Alberts, Trustee v. Galen Hospital Illinois, Inc. et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORP. I, et al.,
Debtors.
____________________________
SAM J. ALBERTS, TRUSTEE FOR
THE DCHC LIQUIDATING TRUST,
Plaintiff,
v.
HCA INC., et al.,
Defendants.
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Case No. 02-02250
(Chapter 11)
(Jointly Administered)
Adversary Proceeding No.
04-10366
MEMORANDUM DECISION REGARDING PLAINTIFF’S MOTIONS IN LIMINE
In three separate motions, the plaintiff Sam J. Alberts,
trustee for the DCHC Liquidating Trust (the “Trust”), seeks to
exclude the following evidence proffered by the defendants HCA
Inc. (“HCA”) and Galen Hospital Illinois, Inc. (“GHI,” and
collectively the “Defendants”) for use at trial: (1) any parol
evidence relating to the asset purchase agreement (the “APA”)
entered into by Michael Reese Medical Center Corporation
The decision below is hereby signed. Dated: January
2, 2007.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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(“Michael Reese”) and GHI on July 8, 1998, (2), the reports and
testimony of Matthew Kimmel, an expert witness scheduled to
testify on behalf of the Defendants, and (3) certain expert
reports furnished by the Defendants on August 31, 2006. 	For the
reasons that follow, the court will deny the first two motions
and grant the motion to exclude expert reports furnished on
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1 	The court considered the following documents in rendering
this memorandum decision: Second Amended Scheduling Order (D.E.
No. 190, entered August 16, 2006); Order Granting in Part and
Denying in Part Motion to Amend Second Amended Scheduling Order &
Directing Related Relief (D.E. No. 223, entered September 7,
2006) (the “Order Amending Scheduling Order”); Order Denying
Motion for Reconsideration of Order Granting in Part and Denying
in Part Motion to Amend Second Amended Scheduling Order &
Directing Related Relief (D.E. No. 230, entered September 15,
2006) (the “Order Denying Reconsideration”); Plaintiff’s Motion
In Limine to Exclude Untimely Expert Reports Submitted by
Defendants (D.E. No. 287, filed November 13, 2006) (the “Rebuttal
Reports Motion”); Plaintiff’s Motion In Limine to Exclude the
Reports and Testimony of Matthew Kimmel (D.E. No. 290, filed
November 13, 2006) (the “Kimmel Motion”); Declaration of Dana E.
Foster and Exhibits 1-5 thereto (D.E. No. 292, filed November 13,
2006); Plaintiff’s Motion In Limine to Exclude the Parol Evidence
in Connection with the Asset Purchase Agreement Between Michael
Reese Medical Center Corporation and Galen Hospital Illinois,
Inc. (D.E. No. 293, filed November 13, 2006) (the “Parol Evidence
Motion”); Declaration of Dana E. Foster and Exhibits 1-4 attached
thereto (D.E. No. 295, filed November 13, 2006); Defendants’
Memorandum in Opposition to Plaintiff’s Motion In Limine to
Exclude the Reports and Testimony of Matthew Kimmel and all
attachments thereto (D.E. No. 319, filed December 1, 2006) (the
“Kimmel Opposition”); Opposition to Plaintiff’s Motion In Limine
to Exclude Parol Evidence in Connection with the Asset Purchase
Agreement Between Michael Reese Medical Center Corporation and
Galen Hospital Illinois, Inc. and all attachments thereto (D.E.
No. 322, filed December 1, 2006); Opposition to Plaintiff’s
Motion In Limine to Exclude Rebuttal Expert Reports Submitted by
Defendants and all attachments thereto (D.E. No. 326, filed
December 1, 2006) (the “Rebuttal Reports Opposition”);
Plaintiff’s Reply in Support of His Motion In Limine to Exclude
Untimely Expert Reports Submitted by Defendants and Exhibit A
thereto (D.E. No. 340, filed December 8, 2006) (the “Rebuttal
Reports Reply”); Plaintiff’s Reply in Support of His Motion In
Limine to Exclude the Reports and Testimony of Matthew Kimmel and
Exhibits 1-4 thereto (D.E. No. 342, filed December 8, 2006);
Plaintiff’s Reply in Support of His Motion In Limine to Exclude
Defendants’ Use of Parol Evidence (D.E. No. 343, filed December
8, 2006) (the “Parol Evidence Reply”).
3
August 31, 2006. 1
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2 	See also Mitchell v. Clark, 448 So. 2d 681, 685 (La.
1984) (“Parol evidence can be used by a creditor to bring back
into the estate of the debtor property which the debtor has
fraudulently transferred”); Mass. Elec. Co. v. Pac. Nat’l Inv.
Corp., 404 N.E.2d 1258, 1260 (Mass. Ct. App. 1980) (“The essence
of a lawsuit under [Massachusetts’s prior fraudulent transfer
law] is to establish fraud, and the admission of extrinsic
evidence bearing on that question does not violate the parol
evidence rule.”); Frost & Johnson v. Bebout, 14 La. 104 (La. May
1839), available at 1839 WL 930 (“a creditor may show the real
character of the conveyance by which the property of his debtor
is protected from his pursuit”).
4
I
Alberts argues that any extrinsic evidence relating to the
APA should be excluded under the parol evidence rule. 	The court
would agree with him if he were pursuing a breach of contract
claim formerly held by Michael Reese, but this is a fraudulent
transfer suit brought under 11 U.S.C. § 544, not an assumed cause
of action brought pursuant to § 541. 	“A document which is a
clear embodiment of the intent of the parties which has the
purpose or effect of defrauding creditors of the bankruptcy
estate is not protected by the parol evidence rule.” 	Carmel v.
River Bank Am. (In re FBN Food Services, Inc.), 175 B.R. 671, 682
(Bankr. N.D. Ill. 1994); accord Covey v. Milman (In re Circle P
Enterprises, Inc.), 1998 WL 34065296, **1-2 (Bankr. C.D. Ill.
Dec. 28, 1998). 2
There are two reasons for this rule. 	First, the “very
essence” of a fraudulent transfer suit is to identify the “true
nature” of a transaction, and “the parol evidence rule can[not]
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3 	Alberts cites to Arizona case law in defining and
describing the parol evidence rule. 	(Parol Evidence Mot. ¶¶ 6-
8). 	His choice of law is incorrect. 	See In re FBN Food
Services, Inc., 175 B.R. at 682 (“When the parol evidence rule is
an issue in a bankruptcy case, the court must apply the law of
the state in which it sits in order to resolve whether the rule
should be applied.”). 	As there is no discrepancy between
District of Columbia law and Arizona law with respect to the
parol evidence rule, this error is a harmless one. 	Compare King,
474 A.2d at 155, with Davies v. Courtney, 463 P.2d 554, 555
(Ariz. Ct. App. 1970) (“exceptions to the Parol Evidence Rule
arise where there has been fraud”).
5
function as a false prophet to preclude consideration of evidence
of the true nature of the transaction in question.” 	In re Zedda,
103 F.3d 1195, 1206 (5th Cir. 1997) (holding that trustee could
not use parol evidence to exclude evidence in fraudulent
conveyance suit brought under 11 U.S.C. § 548). 	This is a
corollary to the well-established proposition that the parol
evidence rule does not apply when a transaction is fraudulent.
King v. Indus. Bank of Washington, 474 A.2d 151, 155 (D.C.
1984). 3
Second, to the extent that Alberts invokes § 544(b), he
steps into the shoes of an unsecured creditor of the estate. 	A
creditor would be “a third person, not a party to, nor
representing a party to, the act.” 	Groves v. Steel, 2 La. Ann.
480 (La. Apr. 1847), available at 1847 WL 3400. 	It is axiomatic
that the parol evidence rule does not apply to disputes involving
strangers to the contract at issue. 	Cunningham v. Day Bros.
Eng’g Co., 55 A.2d 89, 90 (D.C. 1947); accord Collins v. Collins,
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4 	Alberts emphasizes that he is a representative of the
estate who acts on behalf of the creditor body as a whole.
(Parol Evidence Reply ¶¶ 6-8). 	His status as an estate
representative allows him to use § 544 of the Bankruptcy Code,
but that statute allows him to avoid only those transfers that an
unsecured creditor of the estate could have avoided under state
law. 	11 U.S.C. § 544(b). 	An unsecured creditor of the estate
could not have avoided a transaction by invoking the parol
evidence rule; therefore, Alberts should not be allowed to do so,
either.
5 	The court respectfully disagrees with the bankruptcy
court’s application of the parol evidence rule in Viscount Air
Services, Inc. v. Cole (In re Viscount Air Services, Inc.), 232
B.R. 416 (Bankr. D. Ariz. 1998). 	In that case, the bankruptcy
court held that the parol evidence rule prohibited the transferee
of an allegedly fraudulent conveyance from asserting that the
assets transferred by the debtor were never assets of the estate
based on a lease entered into by the debtor. 	Id. at 446. 	The
court did not consider whether the chapter 11 trustee was a
stranger to the debtor’s lease for purposes of the fraudulent
conveyance suit under § 544, nor did it consider whether
fraudulent conveyances should be subject to the parol evidence
rule in light of the considerations raised by the courts in In re
FBN Food Services and In re Zedda. 	Id. 	This court does not find
the bankruptcy court’s mechanical application of the parol
evidence rule in In re Viscount Air Services persuasive given the
more detailed and nuanced reasoning set forth in In re FBN Food
Services and In re Zedda.
6
52 P.2d 1169, 1174 (Ariz. 1935). 4 	The court will therefore deny
Alberts’s motion to exclude parol evidence submitted by the
Defendants with respect to the APA. 5
II
Alberts seeks to preclude the testimony and reports of
Matthew Kimmel, an expert witness retained by the Defendants, on
the grounds that Kimmel’s testimony and expert report is
redundant of the expert testimony to be presented by David
Felsenthal and is therefore prohibited by Fed. R. Evid. 403
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(applicable to this court pursuant to Fed. R. Evid. 101) as
cumulative evidence. 	The Defendants argue that these witnesses
will cover different issues because Felsenthal is essentially a
fact witness who will testify to his valuation of Michael Reese
Hospital’s property in 1998, whereas Kimmel will testify as to
the validity of that earlier valuation. 	(Kimmel Opp’n at 5). 	As
the Defendants see it, “Mr. Kimmel and Mr. Felsenthal are
directly analogous to a retained expert and treating physician,
respectively, in a personal injury case.” 	(Kimmel Opp’n at 10).
Based on the Defendants’ representations, it appears that
Felsenthal’s testimony may be relevant in part because it
demonstrates that the Defendants entered into the APA in good
faith. 	That issue is the subject of separate motions for summary
judgment filed by the Defendants and fellow defendant Western
Plains Capital, Inc. 	See Alberts v. HCA, Inc. (In re Greater
Southeast Cmty. Hosp. Corp. I), slip op. at 26-28 (Bankr. D.D.C.
January 2, 2006). 	If the court finds that there is a genuine
dispute of material fact as to whether the Defendants acted in
good faith, Felsenthal can testify as a fact witness at trial.
On the other hand, there will be no need for Felsenthal to
testify to the generally understood worth of Michael Reese
Hospital’s property in 1998 except to the extent that he is
testifying as an expert witness if the court grants the
Defendants summary judgment on the issue of good faith.
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6 	The situation would be different if this were a jury
trial. 	In that case, Albert’s concern that the factfinder might
“ignore the law and facts, and simply perform a comparative count
as to the number of experts each side has retained” would have
some bite to it. 	(Kimmel Mot. at 8). 	As things stand, however,
the court is more than capable of distinguishing between the
quantity and quality of the parties’ evidence.
8
Given that Felsenthal’s testimony may turn out to be
relevant only insofar as it is expert in nature, it may well be
the case that Kimmel’s testimony would add little to anything
said by Felsenthal at trial. 	At the same time, there is no undue
prejudice to Alberts in giving the Defendants the option of
calling either or both of the witnesses if they so desire. 6 	To
the extent that Kimmel’s opinion parrots that of Felsenthal, his
testimony can be discounted as cumulative. 	To the extent that it
differs from Felsenthal’s opinion, the inconsistency between the
two opinions would seem to benefit Alberts as much as it would
the Defendants.
Either way, the Defendants should be allowed to use their
experts to whatever end they see fit unless and until Alberts
demonstrates actual undue prejudice arising from the Defendants’
presentation. 	A few hours spent at trial is not enough. 	The
court will deny Alberts’s motion in limine with respect to
Kimmel.
III
On August 31, 2006, the Defendants furnished four expert
reports concerning issues for which Alberts bears the burden of
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proof at trial. 	The timing of the reports appears to run afoul
of the scheduling order in effect at that time, which states in
pertinent part:
Unless otherwise ordered, the disclosures under
Fed. R. Civ. P. 26(a)(2) of experts and the
furnishing of the expert’s written report shall be
made no later than July 24, 2006, for experts on
any issues on which the party bears the initial
burden of going forward, no later than August 17,
2006, for responsive experts by the party not
bearing the initial burden of going forward with
the evidence on the issue, and no later than
August 31, 2006, for rebuttal experts of either
party.
(Second Am. Scheduling Order ¶ 4) (emphasis in original).
This order appears to contemplate the following procedure
for expert discovery with respect to the Defendants: (1) the
Defendants would furnish expert reports with respect to any issue
for which they bear the burden of proof (e.g., any affirmative
defenses) by July 24, 2006; (2) the Defendants would furnish
expert reports in response to any reports filed by Alberts on
issues for which Alberts bears the burden of proof of trial no
later than August 17, 2006; and (3) the Defendants would furnish
expert reports rebutting any responsive reports filed by Alberts
on issues for which the Defendants bear the burden of proof at
trial no later than August 31, 2006. 	Because the four expert
reports at issue in the instant motion did not concern an issue
for which the Defendants bear the burden of proof at trial, the
reports should have been furnished by August 17, 2006, not August
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7 	In point of fact, the authors of three of the reports
furnished responsive expert reports on August 17, 2006. 	The
Defendants have never explained why these experts needed an
additional two weeks to furnish separate reports “rebutting” (as
opposed to “responding to”) the reports furnished by Alberts on
July 24, 2006.
10
31, 2006. 7
The Defendants argue that the phrase “rebuttal experts” in
paragraph four of the Second Amended Scheduling Order is
ambiguous and that such ambiguity should be construed against
Alberts under the doctrine of contra proferentum. 	(Rebuttal
Reports Opp’n at 6-7). 	But the interpretation preferred by the
Defendants--that the scheduling order intended for the parties to
furnish a set of “responsive” expert reports on August 17, 2006,
and then furnish another set of reports responding to the other
side’s initial reports two weeks later--makes no sense
whatsoever. 	Under District of Columbia law, “the court must
determine what a reasonable person in the position of the parties
would have thought the disputed language meant.” 	Unfoldment,
Inc. v. D.C. Contract Appeals Bd., 909 A.2d 204, 209 (D.C. 2006)
(quoting Independence Mgmt. Co. v. Anderson & Summers, LLC, 874
A.2d 862, 867 (D.C. 2005) (further quotation omitted)) (emphasis
added).
As for the doctrine of contra proferentum, it has no
application here because the Second Amended Scheduling Order was
signed and filed by both parties, and in any event is available
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8 	The Defendants suggest that their own responses to
interrogatories served on them by Alberts demonstrate that their
interpretation of the Second Amended Scheduling Order was made in
good faith, (Rebuttal Reports Opp’n at 3), but these responses
were served on August 21, 2006--four days after the August 17,
2006 deadline for responsive expert reports. 	The Defendants’
interrogatory responses do not enlighten the court one way or the
other with respect to the Defendants’ understanding of the Second
Amended Scheduling Order when it was first written and entered on
the court’s docket.
11
as a tool of contract interpretation only where other factors are
not dispositive. 	Mesa Air Group, Inc. v. Dep’t of Transp., 87
F.3d 498, 506 (D.C. Cir. 1996). 	The court would sooner look to
the extrinsic evidence produced by the parties in resolving any
ambiguities in the scheduling order, and that evidence supports
Alberts’s interpretation of the scheduling order. 	(Rebuttal
Reports Reply at Ex. A). 8 	The only thing that supports the
Defendants’ interpretation of the scheduling order is the
Defendants themselves.
The Defendants argue in the alternative that the expert
reports furnished on August 31, 2006, ought not be stricken even
if they were furnished out of time because Alberts will suffer no
prejudice from their admission. 	The court disagrees. 	It denied
Alberts leave to furnish the rebuttal report of Robert Wilson out
of time based on the deadlines set forth in the Second Amended
Scheduling Order. 	(Order Denying Reconsideration at 2-3). 	It
would be fundamentally unfair to forgive the Defendants’
similarly untimely reports because the Defendants went ahead and
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9 	The Defendants argue that it would be unfair to preclude
their “rebuttal” reports when Alberts was granted leave to
furnish the rebuttal report of Neil Demchick outside the
deadlines set forth in the Second Amended Scheduling Order.
(Rebuttal Reports Opp’n at 7-8). 	Alberts demonstrated good cause
for an extension (namely, Demchick’s poor health), whereas the
Defendants have never provided any cause for their delay other
than their erroneous interpretation of the Second Amended
Scheduling Order. 	(Order Amending Scheduling Order at 2).
12
furnished the reports without seeking an extension of time in the
first place. 9
The Defendants might have avoided this result had they
consented to an extension of time for both Demchick and Wilson to
furnish their expert reports. 	Instead, they chose to enforce the
scheduling order as it was written and take their chances as to
how the court would rule with respect to the admissibility of
their own late-filed reports. 	As the court has noted before, the
Defendants have every right to engage in “scorched earth”
litigation tactics, but they ought not be heard to complain if
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10 	The court put the Defendants on notice of the possible
consequences of their intransigence on this point in its Order
Denying Reconsideration. 	In that order, the court stated in
pertinent part:
[T]he court has already explained that it
will not take a position with respect to the
timeliness of the August 31 expert reports
unless and until the issue is properly
presented to the court by way of a motion in
limine. 	Consequently, there can be no
injustice in denying Alberts an extension of
time based on the existence of those same
reports.
It may well be the case that the parties can
resolve these issues between themselves and
arrive at an amended scheduling order that
resolves the unanswered questions regarding
the propriety of the defendants’ August 31,
2006, expert reports and the propriety of
allowing Mr. Wilson to file a further report
for Alberts belatedly if the defendants are
allowed to keep their August 31 expert
reports in place (despite a plausible reading
of the Second Amended Scheduling Order as
barring the defendants’ August 31 expert
reports because those reports were not
“rebuttal reports” within the meaning of the
order). 	However, the court can hardly be
optimistic on that front given the inability
of the parties to agree on so simple a matter
as a hearing date or a discovery deadline.
If the parties insist on entangling the court
in every disagreement that arises between
them, they will have to live with the
decisions that they get.
(Order Denying Reconsideration at 2-3).
13
they are singed in the process. 10 	The court will grant Alberts’s
motion to exclude the expert reports of Kevin Moss, Matthew
Kimmel, James Yerges, and Troy Dahlberg served on August 31,
2006.
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IV
For the reasons set forth above, the court will enter
separate orders denying the Parol Evidence Motion and Kimmel
Motion and granting the Rebuttal Reports Motion. 	The court will
also exclude sua sponte any reference in Demchick’s rebuttal
report to the rebuttal reports furnished by the Defendants on
August 31, 2006.
Separate orders follow.
[Signed and dated above.]
Copies to:
Lucius B. Lau
Jeffrey E. Schmitt
White & Case LLP
701 Thirteenth Street, N.W.
Washington, DC 20005
Counsel for the plaintiff
Jeffrey W. Kilduff
Lani R. Miller
Stephen D. Brody
O’Melveny & Myers LLP
1625 Eye Street, NW
Washington, DC 20006
Counsel for the defendants
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