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In re CBI Holding Company

June 7, 2010

IN RE CBI HOLDING COMPANY, INC., ET AL.,
94 B. 43819 (BRL) DEBTORS,
BANKRUPTCY SERVICES, INC., APPELLANT-CROSS APPELLEE,
v.
ERNST & YOUNG AND ERNST & YOUNG, LLP, APPELLEES-CROSS APPELLANTS.



OPINION & ORDER

Chapter 11

In December 2009, the Court issued an opinion (the "Opinion") resolving Defendant Ernst & Young's ("E&Y") appeal of the decision by the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") in the above-captioned case. E&Y now moves for a rehearing of certain aspects of the Opinion, pursuant to Federal Rule of Bankruptcy Procedure 8015. E&Y also moves to stay the proceedings. For the reasons stated below, the Court (1) GRANTS in part and DENIES in part E&Y's motion for rehearing; and (2) DENIES the motion for a stay, without prejudice.

I. Motion for Rehearing

The standard for rehearing pursuant to Rule 8015 is strict. "The function of a petition for rehearing is not to permit the petitioner to reargue his case; to attempt to do so would be an abuse of the privilege of making such a petition." Id. The sole purpose of rehearing is "to direct the court's attention to a material matter of law or fact which it has overlooked in deciding the case, and which, had it been given consideration, would probably have brought about a different result." J.P. Morgan Secs., Inc. v. The Spiegel Creditor Trust (In re Spiegel, Inc.), 06-CV-13477, 2007 WL 2609966, at *2 (S.D.N.Y. Aug. 22, 2007) (internal citation omitted). "Neither new evidence nor new arguments are considered valid bases for Rule 8015 relief." J.P. Morgan Secs., 2007 WL 2609966, at *2.

The Court assumes familiarity with the facts of this case, and with the Opinion and the Bankruptcy Court's decision. In its motion for rehearing, E&Y argues that the Court should: (1) find that the Bankruptcy Court clearly erred by excluding seven months of sales by Holsin, a company acquired by CBI Holding Company, Inc. ("CBI") in October 1993, when determining the sales multiplier the Bankruptcy Court used to calculate CBI's enterprise value (the "Holsin Argument"); (2) find that the Bankruptcy Court clearly erred by attributing the entire decline in CBI's value to E&Y's malpractice (the "Value Argument"); and (3) exclude the sales revenue from M. Brenner, a company that CBI acquired in April 1993, from the calculation of CBI's enterprise value, because its inclusion is not consistent with the purportedly "new" theory of causation adopted by this Court in the Opinion (the "Causation Argument"). The Court finds that the Holsin Argument has merit. The Value Argument is a new argument that cannot be raised on a motion for rehearing; it is, in any event, without merit. The Causation Argument is also without merit.

A. The Holsin Argument

E&Y asserts that in calculating CBI's enterprise value the Bankruptcy Court should have treated similarly the annual sales of two companies CBI acquired during 1993 and 1994, respectively.*fn1

To understand E&Y's argument, it is necessary to recapitulate how the Bankruptcy Court calculated CBI's enterprise value. The Bankruptcy Court calculated CBI's enterprise value by multiplying the Bankruptcy Court's calculation of CBI's fiscal year 1993 net sales ("1993 sales") by 22%; its basis for using 22% as the multiplier was that FoxMeyer, a potential acquirer of CBI, used that multiplier in calculating CBI's enterprise value for its acquisition analysis. FoxMeyer, however, had chosen the multiplier of 22% based on a calculation of CBI's fiscal year 1994 net sales ("1994 sales") that included only partial annual sales of a company CBI acquired during the 1994 fiscal year, Holsin (FoxMeyer's calculation included only the five months of sales attributable to Holsin post-acquisition). The Bankruptcy Court's calculation of CBI's 1993 sales included twelve months of the 1993 sales by M. Brenner, a company CBI acquired in during the 1993 fiscal year (CBI acquired M. Brenner in April 1993, two weeks before the end of the 1993 fiscal year). The Bankruptcy Court's calculation of CBI's 1993 sales thus included M. Brenner's pre-acquisition sales and post-acquisition sales for 1993.

E&Y contends that the Bankruptcy Court clearly erred by including only part of Holsin's sales when calculating the sales multiplier, while at the same time including all of M. Brenner's sales when calculating CBI's 1993 sales. E&Y asserts that the Bankruptcy Court's inconsistent treatment of the M. Brenner and Holsin sales significantly increased CBI's enterprise value, and thus increased the damage award against E&Y.

E&Y contends that if the Bankruptcy Court had used the same method for deriving enterprise value for each year, the damage award would have decreased by between $16 million to $19.8 million. The Bankruptcy Court could have accomplished this in one of two ways: (1) by not including in CBI's 1993 sales, the 1993 sales by M. Brenner prior to CBI's acquisition of the company; or (2) including all of Holsin's 1994 sales in calculating CBI's 1994 sales, when deriving the sales multiplier. E&Y contends that if the Bankruptcy Court had excluded from its calculation of CBI's 1993 sales M. Brenner's pre-acquisition sales, CBI's 1993 annual sales would have been $90 million lower (they would have dropped from $577,686,460 to $487,686,460); if the Bankruptcy Court had lowered CBI's 1993 annual sales in that way, the result would have been a $19.8 million decrease in CBI's enterprise value. If, in the alternative, the Bankruptcy Court had included in CBI's 1994 sales all of the 1994 sales attributable to Holsin, the multiplier would have decreased from 22% to 19%; the result would have been a reduction in E&Y's pre-interest damages of over $16 million.

This Court previously held that the Bankruptcy Court did not clearly err by including all of M. Brenner's sales in its calculation of CBI's 1993 sales, because there was evidence on the record to support the Bankruptcy Court's decision. Thus on rehearing, the Court will consider only E&Y's second argument, regarding the Holsin sales.

The Court notes that E&Y did not raise clearly its argument regarding the Holsin's sales in its briefing on appeal. E&Y's only reference to Holsin's sales occurs in a footnote on page 92 of a 100-page brief submitted in April 2001. There, E&Y states that the 22% sales multiplier "included . . . only the five months of Holsin's sales that occurred" after CBI acquired the company, but it does not argue that the Court should recalculate the multiplier based on inclusion of those sales. The Court could not have constructed the Holsin Argument on the basis of this limited reference. See United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("A 'skeletal argument,' really nothing more than an assertion, does not preserve a claim . . . Especially not when the brief presents a passel of other arguments . . . . Judges are not like pigs, hunting for truffles buried in briefs.") Nonetheless, because E&Y did allude to its argument in its appeal briefing, and because the argument is clearly meritorious, the Court will grant a rehearing.

On rehearing, the Court finds that the Bankruptcy Court, in calculating CBI's enterprise value, should have considered all of Holsin's 1994 sales. Accordingly, the Court orders the Bankruptcy Court (1) to recalculate the 22% sales multiplier by including all of Holsin's 1994 sales in the denominator; and (2) to recalculate CBI's enterprise ...


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