoenbeck, Schoenbeck & Schoenbeck, Stephen W. Spence, Phillips, Goldman & Spence, William F. Taylor, Jr., McCarter & English LLP, Etta Rena Wolfe, Smith, Katzenstein & Furlow LLP, Wilmington, DE, Gail Cooperman, Sills, Cummis, Radin, Tischman, Epstein & Gr, Ivan Kaplan, Sills, Cummis, Radin, Tischman, Epstein & Gr, Newark, NJ, Martin E. Dollinger, Greenbaum, Row, Smith, Ravin, Davis & Himmel LLP, Iselin, NJ, Lisa Hill Fenning, Dewey, Ballantine LLP, Los Angeles, CA, Jennifer Gloss, Redwood City, CA, Matthew A. Gold, Argo Partners Inc., Michelle Kahleen McMahon, Heller, Ehrman, White & McAuliffe, New York City, Bret Hannifin, Burbank, CA, Peter A. Kline, Miller, Morton, Caillat & Nevis, LLP, San Jose, CA, Frederick A. Nicoll, Nicoll & Davis LLP, Paramus, NJ, Joel L. Perrell Jr., Miles & Stockbridge P.C., Baltimore, MD, James S. Simko, Davis, Graham & Stubbs LLP, Denver, CO, Adam M. Spence, Towson, MD, for creditor.

Robert K. Beste, Jr., Cohen, Seglias, Pallas, Greenhall & Furman, Wilmington, DE, for defendant.

Kimberly D. Newmarch, Deborah E. Spivack, Richards, Layton & Finger, Wilmington, DE, for Creditor Committee.

John B. York, Weir & Partners LLP, Wilmington, DE, for trustee.

OPINION¹

MARY F. WALRATH, Chief Judge.

Before the Court is the request of the chapter 11 trustee of Coram Healthcare Corporation ("CHC") and Coram, Inc. ("Coram" and collectively with CHC "the Debtors") for approval of the Trustee's Second Amended Joint Plan of Reorganization ("the Trustee's Plan"). The Official Committee of Equity Security Holders ("the Equity Committee") objects to confirmation of the Trustee's Plan and, instead, seeks approval of the Equity Committee's Second Amended Joint Plan of Reorganization ("the Equity Committee's Plan"). For the reasons set forth below, we will confirm the Trustee's Plan, if it is amended in accordance with this Opinion.

I. FACTUAL BACKGROUND

The Debtors filed petitions for relief under chapter 11 of the Bankruptcy Code ("the Code") on August 8, 2000 ("the Petition Date"). On that same day, the Debtors filed their First Joint Plan of Reorganization ("the Debtors' First Plan"). The Debtors' First Plan provided for: (1) the cancellation of all shareholder interests; (2) the issuance of new stock (representing 100% of the Debtors' equity) to Cerberus Partners, L.P. ("Cerberus"), Goldman Sachs Credit Partners L.P. ("Goldman"), and Foothill Capital Corporation ("Foothill") who collectively held 100% of the Debtors' outstanding unsecured notes (collectively "the Noteholders"); and (3) payment of $2 million to the other general unsecured creditors. The Equity Committee opposed the Debtors' First Plan.

In December 2000, at the conclusion of the confirmation hearings on the Debtors' First Plan, we found that the Debtors' CEO, Dan Crowley, was also employed as a consultant by Cerberus (the largest Noteholder). We concluded that this employment created a conflict of interest which tainted the Debtors' restructuring efforts. As a result, we denied confirmation of the Debtors' First Plan because we were unable to find that the Debtors had proposed their plan in good faith in accordance with section 1129(a)(3) of the Code.

Thereafter, the Debtors created a special committee of independent directors ("the Special Committee") to review the Debtors' affairs and propose a new plan of reorganization. The Special Committee retained Harrison J. Goldin to perform an impartial investigation. After consultation with Goldin, the Debtors proposed a new plan of reorganization ("the Debtors' Second Plan"), which provided that the Noteholders would receive all of the Debtors' equity and the shareholders would receive $10 million (if their class voted in favor of the Second Plan and the creditors did not object to confirmation on the basis of the absolute priority rule). The Equity Committee opposed the Debtors' Second Plan. We held confirmation hearings to consider the Debtors' Second Plan over seven days in November and December 2001. On December 21, 2001, we denied confirmation of the Debtors' Second Plan. We found that the employment relationship between Crowley and Cerberus had not changed since the first confirmation hearings. Accordingly, we again held that we could not conclude that the Debtors' Second Plan satisfied the requirements of section 1129(a)(3).

Following the denial of the Debtors' Second Plan, we granted a motion for the appointment of a chapter 11 trustee to oversee the Debtors' operations and to facilitate the reorganization process. On March 7, 2002, the Court approved the United States Trustee's selection of Arlin M. Adams ("the Trustee") as the chapter 11 trustee in the Debtors' jointly administered cases.

On December 19, 2002, the Equity Committee filed the Equity Committee's Plan, and on May 2, 2003, the Trustee filed the Trustee's Plan.² The Trustee's Plan provides for: (1) a settlement with the Noteholders ("the Noteholders Settlement") whereby the Noteholders will release their preferred stock and the remaining $9 million due on their notes,³ make a $56 million contribution to the Debtors' estate, and receive a release from the Trustee of any claims, including derivative claims, that the Debtors may have against them, their officers, directors, and employees; (2) an immediate cash payment to the unsecured creditors of 100% of their allowed prepetition claims plus the payment of postpetition interest (calculated at the federal judgment rate) from the net proceeds of the estate's claims against Crowley, certain outside directors, and PriceWaterhouseCoopers ("the Retained Litigation"); (3) the retention by Reorganized Coram of $10 million in working capital; (4) the cancellation of the shareholders' equity for a pro-rata distribution of the remaining Plan Funding Cash (which the Trustee estimates will be approximately $40 million) and the remaining net proceeds from the Retained Litigation Claims; (5) a settlement of the claims of Coram Resource Network, Inc. and Coram Independent Practice Association, Inc. (collectively "Net") for an allowed general unsecured claim of $7.95 million;⁴ (6) the dissolution of CHC; and (7) the issuance of all the common and preferred stock in Reorganized Coram to the Noteholders.

The Equity Committee's Plan provides for: (1) the immediate cash payment to the general unsecured creditors, other than the Noteholders, of the full amount of their allowed claims with interest to the extent required by law; (2) payment in full of the reduced claim of R-Net, $7.95 million, plus 2% from the Reorganized Debtors' net recoveries from the Litigation Claims⁵ (to a maximum of $6 million); (3) the satisfaction of the Noteholders' allowed claims through the issuance of New Senior Notes⁶ and New Preferred Stock;⁷ and (4) the retention by the shareholders of their equity interests in the Debtors. The Equity Committee's Plan also provides that a special litigation committee of the Board of Directors of the Reorganized Debtors will have full and ultimate authority over the prosecution and settlement of the Litigation Claims.

Hearings to consider the two plans were held over twelve days between September 30, 2003, and April 20, 2004. At the conclusion of the confirmation hearings, the parties submitted post-confirmation briefs. The matter is now ripe for decision.

II. JURISDICTION

This Court has jurisdiction over confirmation of the competing plans pursuant to 28 U.S.C. §§ 1334(b) & 157(b)(2)(A) & (L).

III. DISCUSSION

Currently before the Court are two competing plans of reorganization. Each plan proponent contends that its plan satisfies the provisions of the Code and is preferable to the other plan, which it argues does not satisfy the Code's requirements.

A. Confirmability of the Trustee's Plan

The Equity Committee asserts that the Trustee's Plan does not satisfy the requirements of the Code. In particular, the Equity Committee contends that the Trustee's Plan does not satisfy section 1129(a)(3) because the R-Net Settlement and the Noteholders Settlement were not proposed in good faith. The Equity Committee also contends that the Trustee's Plan violates the absolute priority rule and is not fair and equitable because it gives the Noteholders more than the amount of their claims by granting them releases and issuing them all of the stock of Reorganized Coram.

The Trustee disagrees. He contends that he proposed both settlements in good faith because they are in the best interests of the Debtors. Further, the Trustee argues that his Plan does not violate the absolute priority rule because it provides shareholders with a greater distribution than the value of...