Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.) (Genesis II)

Genesis Health Ventures, Inc. (Genesis) (debtor) filed a Chapter 11 bankruptcy reorganization plan in 2001. The plan was confirmed in 2001. In 2004, 275 of Genesis’s investors (subordinated investors) (creditors), who held about $205 million in debentures issued by Genesis, sued Genesis and Goldman, Sachs & Company (Goldman) (creditor), alleging fraud. The debentures had been subordinated to roughly $1.3 billion in senior debt. Goldman held about half the senior debt. The subordinated investors alleged that Goldman and two other firms (collectively, senior lenders) had paid Genesis’s management to understate the figures upon which Genesis’s earnings before interest, taxes, depreciation, and amortization (EBITDA) were based. The understated EBITDA was used to depress calculation of Genesis’s enterprise value. The subordinated investors asserted that if Genesis’s value had been calculated accurately, the subordinated investors would have received the full value of their notes. The subordinated investors sought $200 million in monetary damages from Genesis and the senior lenders. Under United States Bankruptcy Code § 1144, a party could ask a court to revoke confirmation of a reorganization plan for fraud provided the request was made within six months of confirmation. The subordinated investors asserted that it had been impossible to discover the fraud sooner. The bankruptcy court first held that the claims against Genesis were time-barred. The court also held that the claims against the senior lenders were barred. On appeal, the court’s ruling that the claims against Genesis were barred was upheld, but the ruling that the claims against the senior lenders were barred was reversed, and the issue was remanded to the bankruptcy court.