In re Vascular Access Ctrs., L.P.

645 B.R. 804

IN RE: VASCULAR ACCESS CENTERS, L.P., Debtor

Case No. 19-17117 (AMC)

United States Bankruptcy Court, E.D. Pennsylvania.

Signed December 1, 2022

Anne M. Aaronson, James M. Matour, Jesse N. Silverman, Lawrence G. McMichael, Dilworth Paxson LLP, Philadelphia, PA, for Debtor.

Nicholas S. Herron, Office of the United States Trustee, Philadelphia, PA, Kevin P. Callahan, George M. Conway, DOJ-Ust, Philadelphia, PA, for U.S. Trustee.

Eric S. Padilla, Newark, NJ, Evan Thomas Miller, Bayard, P.A., Wilmington, DE, Sydney J. Darling, Christopher M. Hemrick, Newark, NJ, Stephen V. Falanga, Walsh Pizzi O'Reilly Falanga LLP, Newark, NJ, Peter Joseph Pizzi, Walsh Pizzi O'Reilly Falanga LLP, Philadelphia, PA, for Trustee.

Ashely M. Chan, United States Bankruptcy Judge

I. INTRODUCTION

In early February 2020, after finding that Dr. James McGuckin ("McGuckin"), the former sole member and manager of the former general partner of the debtor, Vascular Access Centers, L.P. ("VAC" or "Debtor"), had orchestrated an involuntary petition under Chapter 11 of the Bankruptcy Code against VAC in bad faith and that appointing a Chapter 11 trustee would serve the best interests of VAC's creditors, the Court ordered the appointment of a Chapter 11 trustee ("Trustee Order"). McGuckin and VAC's former general partner, Vascular Access Centers, LLC ("VAC LLC" or "General Partner"), quickly appealed the Trustee Order. Now, following the dismissal of the appeal with a remand for this Court to determine in the first instance whether certain new evidence warrants reconsideration of the Trustee Order, McGuckin and VAC LLC move to have this Court vacate the Trustee Order based upon deposition testimony from VAC's former corporate counsel in a legal malpractice action purportedly suggesting, inter alia, that VAC's limited partnership agreement permitted McGuckin to open and operate vascular access centers which compete with VAC. Ultimately, because the "new" deposition testimony and related exhibits would have had no impact on the outcome of the proceedings related to the appointment of a trustee had they been brought to the Court's attention prior to the issuance of the Trustee Order, the Court must deny the motion to vacate the Trustee Order.

II. FACTUAL AND PROCEDURAL BACKGROUND

VAC was founded by McGuckin as a Pennsylvania limited partnership through a limited partnership agreement ("LPA") executed on April 22, 2005. Case No. 19-17117 ECF 234 Trustee Op. 1, Feb. 7, 2020 ("Trustee Op."). The general partner of VAC was a non-debtor entity, VAC LLC, of which McGuckin was the sole member and manager. Id. VAC operated its business through a number of limited liability company subsidiaries. Id. at 2. The subsidiaries operated and managed outpatient vascular access centers, whereby physician interventionalists performed dialysis access procedures and certain other vascular access procedures on patients with end-stage renal disease and other vascular conditions or diseases. Id. In May 2005, William Whitfield Gardner ("Gardner") became a limited partner of VAC. Id . Gardner's investments and substantial capital infusion into VAC made him the majority-in-interest limited partner. Id.

On May 23, 2005, shortly after VAC was founded, McGuckin emailed Christopher Stief ("Stief"), a then-partner at Saul Ewing, seeking assistance with preparing employment agreements for physicians working at VAC's vascular access centers ("McGuckin Email"). See Ex. M-6 at 69:9-70:8; Ex. M-8 at 172. McGuckin attached to the McGuckin Email an early version of the VAC LPA which had been prepared by previous counsel, Harris Savin, and which included a provision stating that "[a]ny Partner, including the General Partner, may engage in any other business activities, whether or not competitive with the business of the Partnership and neither the Partnership nor any Partner shall have any rights with respect to any such activity or any income or gain derived therefrom." See Ex. M-8 at 172, 179 Section 5.3; Ex. M-6 at 69:2-70:8, 71:17-72:24, 75:3-22, 80:22-81:16. On May 27, 2005, Stief forwarded the McGuckin Email with attachments, including the early version of the LPA, to John Royer, Esq. ("Royer"), also of Saul Ewing, who around spring 2005 had become corporate counsel for VAC. See Ex. M-8 at 173; Ex. M-6 at 13:4-12, 74:5-75:22; Ex. G-2 at 13:2-6, 18:6-15, 30:6-17.

Subsequently, pursuant to an amended version of the LPA executed on October 31, 2007 ("Amended LPA"), section 6.7 entitled "Other Interests of Partners" ("Section 6.7" or "Other Interests of Partners Provision") provided:

[i]n view of the exclusive and limited purposes of the Partnership, no Partner, or any Affiliate of any Partner, shall have any obligation to make any other investment or business opportunity not involving the properties available to the Partnership or to any of its Partners. It is further expressly agreed that any Partner and/or its Affiliates may engage in and possess interests in other businesses and ventures of every nature and description, independently or with others, and any such engagement will not constitute a breach of the Partners’ fiduciary duties to the Partnership, and neither the Partnership nor any Partner shall have any rights by virtue of this Agreement or the existence of this Partnership in and to such independent ventures or to the income or profits derived therefrom.

Ex. G-1.

Over time, Gardner began to have concerns about the possibility that McGuckin was engaging in impermissible self-dealing transactions and violating his duties as the sole member of VAC's General Partner. Trustee Op. 4. Therefore, on January 13, 2016, Gardner commenced a derivative action on behalf of VAC by filing a complaint in the Delaware County Court of Common Pleas ("State Trial Court") against VAC LLC and McGuckin, in his capacity as VAC LLC's sole member and manager, for breach of fiduciary duty, breach of contract, and unjust enrichment ("Derivative Litigation"). See Gardner v. Vascular Access Centers, LLC et al., No. 16-cv-00367; Trustee Op. 5. In September 2017, Gardner amended his complaint in the Derivative Litigation to, inter alia , add other limited partners of VAC as plaintiffs (together with Gardner, "Derivative Litigation Plaintiffs"). Trustee Op. 7. The amended complaint reflects that the Derivative Litigation is based upon, inter alia, McGuckin's alleged opening and operating of vascular access centers which compete with VAC, and that the Derivative Litigation Plaintiffs are seeking, inter alia , an order directing McGuckin and VAC LLC to disgorge for the benefit of VAC all profits from McGuckin's alleged competitive centers, preventing McGuckin and VAC LLC from taking for themselves any profits generated by McGuckin's competitive centers, directing that McGuckin's competitive centers operate as VAC centers, and awarding money damages for the fair market value of resources McGuckin and VAC LLC allegedly misappropriated from VAC in opening and operating McGuckin's competitive centers and punitive damages. Ex. M-4 ¶ 4, p. 29.

On April 5, 2018, Royer participated in a deposition in connection with the Derivative Litigation ("Royer 2018 Deposition"). See Ex. G-2. Therein, the following exchange occurred between Royer and counsel for McGuckin with respect to the Other Interests of Partners Provision in the Amended LPA:

Q [MR. HEIM, counsel for McGuckin]: Do you see...‘Other interests of partners’?

A: Yes.

Q: The third sentence down in that paragraph, it states: ‘It is further expressly agreed that any Partner and/or Affiliates may engage in and possess interests in other businesses and ventures of every nature and description, independently or with others, and any such engagement will not constitute a breach of the Partners’ fiduciary duties to the partnership, and neither the Partnership, nor any Partner, shall have any rights by virtue of this Agreement, or the existence of this Partnership, in and to such independent ventures or to the income or profits derived therefrom.’ Did I read that correctly?

A: Yes.

Q: That's your language in this limited partnership agreement that you drafted, correct?

A: Well, it's a provision in this limited partnership agreement that we drafted, so, yes.

Q: And that language allows the partners, including Dr. McGuckin, to own competitive vascular access centers, correct?

MR. COE [counsel for Gardner]: Objection to form.

A: Not necessarily. It's, you're looking at one sentence in a vacuum without the overlay of anything else in the agreement and any other, you know, laws that may apply.

BY MR. HEIM:

Q: Well, let me ask you this: This provision than [sic] I just read...is that the provision that permitted Dr. McGuckin to own and operate the competitive American Access Centers?

MR. COE: Objection to form.

A: I don't know if there's another provision or not. I don't know. I know it was disclosed in the PPM that we discussed, that he did have ownership in other ones.

BY MR. HEIM:

Q: Okay, so you would agree with me that Dr. McGuckin's ownership of competitive vascular access centers is not in breach of the limited partnership agreement since it was disclosed to the limited partners?

MR. COE: Objection to form.

A: I believe I would agree with that, it was disclosed. His ownership of the AAC centers was disclosed and so the partners would have been aware of it and he wasn't prohibited from, specifically being a part owner of those centers.

BY MR. HEIM:

Q: Is there a specific provision in the limited partnership agreement that you can point me to that allowed Dr. McGuckin to own those competitive vascular access centers?

A: I don't recall – I'm not even – I mean, I can't tell you that this was the final version that was signed by people also, I don't know that. But just putting that aside, just taking it at face value, I don't recall there being a specific provision that specifically addressed that. I don't recall that being crafted. This is more of a general type of provision that is in many

...