UNITED STATES BANKRUPTCY COURT FOR THE EASTERN … · 30. Gardner respectfully suggests the ruling...

ACTIVE.124498460.02

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re: Vascular Access Centers, L.P., Debtor.

Hon. Ashely M. Chan Involuntary Chapter 11 Case No. 19-17117 (AMC)

OBJECTION OF MAJORITY LIMITED PARTNER

TO FIRST AND FINAL APPLICATION FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES OF DILWORTH PAXSON LLP, COUNSEL

FOR DEBTOR, FOR THE PERIOD NOVEMBER 25, 2019 THROUGH MAY 31, 2020

William Whitfield Gardner, the majority-in-interest limited partner of Debtor, Vascular

Access Centers, L.P. (“VAC” or “Debtor”), by and through his undersigned counsel, hereby

files this objection (the “Objection”) to the First and Final Application for Compensation and

Reimbursement of Expenses of Dilworth Paxson LLP, Counsel for Debtor, for the Period

November 25, 2019 through May 31, 2020 (the “Application”) [Dkt. No. 387], filed by Dilworth

Paxson LLP (“Dilworth”). In support of this Objection, Gardner states as follows:

I. SUMMARY OF OBJECTION

1. Dilworth seeks payment of $511,425.91 from the Debtor for engineering and

administering a bad faith chapter 11 filing for the benefit of the Debtor’s principal, James

McGuckin. When aggressive litigation by Gardner and the Office of the United States Trustee

(“U.S. Trustee”) exposed the scheme’s details, the Court was “horrified”. See Transcript of

Hearing on February 6, 2020 (“Feb. 6 Trns.”)1 at 339:4. The Court found McGuckin

orchestrated the filing of an involuntary petition in bad faith to benefit himself, not the Debtor.

1 Relevant excerpts of the February 6, 2020 hearing transcript are attached here as “Exhibit A”.

Case 19-17117-amc Doc 421 Filed 06/23/20 Entered 06/23/20 16:05:53 Desc MainDocument of 48

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Since Dilworth’s actions in support of this bad faith filing burdened rather than benefited the

Debtor’s estate and its stakeholders, the Court should deny the Application in its entirety.

II. BACKGROUND

A. McGuckin’s History of Abuse of the Debtor

2. The Debtor was formed on April 22, 2005 as a Pennsylvania limited partnership

via a limited partnership agreement, the most recent version of which is the Fourth Amended and

Restated Limited Partnership Agreement of Vascular Access Centers, L.P. (the “Limited

Partnership Agreement”). McGuckin is the owner of the Debtor’s former general partner,

Vascular Access Centers, LLC (“VAC LLC”) and the Debtor’s former CEO. Gardner is the

Debtor’s majority limited partner in interest.2

3. Gardner brought a derivative lawsuit against McGuckin and VAC LLC

(“Defendants”) on January 13, 2016 in the Pennsylvania Court of Common Pleas for Delaware

County, in the action styled Gardner v. Vascular Access Centers, LLC et al., case no. 16-cv-

000367 (the “Derivative Action”). The details of the Derivative Action and the claims asserted

therein are detailed in the Motion of Majority Limited Partner For Entry Of An Order Dismissing

The Debtor’s Involuntary Chapter 11 Case Pursuant to Section 1112(b) Of The Bankruptcy

Code, With Prejudice, Or In The Alternative, Appointing A Chapter 11 Trustee Pursuant to

Section 1104(a) of the Bankruptcy Code [Dkt. No. 52] (the “Gardner Motion”) and will not be

repeated here. In sum, certain of VAC’s limited partners3 allege Defendants violated the Limited

Partnership Agreement and breached their fiduciary duties by, among other things, (1)

McGuckin’s opening and operation of competing centers using Debtor’s resources; (2) incurring

2 Gardner owns approximately 73% of the Debtor’s limited partnership interests.

3 Certain of VAC’s limited partners later joined the Derivative Action as plaintiffs.


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debts and obligations expressly prohibited by the Limited Partnership Agreement and their

fiduciary duties, including by entering into self-dealing contracts that settled various lawsuits in

ways that burdened the Debtor but released McGuckin personally and paying McGuckin

astronomical salaries for multiple positions at the Debtor; and (3) harming the Debtor directly

and reputationally by gross incompetence and mismanagement, such as by submitting false

claims to Medicare and forcing the Debtor to pay millions of dollars to settle False Claims Act

allegations. See generally, Gardner Motion at 4-30.

4. The Gardner Motion also details McGuckin’s constant vexatious litigation delay

tactics, including the filing of meritless appeals. Briefly, the Derivative Action was on the eve of

trial in July 2018 when McGuckin filed a petition demanding arbitration based on an

employment agreement he signed with himself as both general partner of the Debtor (the

employer) and CEO (the employee). The PA State Court denied the petition, and McGuckin

appealed. The Pennsylvania Superior Court denied the appeal. Following McGuckin’s

unsuccessful demand for the matter to be reheard en banc, the Superior Court found that

McGuckin’s conduct related to the petition for rehearing was frivolous and sanctionable, and

remanded the matter to the PA State Court to determine the sanctions amount. A hearing was set

for November 13, 2019. On November 12, 2019, the Pennsylvania Supreme Court denied

Defendants’ petition for allowance of appeal, and the Pennsylvania Superior Court remanded the

matter to the PA State Court. Id.

B. McGuckin Engages Dilworth to Engineer and Administer the Debtor’s Bad Faith Involuntary Filing

5. Faced with the impending sanctions hearing on November 13, 2019, McGuckin

engaged Dilworth to file VAC for chapter 11. McGuckin, on behalf of VAC, “engaged Lawrence

McMichael at Dilworth Paxson, who specializes in representing debtors in complex Chapter 11


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cases” in mid-October 2019. See Brief of Appellants, Vascular Access Centers, LLC and James

McGuckin, M.D., Case No. 20-cv-01028-GEKP (E.D.P.A. May 11, 2020) (“Appellant’s Brief”)

at 9.

6. Mr. McMichael testified that he was first approached by George Bochetto,

McGuckin’s personal attorney,4 on October 15, 2019. See Transcript of Hearing held on January

13, 2019 (“Jan 13 Trns.”)5 at 25:4-16. Prior to that contact, Dilworth had nothing to do with the

Debtor. Id.

7. Three days later, on Friday, October 18, 2019, Dilworth recommended to

McGuckin that VAC file a voluntary petition for bankruptcy. Id. at 65-66.6 Then on Monday,

October 21, 2019, Dilworth allegedly had a call with counsel to Gardner to request his consent to

a voluntary petition. Id. at 65:14-20.

8. The Court made numerous findings related to McGuckin and Dilworth’s

halfhearted attempt to obtain Gardner’s consent to a chapter 11 filing without providing even

basic information any reasonable, interested party would want before giving such consent. As

this Court wrote:

On November 7, 2019, Dilworth contacted counsel for Gardner in the Derivative Litigation seeking Gardner’s consent to the filing of a chapter 11 bankruptcy petition. On November 8, 2019, counsel responded that Gardner, as the majority-in-interest limited partner, would be willing to consider consenting to a bankruptcy petition upon receiving more information about who would run VAC during the bankruptcy, which leases would be rejected, which centers would continue to operate, how

4 Mr. Bochetto filed a notice of appearance in this case as representing McGuckin and VAC LLC on November 24, 2019. See Dkt. No. 45

5 Relevant excerpts of the January 13, 2020 hearing are attached here at “Exhibit B”.

6 McGuckin, for his part, believes it was Dilworth who “came to the very firm conclusion that VAC LP should file a Chapter 11 proceeding and that it was not even a close call.” See Interested Party James F. McGuckin, M.D.’s Answer Objecting to Motion of Majority Limited Partner for an Order Imposing Sanctions Against Dr. McGuckin and Philadelphia Vascular Institute LLC, filed in this case on April 17, 2020 [Dkt. No. 352].


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much DIP financing would be necessary, how to deal with the DOJ liability, who would own the company after bankruptcy, and what a 13-week budget would look like.

Dilworth responded on November 11, 2019 that VAC contemplated no management changes, that it was too early in the restructuring process to have answers to most of Gardner’s other questions, and that due to the precarious, dire financial position of VAC, there was no time for protracted negotiations prior to a bankruptcy filing. The same day, opposing counsel responded with disappointment at the lack of detailed information and represented that Gardner had offered multiple times to provide additional capital to VAC predicated on governance changes. On November 12, 2019, Dilworth responded that more detailed discussion and negotiations could occur within the chapter 11 bankruptcy forum, the need for a bankruptcy filing was extremely urgent, and VAC preferred obtaining capital from McGuckin which was not accompanied by demands or conditions.

See Opinion, February 7, 2020 [Dkt. No. 234] (“Trustee Opinion”) at 20-21 (citations to the

record omitted). The Court ultimately found Gardner’s condition that McGuckin step down

before Gardner consented to a bankruptcy filing to be “reasonable”. Id. at 36.

9. Following Gardner’s refusal to consent to a voluntary filing, Dilworth shifted to

an involuntary bankruptcy strategy. According to Mr. McMichael:

What I said was that we wanted to file a voluntary case. I thought that was in everybody's best interest, because the debtor clearly needs to be in Chapter 11. And I said as a backup, if we don't get consent, then we're going to have to look at involuntary strategies. There are two different ways a partnership can get into bankruptcy involuntarily. One is, three petitioning creditors, which is what happened in this case.

The other way under § 303 is for the general partner to file an involuntary, but in order for the general partner to file the involuntary against the limited partnership, the general partner itself has to be in Chapter 11.

We had actually discussed that internally and we had counsel selected for the general partnership in the event we had to do it that way. We ultimately didn't do it that way, we had three petitioning creditors.7

7 Notably, VAC’s Limited Partnership Agreement expressly provides that if the General Partner files for bankruptcy, it will no longer be the general partner. See Limited Partnership Agreement at section 6.5. Thus, filing VAC’s General Partner would have meant McGuckin’s loss of control of the case.


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Jan 13 Trns. at 70:1-16.

10. The details of the Debtor’s bad faith involuntary petition filing are by now well

established and, following the evidentiary hearing on February 6, 2020, proven. In sum, the

Court found:

• McGuckin directed three purported petitioning creditors to file an involuntary petition against VAC on November 12, 2019 in order to stay the sanctions hearing against McGuckin that was to take place the next day in connection with McGuckin’s “frivolous” litigation tactics in the Derivative Action. See Trustee Opinion at 36.

• One of the petitioning creditors, Crestwood Associates LLC, an entity owned in part by McGuckin’s brother, was owed nothing on November 12, 2019, and “manufactured a false invoice for VAC at the direction of McGuckin.” Id.

• Another of the petitioning creditors, Philadelphia Vascular Institute, LLC (“PVI”), an entity that McGuckin identifies as indistinguishable from himself,8 asserted a claim that was “entirely false”. Id.

11. The Debtor consented to entry of an order the involuntary petition less than one

day later. See Answer and Consent, filed Nov. 13, 2019 [Dkt. No. 3]. VAC and PVI’s later

filings reveal the theory behind the two-step strategy of coordinating an involuntary bankruptcy

filing and then immediately consenting to the order for relief. The process was designed to

protect the bogus petitioning creditors and bad faith filing from further inquiry by the Court or

8 McGuckin testified, on February 6, 2020, in relevant part:

Q. Okay. Explain what the relationship is between PVI and the debtor.

A. PVI is my professional corporation. … THE WITNESS: Sorry. So Philadelphia Vascular Institute, I refer to it as PVI, is my professional corporation that employs physicians. So there are all physicians that work for PVI are my direct employees. And I staff them at various centers across the nation. Some of them I own outright and some of them are owned by VAC and some of them are owned in joint venture partnerships owned by VAC as well.

See Feb. 6 Trns. at 85:5 – 18.


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parties-in-interest, including Gardner. See Debtor’s opposition to Gardner’s Motion, filed Dec.

19, 2019 [Dkt. No. 106] at 14. In that filing, Dilworth argued:

The sufficiency of an involuntary petition can only be challenged by the debtor and not by creditors or third parties. Only the debtor, or a general partner in a partnership debtor that did not join in the petition, may file an answer to an involuntary petition.

Gardner is not the Debtor or the general partner in a partnership debtor that did not join the petition; therefore, he lacks standing to answer the involuntary petition.

Moreover, even if Gardner had standing, the nature of the petitioning creditors’ claims and whether the Debtor is properly before the Bankruptcy Court have already been determined in this case by the uncontested entry of the order for relief. Pursuant to section 303(h), if the “petition is not timely controverted, the court shall order relief against the debtor in an involuntary case….” Nothing in section 303(h) requires the Bankruptcy Court to determine the eligibility of petitioning creditors or the debtor’s ability to pay debts as they come due if the involuntary petition is not contested.

Id. at 14 (internal citations and quotation marks omitted). Counsel to PVI made the exact same

arguments in support of Petitioning Creditors’ total refusal to participate in discovery on

Gardner’s Motion. See 12/9/19 Email from David Smith, Esq., attached here as “Exhibit C”. In

that email, counsel to PVI argued:

The filing of the involuntary petition can be defended (or not) by the putative debtor. While I believe that only the putative debtor has standing to defend an involuntary petition, even if that was not the case, the order for relief was entered by the Bankruptcy Court with the express consent of your client. So, it’s our position that the propriety of the filing of the involuntary petition is no longer an issue in the case, including the qualifications of the petitioning creditors, whether the involuntary petition meets the substantive standard for the entry of an order for relief and whether the filing of the involuntary petition was filed in bad faith.

12. These arguments, together with the totality of the circumstances, lay bare the

objectives of Dilworth’s strategy:

(a) gather three purported creditors to circumvent the requirement in the Limited Partnership Agreement that required Gardner’s consent to


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voluntarily file VAC for bankruptcy and avoid McGuckin’s loss of control that would occur if VAC’s general partner filed bankruptcy and then filed an involuntary position against VAC, as considered and rejected by Dilworth (see Limited Partnership Agreement at § 6.5); and

(b) assert that only the Debtor has standing to object to entry of the order for relief following an involuntary petition, and immediately consent to entry of such order, thereby depriving Gardner and everyone else of the ability to object to the filing for bad faith or investigate the legitimacy of the petitioning creditors.

Fortunately for the Debtor and its stakeholders, the Court rejected these arguments, which

enabled Gardner and the U.S. Trustee to investigate and ultimately expose the scheme.

13. The involuntary filing featured other legal maneuvers the Court ultimately found

to be bogus and designed to benefit McGuckin. For example, the Court found that McGuckin put

his own interests ahead of VAC’s when he attempted to perfect PVI’s purported security interest

by filing a UCC-1 filing statement on the eve of VAC’s bankruptcy, and directed the filing of the

unfounded Cash Collateral Motion which sought to give PVI replacement liens on VAC’s assets,

even though PVI did not demonstrate that it loaned any funds to VAC. Id. at 40.

14. In addition to the troubling Cash Collateral Motion, Dilworth took a number of

other actions during the case that provided a clear benefit to McGuckin, but questionable or no

value to the Debtor. For example, Dilworth prepared and filed an application to employ

McGuckin’s medical expert from the Derivative Action. See Dkt. No. 111. Dilworth filed an

expedited motion to approve post-petition financing from PVI, based on a purported emergency

need for $500,000.9 See Dkt. No. 114. The loan documents provided for VAC to pay

McGuckin’s legal fees incurred in this chapter 11 case unrelated to the loan. Dilworth also

9 Mr. McMichael testified that “$200,000 plus” was going to be paid to the Department of Justice “instantly”. Jan 13 Trns. at 17:14:15. In fact, it has since come to light that only $102,000 of the approved funding was ever advanced, and that amount was not spent consistent with the Court-approved DIP budget. See 03/24/20 Email from David Smith, Esq., attached here as “Exhibit D”.


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prepared and filed materially defective schedules. The schedules list many claims that are owed

by the Debtor’s subsidiaries, not the Debtor. The schedules fail to list any obligation to the

United States Department of Justice. See Dkt. Nos. 158-161. Despite the Debtor’s agreement to

file corrected schedules, they have not been filed. Eight months after filing, creditors and other

parties in interest still do not know what this Debtor thinks it owes to claimants.

15. The Court ultimately learned that this case was filed in bad faith as a result of

Gardner’s Motion and a similar motion filed by the U.S. Trustee that sought to dismiss the case

for bad faith. After the February 6 hearing, the Court concluded that cause existed to dismiss the

case for lack of good faith. Feb. 6 Trns. at 346. The Court was outraged at not just McGuckin’s

conduct, but by Dilworth’s as well. The Court noted:

And this whole thing about the involuntary filing, I have to just pause and digress just one moment. How disappointed I am, Mr. McMichael, in the arguments that you made today. I cannot believe that [] you asked the witness about the note to PVI. Absolutely ridiculous. You asked him about a note that is in my mind, and I think in reality, clearly, not based in fact at all. I mean we could’ve just had a note made out to Casper the Ghost, right? Because Casper the Ghost, you know, he could’ve intended for Casper the Ghost to give him that loan, but in reality, there was a variety of entities. There’s all these entities. How could you have -- how could you have filed the motion for use of cash collateral for an entity that is not actually – didn’t actually give the debtor any money? I mean, you’re basically just saying whatever Dr. McGuckin thinks in his head is the true lender, but this is a court and I expect evidence and I can't believe that you actually teed that up as being a legitimate loan.

I just thought that maybe they didn't have a loan in place and, you know, it was kind of suspicious that they filed the UCC statement on the eve of the bankruptcy filing, but they didn't even actually loan the money to the debtor at all.

….

And the State Court said that he engaged in frivolous litigation tactics. So while I have no idea about whether the merits of the derivative litigation are there or not, I -- tell you that the State Court clearly found Dr. McGuckin's actions to be frivolous. And that that is consistent with every single thing that I have heard prepetition and post-petition.


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Feb. 6 Trns. at 341:7-342:21.

16. In its Opinion appointing the trustee filed the next day, the Court invited any party

in interest to seek sanctions not just from parties involved, but against attorneys as well, and

threatened to issue an order to show cause why certain parties and attorneys should not be

sanctioned if such a motion were not filed. See Opinion Appointing Trustee at 27. Gardner filed

a motion seeking sanctions against McGuckin and PVI.

C. Dilworth’s Retention Application and Court Sanction

17. McGuckin and Dilworth caused the Debtor to file its Application to retain

Dilworth as bankruptcy counsel roughly one week after the involuntary filing, on November 20,

2020 (“Dilworth Retention Application”) [Dkt. No. 25.]. In his declaration in support of the

Dilworth Retention Application, Mr. McMichael noted that Dilworth had received a $100,000

retainer from VAC on November 1, 2019. See Dkt. No. 25-1 at 2. The prepetition retainer was

drawn down to zero by the Petition Date. Id.

18. The U.S. Trustee objected to the Dilworth Retention Application (“U.S. Trustee

Objection”). See Dkt. No. 86. The U.S. Trustee argued, among other things, that Dilworth had

failed to disclose that it had performed work for other McGuckin-related entities, and such work

created an unresolvable conflict of interest. Id. at 9. Dilworth filed two supplemental declarations

in the wake of the U.S. Trustee’s objection. See Dkt. Nos. 127 & 215.

19. Ultimately the Court approved Dilworth’s retention, but sanctioned Dilworth for

its “flagrant” violation of federal disclosure rules:

The Court finds, however, that Dilworth clearly violated Fed. R. Bankr. Proc. 2014(a) (“Rule 2014(a)”) when it failed to disclose its initial representation of the LLC and the existence of its engagement letter with the LLC. The Court also finds that Dilworth violated Rule 2014(a) when it failed to disclose its connections to certain affiliates of Dr. McGuckin (“McGuckin”), who is the founder and CEO of the Debtor and founder


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and owner of the LLC. Based upon Dilworth’s flagrant violation of Rule 2014(a), and in order to deter Dilworth from violating Rule 2014(a) in the future, the Court will prospectively deny all fees and costs charged to the Debtor by Dilworth in this case prior to its actual disclosure to the Court of its connections to the LLC and McGuckin entities, which did not occur until January 3, 2020.

Opinion, filed April 6, 2020 (“Dilworth Retention Order”) [Dkt. No. 340] at 2.

20. Dilworth filed its Application on June 9, 2020. Notwithstanding the Court’s

prospective denial of pre-January 3 fees, the Application seeks fees from the period November

25, 2019 through May 31, 2020. The total amount of fees and expenses sought is $511,425.91,

which consists of $504,532.50 for fees and $6,893.41 in expenses. See Application at 2.

21. Not surprisingly, $301,384.00, the majority of the fees sought, is for “Other

Contested Matters”. The category appears to consist entirely of fees and expenses incurred in

resisting Gardner’s Motion and the U.S. Trustee’s motion to dismiss the case for bad faith. See

Application at 10 (describing category, but no contested matter existed other than Gardner and

the U.S. Trustee’s motions). The U.S. Trustee has objected to the Application [Dkt. No. 405].

Among other things, the U.S. Trustee objects to Dilworth’s attempt to obtain approval for the

period between November 25, 2019 and January 3, 2020 in violation of the Court’s Order

Approving Dilworth Retention. Gardner joins the U.S. Trustee’s objection in this regard, for the

reasons set forth in the U.S. Trustee’s objection.

IV. OBJECTION

22. Dilworth should not be rewarded for engineering a proceeding the Court found

was filed in bad faith. Dilworth’s efforts, had they been successful, would have benefitted

McGuckin, not the Debtor. The Debtor and its stakeholders should not be made to pay for efforts

designed to assist McGuckin in harming them. The Court should deny the Application in its

entirety.


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23. A bankruptcy court may award a professional person “reasonable compensation

for actual, necessary services rendered” and “reimbursement for actual, necessary expenses,” but

may not award compensation for “services that were not ... reasonably likely to benefit the

debtor's estate[ ] or necessary to the administration of the case.” 11 U.S.C. § 330(a)(1) and

(a)(4); In re Grasso, 586 B.R. 110, 143 (Bankr. E.D. Pa. 2018). The applicant has the burden of

proof. Zolfo, Cooper & Co. v. Sunbeam–Oster Co., Inc., 50 F.3d 253, 261 (3d Cir. 1995) (“The

fee applicant has the burden of proving it has earned the fees it requests, and that the fees are

reasonable.”). The Court may, on its own motion, or on the motion of a party-in-interest, award

less than the amount requested. 11 U.S.C. § 330(b).

24. In determining the reasonableness of the amount of fees to be awarded, the

bankruptcy court should consider “the nature, the extent, and the value of [the legal] services”

taking into consideration “all relevant factors” including but not limited to those listed in

§330(a)(3)(A) through (F). In re Grasso, 586 B.R. at 143. The Court must consider:

(1) the time spent performing the services;

(2) the rates charged;

(3) whether the services were necessary to the administration of, or beneficial toward the completion of the case;

(4) whether the services were performed within a reasonable amount of time commensurate with the complexity or importance of the task(s) completed;

(5) whether the attorney demonstrated skill and experience in the bankruptcy field; and

(6) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in non-bankruptcy cases.

Id. at 143-44; In re Jade Management Services, 386 Fed. Appx. 145, 151 (3d Cir. 2010).


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25. However, before the Court reaches the reasonableness question, a threshold

consideration is whether the fees and expenses sought benefited the estate. In re Lederman

Enterprises, Inc., 997 F.2d 1321, 1323 (10th Cir. 1993) (citing Canatella v. Towers (In re

Alcala), 918 F.2d 99, 103 (9th Cir.1990); In re Reed, 890 F.2d 104, 105–06 (8th Cir.1989);

Wootton v. Ravkind (In re Dixon), 143 B.R. 671, 678 (Bankr. N.D. Tex. 1992) (“The main

inquiry under § 330 is whether the post-petition services were necessary and benefited the

estate.”)). As this Court recently ruled, “Necessary services are those that aid the professional’s

client in fulfilling its duties under the Code.” In re Grasso, 586 B.R. at 156 (quoting In re Ben

Franklin Retail Store, Inc., 227 B.R. 268, 270 (Bankr. N.D. Ill. 1998)).

26. While not a per se rule, bankruptcy courts routinely deny fees for chapter 11

debtor’s counsel when the case is dismissed for bad faith. See, e.g., Lederman Enterprises, 997

F.2d at 1324 (denying all reorganization fees when debtor’s attorney should have seen the futility

of the filing from the commencement of the case); Matter of Coastal Nursing Ctr., Inc., 162 B.R.

918, 920 (Bankr. S.D. Ga. 1993) (denying fee application when filing found to be in bad faith

and designed to benefit debtor principals); In re Tamojira, Inc., 210 B.R. 702, 706 (Bankr. E.D.

Va. 1996) (“Counsel cannot expect to be compensated for services that were rendered in bad

faith and which could not have benefitted the debtor's estate”).

27. In this case, Dilworth’s services did not “aid the professional’s client in fulfilling

his duties under the Code.” The opposite is true. Dilworth’s services aided McGuckin in the

breaching of his duties under the Code, as expressly found by this Court in the Order Appointing

Trustee.

28. Dilworth was clearly acting not in the Debtor’s best interest, but McGuckin’s.

According to McGuckin, it was Dilworth who came to the “very firm” conclusion that VAC


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needed to file for bankruptcy. Then, when Gardner reasonably refused to consent to a voluntary

chapter 11 filing obviously designed to benefit McGuckin, Dilworth10 switched to an involuntary

process designed to circumvent Gardner’s required consent and foreclose the possibility of any

investigation or challenge to the good faith of the filing or legitimacy of the Petitioning

Creditors.

29. Once McGuckin and Dilworth had executed their plan to force VAC into

bankruptcy via a bad faith filing, Dilworth proceeded to take many additional actions in the case

that provided little or no benefit to the company, but obvious benefit to McGuckin, such as the

bogus Cash Collateral Motion in favor of PVI that was hastily withdrawn after the U.S. Trustee

questioned Dilworth about it, the attempted PVI DIP loan that would have provided for VAC’s

payment of McGuckin’s counsel fees in the case, and the retention by the Debtor of McGuckin’s

expert from the Derivative Action. Finally, and most egregiously, Dilworth incurred hundreds of

thousands in fees fighting Garnder’s attempt to appoint a trustee to safeguard the Debtor in a

vain attempt to perpetuate McGuckin’s control over the Debtor and the Derivative Action.

Dilworth initiated this case to benefit McGuckin, and administered it for that purpose as well.

Since this case was filed and administered for McGuckin’s benefit, he should pay for it.

30. Gardner respectfully suggests the ruling by the United States Bankruptcy Court

for the Southern District of Georgia in the Coastal Nursing case is instructive. There, the

bankruptcy court dismissed two chapter 11 petitions as having been filed in bad faith. 162 B.R.

at 920. As a result, the Court found it “clear that the services provided by Debtors' counsel did

not confer any benefit upon Debtors' estates”. Id. Instead, the filings only benefited the principals

10 Any argument that it was McGuckin, a layman, and not McMichael, an experienced bankruptcy attorney, who conceived the general contours or details of the ill-fated involuntary scheme strains credulity. McGuckin himself testified that, “I don’t know anything about bankruptcy”, and, in defending his total failure to review or verify the petition details, “I trusted my attorneys knew what they were doing”. Feb 6 Trns. at 174.


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and their affiliated corporations. Id. “In fact,” wrote the Court, “in view of the delay and costs

associated with bankruptcy, it is likely the case that Debtors' counsel's services actually

diminished Debtors' estates.” Id. The Court ruled that debtors’ counsel was permitted to bill any

non-debtor for its services. “Such an arrangement does no detriment to Debtors' estate or their

creditors, and is equitable under the circumstances of this case.” Id. at 921.

31. Whether or not McGuckin ultimately pays Dilworth’s fees, Gardner and the other

limited partners should not be forced to do so. It is entirely unclear if this Debtor is insolvent. Its

schedules are unreliable. Its claims against McGuckin are potentially worth millions. If VAC is

solvent, then any fees and expenses awarded to Dilworth will be ultimately borne by the

Debtor’s limited partners. That result would be outrageous where, as here, the recipient of such a

shifted fee is the very architect of the bad faith conduct designed to harm the payor.11

32. With the exception of McGuckin’s removal, VAC’s chapter 11 filing has so far

only damaged the Debtor. The estate now employs multiple bankruptcy professionals, including

the chapter 11 trustee’s attorneys, accountants, and investment bankers. If VAC successfully

emerges from chapter 11, it will be because of Gardner and the U.S. Trustee’s efforts to expose

McGuckin and Dilworth’s actions, and Gardner12 and the chapter 11 trustee’s efforts since

McGuckin and Dilworth were removed. Neither Dilworth nor McGuckin should benefit from

such an outcome.

11 Recall McGuckin’s text to his brother that the chapter 11 filing was done to reorganize “without a**holes”, obviously meaning Gardner and others.

12 Gardner has, to date, provided $875,000 in post-petition financing to enable the Debtor to survive.


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33. Ultimately, the Court simply cannot force this estate to pay over half a million

dollars to a law firm that was acting not in its best interest, but to execute the bad faith conduct

of its self-dealing principal. The Court should deny the Application in its entirety.

V. CONCLUSION

For the foregoing reasons, Mr. Gardner respectfully requests that the Court: (i) sustain the

Objections raised herein; (ii) deny the Application in its entirety, and (iii) grant Mr. Gardner such

other relief as may be just and appropriate.

Dated: June 23, 2020 Philadelphia, Pennsylvania

FAEGRE DRINKER BIDDLE & REATH LLP /s/ Joseph N. Argentina, Jr. Joseph N. Argentina, Jr. Richard E. Coe Nicholas S. Feltham One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 Phone: (215) 988-2700 Fax: (215) 988-2757 [email protected] [email protected] [email protected] -and- Vince Slusher Kristen L. Perry 1717 Main Street, Ste. 5400 Dallas, TX 75201-7367 Phone: (469) 357-2500 Fax: (469) 327-0860 [email protected] Counsel for William Whitfield Gardner


ACTIVE.124498460.02

Exhibit A February 6, 2020 Transcript Excerpts


Deposition of:

19-17117 1/6/20

February 7, 2020

In the Matter of:

US Bankruptcy Court - EDPA

Veritext Legal Solutions888.777.6690 | [email protected] | 215-241-1000


1 UNITED STATES BANKRUPTCY COURT2 EASTERN DISTRICT OF PENNSYLVANIA3 In Re: ) CASE NO. 19-17117

)4 VASCULAR ACCESS CENTERS, ) February 6, 2020

) PHILADELPHIA, PA5 Debtor. ) 9:48 a.m.6 TRANSCRIPT OF HEARING ON MOTION TO DISMISS INVOLUNTARY

CHAPTER 11 CASE WITH PREJUDICE7 BEFORE THE HONORABLE ASHELY CHAN8 APPEARANCES:9 For the Debtor: LAWRENCE G. MCMICHAEL, ESQUIRE

ANNE MARIE AARONSON, ESQUIRE10 PETER HUGHES, ESQUIRE

JESSE N. SILVERMAN, ESQUIRE11 DILWORTH PAXON LLP

1500 Market Street12 Suite 3500E

Philadelphia, PA 1910213 215-575-7268

215-575-711014

For the Trustee: KEVIN CALLAHAN, ESQUIRE15 NICHOLAS HERRON, ESQUIRE

OFFICE OF THE UNITED STATES TRUSTEE16 200 Chestnut Street, Suite 502

Philadelphia, PA 19106-291217 215-597-4411

[email protected]

For the Creditors: DAVID P. HEIM, ESQUIRE19 BOCHETTO & LENTZ, P.C.

1524 Locust Street20 Philadelphia, PA 19102

215-735-390021 bochettoandlentz.com22 RICHARD E. COE, ESQUIRE

JOSEPH ARGENTINA, ESQUIRE23 BRIAN MORGAN, ESQUIRE

DRINKER BIDDLE & REATH LLP24 1 South Broad Street, #1300

Philadelphia, PA 1910725 215-988-3393

[email protected]

Page 1

Veritext Legal Solutions215-241-1000 ~ 610-434-8588 ~ 302-571-0510 ~ 202-803-8830


1 APPEARANCES: NICHOLAS S. FELTHAM, ESQUIRE(Continued) FAEGRE DRINKER

2 One Logan Square, Suite 2000 Philadelphia, Pennsylvania 19103

3 215-988-2688 [email protected]

4 VINCE SLUSHER, ESQUIRE

5 FAEGRE DRINKER 1717 Main Street, Suite 5400

6 Dallas, Texas 75201 469-357-2571

7 [email protected] MATTHEW E. K. HOWATT, ESQUIRE

U.S. DEPARTMENT OF JUSTICE9 615 CHESTNUT STREET

SUITE 125010 PHILADELPHIA, PA 19106

215-861-833511 [email protected] DAVID SMITH, ESQUIRE

SMITH KANE HOLMAN, LLC.13 One Liberty Place

1650 Market Street14 36th Floor

Philadelphia, PA 1913015

JEFFREY SCAFARIA, ESQUIRE16 SCAFARIA LAW

2000 Market Street17 Suite 1440

Philadelphia, PA 1910318 215-800-1083

[email protected] AUDIO OPERATOR: UNKNOWN

TRANSCRIBER: JANINE THOMAS21 NOTARY PUBLIC22 (Proceedings recorded by electronic sound recording,

transcript produced by transcription service.)23

VERITEXT NATIONAL COURT REPORTING COMPANY24 MID-ATLANTIC REGION

1801 Market Street - Suite 180025 Philadelphia, Pennsylvania 19103

(888) 777-6690

Page 2



1 I N D E X

2 Page

3 WITNESS: MICHAEL DUBIN

4 Direct Examination by Mr. McMichael 21

5 Cross-Examination by Mr. Herron 37

6 Cross-Examination by Mr. Coe 39

7 Redirect Examination by Mr. McMichael 62

8

9 WITNESS: DR. JAMES MCGUCKIN

10 Direct Examination by Mr. McMichael 69

11 Cross-Examination by Mr. Herron 172

12 Cross-Examination by Mr. Coe 222

13 Redirect Examination by Mr. McMichael 253

14 Recross-Examination by Mr. Coe 263

15

16 WITNESS: MARK TUCCI

17 Direct Examination by Ms. Aaronson 266

18 Cross-Examination by Mr. Feltham 294

19

20 CLOSING STATEMENTS:

21 By Mr. McMichael 318

22 By Mr. Argentina 332

23 By Mr. Herron 336

24

25

Page 3



1 E X H I B I T S

2 DEBTOR'S

3 NUMBER DESCRIPTION MARKED ADMITTED

4 1 Michael Dubin's resume * 310

5 2 Michael Dubin's report * 310



8 8 Partnership agreement * 310

9 9 Promissory notes * 310

10 10 Agreement 310

11 11-13 Unidentified

12 14 Lien search * 310

13 15-16 Unidentified 310

14 18 Promissory note 310

15

16 CREDITOR'S


18 Unidentified Mr. Morgan's Exhibits 17

19 Unidentified Depositions of Brian McGuckin 310

20 and Stan Medder

21

22 U.S.

23 TRUSTEE'S DESCRIPTION MARKED ADMITTED

24 NUMBER

25 1-31 U.S. Trustee Exhibits 172

Page 4



1 A. That is correct.

2 Q. Now, you mentioned that you have a physician's practice

3 called Philadelphia Vascular Institute or PVI.

4 A. That's correct.

5 Q. Okay. Explain what the relationship is between PVI and

6 the debtor.

7 A. PVI is my professional corporation.

8 THE COURT: All right. He's going to tell you

9 you're too close to the microphone. We want you to be close

10 so that they can hear, but just not too close.

11 THE WITNESS: Sorry. So Philadelphia Vascular

12 Institute, I refer to it as PVI, is my professional

13 corporation that employs physicians. So there are all

14 physicians that work for PVI are my direct employees. And I

15 staff them at various centers across the nation. Some of them

16 I own outright and some of them are owned by VAC and some of

17 them are owned in joint venture partnerships owned by VAC as

18 well.

19 BY MR. MCMICHAEL:

20 Q. Okay. So can VAC operate its centers without a

21 physician there?

22 A. No. It cannot.

23 Q. Right. So the physicians that VAC uses to sustain the

24 debtor's business, those physicians come from PVI?

25 A. Often. Not every time. Sometimes we have joint

Page 85



1 Q. Did you as a representative of the debtor, undertake an

2 evaluation and investigation with regards to each of the

3 claims that were asserted by the creditors to institute the

4 involuntary petition?

5 A. Did I look at VAC's liability to PVI? Is that --

6 Q. My question is, did you verify the information on the

7 involuntary petition on behalf of the debtor was true and

8 accurate?

9 A. I know Medder and I know Brian McGuckin, my brother,

10 submitted what they were owed, yes.

11 Q. All right. So did you review documentation to verify

12 that the amounts that they were listed on the involuntary

13 petition are true and accurate?

14 A. I did not review them, no.

15 Q. Why?

16 A. I trusted my attorneys knew what they were doing. I

17 didn't -- I don't know anything about bankruptcy.

18 Q. Turn over to the next page, if you could and you'll

19 notice a document under the same exhibit entitled, Consent of

20 Sole General Partner, do you see that?

21 A. Yes, sir.

22 Q. All right. If you could flip over to the next page,

23 can you identify the signature at the bottom of the page?

24 A. That's my signature.

25 Q. Going back to the first page of the consent of sole

Page 174



1 case ever since the involuntary was filed and, you know, I had

2 concerns early on in the case.

3 After hearing the testimony of Dr. McGuckin

4 today, frankly, I'm horrified. I can't enter an order

5 tonight, because everyone in the clerk's office has gone home,

6 but I find Dr. McGuckin to be completely lacking in

7 credibility. I find him to be untrustworthy. I find him to

8 be self-dealing in every manner possible.

9 I believe Dr. McGuckin, that you think that you

10 put a ton of money into this debtor and you don't understand

11 why the limited partners aren't supporting you and why they

12 don't give capital contributions. I think that possibly

13 you're lying, but certainly, perhaps, you're delusional.

14 They don't want to give money to the debtor

15 because they don't trust you. And frankly, I don't trust you.

16 And although I cannot order something today, because my -- my

17 clerk's office is closed, it will be entered tomorrow. And

18 you are not going to have anymore control of this debtor.

19 It is absolutely clear to me that your unable to

20 discharge your responsibilities to this debtor. It's

21 absolutely clear to me that there are a number of conflicts of

22 interests which you have acknowledged.

23 When I look back at all of the prepetition

24 conduct, you know, it's not just one thing that jumps out at

25 me. It's not the Washington event, but the Washington event

Page 339



1 doctors fighting that litigation, but the moment you get sued,

2 personally, well, then it's time to settle up, because in all

3 of these settlements, you escape all personal liability. You

4 don't have to pay anything. You get a release from these

5 parties. You always choose the action that helps you, that

6 doesn't help the debtor.

7 And this whole thing about the involuntary

8 filing, I have to just pause and digress just one moment. How

9 disappointed I am, Mr. McMichael, in the arguments that you

10 made today. I cannot believe that the you asked the witness

11 about the note to PVI. Absolutely ridiculous. You asked him

12 about a note that is in my mind, and I think in reality,

13 clearly, not based in fact at all. I mean we could've just

14 had a note made out to Casper the Ghost, right? Because

15 Casper the Ghost, you know, he could've intended for Casper

16 the Ghost to give him that loan, but in reality, there was a

17 variety of entities. There's all these entities. How could

18 you have -- how could you have filed the motion for use of

19 cash collateral for an entity that is not actually -- didn't

20 actually give the debtor any money? I mean, you're basically

21 just saying whatever Dr. McGuckin thinks in his head is the

22 true lender, but this is a court and I expect evidence and I

23 can't believe that you actually teed that up as being a

24 legitimate loan.

25 I just thought that maybe they didn't have a

Page 341



1 loan in place and, you know, it was kind of suspicious that

2 they filed the UCC statement on the eve of the bankruptcy

3 filing, but they didn't even actually loan the money to the

4 debtor at all.

5 And this ridiculous explanation about why it had

6 to be filed on November 12th, because the discovery clearly

7 shows that there was a push for that date to be the date of

8 the filing date which cannot be explained by any other

9 explanation than that there was a sanctions hearing in the

10 derivative litigation. And the explanation that Dr. McGuckin

11 gave that this was just something he didn't even know about

12 and the attorney saying he said it was out there, but didn't

13 tell him when is absolutely unbelievable. This bankruptcy was

14 filed on that date because Dr. McGuckin did not want to have a

15 sanctions hearing assessed against him. And the State Court

16 said that he engaged in frivolous litigation tactics. So

17 while I have no idea about whether the merits of the

18 derivative litigation are there or not, I -- tell you that the

19 State Court clearly found Dr. McGuckin's actions to be

20 frivolous. And that that is consistent with every single

21 thing that I have heard prepetition and post-petition.

22 You know, the CEO employment agreements that he

23 comes up with that are retroactive and they give him all kinds

24 of money that he doesn't get -- if that's not self-dealing, I

25 don't know what is. But it's not just that. Chief medical

Page 342



1 consider all of those -- the totality of the circumstances

2 about the involuntary filing, I mean, you know, I think that

3 Crestwood clearly was not a bona fide creditor. They admitted

4 in the discovery that they had no debt as of the date of the

5 involuntary filing. PVI, as I said before, I had absolutely

6 zero idea of how much money, if any, they were owed, but they

7 might not be owed anything.

8 The involuntary effectively allowed the debtor,

9 McGuckin to evade the court orders. It was filed on the eve

10 of that hearing. The foreclosed property that's, you know,

11 here in the litigation, is a major asset of the debtor. He

12 obviously doesn't want to pursue it at all.

13 And then when you consider the involuntary

14 petitions, the statutory criteria I said was not met, was not

15 meritorious. And so that's -- and so for me, when I look at

16 all of the circumstances, and you know, both with regard to

17 the involuntary and the regular factors that you consider

18 about whether you dismiss a case for bad faith, it just

19 becomes clear to me that there's sufficient cause here.

20 However, I truly believe that it's going to be

21 in the best interest of the creditors and this bankruptcy

22 estate for a Chapter 11 trustee to be appointed.

23 Specifically, I mean, you do have to appoint --

24 you do have to prove all of these things by clear and

25 convincing evidence and I just want to show you the quote

Page 346



1 C E R T I F I C A T E

2

3 I do hereby certify that the aforesaid

4 hearing was transcribed by me from an audio recording to the

5 best of my ability; and that I am neither of counsel nor kin

6 to any party in said action, nor interested in the outcome

7 thereof.

8

9

10

11

WITNESS my hand and official seal this

12 _14TH___ day of FEBURARY ___, 2020.

13 <%11902,Signature%>

____________________________

14 Janine Thomas

Notary Public

15

16

17

18

19

20

21

22

23

24

25

Page 353



ACTIVE.124498460.02

Exhibit B January 13, 2020 Transcript Excerpts


Deposition of:19-17117 1/13/2020

January 15, 2020

In the Matter of:

US Bankruptcy Court - EDPA

Veritext Legal Solutions888.777.6690 | [email protected] | 215-241-1000

Case 19-17117-amc Doc 204 Filed 01/22/20 Entered 01/23/20 13:04:00 Desc MainDocument Page 1 of 103


1 UNITED STATES BANKRUPTCY COURT2 EASTERN DISTRICT OF PENNSYLVANIA3 In Re: ) CASE NO. 19-17117

)4 VASCULAR ACCESS CENTERS, ) January 13, 2020

) PHILADELPHIA, PA5 Debtor. ) 9:18 a.m.6 TRANSCRIPT OF HEARING ON MOTIONS

BEFORE THE HONORABLE ASHLEY CHAN7

APPEARANCES:8

For the Debtor: LAWRENCE G. MCMICHAEL, ESQUIRE9 ANNE MARIE AARONSON, ESQUIRE

PETER HUGHES, ESQUIRE10 JESSE N. SILVERMAN, ESQUIRE

DILWORTH PAXON LLP11 1500 Market Street

Suite 3500E12 Philadelphia, PA 19102

215-575-726813 215-575-711014 For the Trustee: KEVIN CALLAHAN, ESQUIRE

NICHOLAS HERRON, ESQUIRE15 OFFICE OF THE UNITED STATES TRUSTEE

200 Chestnut Street, Suite 50216 Philadelphia, PA 19106-2912

215-597-441117 [email protected] For the Creditors: GEORGE BOCHETTO, ESQUIRE

BOCHETTO & LENTZ, P.C.19 1524 Locust Street

Philadelphia, PA 1910220 215-735-3900

bochettoandlentz.com21

RICHARD E. COE, ESQUIRE22 JOSEPH ARGENTINA, ESQUIRE

BRIAN MORGAN, ESQUIRE23 DRINKER BIDDLE & REATH LLP

1 South Broad Street, #130024 Philadelphia, PA 19107

215-988-339325 [email protected]

Page 1




1 APPEARANCES: MATTHEW E. K. HOWATT, ESQUIRE

(Continued) U.S. DEPARTMENT OF JUSTICE

2 615 CHESTNUT STREET

SUITE 1250

3 PHILADELPHIA, PA 19106

215-861-8335

4 [email protected]

5 DAVID SMITH, ESQUIRE

SMITH KANE HOLMAN, LLC.

6 One Liberty Place

1650 Market Street

7 36th Floor

Philadelphia, PA 19130

8

9 AUDIO OPERATOR: UNKNOWN

TRANSCRIBER: JANINE THOMAS

10 NOTARY PUBLIC

11 (Proceedings recorded by electronic sound recording,

transcript produced by transcription service.)

12

VERITEXT NATIONAL COURT REPORTING COMPANY

13 MID-ATLANTIC REGION

1801 Market Street - Suite 1800

14 Philadelphia, Pennsylvania 19103

(888) 777-6690

15

16

17

18

19

20

21

22

23

24

25

Page 2




1 I N D E X

Page

2 WITNESS: LAWRENCE G. MCMICHAEL, ESQUIRE

3 Direct Examination by Mr. Callahan 65

4

E X H I B I T S

5

DEBTOR'S


7

DP1 Final engagement letter 53

8 DP2 Initial engagement letter - 56

10-17-19

9 DP3 Preference analysis 59

DP4 List of documents 62

10 DP5 Original declaration 63

DP6 First supplemental 63

11 declaration

DP7 Supplemental declaration 64

12

13 CREDITOR'S

NUMBER DESCRIPTION MARKED ADMITTED

14

15 None

16

17

18

19

20

21

22

23

24

25

Page 3




1 between, you know, there's no urgent need for it between, you

2 know, beyond next Wednesday; is that correct?

3 MR. HUGHES: Your Honor, my understanding is

4 that we do need funds. I'd like to defer to Mr. McMichael,

5 because he knows more about that topic than I do.

6 THE COURT: Okay.

7 MR. MCMICHAEL: Good morning, Your Honor. Larry

8 McMichael for the debtor. I've just spoken with Mr. Tucci.

9 The issue is, we have a 200,000 plus payment due January 2nd

10 to the United States government, so that's past due now.

11 THE COURT: January 2nd, like a past --

12 MR. MCMICHAEL: January 2nd, yes, it's past due.

13 THE COURT: So -- okay.

14 MR. MCMICHAEL: So of the $500,000 DIP, 200 plus

15 thousand of that is going to disappear instantaneously --

16 THE COURT: Okay.

17 MR. MCMICHAEL: -- if we're going to make that

18 payment right away. By the way, we are within the statutory

19 cure period under § 108, so there's no technical default of

20 the government agreement, but we want to get it paid.

21 THE COURT: Okay.

22 MR. MCMICHAEL: So that leaves 300,000, a little

23 less than 300,000 to get through.

24 THE COURT: Okay.

25 MR. MCMICHAEL: It's possible to do that, as

Page 17




1 so I can -- I will answer the Court's question, but I'm also

2 prepared to testify --

3 THE COURT: Yeah. Yeah. Yeah. Yeah.

4 MR. MCMICHAEL: -- under oath. All right. So

5 the order of events --

6 THE COURT: Yes.

7 MR. MCMICHAEL: -- October 15th --

8 THE COURT: Yeah.

9 MR. MCMICHAEL: -- I got an e-mail --

10 THE COURT: Okay.

11 MR. MCMICHAEL: -- from Mr. Bochetto who's in

12 the courtroom.

13 THE COURT: Yeah.

14 MR. MCMICHAEL: Prior to that e-mail, Dilworth

15 had no involvement, no connection, no anything with anybody

16 involved in this case.

17 THE COURT: Okay.

18 MR. MCMICHAEL: All right. Following the

19 e-mail, Mr. Bochetto and I had a call. I did not speak to Dr.

20 McGuckin.

21 THE COURT: Okay.

22 MR. MCMICHAEL: Mr. Bochetto was representing

23 Dr. McGuckin and the general partner. He was not representing

24 our client, the limited partnership. And he thought, based on

25 our initial call, that the general partner needed to go into

Page 25




1 address.

2 THE WITNESS: Okay. My name is Lawrence,

3 L-A-W-R-E-N-C-E, middle initial is G, last name is McMichael,

4 M-C-M-I-C-H-A-E-L. My business address is 1500 Market Street,

5 Suite 3500 East, Philadelphia, PA 19102.

6 - - -

7 EXAMINATION

8 - - -

9 BY MR. CALLAHAN:

10 Q. Mr. McMichael, first, the comments or statements you

11 made to the Court previously, they are accurate and correct;

12 true? Correct?

13 A. Yes, sir.

14 Q. All right. Let's -- you provided and you discussed

15 with the Court a timeline and I just want to ask you again

16 about the discussion you had on October 21st, you called it a

17 conference call with Richard Coe, Gardner's counsel, about a

18 consensual Chapter 11. Could you just describe a little bit

19 more about that conversation you had with Mr. Coe?

20 A. Sure. It was -- it wasn't just me and Mr. Coe. There

21 were others on the call. I know that Mr. Bochetto was on the

22 call. There may have been others as well. And I started by

23 saying, I had been engaged by the general partner to represent

24 the limited partnership in a restructuring in Chapter 11, that

25 I had looked at a lot of information, which is set forth in

Page 65




1 the summary of information we just talked about a minute ago.

2 And that I concluded that the limited partnership should be in

3 Chapter 11, and that there was a reorganization strategy that

4 would likely work for everyone's benefit. And I told Mr. Coe

5 that I had no prior relationship with anybody in this case. I

6 was a new person and I'm looking at it only from a

7 reorganization standpoint. I'm not taking sides with respect

8 to whatever fights there are out there and I solicited his

9 support for a voluntary Chapter 11 petition. And my specific

10 proposal was that we would enter into a stipulation on the

11 first day, reserve of all of all Gardner's rights, putting

12 litigation on hold for the time being, with no concessions

13 with anybody, for anything, and just allow a reorganization

14 for proceed and to restructure the partnership for everybody's

15 benefit and then they could fight later about the consequences

16 of that. That was the specific proposal that I made.

17 Mr. Coe was polite and receptive and very professional.

18 Obviously, he said that he had to talk with his client, but I

19 think that he indicated that there were some merit to what I

20 had to say and we then -- that was I think pretty much it for

21 that call. There was an exchange of e-mails thereafter which

22 I haven't gotten into. There are settlement discussions and I

23 wouldn't be comfortable producing those without Mr. Coe's

24 consent. But at the end of the day, we weren't able to get

25 there. Get there in terms of being able to file a voluntary

Page 66




1 A. No. What I said was that we wanted to file a voluntary

2 case. I thought that was in everybody's best interest,

3 because the debtor clearly needs to be in Chapter 11. And I

4 said as a backup, if we don't get consent, then we're going to

5 have to look at involuntary strategies. There are two

6 different ways a partnership can get into bankruptcy

7 involuntarily. One is, three petitioning creditors, which is

8 what happened in this case.

9 The other way under § 303 is for the general partner to

10 file an involuntary, but in order for the general partner to

11 file the involuntary against the limited partnership, the

12 general partner itself has to be in Chapter 11.

13 We had actually discussed that internally and we had

14 counsel selected for the general partnership in the event we

15 had to do it that way. We ultimately didn't do it that way,

16 we had three petitioning creditors.

17 So yes, the short answer to your question Mr. Callahan,

18 is there was some discussion in the initial call about the

19 possibility that the general partner would file and then

20 simultaneous file an involuntary. For that to happen, it

21 wouldn't have been Dilworth representing the general partner.

22 We would have still represented the limited partnership, and

23 would've consented to the involuntary as we did in this case

24 with three petitioning creditors.

25 Q. And as you know, with the United States' response, we

Page 70




1 C E R T I F I C A T E

2

3 I do hereby certify that the aforesaid

4 hearing was transcribed by me from an audio recording to the

5 best of my ability; and that I am neither of counsel nor kin

6 to any party in said action, nor interested in the outcome

7 thereof.

8

9

10

11

WITNESS my hand and official seal this

12 _22nd___ day of _January___, 2020.

13 <%11902,Signature%>

____________________________

14 Janine Thomas

Notary Public

15

16

17

18

19

20

21

22

23

24

25

Page 84




ACTIVE.124498460.02

Exhibit C Smith December 2019 Email


1

Argentina, Joseph N.

From: David Smith <[email protected]>Sent: Friday, December 06, 2019 9:05 AMTo: Argentina, Joseph N.Cc: Michael DonohueSubject: RE: In re Vascular Access Centers, L.P., 19-17117-amc - Discovery Requests to the

Petitioning Creditors

Joe, in advance of today’s call, I wanted to articulate the general position of the petitioning creditors with respect to your discovery. The filing of the involuntary petition can be defended (or not) by the putative debtor. While I believe that only the putative debtor has standing to defend an involuntary petition, even if that was not the case, the order for relief was entered by the Bankruptcy Court with the express consent of your client. So, it’s our position that the propriety of the filing of the involuntary petition is no longer an issue in the case, including the qualifications of the petitioning creditors, whether the involuntary petition meets the substantive standard for the entry of an order for relief and whether the filing of the involuntary petition was filed in bad faith. To be clear, I’m not suggesting to you that you cannot challenge the Debtor’s actions in seeking the cooperation of creditors to file the involuntary petition or the extent of the relationships between the petitioning creditors and the Debtor—points that I believe all have been openly acknowledged and conceded. I’m also not suggesting that you cannot challenge the propriety of the Debtor consenting to the order for relief being entered. But, those are issues involving the Debtor, not the proceeding involving the filing of the involuntary petition and the entry of the order for relief, which has been concluded, again with the express consent of your client. By way of analogy, if the Debtor had been sued and then elected to not defend the suit, thereby allowing a judgment to be entered against it, you would not have the ability to, in effect, relitigate the propriety of the claim brought by the plaintiff. Instead, your recourse, if any, would be in challenging the Debtor’s decision maker. Either way, I’m happy to discuss this with you further at 11:00 today. Dave

From: Argentina, Joseph N. <[email protected]> Sent: Wednesday, December 4, 2019 11:28 AM To: David Smith <[email protected]>; Michael Donohue <[email protected]> Cc: Morgan, Brian P. <[email protected]>; Coe, Richard E. <[email protected]>; Slusher, Vince <[email protected]>; Feltham, Nicholas S. <[email protected]>; Perry, Kristen L. <[email protected]>; Argentina, Joseph N. <[email protected]> Subject: RE: In re Vascular Access Centers, L.P., 19‐17117‐amc ‐ Discovery Requests to the Petitioning Creditors

Dave, Mike, We intend to proceed with the motion to dismiss or alternatively to appoint a trustee. Please let us know your availability for a call this afternoon or tomorrow morning to discuss timing of documents and depositions. Our side is generally available. Best Regards,


ACTIVE.124498460.02

Exhibit D Smith March 2020 Email


1

Argentina, Joseph N.

From: David Smith <[email protected]>Sent: Tuesday, March 24, 2020 12:08 PMTo: Argentina, Joseph N.Subject: RE: VAC DIP financing issue

Joe, I confirmed that the DOJ payment was made in January from available cash, which is to say without the need for a specific advance under the interim PVI DIP loan. It appears that generally the Debtor was able to pay its expenses without draws under the PVI DIP loan with the exception of the Highmark payment.

Dave

From: Argentina, Joseph N. <[email protected]> Sent: Tuesday, March 24, 2020 11:16 AM To: David Smith <[email protected]> Cc: Argentina, Joseph N. <[email protected]> Subject: RE: VAC DIP financing issue

Thanks, Dave.

Joseph N. Argentina, Jr. Senior Attorney [email protected]

+1 215 988 2541 direct / +1 215 988 2757 fax ____ Faegre Drinker Biddle & Reath LLP

One Logan Square, Suite 2000 222 Delaware Ave., Ste. 1410 Philadelphia, Pennsylvania 19103 USA (302) 467-4226 USA +1 Wilmington, DE 19801-1621 direct / +1 Wilmington Office: fax Welcome to Faegre Drinker Biddle & Reath LLP (Faegre Drinker) – a new firm comprising the former Drinker Biddle & Reath and Faegre Baker Daniels. Our email addresses have changed with mine noted in the signature block. All phone and fax numbers remain the same. As a top 50 firm that draws on shared values and cultures, our new firm is designed for clients. This message and any attachments are for the sole use of the intended recipient(s) and may contain confidential and/or privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply email and destroy all copies of the original message and any attachments.

From: David Smith <[email protected]> Sent: Tuesday, March 24, 2020 11:11 AM To: Argentina, Joseph N. <[email protected]> Subject: RE: VAC DIP financing issue


2

Joe, I’m trying to get clarity on your question. I believe that the January DOJ payment had to be paid prior to the entry of the DIP order, but I’m in the process of confirming that.

Dave

From: Argentina, Joseph N. <[email protected]> Sent: Tuesday, March 24, 2020 6:10 AM To: David Smith <[email protected]> Cc: Argentina, Joseph N. <[email protected]> Subject: RE: VAC DIP financing issue

I don’t understand. I thought the DIP was an emergency so the DOJ could be paid around $200k immediately. Didn’t that happen?




From: David Smith <[email protected]> Sent: Monday, March 23, 2020 4:37 PM To: Argentina, Joseph N. <[email protected]> Subject: RE: VAC DIP financing issue

Yes. The number reflected in the wire transfer information sent to you is the extent of the DIP loan advances.

Dave

From: Argentina, Joseph N. <[email protected]> Sent: Monday, March 23, 2020 4:19 PM


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To: David Smith <[email protected]> Cc: Argentina, Joseph N. <[email protected]> Subject: RE: VAC DIP financing issue

Dave,

Did the Debtor only ever receive $102,000 under the PVI dip facility?

Joe




From: David Smith <[email protected]> Sent: Monday, March 23, 2020 2:06 PM To: Argentina, Joseph N. <[email protected]> Subject: FW: VAC DIP financing issue

Joe, I’m attaching the materials provided to me in support of the one advance made under the PVI DIP facility, which was for $102,000 and paid to Highmark, the Medicare administrator for the Pittsburgh location. On the positive side, the loan advance came from PVI, which presumably will comply with the “law of the case” that the loan advance must come from the lender’s account—a conclusion of law for which I still have yet to find the authority.

On the not so great side and perpetuating the fact that nothing seems to come easy in the case is the below self‐explanatory e‐mail sent by Anne Aaronson to Steve Falanga, which has gone without a response. I say that without in any way wanting to seem critical of Steve, who has had much bigger fish to fry, I’m sure. In this regard, you saw that I followed up with him just moments ago on this topic and will try to bring all of this together in advance of Wednesday.

Either way, while I think that you have the backup on the advance as well as the follow up between the Debtor and Trustee with respect to the payment, I’m happy to discuss this matter with you further, if you’d like.

Dave


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From: Aaronson, Anne M. Sent: Wednesday, February 26, 2020 4:42 PM To: [email protected] Cc: McMichael, Lawrence G. Subject: VAC DIP financing issue

Steve –

We learned today of an issue involving the DIP financing advance utilized by the Debtor earlier this month. As you are aware, DIP financing from PVI and a DIP budget were approved by the court prior to your appointment. The Debtor made one draw from the DIP facility in the approximate amount of $102,000. This draw was used to pay an obligation owed indirectly by the Debtor to Highmark, which administers the Medicare payments for the Debtor’s centers. In particular, this payment involved the Pittsburgh center, which is the Debtor’s ASC.

There is some background to this that was explained to the US Trustee during the initial 341 meeting that you may not yet know about. Originally, when Saul Ewing was the Debtor’s healthcare counsel, the Debtor received advice that the LLCs could not bill Medicare directly. Saul Ewing set up various pass through entities called James F. McGuckin of [corresponding center location], PC – each of which were utilized to bill Medicare for a corresponding center. Subsequently, new healthcare counsel advised the Debtor that it didn’t need to do this and that the doctors could assign their Medicare billing rights to the centers for direct billing. As a result, all of the James F. McGuckin of [corresponding center location], PC entities were dissolved and the centers began direct billing through an assignment of doctor rights except the entity in Pittsburgh because that entity owed Highmark about $225,000 in overbilling payments. An agreement was reached with Highmark to resolve the overbilling debt prior to the bankruptcy filing whereby VAC paid a deposit and then agreed to pay installments to Highmark until the overbilling was satisfied. As a result, the Pittsburgh entity is now directly billing Medicare for future reimbursements.

When the Chapter 11 was filed, the Debtor stopped making the installment payments to Highmark and a balance of approximately $102,000 remained. Since the Pittsburgh center had by then converted to direct billing, Highmark had no ability to offset this amount against the Pittsburgh center’s account and it notified the Debtor that unless the $102,000 was paid, it would withhold all Medicare receivables from the Pittsburgh center – which would jeopardize its ASC status. This apparently occurred post-petition directly between Highmark and the Debtor and neither we nor the DIP lender were aware of this situation.

To avoid any disruption in the receipt of outstanding Medicare reimbursements, Mark Tucci made the $102,000 payment to Highmark and then included that payment in the thirteen week cash flow report. The payment was not included in the DIP budget that was approved by the court. We have not seen the settlement with Highmark and do not know whether there is a written agreement or what the terms of the agreement are. We wanted to bring this to your attention because the payment is likely an unauthorized post-petition transfer (even if it was a critical payment needed in order to ensure receipt of revenues and retention of the ASC status in Pittsburgh) that would need to be retroactively approved or avoided. Please let us know if there is anything that you need us to do with respect to this issue.

Anne

ANNE AARONSON | DILWORTH PAXSON LLP

1500 Market Street | Suite 3500E | Philadelphia, PA 19102

Tel: (215) 575-7110 | Fax: (215) 575-7200

[email protected] | www.dilworthlaw.com


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www.DilworthLaw.com This E-Mail is intended only for the use of the individual or entity to which it is addressed, and may contain information that is privileged, confidential and exempt from disclosure under applicable law. Unintended transmission shall not constitute waiver of the attorney-client or any other privilege. If you have received this communication in error, please do not distribute it and notify us immediately by email: [email protected] or via telephone: 215-575-7000 and delete the original message. Unless expressly stated in this e-mail, nothing in this message or any attachment should be construed as a digital or electronic signature or as a legal opinion.


US.128455723.01

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re: Vascular Access Centers, L.P., Debtor.

Hon. Ashely M. Chan Involuntary Chapter 11 Case No. 19-17117 (AMC)

CERTIFICATE OF SERVICE

IT IS HEREBY CERTIFIED that on this 23rd day of June, 2020, the Objection of

Majority Limited Partner to First and Final Application for Compensation and Reimbursement of

Expenses of Dilworth Paxson LLP, Counsel for Debtor, for the Period November 25, 2019

through May 31, 2020 (the “Objection”), was served upon those parties as set forth on the

attached Clerk’s Service List via CM/ECF, unless otherwise noted below.

The following parties were served with a copy of the Objection by the United States First

Class mail, postage prepaid:

Vascular Access Centers, L.P. 2929 Arch Street, Suite 1705 Philadelphia, PA 19104

Lawrence G. McMichael, Esq. Dilworth Paxson, LLP 1500 Market Street, Ste 3500E Philadelphia, PA 19102

Anne M. Aaronson, Esq. Dilworth Paxson, LLP 1500 Market Street, Ste 3500E Philadelphia, PA 19102

Stephen V. Falanga, Esq. Walsh Pizzi O’Reilly Falagna, LLP 100 Mulberry Street, 15th Floor Three Gateway Center Newark, NJ 07102

Bruce J. Borrus FOX ROTHSCHILD LLP 1001 Fourth Avenue, Suite 4500 Seattle, WA 98154-1192

Commonwealth of PA UCTS 651 Boas Street, Room 702 Harrisburg, PA 17121

Richard E. Coe One Logan Square Suite 2000 Philadelphia, PA 19103

Sydney J. Darling 100 Mulberry St, 15th Floor Three Gateway Center Newark, NJ 07102

Case 19-17117-amc Doc 421-1 Filed 06/23/20 Entered 06/23/20 16:05:53 DescService List Page 1 of 4

US.128455723.01

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Nicholas S. Feltham One Logan Square Suite 2000 Philadelphia, PA 19103

Christopher M. Hemrick Walsh Pizzi O’Reilly Falanga LLP 100 Mulberry Street, 15th Floor Three Gateway Center Newark, NJ 07102

Veronica L. Magda Fox Rothschild LLP 1001 Fourth Avenue, Suite 4500 Seattle, WA 98154

Brian P. Morgan 1177 Avenue of the Americas 41st Floor New York, NY 10036

Omni Agent Solutions 5955 De Soto Avenue Suite 100 Woodland Hills, CA 91367

Eric S. Padilla 100 Mulberry Street, 15th Floor Three Gateway Center Newark, NJ 07102

Kristen L. Perry 1717 Main Street Suite 5400 Dallas, TX 75201

Fred B. Ringel 875 Third Ave 9th Floor Robinson Brog Leinwand Greene Genovese & Gluck P.C. New York, NY 10022

Vincent P. Slusher 1717 Main Street Suite 5400 Dallas, TX 75201

SSG Advisors LLC J. Scott Victor, Managing Director Investment Banker to the Ch 11 Trustee Five Tower Bridge, Suite 420 300 Barr Harbor Drive West Conshohocken, PA 19428

David H. Stein Wilentz Goldman & Spitzer P.A. 90 Woodbridge Center Drive Suite 900 Woodbridge, NJ 07095

Dallas G. Taylor 222 Delaware Avenue Suite 1410 Wilmington, DE 19801

Peter J. Pizzi Walsh Pizzi O’Reilly Falanga LLP 100 Mulberry Street, 15th Floor Three Gateway Center Newark, NJ 07102

By: /s/ Susan Carlson Susan Carlson Senior Paralegal Faegre Drinker Biddle & Reath LLP 90 South 7th St Ste 220 Minneapolis, MN 55402


US.128455723.01

SERVICE LIST Case No. 19-17117-amc Electronic Mail Notice List The following is the list of parties who are currently on the list to receive email notice/service for this case:

• ANNE M. AARONSON [email protected]; [email protected]; [email protected]; [email protected]

• JOSEPH N. ARGENTINA [email protected]

• JONATHAN J. BART [email protected]; [email protected]; [email protected]; [email protected]

• THOMAS DANIEL BIELLI [email protected]; [email protected]

• AMY JANE BLUMENTHAL [email protected]; [email protected]

• GEORGE BOCHETTO [email protected]

• KEVIN P. CALLAHAN [email protected]

• MARTHA B. CHOVANES [email protected]; [email protected]; [email protected]; [email protected]

• GEORGE M. CONWAY [email protected]

• STEPHEN V. FALANGA [email protected]

• JENNIFER D. GOULD [email protected]; [email protected]; [email protected]

• LESLIE C. HEILMAN [email protected]; [email protected]


US.128455723.01

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• DAVID P. HEIM [email protected]; [email protected]

• NICHOLAS S. HERRON [email protected]; [email protected]

• MATTHEW E. K. HOWATT [email protected]; [email protected]; [email protected]

• JOHN C. KILGANNON [email protected]; [email protected]

• AUTUMN M. MCCOURT [email protected]

• LAWRENCE G. MCMICHAEL [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]

• LISA M. PETERS [email protected]; [email protected]

• PETER JOSEPH PIZZI [email protected]

• DANA S. PLON [email protected]

• FRIDRIKH V. SHRAYBER [email protected]; [email protected]; [email protected]; [email protected]

• DAVID B. SMITH [email protected]; [email protected]

• United States Trustee [email protected]


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