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1 2 3 4 5 6 7 8 9 10 April 1, 2004 11 12 13 14 15 16 17 18 19 20 B E F O R E: 21 22 23 24 25 THE HONORABLE PRUDENCE CARTER BEATTY United States Bankruptcy Judge Hearing on debtors' objection to claim of Healthguard of Lancaster, Inc. (Claim No. 2818) and debtors' counterclaim; debtors' motion for order holding Robert M. Davidson and Vanessa E. Komar in contempt for failure to comply with orders of this Court and the discharge injunction. United States Custom House One Bowling Green New York, New York 10004 Debtors. ------------------------------------x UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------x In re Case No.: 03-40515 MAGELLAN HEALTH SERVICE, INC., et al,

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55758 2 3 4 5 BY: 6 7 8 9 BY: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ROBERT DAVIDSON, M.D. Appearing Pro Se P.O. Box 1785 Kilgore, Texas 75663 REED SMITH LLP Attorneys for Healthguard of Lancaster 599 Lexington Avenue New York, New York 10022 BY: JOSEPH O'NEIL, JR., ESQ. ANGELA FERRANTE, ESQ. AKIN GUMP STRAUSS HAUER & FELDMAN, LLP Attorneys for Creditors' Committee 590 Madison Avenue New York, New York 10022 CHRISTINE P. HSU, ESQ. A P P E A R A N C E S: WEIL, GOTSHAL & MANGES, LLP Attorneys for Debtors 1501 K Street, N.W. Washington, D.C. 20005

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Proceedings JUDGE BEATTY: Now, we have got

one of my favorite cases, Magellan. It is April 1st, so I can say a Page 2

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55758 thing like that and they don't have to be true. Who wants to start with what? MS. HSU: We have two matters I am not

before you today, Your Honor.

sure which you would rather we start with? JUDGE BEATTY: I have no

interest in telling you, so you will have to make your own judgment. MS. HSU: Why don't we start Your Honor,

with the Healthguard matter. my name is Christine Hsu.

I am with

Weil, Gotshal & Manges, representing Magellan. About two months ago we were here on Magellan's objection and counterclaim to Healthguard's proof of claim, and at the last hearing Your Honor asked that we go back and take a look at the claims that are at issue. In Magellan's objection and

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Proceedings counterclaim that we were to have heard last time, Magellan had attached an audit that went over the claims that were at issue, and in Magellan's view the audit showed that the claims were, in fact, not reimbursable by Magellan as Healthguard Page 3

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had claimed.

55758 In the last two months, I

have been in contact with counsel for Healthguard, and we have not made significant progress in going over the claims. JUDGE BEATTY: Why not? I told

each of you to designate somebody who knows how to review claims and pick a batch of 35 to 50 claims -- that is not a lot -- and go through them and see how many of those were right or wrong. MS. HSU: In response to Your

Honor's directive, Magellan went to and I spoke to Healthguard's counsel and asked for them to provide for us those claims for which they knew they had evidence of prior authorization. In response to that

request, Healthguard's counsel indicated

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Proceedings that they had no interest in doing that and, in fact, thought that we should instead give them -JUDGE BEATTY: I told

Healthguard how I intended this to be handled. They had no choice but to

handle it in the way in which I stated. That was a Court directive which they were required to comply with. Page 4 It was in

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55758 lieu of their having to go through each and every one of their claims and reconsider whether they were, in fact, correct and what basis they were asserting for them. So whoever is here for Healthguard, you missed the point. back and do what I told you. MR. O'NEIL: Your Honor, Joseph Go

O'Neil from Reed Smith for Healthguard. We have gone through all of our claims and basically have come up with a list of 1100 -JUDGE BEATTY: I told you to

pick 35 claims and they basically could

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Proceedings be in order, and have two people, one from your side and one from their side, who are familiar with this process, and go through them and see what the problems were. MR. O'NEIL: Your Honor, I

think it goes a little bit beyond that. JUDGE BEATTY: If it went

beyond that, then why didn't you tell me last time? MR. O'NEIL: Your Honor, there

is an issue here concerning claims for Page 5

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55758 prior authorization versus claims that are in and out of the network. JUDGE BEATTY: I understand

that, and the question was for you to put out a fairly small number of claims and have the parties start to see how to identify the various claims. I do not

consider it appropriate for you to refuse to do what I asked you to do. If you had

not liked what I asked you to do, you should have spoken up at the last hearing.

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Proceedings MR. O'NEIL: Your Honor, we are

prepared to give all the claims. JUDGE BEATTY: you to give them to them. No. I didn't ask I asked you to

provide a person to review with their person the way the claims read and to pick a reasonable number. suggested 35. I think I

I didn't suggest that you

necessarily pick out particular ones, but if that is what you would like to do, you can. But I directed that a particular

thing be done, because there are too many claims right now for anybody to get a handle on what the problems are. I don't

appreciate your refusing to do what I Page 6

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directly asked you to do.

55758 Did you sit

down and have one of your knowledgeable claims people sit down with one of their people? MR. O'NEIL: I don't know what

the counsel in Pennsylvania did. JUDGE BEATTY: asked you to have done. That is what I If you didn't do

it, you didn't do what I asked you to do.

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Proceedings MR. O'NEIL: Maybe I

misunderstood what was required at the last hearing. JUDGE BEATTY: No. You Not if you

couldn't have misunderstood. speak the English language. MR. O'NEIL:

Your Honor, I

think that the issue that we are stuck on is the authorization issue. I think Your

Honor was concerned at the last hearing about claims being in and out of network. JUDGE BEATTY: I have asked you I don't

to proceed in a certain way.

expect you to just hand over a bunch of claims to your adversary and expect them to try to figure out what they say and how they do it. I expect your people who

are knowledgeable to meet with the Page 7

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55758 debtors' people and go over a reasonable group of claims that represent a reasonable range of issues, so that the parties can begin to understand why you think you have prior authorization and how it is reflected where they say you

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 for this? don't.

Proceedings I don't fancy having a trial at

which I require you to present each and every claim and we have a ruling on each and every claim. MR. O'NEIL: Yes, Your Honor.

I don't think we need to get to that point. We compiled a list of services,

and we compiled a list of providers, and the dates when services were rendered, and the costs of the service. JUDGE BEATTY: I am saying to

you that you did not do what I asked you to do, and whatever else you did, you may discuss with the debtors, but you still have to do what I asked you to do. not acceptable to me. MR. O'NEIL: will do that. JUDGE BEATTY: Thank you. Your Honor, we It is

Now, shall we set another date

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MS. HSU:

55758 The debtors are

concerned about the passage of time on this matter.

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Proceedings JUDGE BEATTY: set another date? MS. HSU: I think four weeks When should we

would be enough time, Your Honor. JUDGE BEATTY: MS. HSU: debtors, Your Honor. May 5th at 2:30.

That is fine with the Thank you. What is next?

JUDGE BEATTY: MS. HSU:

The next matter is

Magellan's motion to hold Dr. Davidson in contempt of Court order. JUDGE BEATTY: MS. HSU: Okay.

Your Honor, what we

have before you today is a creditor who is in violation now of, not only the provisions of the Bankruptcy Code, but two court orders that this Court has signed. Back in December of last year Dr. Davidson voluntarily signed and actually requested a stipulation to dismiss and withdraw the claims that were underlying his proof of claim against the debtors. In spite of that stipulation, Page 9

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Proceedings and in spite of the confirmation order, and also in spite of the provisions of the Bankruptcy Code, Dr. Davidson persists in pursuing an appeal of the underlying complaint in the Ninth Circuit, not only against other tenants, but also against the debtors. We have put before the Court documents indicating the stipulation and the communications with the claimant indicating his desire to withdraw the claims underlying his proof of claim, and there really is no justification for his continuing against the debtors. We have

given him every opportunity to withdraw his claims before the Ninth Circuit and have informed him of the provisions of the relevant rules of bankruptcy law and the other two orders that govern this proceeding, but he has not responded. Because of the creditor's actions we are now in the position of having to provide briefing before the Ninth Circuit on his appeal and the dismissal of his claims.

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55758 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Proceedings This is causing a great deal of additional expense to the debtors, which we had reasonably believed would have been put to bed last December JUDGE BEATTY: As I understand

Dr. Davidson's problem, he thinks he really shouldn't have ever entered into a settlement with you under which he withdrew his claims. MS. HSU: Your Honor. JUDGE BEATTY: MS. HSU: But he did. I can also I I understand that,

He did.

hand to you his signature on a page.

don't think that he denies that he signed a stipulation. He now, after the fact,

says that he was coerced by apparently a standard letter that was written by in-house counsel at Magellan notifying him of the bankruptcy and informing him that -JUDGE BEATTY: proceed with this action? MS. HSU: Exactly. Now, He couldn't

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Proceedings Dr. Davidson insists that this is the basis for his feeling coerced to sign the Page 11

55758 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stipulation. JUDGE BEATTY: People with

higher education are not supposed to be coerced as easily as people with lower education. He calls himself a doctor. I

assume he has at least a college education and something beyond that. MS. HSU: Also, Your Honor,

because of the magnitude of the claims that Dr. Davidson has brought against the debtors, had this claim not been disposed of when it was, Magellan actually would not have been able to emerge from bankruptcy. The debtors reasonably

relied on the stipulation that he voluntarily signed and asked for back in December in order to emerge from bankruptcy in January. JUDGE BEATTY: the other side. DR. DAVIDSON: Your Honor, Let me hear from

Robert Davidson, M.D. appearing pro se.

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1 2 3 4 5 6 claimants.

Proceedings I am a claimant and my wife is a claimant, Vanessa E. Komar. JUDGE BEATTY: No. You are not

You agreed to have your Page 12

claims eliminated.

55758 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. DAVIDSON: Yes, Your Honor.

I have moved this Court under Rule 60(b) to give strong consideration to revoking -JUDGE BEATTY: There is no

basis for revoking a consent to withdraw your claims. You are not a pro se of the

sort that is of limited education and doesn't know what they are doing. I am

assuming that you withdrew your claims, because you wished to proceed with the rest of your actions and didn't believe that you would get enough from Magellan to make it worthwhile litigating against Magellan. DR. DAVIDSON: not correct, Your Honor. That is actually The threat of a

contempt citation and further attorneys' fees and costs --

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Proceedings JUDGE BEATTY: Didn't you

bother to find out what the automatic stay said? DR. DAVIDSON: In my view the

automatic stay was obtained through fraud upon this Court. JUDGE BEATTY: The automatic

stay could not possibly have been Page 13

55758 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 obtained through fraud upon this Court. It is provided for in a statute enacted by the Congress of the United States. DR. DAVIDSON: If that is true,

Your Honor, why did the debtors choose to lie in wait until June to notify the U.S. District Court that the stay was in place? JUDGE BEATTY: Because the

debtors had a lot to do, and maybe you weren't doing anything at that point in the litigation. But that stay comes from It was in there

the Bankruptcy Code.

from the day the case was filed, and that is that. fraud. It can't possibly be a somehow It wasn't obtained pursuant to an

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Proceedings Once they filed the case, there You were stuck. You could not Before you

proceed with your action.

sign a legal paper, you get legal counsel. Are you prosecuting this action

by yourself? DR. DAVIDSON: Yes. For

reasons that are in substantial measure due to the ongoing conspiracy of at least three of the debtors in the Magellan chapter 11 proceeding. Page 14

55758 13 14 15 16 17 18 19 20 21 22 23 24 25 fraud? DR. DAVIDSON: Fraud in Vivra, JUDGE BEATTY: conspiracy did they have? DR. DAVIDSON: A conspiracy to What kind of a

conceal fraud, intrinsic fraud, from this Court, which they have succeeded in doing. JUDGE BEATTY: What kind of

Inc.'s recruitment of my employment contract with an Arizona corporation. JUDGE BEATTY: know something? Do you want to

There is nothing you can

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Proceedings do about the fraud, except file a proof of claim; and you stipulated to that claim being expunged. Too bad. So sad.

There is no such thing as a non-dischargeable claim against a corporation. It makes no difference that

it was based, in your view, on fraud. DR. DAVIDSON: Even extrinsic

JUDGE BEATTY:

Neither

extrinsic nor intrinsic fraud nor any other type of fraud is the basis for finding a claim nondischargeable against a corporation. All claims against Page 15

55758 16 17 18 19 20 21 22 23 24 25 corporations can be discharged. DR. DAVIDSON: But there is a

vehicle in law to revoke a discharge. JUDGE BEATTY: That vehicle in

law is not really relevant to corporations. There is a major

distinction in the law between individuals and corporations. that you have only knowledge of individual bankruptcies. It is true that I think

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Proceedings an individual cannot discharge certain fraud claims. It is not true that a There is no basis

corporation cannot.

for objecting to a claim in a corporate case. That is, there is no basis for

asking that it survive confirmation on the basis of fraud. This is a policy

issue, and it is related to the fact that in an individual 7 there is only the debtor to be concerned about. In a

chapter 11 case there are other creditors to be concerned about and the amounts they will receive. In Magellan there

were thousands of creditors, is my recollection. I am sorry but the fact is

fraud doesn't win the day. DR. DAVIDSON: Even intentional Page 16

55758 19 20 21 22 23 24 25 fraud targeted at obtaining the discharge order? JUDGE BEATTY: discharge order. It is not a

It is an order of

confirmation, and I don't know what you mean by "targeted in obtaining it." I

certainly don't think that you rose to

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 duress. coercion?

Proceedings any great level in the Magellan case. There were many, many, many issues in Magellan that were resolved. just one of them. DR. DAVIDSON: I have alleged You were

injury and damages to me and my spouse in excess of $15 million. JUDGE BEATTY: You stipulated They

to the withdrawal of your claims. are gone. DR. DAVIDSON:

Under duress and

JUDGE BEATTY:

There was no The

There was no coercion.

person that acts as their own lawyer is a fool for a lawyer. I am saying to you

that I don't think that you bothered to find out what your rights were or you realized that you had no possibility of having this claim survive. Really there Page 17

55758 22 23 24 25 is no basis for vacating that stipulation. It was relied upon by the You were

debtors in confirming the case.

not talking about a claim of $125,000

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Proceedings where somebody in your office might have made a mistake. large claim. You are talking about a

It would have affected

confirmation of the case potentially. The parties have relied on the fact that no distribution needs to be made on your claim. That is that. You made a

stipulation, and now there is reliance on it. DR. DAVIDSON: For the record,

may I ask this Court to certify this final judgment on this particular question as appealable? JUDGE BEATTY: it as appealable, no. isn't. I can't certify It either is or it

You are making a motion that I

view as a motion for reconsideration, which is reconsideration of your wife's claims based on your stipulation in which you stipulated to have those claims disallowed. It is either an appealable The subject of

order or it is not.

appeals in bankruptcy is very complex, Page 18

55758 25 and I am not prepared to offer an opinion

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Proceedings to you as to whether a motion for reconsideration is appealable. I

certainly think that your motion for revocation of the discharge is ill founded because the confirmation of a large corporate case is not something that one should undo lightly. Since you

stipulated to the discharge of your claims, I don't see where there is any basis for revocation of the order of confirmation. That is the only thing

that could be revoked -- the order of confirmation. Because the debtors'

discharge, if I might say that, is part of the order confirmation. DR. DAVIDSON: Does this Court

not give importance to concerns I have that are procedural relative to selective docketing? JUDGE BEATTY: by "selective docketing"? DR. DAVIDSON: Your Honor, What do you mean

debtors' counsel provided a copy of an e-mail to my attention, and I have here

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Proceedings e-mailed back to debtors' counsel exhibits in support of my objection to their motion to dismiss, bankruptcy memo of points, memorandum of points, and objection to the dismissal. This was all

filed with this Court, and it never appeared. JUDGE BEATTY: Sir, the Court In

has an electronic case filing system. order for your papers to be filed, you must comply with the rules and

regulations governing the electronic case filing system. Among other things, you

must take training before you are allowed to docket onto that system. If you do

not have that training, then you must send a hard copy of those papers, along with a diskette, with a request that they be docketed. But it really doesn't

matter, because the fact of the matter is that you consented to have your claims expunged. It doesn't matter what you

told me about whether it was right or wrong. You solved the problem. I didn't

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55758 have to rule on your motion. DR. DAVIDSON: The affidavits

filed by Michael P. McQuillen influenced, in my view, the holdings of the U.S. District Court in Arizona. That

affidavit, a sworn affidavit, has a number of -JUDGE BEATTY: I don't care That case is

what happened in that case. totally independent. DR. DAVIDSON:

But the

affidavit to your Court, that is totally not relevant to this proceeding? JUDGE BEATTY: you: I am saying to

you stipulated to a disallowance of That stipulation, that is

your claims. it.

DR. DAVIDSON:

But prior to

that stipulation, which I maintain was under duress and coercion, the Federal Judge in the Arizona District Court dismissed my case under Younger abstention, and I believe that that decision was impacted by the sworn

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Proceedings affidavit by Mr. McQuillen. JUDGE BEATTY: Younger

abstention is not impacted by anything Page 21

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55758 other than jurisdictional issues.

What

did that affidavit say that so impacted the Judge? DR. DAVIDSON: The Arizona

courts for the record stripped me of my attorney of record. JUDGE BEATTY: Why did they

strip you of your attorney of record? DR. DAVIDSON: He withdrew four

months before the scheduled trial date under the auspices under color of a Arizona statute which was in my view unconstitutional. JUDGE BEATTY: statute say? DR. DAVIDSON: It basically What did that

allows counsel to decide amongst themselves when either counsel can withdraw from the proceeding from my representation. I had retained this

legal counsel and we entered into --

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Proceedings JUDGE BEATTY: That is

something that you needed to take up there. Normally in this court you can

withdraw only if you make a motion on notice to the party that you represent. DR. DAVIDSON: But there was no Page 22

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55758 process given to them stripping my attorney from me. That is the point. That is You

JUDGE BEATTY:

something for that court to take up.

could challenge the constitutionality or whatever. DR. DAVIDSON: Relevant to

today's hearing, I have got Mr. McQuillen's affidavit and I quote from paragraph 10: Although the 2000

annual report identifies -JUDGE BEATTY: We can't

possibly follow you at that rate of speed. DR. DAVIDSON: again. I will try it

This is on page 3 paragraph 10 of

Mr. McQuillen's affidavit of Michael McQuillen.

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Proceedings JUDGE BEATTY: changed pages. DR. DAVIDSON: I am just I think you just

letting the transcriptionist know where I am quoting. JUDGE BEATTY: You told us that

you were quoting from another place. DR. DAVIDSON: paragraph 10, I quote: Page 3, "Although the Page 23

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55758 2000 annual report identifies Vivra, Inc. as a shareholder holding more than 20 percent of the shares ..." JUDGE BEATTY: Slow down.

"... identifies Vivra, Inc. ..." DR. DAVIDSON. "... as a

shareholder holding more than 20% of the shares of ..." -- and this is in caps. This is an acronym for a long-winded corporate name. It is -- "... VAACAA,

Vivra, Inc. does not in fact possess any stock certificates evidencing such ownership and has no record of owning any such interest at that time or any time." But here this is -- I will

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Proceedings finish this paragraph, because that is what I find to be really the basis of their fraud or their intentional fraud upon this Court, rather it goes on. I

guess this will put this last sentence in context. That is why I am reading the "The persons whose

whole paragraph 10.

signatures appear on the annual report were not employees, representatives or agents of Vivra, Inc. The officers and

directors of VAACAA identified on that annual report were not employees or Page 24

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55758 directors of Vivra, Inc. and had no relationship with Vivra, Inc. at any time after February 29, 2000." JUDGE BEATTY: But what does

that have to do with this Younger abstention? DR. DAVIDSON: I believe it was

inappropriate use of the doctrine of -JUDGE BEATTY: Could you just

tell me what the Judge did? DR. DAVIDSON: Dismissed with

prejudice my complaint, the first amended

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 am saying. my case.

Proceedings complaint in the U.S. District Court in Arizona that named, amongst others, Vivra, Inc., Magellan Specialty Health, Inc., and Allied Specialty Care Services, Inc. JUDGE BEATTY: So before you

withdrew your claim that Court had already ruled against you? DR. DAVIDSON: It had dismissed

JUDGE BEATTY:

That is what I

DR. DAVIDSON:

That was a

dismissal with prejudice, Your Honor -my claim in that Court was the basis for Page 25

55758 17 18 19 20 21 22 23 24 25 claim. JUDGE BEATTY: stipulated to dismiss it. DR. DAVIDSON: But there -So you my filing the claim. JUDGE BEATTY: So when it was

dismissed with prejudice, you didn't have a claim there. DR. DAVIDSON: I didn't have a

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Proceedings JUDGE BEATTY: Because you

didn't have a claim, because it had been ruled against in this other court. DR. DAVIDSON: But the final It is

verdict is not in, Your Honor.

before the Ninth Circuit Court of Appeals right now. JUDGE BEATTY: That is too bad.

You agreed to dismissal of your claims after they had been dismissed by the federal court, and that is that. it. It is done. It is finished. You did It is

over in this court.

You cannot proceed

against any of the debtors before the Ninth Circuit. claim. You have no stipulated

You stipulated you had no claim.

Even if you had had an allowed claim, you would be barred by the discharge Page 26

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55758 contained in the order of confirmation from pursuing any claim against the debtors. DR. DAVIDSON: Does that apply

to the Second Circuit U.S. District Court?

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Proceedings JUDGE BEATTY: applies to any court. a claim in any court. Absolutely. It

You may not pursue All claims against

the Magellan debtors have been -- I would say that they are discharged by the order of confirmation, and the order contains a stay precluding lawsuits. DR. DAVIDSON: But Bankruptcy

JUDGE BEATTY: DR. DAVIDSON:

9024 says what? And Federal Rule

of Civil Procedure Rule 60(b). JUDGE BEATTY: DR. DAVIDSON: any holder -JUDGE BEATTY: You have made a 9024, yes? Basically, if

request that I reconsider your claim, and I have denied that request. There is

also a provision that says that a complaint to revoke or discharge a chapter 7 may be filed. Not relevant. Page 27

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55758 If the claims revoke an order confirming the plan they may be filed only within the time allowed by certain sections.

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Proceedings Now, there is no possibility that I would revoke the discharge in this case, because the discharge in this case on the basis of somehow your having a claim that you stipulated was to be disallowed in this case, and you so stipulated after the lower court dismissed your case with prejudice. is not the type of grounds for which someone will revoke an order of confirmation. You revoke orders of That

confirmation if, and only if, the order was procured by fraud. None of the

allegations that you have made are ones which would be within the scope of that, because it is the order of confirmation itself that has to be procured by fraud. The disallowance of your claim, you signed up. If you did not understand the

words, these books, what do they cost? $50 or $75. You can read the words in But I am saying to

them perfectly well.

you is your claim, having been disallowed on yours and your wife's signature, could Page 28

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Proceedings not have been a basis for procuring confirmation by fraud. I have been on the bench for over 20 years, and I confirm a lot, a lot of cases. I have had only one case in

which there is an allegation that there was fraud in the conversion of the case because of failure to disclose property. You just don't revoke confirmation on the grounds of fraud in a large case. It is

not something that happens, because the fraud would have to be somehow -- I can hardly think of an example. I suppose if

the debtor advised the creditors that it had an assigned line with the bank of $100 million and provided a false document to the committee that said that that is what they had and the case was confirmed on that basis, because that was the amount of money that was required, that would presumably be a case where confirmation was obtained by fraud. But

it has to be something that was related to the plan and somehow funding it before

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55758 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Proceedings you get or the failure to disclose some significant assets so that they weren't part of the plan. There is just nothing

about what you are arguing that does anything. DR. DAVIDSON: The final plan

didn't go into effect until January of 2004, is my understanding, where the order of confirmation was August 8th, I believe -- or October 8th. JUDGE BEATTY: I am sorry.

But once the

order of confirmation was signed, it controlled, and the things that took place thereafter were provided for in the plan and were discussed in the disclosure statement. It is not uncommon to

finalize the financing and other arrangements post-confirmation. I had a case just this last December, where I had confirmed it in early November. Between December 8th and

December 18th, the debtors put on a road show that raised $1 billion. They closed

it on December 20th, which was a month

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Proceedings after confirmation, because the case had to be fully confirmed. That is, all Page 30

55758 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 action had to be fully taken by December 31st. This is quite common for people to line up financing either preliminarily before confirmation or after confirmation, because the lenders want to know what is really going to happen. DR. DAVIDSON: But I don't see

how Mr. McQuillen's affidavit doesn't go directly to an assault in your court on my and my wife's -JUDGE BEATTY: to have them disappear. sad. They are gone. DR. DAVIDSON: this document -JUDGE BEATTY: You could have You You But it is due to You stipulated So sorry. So

come in here and told me anything. didn't have to stipulate to this.

could have come in here and argued about it. Nobody told you to sign that You never came in and said

stipulation.

to me, "They are trying to get me to do

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Proceedings this and I don't want to." DR. DAVIDSON: By the time that

the stipulation was signed by me, the fraud upon this Court and the assault upon my action and my claims in two Page 31

55758 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 different federal courts, yours and the district -JUDGE BEATTY: Where was the

assault on your claim in my court that somehow -- was it something that I did that somehow precluded? DR. DAVIDSON: did, Your Honor. JUDGE BEATTY: But I am saying It was Not that you

to you, this was an 03 case. filed in 1983.

You are talking about a

document that dates from 1982, and you still haven't told me what he used the Younger doctrine for. DR. DAVIDSON: The Judge

abstained, claiming that my filings in Arizona interfered with an ongoing state litigation between another physician and myself. The other physician being a

36

1 2 3 4 5 6 7 8 9 question?

Proceedings codefendant, along with Magellan, Vivra, Inc., and Allied in the U.S. District Court action. Now, because of this -Can I ask you a

JUDGE BEATTY:

DR. DAVIDSON: JUDGE BEATTY: to work now?

Yes, Your Honor. Are you not able Page 32

55758 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DR. DAVIDSON: addressed -JUDGE BEATTY: a question. DR. DAVIDSON: JUDGE BEATTY: I can work now. Well, go out and I am asking you No one has

get a job and make some money and stop being bothered with this. claims against Magellan. You have no They are You are

gone -- period, end of story.

getting yourself obsessed, totally obsessed, with something which you will be lucky if you get $50,000 out of it. Now, you may have been wronged. I don't know. But I suggest that you go

and practice medicine, instead of trying

37

1 2 3 4 5 6 7 8 9 10 11 12 of equity.

Proceedings to practice law, which you don't have the training to do. get had." Just say, "Sometimes you

That is the way life is.

Sometimes things don't work out the way you had hoped. DR. DAVIDSON: This is a court

JUDGE BEATTY:

I know it is a

court of equity, but I confirmed the plan. Too bad. You stipulated to the

expungement of your claim. Courts of Page 33

55758 13 14 15 16 17 18 19 20 21 22 23 24 25 correct. correct. equity don't rehear things just because you changed your mind DR. DAVIDSON: Your court, Your

Honor, shares original and concurrent jurisdiction with the U.S. District Court for the Second Circuit. JUDGE BEATTY: That is not

It was not correct. DR. DAVIDSON: It hears matters

pertaining to chapter 11. JUDGE BEATTY: It was not

You have ignored the sections

which state that I may not hold and do

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Proceedings not have jurisdiction over personal injury claims. I do not have

jurisdiction over certain types of non-core claims. My jurisdiction is in

no way concurrent with the United States District Court's jurisdiction. an article 3 Judge. Judge. I am not

I am an article 1

That means that I cannot do

certain things that article 3 judges can do. I do not have lifetime tenure. The

jurisdiction is not, in fact, overlapping. There are some areas that

overlap, but there are some things that only the district court can do in Page 34

55758 16 17 18 19 20 21 22 23 24 25 bankruptcy. The thing that you have to recognize is that just as in medicine, you make progress along towards treating your patient and you can't redo what you did earlier. mistake. It is done. You made a

You cut off their leg and it It is gone. Well, The

really didn't have gangrene.

There is no way to put it back.

there is nothing to put back here.

39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Proceedings case has been confirmed. It was

confirmed after you and your wife stipulated to disallow your claim. You

stipulated to disallow your claim after the district court dismissed your claim with prejudice. DR. DAVIDSON: That was a

domino effect, and I was the last domino. My claim entered into the -JUDGE BEATTY: But I am saying You

to you, that is the way life is. made a decision DR. DAVIDSON:

But still it

troubles my sensibility, and probably the public should be concerned that a bankruptcy debtor can obtain their discharge confirmation along the basis of Page 35

55758 19 20 21 22 23 24 25 this document -JUDGE BEATTY: corporate debtor. That is a

But they didn't obtain You made a

it on the basis of that.

judgment that somehow you should accept that affidavit as true. to accept it as true. You didn't have You could have

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Proceedings taken the deposition of the man. You

could have tried to take the depositions of other people. I am saying to you, no matter how many papers you filed here, I never got to rule on them, because you stipulated to disallow your claim. DR. DAVIDSON: Your Honor, this

is a fact that needs to be looked at carefully, because there are e-mails to their legal counsel Christine Hsu, when I have provided copies to them ahead of the hearing on December 2nd -JUDGE BEATTY: But what I am

trying to say to you is -DR. DAVIDSON: selective docketing. JUDGE BEATTY: Are you talking This relates to

about selective docketing here? DR. DAVIDSON: I would like to Page 36

55758 22 23 24 25 know why -JUDGE BEATTY: Why? Because

you didn't have the authority to docket, because you didn't ever have the training

41

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 auspices. disk.

Proceedings and you didn't provide the papers in hard copy, along with a CD, in the right form to the clerk's office and ask them to docket the papers. DR. DAVIDSON: mean a floppy disk? JUDGE BEATTY: No. A hard A CD? Do you

DR. DAVIDSON:

I did provide

some on a 700-microbyte optical disk. JUDGE BEATTY: I am saying to

you, I do not control what the clerk's office does. I don't do it. There is a

clerk of the court. DR. DAVIDSON: It is under your

JUDGE BEATTY:

I am sorry to

say the clerk of the court is in charge of what the clerk's office does. I am

not in charge of the clerk of the court. I am serious. is. DR. DAVIDSON: When you say I Page 37 That is just the way it

55758 25 never made an effort to let you know of

42

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stop.

Proceedings my concerns relative to their fraud -JUDGE BEATTY: I said to you. DR. DAVIDSON: JUDGE BEATTY: said to you. I did. That is what I That is not what

I said to you that because

you settled your claim, I never had to rule on the matter and, therefore, in essence your papers were irrelevant. made a decision to have your claims disallowed. It wouldn't have mattered You

what I had read, because I can't give you legal advice. DR. DAVIDSON: So this matter

then, if it went to a -- is this a final -JUDGE BEATTY: Keep going. I

don't know what you were going to say before that. DR. DAVIDSON: If the U.S.

District for the Second Circuit -JUDGE BEATTY: Look, stop,

There is a Bankruptcy Court of the It is an

Southern District of New York.

Page 38

55758 43

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Proceedings article 1 court. There is the United

States District Court for the Southern District of New York. court. It is an article 3

It is above the bankruptcy court.

Above the district court, is the Second Circuit Court of Appeals, which sits for the three states of New York, Connecticut, and Vermont. DR. DAVIDSON: So there is a

U.S. District Court for the Southern District of New York? JUDGE BEATTY: Correct; which But what you

is Manhattan and The Bronx.

are trying to suggest is that somehow it matters that your papers weren't filed. It didn't matter that your papers weren't filed, because they never needed to be considered by me because you stipulated to the disallowance of your claim. you think that they still should be filed, you are welcome to try to deal with the clerk's office on that subject. DR. DAVIDSON: Here is the If

reorganized debtors' motion for this

44

1

Proceedings Page 39

55758 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you. JUDGE BEATTY: Well, I don't hearing today. JUDGE BEATTY: really care. DR. DAVIDSON: docketed and mine wasn't. JUDGE BEATTY: Then you didn't Their motion was Sir, I do not

give the papers to the right person with the right diskette to cause it to happen. DR. DAVIDSON: I gave them to

know where they are and I don't docket. DR. DAVIDSON: Your clerk's

office told me to send it to you. JUDGE BEATTY: I don't think

that that is what the clerk's office said to you, unless what the clerk's office thought you were asking them was about the order itself, rather than the document. You are welcome to go

downstairs and ask them to docket your motion. I have a copy of your motion.

It has been provided to me twice. But I am saying to you: the

45

1 2 3 4

Proceedings problem with your motion is that you stipulated to the withdrawal of your claim at a time when it was not Page 40

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

55758 unreasonable to stipulate to the withdrawal of your claim. been kicked out of court. DR. DAVIDSON: before the Ninth Circuit. JUDGE BEATTY: wasn't. DR. DAVIDSON: I have alleged I didn't say it That is still You had just

Constitutional and federal injury by the conspirators, and that includes the debtors. JUDGE BEATTY: the debtors. your appeal. You may not sue

You may not include them in You are precluded by the

order of confirmation and the stay, which is in the order of confirmation. I do

not want to have to hold you in contempt. That is not my desire. My desire is to

get you to stop doing what you are doing and to understand that you can't do it. I don't see any basis for

46

1 2 3 4 5 6 7

Proceedings setting aside your stipulation. voluntary. It was

It was made at a time when These kinds of

you had lost your claims.

stipulations are entered into all of the time. If I had to try all the claims in

a case, I would never finish. Page 41

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

DR. DAVIDSON:

55758 There are two

more paragraphs that are fraudulent representations to your Court in this affidavit. Now, there is another

memorandum of points and authorities by the debtors' legal counsel that has additional -- this is all cited, so I wouldn't quote the specifics, unless you wish me to. But paragraph 12 and paragraph 13 of Mr. McQuillen's sworn affidavit before this Court have intentional misrepresentations. JUDGE BEATTY: difference. Sir, it makes no

We are talking about

something that relates to your claim. They are presumably something. These

representations are something that this

47

1 2 3 4 5 6 7 8 9 10

Proceedings person believed to be true in connection with your claim. It did not and does not

relate to confirmation of the case as a whole. Your claim is too large for me to

reconsider at this point, and at this point you, in fact, do not have a claim because you have not prevailed before the Ninth Circuit. You stipulated to

disallow your claim after it had already Page 42

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

55758 been disallowed with prejudice by the federal court. be said. There is nothing else to

It does not matter what you

find in papers that you think is wrong. None of that makes any difference. The only thing that is relevant is that you entered into the stipulation. You could have sought counsel. debtor was not your counsel. well educated. The You are

I believe that you have

reviewed the Bankruptcy Code, since you can cite to me various sections of the Bankruptcy Code. You are barred by the

order of confirmation from suing the debtors in any court or in any fashion or

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Proceedings taking any action against them, which means with respect to the Ninth Circuit you need to withdraw whatever contentions you have made against the debtors. DR. DAVIDSON: do, reluctantly. Which I agree to

But I would agree to do

that before this Court. JUDGE BEATTY: I, in that case,

will not hold you in contempt. I am a one bite at the apple person, Mr. Davidson. one free shot with me. That means you get This was your Page 43

14 15 16 17 18 19 20 21 22 23 24 25

free shot. free.

55758 The next time, it is not

MS. HSU:

Your Honor, the Ninth

Circuit briefing by the debtors is due April 9th. JUDGE BEATTY: Do you think you

could possibly settle an order prior to April 9th, it currently being April 1st, and I don't think it is a good idea to sign orders on April 1st. MS. HSU: order to you. We can hand up an

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Proceedings JUDGE BEATTY: I just told you

that I don't think it is a good idea to sign orders on April 1st. MS. HSU: We will wait until

April 2nd, if that is all right with Your Honor. JUDGE BEATTY: Yes. Would you

please get Mr. Davidson to agree to the form of your order. MS. HSU: The debtors continue

to have some concern that there is not going to be an end to this, despite -JUDGE BEATTY: Did you hear I

what I just said to Mr. Davidson? believe he heard what I said, and I Page 44

17 18 19 20 21 22 23 24 25

55758 believe he understood what I said.

He

got his free bite at the apple today. The second one doesn't come free. MS. HSU: Honor. (Time noted: 4:29 p.m.) Thank you, Your

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Page 45 I, DEBORAH HUNTSMAN, a Shorthand Reporter and Notary Public within and for the State of New York, do hereby certify: That the within is a true and accurate transcript of the proceedings taken on the 1st day of April, 2004. I further certify that I am not related by blood or marriage to any of the parties and that I am not interested in the outcome of this matter. IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of April, 2004. C E R T I F I C A T E STATE OF NEW YORK ) : SS: COUNTY OF NEW YORK )

20 21 22 23 24 25

55758 DEBORAH HUNTSMAN

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