Case 16-10971-LSS Doc 976 Filed 10/14/16 Page 1 of 5 Saul Ewing Mark Minuti Phone: (302) 421-6840 Fax: (302) 421-5873 mminuti@saul.com www.saul.com VIA HAND DELIVERY AND ELECTRONIC FILING The Honorable Laurie Selber Silverstein United States Bankruptcy Court, District of Delaware 824 N. Market Street, 6th Floor Re: In re VRG Liquidating, LLC, Case No. 16-10971 (LSS) Proposed Testimony of Stephan L. Cutler, Esquire ReEarding EBITDA Condition Dear Judge Silverstein: We represent CVS Pharmacy, Inc. ("CVS") in connection with its Objection to the Debtors' Notice of Assumption and Assignment of the Bob's Stores Totowa Lease and to Fidelity Totowa Associates, LLC's ("Fidelity") Request for a Comfort Order Regarding CVS' Guaranty. The parties to this dispute appeared by telephone before Your Honor on October 11, 2016 at 3:00 pm to address certain discovery issues in connection with the hearing currently scheduled for October 18, 2016 at which the Court will be asked to interpret the so-called "EBITDA Condition" solely in the Totowa Lease between the Debtor and Fidelity. This letter addresses the issue raised by CVS during the conference, namely, whether the proposed testimony of Stephan L. Cutler, former counsel for Debtors and current counsel for Vestis BSI Funding II LLC ("Vestis"), is irrelevant and therefore inadmissible. Alternatively, and in the event that the Court determines Mr. Cutler's proposed testimony to be relevant, then Mr. Cutler's proposed testimony constitutes a waiver of the attorney-client privilege and CVS is entitled to documents and information which have thus far been withheld under the attorneyclient privilege. Debtors Have Not Made a Threshold Showing That the EBITDA Condition Is Ambivrous As set forth in CVS's Trial Brief [D.I. 959], the EBITDA Condition in the Totowa Lease is clear and unambiguous. There is no dispute that Debtors notified Fidelity of the intention to exercise the Extension Option on February 10, 2015. There is likewise no dispute that the period of "the most recently ended sixty consecutive fiscal months nearest" February 10, 2015 begins February 1, 2010 and ends January 31, 2015. Thus the EBITDA Condition required Debtors to submit evidence that its "Consolidated EBITDA (as hereinafter defined), as reported in Tenant's monthly financial statements," was greater than $1 million for the period of February 1, 2010 to P.O. Box 1266 Wilmington, DE 19899-1266 Phone: (302) 421-6800 Fax: (302) 421-6813 Courier Address: 1201 North Market Street, Suite 2300 DELAWARE MARYLAND MASSACHUSETTS NEW JERSEY NEW YORK PENNSYLVANIA WASHINGTON. DC A DELAWARE LIMITED LIABILITY PARTNERSHIP
Hon. Laurie Selber Case Silverstein 16-10971-LSS Doc 976 Filed 10/14/16 Page 2 of 5 Page 2 January 31, 2015. There is also no dispute that the Debtors have never submitted financial information for the January 1-31, 2015 period to Fidelity. The Totowa Lease contains no language about "available" or "existing" monthly financial statements in connection with satisfaction of the EBITDA Condition. Debtors would have this Court supplement the Totowa Lease with one or both of these words and disregard key phrases actually in the Totowa Lease -- "most recently ended" and "nearest." Delaware law does not permit such a result; New Jersey law does not permit such a result. Black letter contract law, not surprisingly, does not permit such a result either. As CVS argued in its Trial Brief, and as the Totowa Lease provides, "[t]he language in all parts of this Lease shall in all cases be construed according to its fair meaning...." Section 23.01. See CVS Trial Brief, fj 73-77. Certainly, the circumstances and the intent of the parties at the time of the drafting can be relevant in the case of an ambiguity, but, in every circumstance, the final, integrated writing is ultimately the best evidence of that intent. Id. at TT 76, 78 (citing Delaware and New Jersey authority, respectively). The parol evidence rule, which all parties have discussed in their trial briefs, makes clear that extrinsic circumstances or negotiations only become relevant, and therefore only become admissible under Fed. R. Evid. 402 (as applicable in this Court under Fed. R. Evid. 1101(a)), when the terms of an integrated contract' are "ambiguous," that is, susceptible to "at least two reasonable interpretations." Avaya Inc., RP v. Telecom Labs, Inc., 2016 WL 5553141, at *12 (3d Cir. Sept. 30, 2016). "Where a contract demonstrates that the parties have merged all prior negotiations and agreements in writing, the parol evidence rule bars evidence of prior negotiations and agreements tending to add or vary the terms of the writing being considered. This tenet is especially true when the contract itself contains an integration clause." Viglione v. Frisina, 2013 WL 1457581, at *6 (N.J. Super. Apr. 11, 2013) (citations omitted). Because the EBITDA Condition in the Lease is clear and unambiguous, Mr. Cutler's testimony as to the meaning of the condition and/or the parties' intent is irrelevant and inadmissible parol evidence. Mr. Cutler's Testimony About His Intent Is Irrelevant Because He Is Not a Party to the Contract Mr. Cutler was a lawyer for Debtors when the EBITDA Condition was drafted collaboratively by him and Mr. William Quinn of Versa Capital Management. See Quinn Dep. at pp. 50:7-52:14; 53:19-57:7 (Mr. Quinn testifying that he provided language to Mr. Cutler for the EBITDA Condition and the consolidated net income definition, but that none of those communications or drafts were produced in discovery). To the extent Vestis intends to present Mr. Cutler to testify on what Mr. Cutler intended (as opposed to what the parties intended), Mr. The integration clause in the Lease is set forth at Section 23.09.
Hon. Laurie Selber Case Silverstein 16-10971-LSS Doc 976 Filed 10/14/16 Page 3 of 5 Page 3 Cutler's testimony is irrelevant on a separate and independent basis from the parol evidence rule. While it is black letter law that the intent of the parties to a contract can be pertinent to the interpretation of a contract, there is no authority for the proposition that what a lawyer for one of the parties intended the contract to mean has any bearing on the legal interpretation of the contract. 2 Mr. Cutler Cannot Testify As To What The Debtors Intended, But If Permitted To Do So, Then The Aitornev-Client Privilege Is Waived If the purpose of Mr. Cutler's testimony is to offer an opinion as to what the Debtors intended, Mr. Cutler's testimony should not be permitted for several reasons. First, Mr. Cutler's opinion is irrelevant and duplicative, as Mr. Quinn is fully capable of testifying as to the Debtors' intent. Second, if Mr. Cutler expects to testify as to what the parties intended by the EBITDA Condition, his opinion can only be informed by his communications with the Debtors, none of which have been disclosed. If Mr. Cutler is permitted to testify as to the parties' intent, then the attorney-client privilege is waived and Debtors and/or Vestis must produce all communications between Debtors and Mr. Cutler regarding the EBITDA Condition. Mr. Cutler and Mr. Quinn must also testify as to those communications when they are called to the witness stand. Debtors' counsel minimized the waiver issue on the earlier call and cited a case, In re Joy Global, Inc., 2008 WL 2435552 (D. Del. June 16, 2008), which is inapposite. 3 The issue in Joy Global was whether a waiver happened in an earlier trial on the issue of whether a plan created by a law firm was an ERISA plan. Id. at *3. The Court held that "[d]isclosure of the fact that a client has consulted an attorney, and even disclosure that an attorney approved a course of conduct, does not waive the privilege otherwise attaching to communications between an attorney and a client...." Id. at *5. Here, Mr. Cutler proposes to testify about Debtors' intent, an intent he could only understand because the client communicated that intent to him. There is no question that ordinarily those client communications would be subject to privilege. However, as soon as Mr. Cutler (and in this case Mr. Quinn as well) opened the door to those communications, the contemporaneous discussion of intent, whether it be in emails, 2 3 Certainly, what a lawyer intended in drafting a contract may be pertinent in a legal malpractice claim, or in other situations where a client may claim reliance on counsel, but that is not the scenario presented here. To the extent that Debtors argue this issue has been raised too late, the Court should reject that argument. On September 12, 2016, CVS originally noticed the 30(b)(6) deposition of Vestis for September 22, 2016. At the request of Debtors and Fidelity, and to accommodate holiday schedules, the deposition was adjourned to October 10, 2016. It was not until the deposition, and until Vestis filed its pre-hearing brief, that the subject matter of Mr. Cutler's proposed testimony about the intent surrounding the EBITDA Condition was disclosed.
Hon. Laurie Selber Case Silverstein 16-10971-LSS Doc 976 Filed 10/14/16 Page 4 of 5 Page 4 other documents, in a meeting or on the telephone, becomes fair game. To hold otherwise would be to allow Debtors to use the privilege as a sword and a shield. The law is clear that a party who intends to present testimony from its attorney about the interpretation of contract provisions waives the attorney-client privilege by doing so. See In re Estate of Tigani, 2013 WL 1136994, at *3 (Del. Ch. Mar. 20, 2013) ("I held that [a party] had waived the attorney-client privilege to the extent she intended to call any of her attorneys to testify... and that [the opposing party] therefore was entitled to seek discovery of those attorneys, both through written discovery and deposition."). Opening the door to this testimony also opens the door to all other privileged communications about that subject matter. Rollins Properties, Inc. v. CRS Sirrine, Inc., 1989 WL 158471, at *3 (Del. Super. Dec. 13, 1989) ("... if the client or his attorney at his instance takes the stand and testifies to privileged communications in part this is a waiver as the remainder of the privileged consultation or consultations about the same subject. Similarly, if a party-client introduces part of his correspondence with his attorney, the production of all of the correspondence could be demanded.") See also Capano v. Carroll, 547 F. Supp. 2d 378, 383 (D. Del. 2008); In re DiLoreto, 2002 WL 34573858, at *6 (Bankr. E.D. Pa. May 3, 2002). Therefore, to the extent Mr. Cutler's testimony is permitted, CVS is entitled to discover all documents and information between his client and himself about the EBITDA Condition. Conclusion For the foregoing reasons, CVS respectfully requests that Mr. Cutler be precluded from testifying on October 18. If his testimony is permitted, however, the privilege is waived and he should be directed to produce the privileged communications between himself and his client about the EBITDA Condition. Respectfully submitted, Mark Minuti cc: Counsel of record listed on attached Service List R. Michael Meo, Jr., Esq. Brenna B. Jordan, Esq. Elizabeth S. Fenton, Esq.
Case 16-10971-LSS Doc 976 Filed 10/14/16 Page 5 of 5 VRG LIQUIDATING, LLC (f/k/a VESTIS RETAIL GROUP, LLC), et al. Service List Via Hand Delivery: Robert S. Brady, Esquire Robert F. Poppiti, Jr., Esquire Young Conaway Stargatt & Taylor, LLP Rodney Square 1000 North King Street Craig A. 011enschleger, Esquire Orloff, Lowenbach, Stifelman & Siegel, P.A. 101 Eisenhower Parkway, Suite 400 Roseland, NJ 07068-1097 Domenic E. Pacitti, Esquire Klehr Harrison Harvey Branzburg LLP 919 Market Street, Suite 1000 GianClaudio Finizio, Esquire Evan T. Miller, Esquire Bayard, P.A. 222 Delaware Avenue, Suite 900 Via Electronic Mail: Michael L. Tuchin, Esquire Lee R. Bogdanoff, Esquire David M. Guess, Esquire Klee, Tuchin, Bogdanoff & Stern LLP 1999 Avenue of the Stars, Thirty-Ninth Floor Los Angeles, CA 90067 Michael H. Torkin, Esquire Noam R. Weiss, Esquire Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004 Morton R. Branzburg, Esquire Klehr Harrison Harvey Branzburg LLP 1835 Market Street, Suite 1400 Philadelphia, PA 19103 656602.1 10/14/2016