Washington Mutual (WMI) - Transcript of The Court Hearing On 2/8/2011

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2 UNITED STATES BANKRUPTCY COURT
3 DISTRICT OF DELAWARE
4 - - - - - - - - - - - - - - - - -*
5 In the Matters of: *
6 WASHINGTON MUTUAL, INC., et al., * Case No. 08-12229(MFW)
7 Debtors. *
8 - - - - - - - - - - - - - - - - -*
9 BROADBILL INVESTMENT CORP., *
10 Plaintiff, *
11 v. * Adv. Pro. No. 10-50911(MFW)
12 WASHINGTON MUTUAL, INC., *
13 Defendant. *
14 - - - - - - - - - - - - - - - - -*
15 MICHAEL WILLINGHAM and ESOPUS *
16 CREEK VALUE LP, *
17 Plaintiffs, *
18 v. * Adv. Pro. No. 10-51297(MFW)
19 WASHINGTON MUTUAL, INC., *
20 Defendant. *
21 - - - - - - - - - - - - - - - - -*
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VERITEXT REPORTING COMPANY

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2 - - - - - - - - - - - - - - - - -*
3 WASHINGTON MUTUAL, INC. and *
4 WMI INVESTMENT CORP. *
5 Plaintiffs, *
6 v. * Adv. Pro. No. 10-53420(MFW)
7 PETER J. AND CANDANCE R. ZAK *
8 LIVING TRUST OF 2001 U/D/O *
9 AUGUST 31, 2001, et al., *
10 Defendants. *
11 - - - - - - - - - - - - - - - - -*
12
13 United States Bankruptcy Court
14 824 North Market Street
15 Wilmington, Delaware
16
17 February 8, 2011
18 10:31 AM
19
20 B E F O R E:
21 HON. MARY F. WALRATH
22 U.S. BANKRUPTCY JUDGE
23
24 ECR OPERATOR: BRANDON MCCARTHY
25

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2 HEARING re Debtor's First Omnibus (Substantive) Objection to
3 Claims
5 HEARING re Debtors' Fifth Omnibus (Substantive) Objection to
6 Claims
8 HEARING re Debtors' Seventh Omnibus (Non-Substantive) Objection
9 to Claims
10
11 HEARING re Motion to Approve Pursuant to Sections 105 and 363
12 of the Bankruptcy Code, Procedures for the Sale of Certain
13 Intellectual Property
14
15 HEARING re Debtors Nineteenth Omnibus (Substantive) Objection
16 to Claims
17
18 HEARING re Debtors' Twenty-First Omnibus (Substantive)
19 Objection to Claims
20
21 HEARING re Debtors' Twenty-Third Omnibus (Substantive)
22 Objection to Claims (Claim Nos. 2463, 2470, 2500, and 2505)
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2 HEARING re Objection to Claim by Claimant(s) Robert Alexander
3 and James Reed, Individually and on Behalf of Others Similarly-
4 Situated
6 HEARING re Objection to Claim by Claimant(s) Tranquility Master
7 Fund, Ltd. (Claim No. 2206)
9 HEARING re Debtors' Amended Thirty-Second Omnibus (Substantive)
10 Objection to Claims (Claim Nos. 3812, 2689, 3174, 3179, 3187)
11
12 HEARING re Debtors' Forty-Sixth Omnibus (Non-Substantive)
14
15 HEARING re Debtors' Fifty-Fourth Omnibus (Non-Substantive)
17
18 HEARING re Debtors' Fifty-Fifth Omnibus (Substantive) Objection
19 to Claims
20
21 HEARING re Debtors' Fifty-Sixth Omnibus (Substantive) Objection
22 to Claims
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2 HEARING re Debtors' Motion to Estimate Maximum Amount of
3 Certain Claims for Purposes of Establishing Reserves Under the
4 Debtors' Confirmed Chapter 11 Plan
6 HEARING re Debtors' Twenty-Ninth Omnibus (Substantive)
7 Objection to Claims Filed by Morgan Stanley & Co., Inc.,
8 Goldman, Sachs & Co., and Credit Suisse Securities (USA) LLC
9 (Claim Nos. 2584, 2909 and 3794) Pursuant to Section 510(b) of
10 the Bankruptcy Code
11
12 HEARING re Motion of Daniel Hoffman to Reconsider Order Denying
13 Request to Unseal Documents
14
15 HEARING re Motion of the Official Committee of Equity Security
16 Holders for an Order Pursuant to Bankruptcy Rule 2004 and Local
17 Bankruptcy Rule 2004-1 Directing the Examination of the
18 Washington Mutual, Inc. Settlement Noteholders
19
20 HEARING re The Official Committee of Equity Security Holders'
21 Petition, Pursuant to 11 U.S.C. Section 105(a), 28 U.S.C.
22 Section 158(d)(2), and Fed. R. Bankr. P. 8001(f), for
23 Certification of Direct Appeal to the United States Court of
24 Appeals for the Third Circuit of the Opinion and Order Denying
25 Plan Confirmation

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2 HEARING re Motion for Reconsideration of Order Estimating
3 Maximum Amount of LTW Claims for Purposes of Establishing
4 Reserves
6 DISCOVERY and SCHEDULING CONFERENCE re Broadbill Investment
7 Corp., Nantahala Capital Partners, LP, and Blackwell Capital
8 Partners, LLC v. Washington Mutual, Inc. (Adversary Proceeding
9 No. 10-50911); Motion to Schedule a Discovery Conference Filed
10 by Blackwell Capital Partners, LLC, Broadbill Investment Corp.,
11 Nantahala Capital Partners, LP
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25 Transcribed by: Lisa Bar-Leib

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2 A P P E A R A N C E S:
3 WEIL, GOTSHAL & MANGES LLP
4 Attorneys for the Debtors and Debtors-in-Possession
5 767 Fifth Avenue
6 New York, NY 10153
8 BY: BRIAN S. ROSEN, ESQ.
9 PATRICIA ASTORGA, ESQ. (TELEPHONICALLY)
10 KELLY DIBLASI, ESQ. (TELEPHONICALLY)
11 DIANA M. ENG, ESQ. (TELEPHONICALLY)
12 JULIO C. GURDIAN, ESQ. (TELEPHONICALLY)
13 DAVID LITVACK, ESQ. (TELEPHONICALLY)
14 ALEXANDER NG, ESQ. (TELEPHONICALLY)
15 RAHUL K. SHARMA, ESQ. (TELEPHONICALLY)
16
19 1300 Eye Street, NW
20 Suite 900
21 Washington, DC 20005
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23 BY: ADAM P. STROCHAK, ESQ.
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4 100 Federal Street
5 Floor 34
6 Boston, MA 02110
8 BY: LISA N. CLOUTIER, ESQ.
9 VIRGINIA H. JOHNSON, ESQ.
10 (TELEPHONICALLY)
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12 RICHARDS, LAYTON & FINGER, P.A.
14 One Rodney Square
15 920 North King Street
16 Wilmington, DE 19801
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18 BY: CHUN I. JANG, ESQ.
19 MARK D. COLLINS, ESQ.
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2 ELLIOTT GREENLEAF
3 Special Litigation and Conflicts Counsel to the Debtors
4 and Debtors-in-Possession
5 1105 Market Street
6 Suite 1700
9 BY: NEIL R. LAPINSKI, ESQ.
10
11 QUINN EMANUEL URQUHART & SULLIVAN LLP
13 51 Madison Avenue
14 22nd Floor
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17 BY: BENJAMIN I. FINESTONE, ESQ.
18 PETER E. CALAMARI, ESQ. (TELEPHONICALLY)
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2 AKIN GUMP STRAUSS HAUER & FELD LLP
3 Attorneys for the Official Committee of Unsecured
4 Creditors
5 One Bryant Park
8 BY: ROBERT A. JOHNSON, ESQ.
9 FRED S. HODARA, ESQ.
10 ROBERT J. BOLLER, ESQ. (TELEPHONICALLY)
11 CHRISTOPHER W. CARTY, ESQ. (TELEPHONICALLY)
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13 AKIN GUMP STRAUSS HAUER & FELD LLP
15 Creditors
16 2029 Century Park East
17 Suite 2400
18 Los Angeles, CA 90067
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20 BY: BRIAN M. ROTHSCHILD, ESQ.
21 DAVID P. SIMONDS, ESQ.
22 (TELEPHONICALLY)
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2 PEPPER HAMILTON LLP
4 Creditors
5 Hercules Plaza
7 Suite 5100
10 BY: DAVID B. STRATTON, ESQ.
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12 U.S. DEPARTMENT OF JUSTICE
13 Office of the United States Trustee
14 844 King Street
15 Room 2207
16 Lockbox #35
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19 BY: JANE LEAMY, TRIAL ATTORNEY
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2 ANDREWS KURTH LLP
3 Attorneys for Broadbill Investment Corp.
4 450 Lexington Avenue
7 BY: PAUL N. SILVERSTEIN, ESQ.
9 ANDREWS KURTH LLP
10 Attorneys for Broadbill Investment Corp.
11 450 Lexington Avenue
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14 BY: JEREMY RECKMEYER, ESQ.
15 (TELEPHONICALLY)
16
17 ARCHER & GREINER, P.C.
18 Attorneys for Daniel Hoffman
19 300 Delaware Avenue
20 Suite 1370
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23 BY: CHARLES J. BROWN, III, ESQ.
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2 ARCHER & GREINER, P.C.
3 Attorneys for Daniel Hoffman
4 One Centennial Square
5 33 East Euclid Avenue
6 Haddonfield, NJ 08033
8 BY: JOHN V. FIORELLA, ESQ.
10 ARENT FOX LLP
11 Attorneys for Wilmington Trust Company
12 1675 Broadway
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15 BY: LEAH M. EISENBERG, ESQ.
16 (TELEPHONICALLY)
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18 ARENT FOX LLP
19 Attorneys for Wilmington Trust Company
20 1050 Connecticut Avenue, NW
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23 BY: JEFFREY N. ROTHLEDER, ESQ.
24 (TELEPHONICALLY)
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2 ASHBY & GEDDES, P.A.
3 Attorneys for the Official Committee of Equity
4 Noteholders
5 500 Delaware Avenue
8 BY: GREGORY A. TAYLOR, ESQ.
10 BLANK ROME LLP
11 Attorneys for Appaloosa Management, L.P.; Aurelius
12 Capital Management, LP; Centerbridge Partners, L.P.; Owl
13 Creek Management, L.P.
15 Suite 800
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18 BY: VICTORIA A. GUILFOYLE, ESQ.
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2 BROWN RUDNICK LLP
3 Attorneys for the Ad Hoc Group of Trust Preferred Holders
4 Seven Times Square
7 BY: LAURA F. WEISS, ESQ.
8 (TELEPHONICALLY)
10 BROWN RUDNICK LLP
12 One Financial Center
13 Boston, MA 02111
14
15 BY: JEREMY B. COFFEY, ESQ.
16 (TELEPHONICALLY)
17
18 CAMPBELL & LEVINE, LLC
20 800 North King Street
21 Suite 300
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24 BY: MARLA R. ESKIN, ESQ.
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2 DLA PIPER
3 Attorneys for FDIC, Receiver
4 1251 Avenue of the Americas
7 BY: THOMAS R. CALIFANO, ESQ.
9 EDWARDS ANGELL PALMER & DODGE LLP
10 Attorneys for the Law Debenture Trust Company of New York
12 15th Floor
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15 BY: R. CRAIG MARTIN, ESQ.
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17 FOX & ROTHSCHILD LLP
18 Attorneys for Wells Fargo Bank, N.A.
19 Suite 1300
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23 BY: SETH A. NIEDERMAN, ESQ.
24 L. JOHN BIRD, ESQ.
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2 FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
3 Attorneys for Appaloosa Management, L.P.; Aurelius
4 Capital Management, LP; Centerbridge Partners, L.P.; Owl
5 Creek Management, L.P.
6 One New York Plaza
9 BY: SHANNON L. NAGLE, ESQ.
10 MICHAEL B. DE LEEUW, ESQ.
11 STEVEN M. WITZEL, ESQ.
12 CARL I. STAPEN, ESQ. (TELEPHONICALLY)
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14 KING & SPALDING LLP
15 Attorneys for Nantahala Capital Partners, LP
18
19 BY: ARTHUR J. STEINBERG, ESQ.
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2 KRAMER LEVIN NAFTALIS & FRANKEL LLP
3 Attorneys for Aurelius Capital Management, LP;
7 BY: THOMAS MOERS MAYER, ESQ.
8 JEFFREY S. TRACHTMAN, ESQ.
10 LANDIS RATH & COBB LLP
11 Attorneys for JPMorgan Chase Bank, N.A.
12 919 Market Street, Suite 1800
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15 BY: ADAM LANDIS, ESQ.
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17 LATHAM & WATKINS LLP
18 Attorneys for Centerbridge Partners, L.P.
19 885 Third Avenue
20 Suite 1000
22
23 BY: RICHARD D. OWENS, ESQ.
24 MARK A. BROUDE, ESQ.
25 AARON M. SINGER, ESQ. (TELEPHONICALLY)

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2 LATHAM & WATKINS LLP
3 Attorneys for Centerbridge Partners, L.P.
4 233 South Wacker Drive
5 Suite 5800
6 Chicago IL 60606
8 BY: DAVID S. HELLER, ESQ.
10 LOEB & LOEB LLP
11 Attorneys for Wells Fargo Bank, N.A.
12 345 Park Avenue
14
15 BY: VADIM J. RUBENSTEIN, ESQ.
16 WALTER H. CURCHACK, ESQ. (TELEPHONICALLY)
17
18 LOWENSTEIN SANDLER, PC
19 Attorneys for Lead Plaintiffs in Securities Litigation;
20 Lead Plaintiffs in MBJ Litigation
21 65 Livingston Avenue
22 Roseland, NJ 07068
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24 BY: IRA M. LEVEE, ESQ.
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2 MILBANK, TWEED, HADLEY & MCCLOY LLP
3 Attorneys for Washington Mutual, Inc.
4 One Chase Manhattan Plaza
7 BY: ANDREW J. YOUNG, ESQ.
8 (TELEPHONICALLY)
10 MONZACK MERSKY MCLAUGHLIN AND BROWDER, P.A.
11 Attorneys for Kerry K. Killinger
12 1201 North Orange Street
13 Suite 400
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16 BY: RACHEL B. MERSKY, ESQ.
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2 PACHULSKI STANG ZIEHL & JONES LLP
3 Attorneys for Washington Mutual Bank Bondholders
4 10100 Santa Monica Boulevard
5 11th Floor
8 BY: DEAN A. ZIEHL, ESQ.
9 ALAN J. KORNFELD, ESQ.
10 JEREMY V. RICHARDS, ESQ.
11 (TELEPHONICALLY)
12
13 PATTERSON BELKNAP WEBB & TYLER LLP
14 Attorneys for Creditor, Law Debenture Trust Company of
15 New York
18
19 BY: BRIAN P. GUINEY, ESQ.
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2 PAUL, HASTINGS, JANOFSKY & WALKER LLP
3 Attorneys for Appaloosa Management, L.P.
4 75 East 55th Street
7 BY: BARRY G. SHER, ESQ.
8 MARIA E. DOUVAS, ESQ.
10 PILLSBURY WINTHROP SHAW PITTMAN LLP
11 Attorneys for Bank of New York Mellon
12 1540 Broadway
14
15 BY: LEO T. CROWLEY, ESQ.
16 MARGOT P. ERLICH, ESQ.
17 (TELEPHONICALLY)
18
19 SCHULTE ROTH & ZABEL LLP
20 Attorneys for Owl Creek Management, L.P.
21 919 Third Avenue
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24 BY: ADAM C. HARRIS, ESQ.
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2 STUTMAN TREISTER & GLATT
3 Attorneys for Elliott Management
4 1901 Avenue of the Stars, 12th Floor
7 BY: K. JOHN SHAFFER, ESQ.
8 (TELEPHONICALLY)
10 SULLIVAN & CROMWELL LLP
12 125 Broad Street
14
15 BY: BRIAN D. GLUECKSTEIN, ESQ.
16 STACEY R. FRIEDMAN, ESQ. (TELEPHONICALLY)
17 BRUCE E. CLARK, ESQ. (TELEPHONICALLY)
18 JOSHUA J. FRITSCH, ESQ. (TELEPHONICALLY)
19 M. DAVID POSSICK, ESQ. (TELEPHONICALLY)
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4 1888 Century Park East
7 BY: ROBERT A. SACKS, ESQ.
8 HYDEE R. FELDSTEIN, ESQ.
9 (TELEPHONICALLY)
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13 1701 Pennsylvania Avenue, N.W.
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16 BY: BRENT J. MCINTOSH, ESQ.
17 (TELEPHONICALLY)
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19 SUSMAN GODFREY LLP
20 Co-Counsel to Official Committee of Equity Holders
21 560 Lexington
22 15th Floor
24
25 BY: SETH D. ARD, ESQ.

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2 SUSMAN GODFREY LLP
3 Co-Counsel to Official Committee of Equity Holders
4 1201 Third Avenue
5 Suite 3800
6 Seattle, WA 98101
8 BY: EDGAR G. SARGENT, ESQ.
9 JUSTIN A. NELSON, ESQ. (TELEPHONICALLY)
10
11 WHITE & CASE LLP
12 Attorneys for the Committee of Bondholders
15
16 BY: GERARD UZZI, ESQ.
17 GREGORY M. STARNER, ESQ.
18 KATHERINE MONAHAN, ESQ. (TELEPHONICALLY)
19 THOMAS MACWRIGHT, ESQ. (TELEPHONICALLY)
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2 YOUNG CONAWAY STARGATT & TAYLOR, LLP
3 Attorneys for FDIC, Receiver
4 The Brandywine Building
5 1000 West Street
6 17th Floor
9 BY: M. BLAKE CLEARY, ESQ.
10
11 ALSO APPEARING:
12 NATE THOMA, IN PRO PERSONA
13 On Behalf of Himself as Shareholder of Various WMI
14 Securities
15 105 South Jefferson Street
16 Wenonah, NJ 08090
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18 BY: NATE THOMA, PRO SE
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WASHINGTON MUTUAL, INC., et al.
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1 P R O C E E D I N G S
2 THE CLERK: All rise. You may be seated.
3 THE COURT: Good morning.
4 MR. ROSEN: Good morning, Your Honor. Brian Rosen,
5 Adam Strochak, Weil Gotshal, on behalf of the debtors. With us
6 here also representing the debtors, Mr. Collins and Mr. Jang
7 from Richards Layton and Mr. Finestone from Quinn Emanuel.
8 Your Honor, although it's not on the agenda, I just
9 thought it would be helpful to start with just a brief update
10 as to where we are in the process so the Court is aware. Your
11 Honor, this morning, the debtors filed the modified sixth
12 amended plan, corresponding supplemental disclosure statement
13 as we had indicated, together with all of the exhibits to those
14 documents.
15 Your Honor, when we were before you on January 20th,
16 the Court had, based upon the discussions that we had then and
17 the timing that we thought we would be filing that, given us
18 some tentative dates for a disclosure statement hearing and
19 confirmation. And we had been in contact with the Court's
20 chambers to talk about possible other dates and, in fact, the
21 Court had set aside one and we missed that one again. We don't
22 want to shorten any of the bankruptcy rule timetable of the
23 twenty-eight days, Your Honor. So with the filing that we made
24 this morning and based upon our discussions with the Court, the
25 Court has been able to provide us with a disclosure statement

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1 hearing for 10:30 on March 21st. And we will be sending out
2 later today the notice of that hearing. And obviously, that's
3 well in excess of the twenty-eight days that are required by
4 the new bankruptcy rules.
5 Likewise, Your Honor, and for the benefit of the
6 people here in the courtroom, we've been told that, based upon
7 the Court's availability, that if the Court were to approve the
8 disclosure statement that the confirmation hearing will be held
9 on May 2nd at 9:30. And that was because of the Jewish
10 holidays intervening and, I believe, the Court's calendar
11 itself being jammed.
12 So that is the time frame that we are looking for
13 right now, Your Honor. As I indicated, we will be sending out
14 the notice of the confirmation -- excuse me -- of the
15 disclosure statement hearing and the objection period later
16 today.
17 With that, Your Honor, I believe that takes us to item
18 number -- and I want to make sure I get it right -- 32 -- 31,
19 excuse me, in the agenda which is on page 32. And the first
20 item on the calendar is the motion of Daniel Hoffman to
21 reconsider. So I'll -- Mr. Hoffman's counsel's here.
23 MR. FIORELLA: Good morning, Your Honor. John
24 Fiorella of Archer & Greiner appearing for Daniel Hoffman.
25 Your Honor, this is a motion for reconsideration of the prior

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1 motion to unseal a submission by the equity committee on which
2 the Court determined -- or, more accurately, the debtor
3 consented to the appointment of an examiner.
4 I think that the issue that the reconsideration was
5 originally based on was the belief that the particular document
6 had been disclosed to the United States trustee, the FDIC and
7 other interested parties and chambers. The debtor represented
8 in its response that that did not, in fact, occur. And Your
9 Honor certainly knows that it did not, in fact, occur.
10 THE COURT: Correct.
11 MR. FIORELLA: So that is withdrawn as a basis --
12 THE COURT: Okay.
13 MR. FIORELLA: -- for the reconsideration.
14 THE COURT: No documents were exchanged in chambers.
15 MR. FIORELLA: Now -- but where we are is that I think
16 Your Honor's prior decision was based, in part, upon the belief
17 that there was a joint defense or common interest privilege
18 that attached to the document. And we've submitted in the
19 moving papers the Teleglobe decision which makes clear that
20 those privileges just don't exist in this case and that what
21 we're left with is the attorney/client privilege.
22 The history is that the privileged documents were
23 disclosed to the debtors under Your Honor's order under Federal
24 Rules of Evidence 502(d). And that preserved the privilege.
25 As to that, we don't have a problem. What our problem is that

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1 when the equity committee submitted the privileged documents to
2 the Court and sought a motion to have them sealed that that is,
3 in fact, a waiver of the privilege because Section 107 does not
4 really apply to documents which are privileged. It applies to
5 basically nonprivileged documents which should be protected for
6 some other reason that's particular to the debtor. And we
7 renew our request that the Court consider unsealing the
8 documents because the privilege was, in fact, waived. It was
9 waived --
10 THE COURT: But wasn't this argument already made?
11 MR. FIORELLA: Yes, Your Honor.
12 THE COURT: So why should I reconsider? I think I
13 already ruled on that.
14 MR. FIORELLA: Your Honor did rule on it but Your
15 Honor also ruled on the issue of that there was another
16 privilege which attached which was the common interest
17 privilege.
18 THE COURT: But I ruled on that. I mean, if you
19 disagree with me, you can appeal it. But what basis is there
20 to reconsider? There's no new law or new facts.
21 MR. FIORELLA: I don't believe that the Teleglobe
22 where Judge Ambro laid out the nature and the distinction
23 between that privilege and the attorney/client privilege was
24 before the Court specifically. And that based on that
25 decision --

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1 THE COURT: Well, but that ruling had come out before
2 my ruling.
3 MR. FIORELLA: That's correct, Your Honor. But it was
4 not an issue that had been raised, I believe, by either party
5 in the motion and the response but was rather raised by Your
6 Honor in her decision. And that the basis that Your Honor's
7 consideration of that privilege was contrary to what Judge
8 Ambro explained the privilege to be and that once the parties
9 disagreed and made the submission to the Court that the
10 privilege was waived.
11 THE COURT: As between the two of them --
12 MR. FIORELLA: No. I be --
13 THE COURT: -- but not as to third parties.
14 MR. FIORELLA: I believe as to third parties, Your
15 Honor. Once it's before the Court, it's before the Court and
16 then it becomes open.
17 THE COURT: I don't -
18 MR. FIORELLA: I don't believe that the privilege
19 continues to exist between the two parties. And, in fact, that
20 privilege never applied to these three parties.
21 THE COURT: I don't know that the Teleglobe said that.
22 MR. FIORELLA: Your Honor, I think what the Teleglobe
23 case did say was that there has to be other common interest or
24 joint representation. And in this case, there is neither joint
25 representation or common interest. In fact, these parties are,

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1 if anything, adversarial. So it's hard to understand how a
2 document given from one party to another in this context could
3 be deemed to be either a joint defense or a common interest
4 privilege.
5 THE COURT: Well, again, I don't think any new facts
6 or new law has come down since my ruling. So I don't think
7 this is proper for a motion for reconsideration. You could
8 have made these arguments at the hearing.
9 MR. FIORELLA: Your Honor, I believe -- there is no
10 new decision and there are no new facts. The new facts which
11 we believed existed, we have to concede, do not, in fact,
12 exist.
13 THE COURT: All right. Does the debtor want to add
14 anything?
15 MR. FINESTONE: We're happy to rest on our papers,
16 Your Honor.
17 THE COURT: Yeah. I'm going to deny the motion for
18 reconsideration. I don't think there's any basis --
19 MR. FIORELLA: Thank you, Your Honor.
20 THE COURT: Okay.
21 MR. ROSEN: Your Honor, that takes us to item 32
22 which, I believe, Mr. Ard is going to be handling on behalf of
23 the equity committee. Your Honor, we do have an order prepared
24 denying the last motion of Mr. Hoffman. May I approach?
25 THE COURT: You may. Thank you.

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1 MR. ARD: Good morning, Your Honor.
3 MR. ARD: Seth Ard of Susman & Godfrey on behalf of
4 the equity committee. As Your Honor is aware, the equity
5 committee is seeking discovery primarily into the insider
6 trading allegations made against the settlement noteholders.
7 In Your Honor's decision denying confirmation, this Court twice
8 cited these allegations as a reason for not deciding an open
9 issue. In particular, this Court found that the insider
10 trading allegations were relevant to the release issue and the
11 interest rate issue. So the equity committee, taking its cue
12 from this Court, seeks discovery to get to the bottom of these
13 allegations. And, frankly, as fiduciaries to the estate and to
14 the equity, we think we would have been remiss had we not
15 investigated an issue that this Court twice flagged as
16 significant and unresolved.
17 There are two steps in adjudicating a discovery
18 dispute like this one. The first question is whether the
19 discovery seeks relevant information. If so, the second
20 question is whether there's some special reason to deny
21 discovery such as a new burden or some other ground to warrant
22 a protective order. In applying these two simple tests, we
23 think this motion presents a simple matter.
24 On the first question, discovery is clearly relevant.
25 It clearly seeks relevant information. As discussed above

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1 briefly and as reflected in our papers, this Court explicitly
2 recognized the relevance of these issues to the interest rate
3 issue and to the release issue. And yet, somewhat incredibly,
4 the settlement noteholders argue that "the alleged conduct is
5 simply irrelevant to the plan process".
6 It's worth briefly rebutting the argument that they
7 give for this outlandish claim. At least one settlement
8 noteholder argues that the allegations cannot possibly be
9 relevant to the interest rate issue because the facts in Your
10 Honor's decision in In re Coram are different from the facts
11 here. Now this argument goes nowhere. To begin, we can't tell
12 how closely the facts in this case resemble the facts in In re
13 Coram until discovery is had. Further, this Court has broad
14 equitable powers to set the interest rate. And the federal
15 judgment rate may be warranted for any number of equitable
16 reasons that go beyond what was discussed in In re Coram. And
17 finally, and most important, it should be enough to note that
18 this Court disagreed with the settlement noteholders by
19 flagging this as an important unresolved issue that bears on
20 the interest rate question.
21 Now some noteholders argue that the release issue is
22 foreclosed because the settlement noteholders will not obtain a
23 release under the new plan. Now, I guess a new plan was filed
24 this morning. We haven't seen it and don't know what terms are
25 in the new plan. But it's worth noting that last time around,

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1 at the confirmation hearing, the debtors couldn't explain which
2 parties were being released under the opaque release language
3 in that plan. And similarly here, we fear that the language in
4 the new plan will be opaque enough that we won't know until
5 confirmation perhaps whether the settlement noteholders are, in
6 fact, being released in any way. So the release issue is, and
7 likely will continue to be, very much an open issue.
8 Finally, the allegations on insider trading are also
9 relevant to the possible disallowance of some of the settlement
10 noteholders' claims.
11 In sum, the discovery clearly seeks relevant
12 information.
13 Now, second, the burden of producing this relevant
14 information is not high. Indeed, at the last hearing, the
15 settlement noteholders, in an attempt to delay the hearing
16 until today, promised that they would be able to produce this
17 request for discovery within two weeks. By definition,
18 discovery that can be produced within two weeks is not unduly
19 burdensome to produce.
20 Further, the settlement noteholders declined to meet
21 and confer on this issue as is required by Rule 26(c) prior to
22 getting a protective order. And they fail to explain in any
23 detail in their papers why producing these documents would
24 cause them any undue burden.
25 On the merits, the requests are not too broad or

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1 overly burdensome. We request, in sum, information relating to
2 their trading history, their acquisition of confidential
3 information, their plans for reorganized WMI and any applicable
4 trading walls they may have erected. This information should
5 be readily available to the settlement noteholders as they
6 represented to this Court at the last hearing.
7 Rule 26(b)(2)(C) is also instructive in this context.
8 It asks the Court to balance the burden and expense of a
9 discovery against "the amount in controversy, the parties'
10 resources, the importance of the issues at stake in the action
11 and the importance of discovery in resolving the issues.
12 Now here, the amount in controversy in the interest
13 rate dispute alone is several hundred million dollars. The
14 settlement noteholders' resources are vast. And the request of
15 discovery is the only way to resolve the allegation flagged by
16 this Court.
17 So, in sum, there's simply no reason to deny this
18 request on the grounds of undue burden or expense. Nor is the
19 request too intrusive. Notably, the debtors already sought and
20 obtained the detailed trading history of every member of the
21 equity committee. Every member of the equity committee was
22 required to sit through a full day deposition that went into
23 their personal and business lives. The discovery here pales in
24 comparison to the discovery that was propounded there. And any
25 concern for privacy can be cured by an order that seals the

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1 depositions or an order that protects the confidentiality of
2 any information that they give.
3 Now, that should end the matter. The discovery is
4 relevant, not burdensome. But the settlement noteholders make
5 a few side arguments that feature prominently in their papers
6 that are worth just briefly addressing. The settlement
7 noteholders argue that the equity committee lacks the proper
8 factual foundation to go forward with this discovery. Now that
9 argument is doubly fought.
10 First, the settlement noteholders mistake the law.
11 Under the liberal discovery afforded by Rule 26 and Rule 2004,
12 there's no need to make a threshold showing that the other side
13 is likely to have the relevant information that's being sought.
14 The settlement noteholders make much of the fact that Rule 2004
15 is more restrictive than Rule 26. But they misstate the nature
16 of the restriction. Rule 2004 is more restrictive than Rule 26
17 in that Rule 26 requires a threshold showing of relevance
18 whereas Rule 2004 does not. But relevance isn't the issue
19 here. The issue is whether a factual foundation is required.
20 And the settlement noteholders confuse matters by suggesting
21 that Rule 26, unlike Rule 2004, requires a threshold showing
22 that the other side is likely to have the factual information.
23 They cite no case to that proposition. And their
24 interpretation of Rule 26 plainly runs afoul of the
25 interpretation the Supreme Court gave in Hickman v. Taylor that

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1 has never been abandoned. And that's -- as the Supreme Court
2 said there, either party may compel the other to disgorge
3 whatever facts he has in his possession and "[n]o longer can
4 the time-honored cry of 'fishing expedition'" preclude
5 discovery. Quite simply, there is no requirement to make a
6 showing that the other side is likely to have factual
7 information.
8 Twombly, which deals with a completely different issue
9 has no bearing on this topic.
10 And second, while no factual foundation is required,
11 there is, here, ample foundation for the request if there were
12 such a requirement. Although the allegations are certainly
13 unproven, it is undisputed that the settlement noteholders
14 acquired significant amounts of WMI securities during a period
15 when they were intimately involved in settlement negotiations
16 and they were receiving material nonpublic information. So
17 while no substantiation is required, just treating history
18 alone coupled with this Court's stated concerns is
19 substantiation enough to warrant discovery.
20 And notably, in most other bankruptcy cases, when a
21 party wants to trade in the debtor's securities, want
22 possession of confidential information, they seek an order from
23 the Court permitting them to do so under the protect -- while
24 they promise to adhere to certain ethical trading wall
25 procedures. They didn't do that here and we just want to

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1 verify that they, in fact, adhered to ethical trading wall
2 procedures.
3 And finally, Your Honor, our right to discovery has
4 not expired. The prior period of discovery was geared to the
5 prior confirmation hearing which resulted in a denial of the
6 prior plan. Now a new plan must be put forward which will
7 require a new hearing. The settlement noteholders give no
8 reason in law, equity or practice to preclude discovery in the
9 new plan especially with respect to the unresolved issues that
10 this Court flagged in its decision denying the prior plan.
11 If the record were closed, as they suggest, this Court
12 would not have twice cited this unresolved allegation as a
13 ground for not deciding the release and interest rate issue.
14 In In re Coram, this Court followed the same path and allowed
15 post denial discovery into the issues that were left open by
16 denial of the prior plan.
17 Unless Your Honor has any questions, I'll rest on the
18 papers and sit down.
19 THE COURT: Thank you.
20 MR. ARD: Thank you, Your Honor.
21 MR. SHER: Good morning, Your Honor. My name is Barry
22 Sher from Paul Hastings. I represent Appaloosa. I have spoken
23 with counsel for the other settlement noteholders,
24 Centerbridge, Owl Creek and Aurelius, so we can try to limit
25 the number of speakers.

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1 THE COURT: Okay.
2 MR. SHER: I'm going to address just the main point
3 that we made in our papers on behalf of Appaloosa which is this
4 factual basis that we just heard discussed for this
5 speculation, as we put it in our papers, is demonstrably false
6 just based on the record as we have it here today. Mr. Mayer,
7 counsel for Aurelius, will then address procedural and
8 bankruptcy issues relating to the history of the case and what
9 we think is going on here with this request for discovery. And
10 then counsel for Centerbridge and Owl Creek will only address
11 any follow-up that's specific to their clients.
12 Now, Your Honor, what do I mean when I say that this
13 id demonstrably false on its face? As the Court is aware, this
14 motion is based on an objection that was filed by a shareholder
15 back in November, November 19, Mr. Nate Thoma. He also came to
16 the Court and spoke here in this courtroom on December 7th.
17 And I want to explain, using that which is the basis for the
18 motion, why the equity committee does not have a good faith
19 basis or good cause to proceed here to seek an examination of
20 Appaloosa or the others. And I'm not going to focus on for now
21 which rules apply, 2004 or Rule 26. Counsel for Aurelius will
22 do that. Whichever rules are used, the motion ought to be
23 denied.
24 Your Honor, the essence of this issue is this
25 statement that there was heavy trading of the PIERS securities

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1 during the period of March 2009 and from October '09 to March
2 2010. That's the basis for this entire motion. And Mr. Thoma,
3 in his objection, November 19 objection at paragraphs 14 to 16,
4 makes the statements that form the basis for this idea that
5 there's something wrong here, something bad. He states that
6 the "WMI Notes...seem to have traded at or above par since
7 February 2010" -- strikes him as a problem. He says there was
8 an "uncanny accumulation of the PIERS claims" in October '09 to
9 March 2010 and that there was a "near-exponential run-up in the
10 price of the [PIERS] security[ies]" in January 2010 on high
11 volume. And he states that there is "no particularly positive
12 public information that the price movement can be attributed
13 to". And that's extremely important, Your Honor, 'cause it is
14 that absence of public information, material public
15 information, that is the basis for this argument that there has
16 to be an investigation to see if there was some problem here.
17 Now let's look at the facts. Your Honor, if I may,
18 I'd like to hand up a one-page chart that we distributed --
19 that all counsel has in advance of the hearing that sort of
20 just illustrates the points I'm making here.
21 May I approach?
22 THE COURT: You may.
23 MR. SHER: The source of this is Google Finance and
24 public information including filings in this Court and the
25 Thoma objection. Starting first with the period from September

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1 of 2009 to March 2010, this is the period in the history of
2 these cases where the most positive information was publicly
3 announced to the market. If you take a look at the chart I
4 just handed up, you start back in September of 2009 when the
5 act that led to 2.6 billion dollars additional NOLs coming back
6 to this estate gets passed by the houses of Congress and then
7 in November gets signed into law. And if you were to extend
8 this chart back, you'd see this being introduced into the
9 houses back in January. You then see some price increase as a
10 result of that positive information.
11 You then see an extremely important fact that occurs
12 December 30 of 2009. That's when the debtor filed its
13 operating report estimating an additional 2.6 billion dollars
14 in NOLs. If you take a look at this line --
15 THE COURT: Does this chart purport to include all the
16 facts on which I would make a determination as to whether or
17 not there was insider trading?
18 MR. SHER: What it does is include all of the material
19 public information that is out there that the Thoma objection
20 ignores.
21 THE COURT: But is that the only relevant information
22 that I would consider?
23 MR. SHER: Well, there isn't any other material
24 information that is mentioned anywhere in any of these papers.
25 All there is --

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1 THE COURT: Because there has been no discovery as to
2 what other information the settlement noteholders might have
3 had, isn't that true?
4 MR. SHER: There hasn't been. But should there be --
5 I guess my question --
6 THE COURT: That's the issue. Should there be
7 discovery.
8 MR. SHER: Right. But why should it be -- just
9 because there's an increase in the stock price -- I mean,
10 remember what the Thoma objection is based on. There's this
11 big increase in January that is supposedly unexplained. If you
12 look at what happens here, it's just based on the filings of
13 the debtor.
14 THE COURT: Is it? Do I know that? How do I know
15 that?
16 MR. SHER: Well, there's no way that any party can
17 state --
18 THE COURT: Unless there's discovery.
19 MR. SHER: No, no, no. Even with discovery, no
20 individual party can explain what occurred in the marketplace.
21 The only thing you can look at --
22 THE COURT: Well, we can explain the activities of
23 your clients perhaps through discovery of them.
24 MR. SHER: Well, why would that be limited to my
25 client, for example?

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1 THE COURT: Well, I'm not suggesting it should be.
2 MR. SHER: Okay. I mean, it just seems a little odd
3 to say when there's no factual basis for this objection -- and
4 the reason I say -- well, the reason I say that is the
5 objection focuses on the increase in the stock price in January
6 and says there is no publicly available information that could
7 explain that increase.
8 THE COURT: No. I think Mr. Thoma's objection focused
9 on the increase in your client's positions not solely on the
10 increase in price.
11 MR. SHER: Well, if you take a look at the objection
12 itself filed on November 19, what he says is that "there was no
13 particularly positive public information that the price
14 movement can be attributed to".
15 THE COURT: Okay. I don't have it in front of me.
16 But --
17 MR. SHER: Okay. Well, I'll just --
18 THE COURT: -- I don't think that was his only
19 allegation.
20 MR. SHER: But it is the main one. In other words,
21 there's no allegation in there of any particular -- there are
22 two -- there's no allegation against Appaloosa with respect to
23 any particular trade. And there's almost nothing with respect
24 to any others.
25 Look, my point is that you have to look at the basis

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1 for this. If the basis for this is price movements in the
2 PIERS securities and there's a statement in here that there is
3 nothing that those price movements can be attributed to and
4 that's the basis on which this discovery is being premised, it
5 sort of has gotten ahead of itself. You have to look at the
6 basis for it. If that's the basis for it, all you have to do
7 is look at the public filings to see what the price movements
8 were based on.
9 THE COURT: I don't think we're limited to what Mr.
10 Thoma said in his objection. He raised an issue that the Court
11 has a concern about. And I think it should be explored. I
12 don't think, on the basis of some of the facts, I should be
13 asked to make any decision on that.
14 MR. SHER: Your Honor, then I'll just add one more
15 point and then I'll turn it over to Mr. Mayer --
16 THE COURT: Okay.
17 MR. SHER: -- who's going to talk a little bit about
18 the bankruptcy issues and the procedure here.
19 And that is this. Hearing how the Court is inclined,
20 I want to point out what is in the equity committee's reply
21 that was filed last week. We explained in our papers, in the
22 Appaloosa papers, all of the public information was out there.
23 Now, I was focusing on the -- what the objection was --
24 THE COURT: Okay.
25 MR. SHER: -- in responding to it. The only response

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1 is that the -- that Appaloosa points out some public
2 information that could explain these price movements. I have
3 to say that when a filing is made -- and it sounds like we'll
4 be back here based on what you just said -- but when a filing
5 gets made on December 30, a 2.6 billion dollar filing, and the
6 price moves up immediately as a result of that, some
7 recognition of the impact of that filing on the debtors' estate
8 and the value and its impact on price movements in the
9 securities should be recognized. And to just say that some
10 information was out there is to dramatically underplay what
11 information was there.
12 With that, Your Honor, I'm going to turn it over to
13 Mr. Mayer.
15 MR. MAYER: Thank you, Your Honor. Tom Mayer from
16 Kramer Levin for Aurelius Capital Management. When I was last
17 here, Your Honor stated that issues at the hearing on the plan
18 the debtors have just filed -- and I haven't seen it but I have
19 some notion of what's in it, I think -- would be limited to the
20 issues posed by the modifications themselves and the issue that
21 was left open and this trading issue that was in question, we
22 left open. And you've already indicated that you think
23 discovery may be appropriate in connection with that issue.
24 Our view, which I will not spend much time on since
25 Your Honor has indicated where you're going, is that that

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1 actually isn't appropriate. It's a second bite at the apple.
2 These issues were all raised and everybody had a chance to take
3 discovery and people decided not to do so. And so, you're
4 giving the equity committee a second bite at the apple. And if
5 you take a look at what they've asked for, it is an enormous
6 bite because there is no time limitation and there is almost no
7 scope limitation on the discovery they've asked for. They are
8 going to require people to go back over two years worth of
9 history in this case and go over again the good faith and the
10 process that led to the JPMorgan settlement that has already
11 occupied what nine months of objections and the examiner's
12 report at the cost of approximately six million dollars and
13 many days of this Court's trial time. And all of it gets
14 reopened again.
15 Because -- and this gets to relevance, Your Honor.
16 And I am going to take a crack at persuading you that, in fact,
17 they have not borne their burden on relevance on discovery.
18 I've listened to the equity carefully today. I listened to
19 them carefully two weeks ago and I've read their papers. And I
20 can't fathom why anything they want discovery on bears any
21 relation to what happened in this case. People cut a deal.
22 People negotiated that deal. I've been waiting for them to say
23 that this trading allegation that they have had any effect on
24 timing, on amount, on anything that matters to people who are
25 before this Court waiting to get distributions for this case.

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1 The reason that we distinguish Coram, this is the anti-Coram.
2 This is a situation where every day that goes by, my client as
3 a PIERS holder loses money. Every day that goes by, JPMorgan
4 holds on to our money and pays nothing for it. Every day that
5 goes by, more interest accrues on debt that is senior to us and
6 we pay the price. This is not like Coram where the allegations
7 bore some relationship to what actually happened in the case.
8 The equity committee has now had several opportunities to try
9 to link the issues they want discovery on with what actually
10 happened here. And they have failed to do so. If there was
11 trading, if there was no trading, why does it matter to them?
12 There's no allegation they're in the money. They're raising
13 valuation. In fact, if you take a look at the omnibus reply
14 that they filed, they have a footnote that says, oh, and we
15 reserve the right to relitigate valuation to the nth degree.
16 Your Honor, it depends on what kind of hearing you
17 have in mind for May 2. I keep thinking it's a hearing on a
18 modified plan with a limited set of issues. But if the equity
19 committee gets its way, this is going to be a hearing on the
20 whole entire case again because it isn't just about what did
21 people know when they traded where, incidentally, we feel
22 highly confident that will be no issue but it will be extremely
23 expensive to establish. How many years of e-mails are we going
24 to have to look at? How many fights are we going to have over
25 how many people get deposed at various different firms? If we

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1 need to prove our bona fides, we're going to need to take
2 depositions of other people to prove that we didn't interfere
3 with this process which, in addition to the unfairness of
4 proving a negative, doesn't respond to any allegation by the
5 equity that anything wrong happened to them or to this case.
6 All they say is that there was trading and they have,
7 I believe, unsubstantiated allegations that there was trading
8 based on nonpublic information. But the trading wall analysis
9 today is completely irrelevant. That has to do with official
10 committees. I don't think Your Honor wants to render a
11 decision that every unofficial committee that comes to a case
12 is going to come to you with a trading wall order. People
13 trade because they are free to do so when they don't have
14 public information. The information they have changes over
15 time. But this is all a sideshow. It's a sideshow because it
16 has nothing to do with how much the equity is getting, how much
17 the PIERS are getting, how much the sub debt is getting, how
18 much the senior debt is getting and when they're getting it.
19 The two are completely unrelated. That's why we are exercised
20 about this exercise because it's going to be very expensive.
21 And the scope of what they've asked for is months and months of
22 discovery.
23 With all due respect to the characterization of Mr.
24 Witzel's statements, one, the issue of discovery was not before
25 the Court at the time. Two, Aurelius, as I indicated at the

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1 hearing, has not itself made a determination as to how long it
2 would take to comply with these discovery requests. And Mr.
3 Witzel does not speak for us on that score. And third, no
4 lawyer can talk about how long it takes to comply with a
5 discovery order until you know what kind of discovery is being
6 offered. Your Honor, this is an enormous discovery task. And
7 frankly, it has nothing to do with this case because every day
8 that goes by, it costs the alleged traders money. We're not
9 the ones delaying this case; the equity committee is. And the
10 equity committee has no skin in the game. That gets to the
11 valuation point.
12 You'll notice that they reserve the right to
13 relitigate valuation. They want all of our valuations right
14 now. They have not even alleged that they're in the money.
15 The only way valuation came up in the context of the
16 confirmation hearing is that you had a rights offering with
17 some large PIERS holders who were going to participate and some
18 small PIERS holders weren't. And Your Honor said that's not
19 right. There are valuation issues that are implicated by large
20 PIERS holders having the ability to participate and small PIERS
21 holders not having the ability to participate.
22 THE COURT: I don't think the valuation issue was
23 limited to that. The valuation was based on the fact of
24 whether the plan was confirmed before or after January 1.
25 MR. MAYER: Yes. But the issue of valuation, at least

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1 as I recall Your --
2 THE COURT: Well, let me posit this. The valuation
3 comes back that the reorganized debtor is worth ten billion
4 dollars. Isn't that something I have to take into
5 consideration when I determine who is getting the equity in
6 that entity and whether or not those creditors are receiving
7 more than they're entitled to under the plan?
8 MR. MAYER: Your Honor, if the equity committee had at
9 any time relevant to this hearing even alleged that that was
10 the case, I would say assuming that you view this hearing as a
11 completely new hearing that, of course, you have to determine
12 what the equity is. But they haven't even alleged that they're
13 in the money. I add, parenthetically, given the trading prices
14 of the PIERS, that seems highly unlikely. But again, if this
15 is going to be a completely new hearing on a completely new
16 plan, we're not talking May 2. We're talking another nine
17 months.
18 THE COURT: Well --
19 MR. MAYER: I hope that's not where we're going
20 because nothing in the record justifies that. The equity
21 committee simply hasn't made the allegations that it needs to
22 make. It is a failure of argument and pleading here. That's
23 why we say --
24 THE COURT: Well, but we're not there yet.
25 MR. MAYER: -- what discovery they take is not

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1 relevant.
2 THE COURT: Nobody's filed objections to the plan.
3 MR. MAYER: Yes, Your Honor. That is correct.
4 THE COURT: So --
5 MR. MAYER: But we don't think it's appropriate to
6 order this kind of discovery in a situation where the only
7 allegations that have been made seeking discovery relate to an
8 activity, namely, the trading appliance that the equity
9 committee cannot even explain how it relates to what is
10 happening in this courtroom. They said they don't know whether
11 Coram applies until they take discovery. Are we going to open
12 up the entire negotiating history of this case so that they can
13 try to fit in within the facts of Coram?
14 THE COURT: Well, Coram stated that the Court has
15 equity. It's not limited to the facts of Coram.
16 MR. MAYER: Your Honor, your ruling is, of course,
17 yours to make. But I do not myself believe that the law on
18 post-petition interest is such that the Court has a roving
19 commission to decide whether or not people are good people and
20 deserve interest and people who are bad people don't. There
21 has to be some link between the conduct that is observed and
22 what happened in the case. The Third Circuit's law on that is
23 clear. Even in a case where the facts were as egregious as
24 Papercraft, the Third Circuit said you have to find a link
25 between what people are alleged to have done and how it

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1 affected other parties in the case. And that link isn't even
2 alleged here.
3 Let me just check my notes for a second, Your Honor.
4 Excuse me.
5 (Pause)
6 MR. MAYER: Your Honor, the equity committee itself
7 has said that the stakes are very high and they're right about
8 that. The stakes are hundreds of millions of dollars.
9 Unfortunately, the stakes here are hundreds of millions of
10 dollars that will either be received by PIERS holders or will
11 be received by subordinate and senior debt holders in the form
12 of additional interest. That's what's before the Court.
13 That's what's so disturbing about the issue that's raised by
14 the equity. The contract rate of interest is a material term
15 to the deal that we cut and that this Court approved. And
16 again, if Your Honor wants to hold a completely new hearing, I
17 guess there are no issues that are foreclosed and all issues
18 will be open. And all parties will be free to raise whatever
19 issues they wish to raise including issues that various parties
20 decided not to raise and not to litigate because we had a deal.
21 Now if the deal no longer holds and the hearing is completely
22 open then, of course, everybody is free to raise whatever
23 issues they want.
24 That's not what we want, Your Honor. We're not
25 interested in months of litigation. We're not interested in

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1 reopening everything. We have our deal. We'd like to try to
2 enforce that deal. And we don't think that the facts necessary
3 to question that deal have even been alleged before this Court.
4 And the subject of discovery has nothing to do with that deal.
5 I think that's all I have unless the Court has
6 questions.
7 THE COURT: No, thank you.
8 MR. OWENS: Your Honor, may it please the Court. Very
9 briefly, Richard Owens of Latham & Watkins on behalf of
10 Centerbridge. I'd like to -- I don't want to repeat what my
11 co-counsel have said earlier to the Court. But I do really
12 want to hone in on two issues that I think are very important
13 here.
14 And the first is I heard Your Honor express a concern
15 about the propriety of the trading that may have occurred here
16 based on the allegations that have been made. And I also heard
17 what the equity committee said in saying essentially there's no
18 threshold showing that they need to make to obtain discovery.
19 They only have to show relevance and burden. And I think it's
20 important to step back for a moment and think about that in the
21 overall context of American jurisprudence which is the burden
22 is being shifted here on us (a) to prove a negative; and (b) to
23 essentially prove our innocence before any real material
24 showing of any reason to suspect guilt is put before the Court.
25 So I think really the threshold question to the Court

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1 ought to be before discovery of the breadth and magnitude that
2 the equity committee has asked for is granted, what inquiry
3 should the Court make to protect noteholders from that sort of
4 intrusive discovery. And I think the inquiry should be the
5 inquiry which the Supreme Court has stated in Twombly, as was
6 argued earlier, that there has to be some showing that the
7 allegations that are being made -- some inquiry and review by
8 the Court and a determination by the Court that the allegations
9 have some plausibility.
10 I think the point that Mr. Sher was making earlier
11 today was addressed to the plausibility of the allegations that
12 any inappropriate trading occurred. And I'd also like to focus
13 on Centerbridge because there's one particular allegation made
14 about Centerbridge and that is that our trade on March 12th in
15 2010 was inappropriate. And I think we've demonstrated in our
16 brief and with the exhibits attached to it that that trade was
17 entirely appropriate. Our trades occurred after the Court
18 hearing that day and after the public announcement. And the
19 equity committee hasn't quarreled with that in their reply
20 papers. And so, I think where that leaves the Court is if the
21 Court were to conduct an inquiry and consider whether or not
22 there has been any plausible showing of misconduct rather than
23 simply allegations tossed out in a courtroom, the Court would
24 find that, at least as to Centerbridge where there is a
25 particularized allegation, that allegation doesn't stand

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1 scrutiny, particularly in light of what we've submitted to the
2 Court and therefore discovery should not go forward. We
3 shouldn't be in a position, I think, Your Honor, in this case
4 or in any case that comes along after this where any party to
5 the bankruptcy can stand up at any point in time in the
6 proceedings and scratch their head and say, gosh, I looked at
7 the market and it looked like there might be insider trading
8 here. So what I really want to do is take discovery of
9 everybody who traded in the market at any point in time during
10 the bankruptcy or --
11 THE COURT: I don't think the discovery request is
12 that broad. The discovery request is limited to those who
13 might have had insider information. And that is the crux of
14 the allegation. It's not that parties traded and --
15 MR. OWENS: Well, let's then --
16 THE COURT: -- the price went up. That wasn't the
17 allegation.
18 MR. OWENS: Let me address that then, Your Honor.
19 What that would essentially say is that it's now fair fame to
20 take discovery of any party in a bankruptcy proceeding who may
21 or may -- who there is some colorable reason to think may have
22 insider information at any point in time during their
23 participation in the markets and at any point in time during
24 their participation in the case. Because while the discovery
25 request is limited to four parties, four creditors, the scope

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1 of the discovery is not limited to any particular time period.
2 It's not limited to any particular class of securities. It's
3 not geared to any particular allegation of the possession of a
4 particular bit of information. It isn't -- said all the
5 trading at any time and any communication they ever had with
6 anyone about the debtor. And on the strength of the
7 allegations that have been made, Your Honor, that's simply
8 unfair and the Court ought not to grant that but should instead
9 grant only such discovery as these specific allegations that
10 have been made that are plausible suggest appropriate. And
11 with respect to Centerbridge, the only specific allegation that
12 has been made is with respect to the March 12th date. And
13 there, I think we've demonstrated to the Court that that
14 allegation is implausible and there should be no discovery then
15 as against Centerbridge and we should move on with the germane
16 issues to plan confirmation. Thank you, Your Honor.
18 MR. HARRIS: Good morning, Your Honor. Adam Harris
19 from Schulte Roth & Zabel on behalf of Owl Creek Asset
20 Management. And I'm not going to belabor the record, Your
21 Honor. I do want to rise to say that the comments that have
22 been made by my colleagues representing the other settlement
23 noteholders we certainly ascribe to. And with respect to Owl
24 Creek in particular, Your Honor, it goes without saying this
25 Court has taken the allegations raised by Mr. Thoma seriously.

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1 We equally take them seriously as we would any circumstance
2 like this. Obviously, our fund treats these types of things
3 with the utmost seriousness. And we intend to vigorously
4 defend ourselves if this discovery goes forward.
5 But as Mr. Owens said, Your Honor, when you look at
6 the Thoma objection to confirmation, it raises these vague
7 concepts of antic -- he says he's frightened by the fact that
8 Owl Creek was able to anticipate the passage of the act and
9 legislation that resulted in the NOL carrybacks of being
10 extended out to five years. And an unparticularized vague
11 comment like that, Your Honor, where this is public legislation
12 working its way to the House with public disclosures going back
13 at least as early as January of 2009, it is virtually
14 impossible to respond to something like that. We do our
15 research like everybody else. Investors are out in the
16 marketplace getting access to information. But this is a piece
17 of public legislation that is working its way through Congress.
18 And the NOL provisions regarding the extension of the carryback
19 were in legislation for some period of time. They were removed
20 from legislation; they were put back in. But it's almost
21 impossible to understand how one could be alleged to have
22 traded on material nonpublic information regarding a bill
23 that's moving through Congress.
24 So that's the only allegation that's in the objection
25 relating to Owl Creek, Your Honor. And as Mr. Sher's

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1 demonstrative does show, there's plenty of public information
2 coming about the status of that legislation throughout all of
3 2009 and into -- and obviously, the impact of that, the debtors
4 reported in their operating statement after the passage of the
5 bill at the end of 2009.
6 Your Honor, just a couple other points to make. And
7 that is, the settlement noteholders here were not the only
8 people in this case that had access to material nonpublic
9 information. Various other parties were engaged in
10 negotiations with the debtors during various points in the case
11 in other creditor constituencies represented by other people.
12 They were restricted for some periods of time. They were
13 unrestricted for some periods of time. But we were not the
14 only people who were out in the marketplace. And the question,
15 as Mr. Owen put it to you, Your Honor, is what is the necessary
16 threshold in order to start down the path of investigation of
17 the sort that appears to be headed in this case against these
18 four particular settlement noteholders. There's got to be some
19 threshold in order to go down these types of paths, Your Honor.
20 Otherwise, we're literally opening up floodgates to anybody who
21 wants to walk in and say I'm shocked that this is happening
22 here. We really need to investigate it.
23 There's an emphasis in bankruptcy, as Your Honor well
24 knows, on people trying to get together and cut the kinds of
25 deals that were cut in this case. We want to incentivize

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1 people to sit in the room and look at the economics here, look
2 at the timing and try and resolve cases in a consensual manner.
3 If the import of that, Your Honor, of engaging in that kind of
4 productive conduct is that you end up on the wrong side of a
5 Thoma type allegation, as we have here, what is the incentive
6 for noteholders like us in the future who have large economic
7 stakes to sit down and try and work out these arrangements to
8 engage to try to get material nonpublic information and to work
9 with companies and other constituencies to try and get to the
10 right result?
11 THE COURT: The allegation of wrongdoing is not that
12 you've received nonpublic insider information in an effort to
13 settle the claims that you held. The allegation that troubles
14 the Court is that you used that information to trade in the
15 debtors' securities. And I don't know that anybody would
16 suggest that that's proper. Just 'cause other people may be
17 doing it is not a defense.
18 MR. HARRIS: And I'm not suggesting it is, Your Honor.
19 And I understand the nature of the allegation. But the issue
20 that I'm presenting to the Court is one of -- it becomes a sort
21 of binary decision by significant creditors in the case. Do I
22 want to put myself in the position of receiving material
23 nonpublic information and thereby open myself up to the
24 potential allegations such as have been raised by Mr. Thoma if
25 I later decide to trade in the securities or --

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1 THE COURT: Well, there are other protections that you
2 can institute to protect yourself from that.
3 MR. HARRIS: And we do, Your Honor. The question is
4 whether there should be a broad range investigation into what
5 those are based on the limited amount of information allegation
6 that has been raised here. There does not seem to be any
7 threshold to opening the door by making these allegations. And
8 there's certainly no downside to the person who's making them
9 because Mr. Thoma is not going to incur any expense here having
10 made these allegations. The equity committee is certainly not
11 going to incur any expense. All that is going to be shifted on
12 to the settlement noteholders in this case to have to respond
13 to what, frankly, are fairly broad-reaching discovery requests
14 on matters that go well beyond trading and get into issues like
15 what are our valuations with respect to WMI and its affiliates.
16 How does that bear on the question of whether we did or didn't
17 trade on material nonpublic information. We either --
18 THE COURT: No. But --
19 MR. HARRIS: -- had information traded or we didn't.
20 THE COURT: No. But that may bear on the issue of
21 whether or not -- what the true valuation of the reorganized
22 debtor is. That's a relevant issue still open.
23 MR. HARRIS: I -- Your Honor, I understand that but I
24 beg to differ on whether an investor's particular view of that
25 actually bears on -- what we think it's worth bears on

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1 necessarily what the Court determines it's worth or what
2 bankers say it's worth of other things. We may have a very
3 different view as we have throughout this case, Your Honor, of
4 what the securities and -- the existing securities and the
5 post-reorganization securities this company may be worth.
6 Sometimes we were right; sometimes we were wrong. We're not
7 always right as the Court well knows.
8 THE COURT: Yes.
9 MR. HARRIS: So with that, Your Honor, I will conclude
10 my remarks. But I do think that in considering the issues
11 here, one has to understand the fairly significant potential
12 effect this could have on the conduct of the parties in this
13 case and in others. And I thank your Court for the time.
15 MR. JOHNSON: Good morning, Your Honor. Robert
16 Johnson from Akin Gump on behalf of the official committee of
17 unsecured creditors. And I wanted to rise briefly just to
18 comment on behalf of all unsecured creditors that we see it
19 very important to keep this case on track for the plan
20 disclosure statement hearing on March 21 and for confirmation
21 on May 2. And we just wanted to express a concern with regard
22 to scope and how that may affect timing.
23 We heard today from the equity committee that their
24 discovery requests are narrowly tailored. And in the reply
25 brief, in paragraph 10, they describe how they are narrowly

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1 tailored. But when I go back and look at the requests and I
2 see a request like document request number 15 which says "All
3 documents and communications related to WMI or WMB since
4 September 1, 2008. That's a very broad request. And we would
5 not want to see when we come back for our next omnibus hearing
6 that we have another discovery dispute here because the equity
7 committee has reverted to the broad blunder bust discovery
8 request that we see here rather than what they've represented
9 as narrowly tailored. So we urge the Court to require the
10 equity committee to keep its discovery request narrowly
11 tailored so we can keep to our plan schedule. Thank you.
13 MR. THOMA: Good morning, Your Honor. I don't know if
14 now's the appropriate time for me to come up or --
15 THE COURT: You may speak, Mr. Thoma.
16 MR. THOMA: Mr. Thoma -- oops, sorry -- Nate Thoma,
17 retail creditor. I just -- I'm sorry. I have to apologize. I
18 missed the earlier arguments from counsel. So if I repeat
19 anything, by all means, please stop me.
20 THE COURT: Okay.
21 MR. THOMA: And I think a bit of historical review
22 might be warranted. I wasn't the first to suggest that a
23 further scrutiny of the creditors in this case was needed.
24 JPMorgan Chase was. They filed their motion to compel certain
25 parties to comply with Federal Rule 2019 on August of 2009.

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1 Basically, in response, docket number 1515, the noteholders
2 group objected and they noted that in March 2009 certain of the
3 noteholders participated in negotiations with JPM, the FDIC,
4 the debtors, the official committee of unsecured creditors and
5 other noteholders represented by Fried, Frank, Harris, Shriver
6 & Jacobson LLP. As a condition to participation in those
7 negotiations -- in the negotiations, the participating
8 noteholders were required to execute limited confidentiality
9 agreements which, in effect, precluded them from trading in WMI
10 securities or required them to establish an observe the
11 internal screening procedures during the term of the
12 confidentiality agreement.
13 So given that Fried Frank, as of January 2nd, 2009,
14 only claim they represent Appaloosa and Centerbridge -- it's
15 docket number 256 -- the question remains were one or both at
16 the negotiating table at that point. Also given that White &
17 Case also claimed to represent Aurelius, docket number 102, as
18 of October 20th, 2008. Were they a party to negotiations or
19 received nonpublic information as a result. Finally, there
20 appears to be some laxity with regards to many parties in
21 interest in compliance with Rule 2019 not just those
22 represented by Fried Frank and White & Case. And given that
23 Owl Creek appears in White & Case's August of 2009 first
24 supplemental verified statement, docket number 1518, when did
25 they join the group and, likewise, were they a party to

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1 negotiations and/or receive nonpublic information as a result.
2 JPMorgan had similar concerns. They stated in docket
3 number 1535, "The significance of the Rule 2019 disclosure
4 requirement is highlighted here by the fact that the Washington
5 Mutual noteholders group is apparently buying and selling large
6 quantities of WMI notes and may be changing their positions in
7 those securities based upon the events in this case. And I
8 don't recall anybody threatening JPMorgan with discovery or
9 claiming that this inference was demonstrably false or
10 defamatory. I may have missed it, though.
11 JPMorgan continues on to say "Disclosure of what
12 securities these noteholders own, when and what price they
13 acquired them, what they have sold or additionally purchased
14 and at what price is critically important to the Court and the
15 parties in interest in assessing" the level -- "(1) the level
16 and nature of their interest in this proceeding; (2) the bias
17 and motivation behind the positions they are urging the Court;
18 and (3) their credibility."
19 They discuss the last criterion further but given the
20 remarks by the various parties here, especially at the October
21 18th hearing, I'm disinclined to believe this group is even the
22 smallest modicum of credibility.
23 In any case, during this exchange, Aurelius and Owl
24 Creek ostensibly left the group represented by White & Case and
25 joined the group represented by Fried Frank, Appaloosa and

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1 Centerbridge, in October of 2009. The Court went on to grant
2 JPMorgan's motion to enforce compliance with Rule 2019. But
3 this group, before represented by Fried Frank, never fully
4 complied. They did eventually five months after the Court's
5 ruling submit, docket number 3761, the first supplemental
6 verified statement of Fried Frank. Apparently, JPMorgan and
7 all the other parties were satisfied one way or another with
8 these results and the issue was probably moot in JPMorgan's
9 eyes as they had -- both parties had agreed to over three
10 months by that point.
11 But in multiple in-court representations and in
12 various filings made by their counsel, these parties claim to
13 have been intimately involved in areas of these proceedings not
14 accessible to the public which insofar as those representations
15 are accurate, by definition, this would have made them privy to
16 nonpublic information. The fact that the confidentiality
17 agreements were required for the March 2009 discussions further
18 reinforces this fact. They have also freely admitted to
19 continuing the trade in the debtors' securities throughout
20 these proceedings with noted exceptions recently made by
21 certain of the settlement noteholders, certain very specific
22 time frames likely covered by the confidentiality agreement
23 noted in the White & Case filing cited previously.
24 I haven't seen any discussion regarding whether or not
25 confidentiality agreements were utilized during the

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1 negotiations beginning in November 2009. I likewise haven't
2 seen any mention of any steps taken or systems utilized that
3 would insulate the trading activities of the parties involved
4 from undue influence as a result. But I maintain that the date
5 of interest with regards to this matter is actually March of
6 2009. Knowledge of the various parties' positions, the FDIC,
7 JPMorgan, the debtors, with respect to any potential
8 settlement, which was not public information, should preclude
9 any further trading activity in any of the debtors' securities
10 regardless of whether or not the public is aware of the tax
11 carryback legislation or its likelihood of being signed into
12 law. It's precisely this knowledge that would allow an
13 informed party to know how the resulting billions of flow to
14 the estate would affect the likelihood of recovery for the
15 debtors' various securities.
16 So, in my opinion -- and I could be wrong here. It's
17 not just a question of timing. It's not just a question of
18 price but how the overall results of those tax benefits might
19 affect the estate.
20 That's all, Your Honor. Thank you.
21 THE COURT: Thank you, Mr. Thoma.
22 MR. COFFEY: Good morning, Your Honor. Jeremy Coffey
23 with Brown Rudnick. We represent the TPS consortium. We'd
24 like to just make a couple of points. First of all, Your
25 Honor, I've seen the papers and I've heard spoken today the

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1 allegation the equity committee's constituency is out of the
2 money and therefore the gravity of the situation should be
3 ignored. Your Honor, let me start out with Your Honor's aware
4 that we have alleged that we don't own WMI preferred stock,
5 that we own the trust preferred securities. Your Honor has
6 ruled on that by order dated January 7th. With all due
7 respect, we disagree with that and we're appealing that. But
8 for the time being, we do have a vested interest in what
9 happens to WMI preferred stock. So it's in that context that I
10 rise.
11 While I agree it's going to be a challenge to get
12 value to common equity, preferred equity, I think, is a
13 different story, Your Honor, for a couple of different reasons.
14 First, Your Honor's opinion notes the problematic nature of the
15 valuation that was attached to the last plan and indicates
16 that's going to have to be updated and reviewed in connection
17 with whatever new plan goes forward. Your Honor, to us, it's
18 not a coincidence that the valuation corresponds with the
19 places in the capital structure where the settlement parties
20 happen to have significant holdings. So we think under a true
21 independent real valuation of the debtors' assets, it's not
22 unlikely that value would trickle down to preferred holders
23 such as my group is purported to be.
24 Second, on the point of us being out of the money,
25 Your Honor, is that the Court's recognition of the potential

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1 wrongdoing came in the context of what is the appropriate rate
2 of interest to be paid to post-petition claim holders. Your
3 Honor, we calculate that to be, if you go from contract rate to
4 federal judgment rate, potentially a 700 million dollar issue.
5 So if you add that back into the pot that's being distributed
6 through the waterfall, we think that clearly covers any
7 impaired debt and trickles value down to preferred stockholders
8 as well. So again, we think there's a real chance of us being
9 in the money depending on how this goes forward.
10 And finally, with respect to us being out of the
11 money, let me -- we don't know what discovery will show. But
12 the equity committee in its papers has raised the possibility
13 that it could be serious enough to invoke equitable
14 disallowance of certain parties' claims. Given the size of
15 their holdings, if their claims were to be equitably disallowed
16 as opposed to subordinated, which I understand would still keep
17 them ahead of us -- but if they were to be disallowed, that's
18 significant value that would come down to the preferred
19 holders.
20 So the indication of us -- or the equity committee's
21 constituency being out of the money, I think, is the answer
22 rather than the right question. I think there are a number of
23 scenarios in which we could be in the money.
24 I also hear complaints about the -- how burdensome it
25 would be to comply with these discovery requests, Your Honor.

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1 Frankly, Your Honor, I think if you've negotiated a settlement
2 and you ask the bankruptcy court to bless it and you want the
3 benefit of having a court order giving you the deal you
4 negotiated, I think you should be prepared to accept the
5 burdens of participating in the adversary process including by
6 responding to legitimate and narrowly tailored discovery
7 requests, Your Honor.
8 The question was raised why just the settlement
9 noteholders. Well, I think it's pretty obvious. They were the
10 ones at the table. They were the ones negotiating a deal. And
11 they're the ones against whom allegations of wrongdoing have
12 been alleged. So I think it's pretty clear -- there's a
13 demarcation between who should be subject to discovery and who
14 shouldn't. Along those lines, Your Honor, I see in their
15 papers a threat to subject Mr. Thoma to discovery. I don't
16 represent Mr. Thoma but I would encourage the Court to -- in
17 considering a request like that, to consider the value Mr.
18 Thoma has brought to the process, the constructive way in which
19 he's approached this. I think that's to be encouraged rather
20 than beaten out of people through abusive discovery. But we'll
21 see what's done.
22 Finally, Your Honor, the allegation that this is an
23 expensive process and it's only hurting the settlement
24 noteholders, only hurting the PIERS holders, I think has to be
25 viewed through two lenses: (1) if we go from the contract to

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1 federal judgment rate, it's not a thirty million dollar a month
2 burn, Your Honor; it's much less. (2) We learn today that the
3 plan is going to go forward, if at all, on May 2nd. I think
4 that's ample time within which to conduct discovery, get it all
5 done, get the issues out on the table without any delay that
6 the debtors aren't already imposing on the cases.
7 So, Your Honor, with that, we support the equity
8 committee's bid for 2004 discovery or Rule 26 discovery,
9 whatever is appropriate in the context of plan confirmation.
10 THE COURT: Thank you. Any reply from the equity
11 committee?
12 MR. ARD: Sure, briefly, Your Honor. Good morning
13 again, Your Honor. First, our requests are limited in scope
14 and timing. Contrary to what several counsel represented, we
15 only seek information that goes back to September 25th, 2008 in
16 our document requests. If you look at Exhibit B, instruction
17 11, it says "Unless otherwise specified, the time period
18 covered by these requests is from September 25th, 2008 to the
19 present." I guess there was a typo in the instructions to the
20 interrogatories that said that we wanted documents going back
21 earlier. We don't want that. We want everything from
22 September 25th, 2008. In the version we e-mailed them, it was
23 explicit that we only want September 25th, 2008. Frankly, we
24 offered to meet and confer with them on this -- these discovery
25 requests over three weeks ago. If they had any question about

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1 any of these issues, we could have resolved them during the
2 meet and confer process.
3 On the scope, again, we seek information relating to
4 their trading history, their confidential information that they
5 received during this case, their plans to reorganize WMI and
6 the structure of their trading wall. This is limited -- they
7 said during the last hearing that they could produce this
8 within two weeks. Again, we offered to meet and confer with
9 them on these discovery requests over three weeks ago. They
10 didn't take us up on that in any substantive way.
11 So they should be giving us everything they can give
12 us within the next two weeks. If there's some category of
13 documents that are in response to our requests that they are
14 sure not relevant, we probably won't insist on it. If there's
15 a disagreement, they can bring it to this Court appropriately.
16 A couple other points. Appaloosa's chart, as Your
17 Honor recognized, ignores a significant nonpublic information
18 that the settlement noteholders likely received during the
19 course of this case. Appaloosa appears to be making a factual
20 argument about the reasons for their investment that they can
21 make after discovery's done.
22 We -- on the standing issue, we clearly have standing
23 to pursue these issues. The interest rate issue alone, if it
24 was all in our favor, would put the preferreds in the money.
25 So I'm not quite sure what their complaint is on that score.

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1 The release issue, of course, we have standing to pursue.
2 Equitable disallowance -- of course we have standing to pursue.
3 And finally, we're not seeking any delay. We expect
4 these materials to be delivered in two weeks as they promised.
5 We've agreed to an abbreviated discovery schedule. The
6 settlement noteholders caused some delay by opposing our
7 request for an expedited hearing on this. Further delay may
8 have been caused by some delay in issuing the rap. But in any
9 event, the equity committee is not -- has never been the cause
10 of any delay in this case. Thank you, Your Honor.
12 MR. SHER: Your Honor, may I?
14 MR. SHER: Just briefly. I just want to make a point
15 here that you've heard some discussion of a couple of
16 individual trades that were specifically referenced in the
17 objection and that formed the basis for the motion from the
18 equity committee. There's not a single trade of Appaloosa, my
19 client, that has been accused of anything or -- with respect to
20 which Appaloosa has been accused of any wrongdoing whatsoever.
21 Nonetheless, again, if you look at the actual discovery
22 requests that were submitted to the Court and ask for leave to
23 serve on us, they would subject Appaloosa without any
24 allegation of any -- that any trade was wrong to this wide
25 ranging investigation. If anything -- if any discovery is

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1 going to be allowed here, in our view, it should be limited to
2 the trades that are at issue in the objection and that form the
3 basis here.
4 We take the equity committee and we believe the Court
5 should take the equity committee at its word that it's
6 representing that it is not seeking delay and that it wants to
7 limit this discovery in a serious way if there's going to be
8 any discovery. As I said, we believe it should be limited to
9 any particular trade that has been accused in this objection.
10 Thank you, Your Honor.
12 MR. HARRIS: Just briefly, Your Honor, on behalf of
13 Owl Creek, I don't know -- if Your Honor concludes that
14 discovery is to go forward on some level here today, I don't
15 want anybody to be left with the impression that Owl Creek has
16 given up any rights it has to review the discovery and
17 interpose appropriate objections to what has been requested.
18 For instance, Your Honor, just to point out, in some regards,
19 the breadth of this and, in some respects, the absurdity of it,
20 Owl Creek didn't sign a confi or become access to any material
21 nonpublic information with respect to this company until March
22 of 2009. Yet, the discovery requests, according to the equity
23 committee, go back to 2008. So, Your Honor, these are not
24 finely tailored requests in any way, shape or form. They are
25 extraordinarily broad and ask for every single communication

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1 relating to this case with every single other party in the case
2 or anybody else for that matter for a period of what is now
3 close to three years. And given the magnitude of the
4 investments here, Your Honor, and the size of this case and the
5 importance of it as an investment to the fund certainly that I
6 represent, the enormity of that is going to be beyond
7 comprehension. There is no way we are going to be able to
8 produce documents in response to these requests in two weeks.
9 And I have no idea how long it would take if discovery were to
10 go forward at all or on the basis of the requests that are
11 outstanding. We will obviously work with counsel for the
12 equity committee if discovery is directed. But we reserve all
13 of our rights with respect to any opposition we might have
14 under the applicable rules. Thanks.
16 MR. MAYER: Tom Mayer for Aurelius. I adopt the
17 preceding reservation. And I also note there was no Aurelius
18 trade that is selected for criticism. And otherwise I rest.
19 Thank you, Your Honor.
20 MR. THOMA: Nate Thoma again. Your Honor, I just
21 wanted to reiterate that according to all of the settlement
22 noteholders' 2019 filings, they've all traded in both the
23 subordinate notes and the PIERS after the initial, I guess,
24 settlement discussions in March of 2009. So it's up to the
25 Court to determine, I guess, whether or not that's relevant.

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1 But I just wanted to reiterate that.
2 And briefly, regarding the federal judgment rate, I
3 believe it was Mr. Curchack, at the last hearing, made a remark
4 regarding as to I may have inadvertently shot myself in the
5 foot by bringing this matter to the Court's attention. And the
6 potential for the federal judgment rate to be applied could
7 affect all PIERS claimants.
8 I'm inclined to disagree with Mr. Curchack.
9 Basically, right now, we're seeing about seventy-five percent
10 of projected recov -- of allowed claims to the PIERS. We're
11 not anywhere near, according to the debtors and everybody's
12 representations here, that we're anywhere near getting post-
13 petition or allowed interest on these claims. So by my math,
14 zero times whatever, whether it's contract rate or federal
15 judgment rate, is really irrelevant to me at this point in
16 time.
17 Secondly, why I'm interested in the noteholders
18 specifically, well, as a PIERS holder, they happen to be the
19 majority, the supermajority, holders in my class. And I think
20 I let a little hearsay into the record. I wasn't sure exactly
21 what that was and I tried to review and see what that was. And
22 I believe that was related to my conversations with the trustee
23 regarding the noteholders and some other aspects of the case.
24 So I won't repeat those here, but the -- my interest
25 in them is strictly due to my co-creditor status as a PIERS

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1 holder. There's other securities that they've traded. I don't
2 know how relevant that is to anybody else. And that's not
3 really -- I don't feel that's my argument to make.
4 Finally, with regards to discovery, you know, I don't
5 know if this is a good sign or not, but after two and a half
6 years of following Washington Mutual, I can finally laugh at
7 some of the things that happened in this court and kind of see
8 them for, you know, theater or whatever they may be. And the
9 discovery, I guess, requests by some of the parties against me
10 were amusing at first but it was extremely short-lived. I'm
11 not here to waste my time. I'm not here to waste the Court's
12 time. I'm not here to derail the plan. The problem in my mind
13 is that these issues, especially the ones that I brought to the
14 attention of the Court were brought to the attention of the
15 debtors long, long before I brought them up.
16 On March 13th of 2010, filing 3713, reservation of
17 rights of Wells Fargo Bank in its capacity as indenture trustee
18 and guaranty trustee, they stated that -- counsel for Wells
19 Fargo conveyed to debtors' counsel Wells Fargo's concerns with
20 the inadequacy of the disclosures in the disclosure statement
21 concerning the rights offering and certain inconsistencies
22 between those disclosures in subscription form that is appended
23 in Exhibit 6.1 of the motion. So basically, the history of
24 this specific -- the two million threshold, what's disturbing
25 to me is individual PIERS, retail PIERS holders, contacted the

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1 trustee, asked him about this and said, you know, that didn't
2 seem right It seemed as though they were partitioning one
3 class of creditors in a -- I guess a - in an inexplainable way.
4 So he filed this motion and he found -- I guess they and the
5 debtors had some form of communication and, at some point, they
6 dropped it. And that the plan got all this way to confirmation
7 and nobody else brought that up and the debtors happen to be
8 aware of it, these guys have been -- I'm assuming they -- as
9 professionals, they represent they had to have known that this
10 was not copacetic as far as the Bankruptcy Code goes. So, you
11 know, I'm left to wonder why we couldn't have had a plan back
12 in May 2010 that could have been -- that could have addressed
13 some of these issues that would render the plan inconfirmable.
14 And that's forty million a month. Thirty million in interest;
15 ten million a month in professional fees. And now we're
16 looking at a March, possibly later, confirmation. That's a
17 significant amount of money that's been squandered here in my
18 opinion. And time has been squandered by failure to pay
19 attention to things as best people brought them up.
20 So as far as discovery against me goes, I think -- you
21 know, somebody that this would establish a bad precedent that
22 anybody could just walk into a court and make accusations and
23 derail the process. I think a greater harm could come when, in
24 a case like this, there are certain clear issues with
25 confirmation and somebody's afraid to come forward and bring

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1 them up because of fear of reprisal from creditors with a lot
2 more experience and funds than an individual. So thank you.
3 MR. WITZEL: Good morning, Your Honor. Steven Witzel
4 from Fried Frank. After the third time I heard that -- from
5 Mr. Ard that I had promised to have discovery in two or three
6 weeks when we were here on January 20th, just for the record,
7 to be clear, as the Court is aware, I think when we were
8 discussing this, I said that we didn't think that there should
9 be discovery and that the short answer is we would do whatever
10 the Court wanted and we would do -- I think the words I used,
11 we'll do everything possible to follow that schedule.
12 Obviously, there's four individual clients. They all have
13 individual counsel. The discovery is -- I won't repeat all the
14 arguments -- is incredibly broad. It would take an incredibly
15 long time to try to meet that if indeed the Court would grant
16 the full discovery which we think is completely inappropriate
17 here. And that each counsel, each individual client then need
18 to confer and get back as to what would or would not be
19 possible. And nothing was promised. And again, we believe
20 that discovery is just completely overbroad for the narrow
21 specific and limited allegations by Mr. Thoma and the fact that
22 there had been ample opportunity to review that before. Thank
23 you, Your Honor.
24 MR. ROSEN: Your Honor, hopefully I'll be the last
25 one. Your Honor, the debtors only rise to say that I think of

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1 all the things that we agree with, it was maybe one of the
2 few -- the last thing that Mr. Coffey said is that people will
3 endeavor to get this done and be available for a May 2nd
4 confirmation hearing. We think, Your Honor -- we're not
5 getting into the scope. We don't even want to get into the
6 propriety of this. We know -- well, the Court will determine
7 whatever the Court will determine. We just think that it
8 should be done in a time frame that will allow this to move
9 forward.
10 I will say, however, Your Honor, that with respect to
11 Mr. Thoma's comments, I think he's -- as we heard on December
12 7th, he's not blinded by the truth. He wants to say certain
13 things. And he picks up certain documents but he doesn't
14 really understand what they say or doesn't really read what
15 they say, Your Honor. The Court will recall that you had a
16 hearing with respect to the 2019 statements. And the Court
17 ruled what was appropriate to be filed. And as a result of
18 that, people did file whatever they did file consistent with
19 the Court's determination. Likewise, Your Honor, as we
20 indicated on January 20th with respect to the rights offering,
21 the debtors went forward with the plan and included the rights
22 offering based upon serious concerns that we had about
23 compliance with the federal securities laws and public company
24 issues. And as we indicated in the chart that we filed with
25 the Court that in the event that delving -- or going beneath

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1 that threshold created these securities issues, the debtors
2 would abandon the rights offering. And so, Your Honor, in the
3 plan that was filed today, the rights offering is not included.
4 So it is not because that there were, in our mind, Your Honor,
5 we were trying to focus or generate interest in the rights
6 offering to a certain level of PIERS holdings. Rather, it was
7 compliance with securities laws that we did it. And as a
8 result of that, Your Honor, we have now, in the modified plan,
9 taken that out.
10 Your Honor, whatever way you go today, Your Honor, we
11 only ask that we stick to May 2nd. Thank you.
12 THE COURT: Well, I am going to rule now. I am going
13 to grant the motion in a limited fashion. I do think the
14 requests are overly broad but I think that there's no basis not
15 to grant discovery from the -- and I'll use the term
16 generically -- the settlement noteholders. I think it is
17 relevant to the confirmation hearing that I will be holding.
18 It relates to both the interest issue and the valuation issue.
19 On the timing, I will require that the documents and
20 information -- or discovery be responded to within two weeks.
21 That was the basis on which I agreed to have the hearing today
22 and the parties have been aware that if I granted it, it would
23 be on that time frame.
24 I will limit the discovery, though, to what I think is
25 relevant. I think what is relevant is any post-bankruptcy

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1 trading by these parties. Rule 2019 would require it anyway.
2 And I think that it is relevant to the issues raised and
3 identified by the Court as of concern in my opinion denying
4 confirmation.
5 I will require the production of any information
6 received by these parties, the settlement noteholders, during
7 settlement negotiations. That limits it temporally as well. I
8 will require the production of any information with respect to
9 their valuation of the reorganized debtor. It may not be a
10 value the debtor -- the Court agrees is the value of the
11 reorganized debtor but I think it is relevant to that issue. I
12 will not limit it to specific trades identified by Mr. Thoma or
13 anybody else. I think all trades post-petition should be
14 produced. But I will not allow the broad ranging inquiries
15 into what the settlement noteholders' plans are as to the --
16 for the reorganized debtor. I don't think that's relevant to
17 any confirmation issue.
18 Do I have to go through each interrogatory and -- I
19 think on one issue with respect to admissions, they can submit
20 whatever admissions they want. That's appropriate. You can
21 respond to them if you agree or don't agree. But again, they
22 should be limited to the areas that I have identified.
23 MR. HARRIS: Your Honor?
24 THE COURT: Yes.
25 MR. HARRIS: If I may, by way of clarification? When

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1 Your Honor said that we'd limit it to information received by
2 the parties during settlement negotiations and that would be a
3 temporal limitation, is that a temporal limitation with respect
4 to your statement regarding post-bankruptcy trades so that the
5 temporal limitation would be any trading from and after the
6 point you first received material nonpublic information? Or is
7 it --
8 THE COURT: No.
9 MR. HARRIS: I didn't understand the comment regarding
10 to the temporal limitation and how it related to the comment
11 about all post-bankruptcy trading.
12 THE COURT: Post-bankruptcy trading should be
13 produced. Information regarding settlement negotiations is,
14 obviously, only since you got involved in settlement
15 negotiations.
16 MR. HARRIS: And, Your Honor, would you like us to
17 produce the details of the actual settlement negotiations or
18 the information we received from the company during the
19 settlement negotiations?
20 THE COURT: Only the information received during the
21 settlement negotiations. The settlement negotiations
22 themselves I don't think are relevant.
23 MR. HARRIS: Okay. Thank you for that clarification.
24 THE COURT: Yes. Thank you for asking.
25 MR. MAYER: Your Honor, I appreciate your limiting the

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1 scope of discovery. I suspect there will be some further
2 negotiations on meet and confer. And we'll do what we can.
3 But if we determine that we simply can't do it then I'll have
4 to come back either to you or seek relief elsewhere. Two weeks
5 is a commitment that was not made by my client. And there may
6 be a lot of documents to review. And if it can't be done then
7 we'll come back and tell you or, if necessary, we'll have to
8 tell some other judge that it can't be done because if it can't
9 be done, it can't be done.
10 THE COURT: All right. I'll be available for a
11 teleconference if the parties wish.
12 MR. ARD: One other point of clarification, Your
13 Honor. I didn't hear you say anything about the ethical
14 trading wall.
15 THE COURT: Oh, I'm sorry.
16 MR. ARD: Yeah.
17 THE COURT: Thank you. Yes. I will require
18 information regarding what process was put in place by these
19 parties if any regarding the post-bankruptcy trading.
20 MR. ARD: I'm sorry, Your Honor. One more point. You
21 said that you may go to the interrogatories but you don't need
22 to. But they're to respond to the interrogatories as well
23 insofar as they pertain to the questions that you --
24 THE COURT: To those topics, yes.
25 MR. ARD: To the issues. Thank you, Your Honor.

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1 THE COURT: All right. I'll look for a form of order
2 from the equity committee.
3 MR. ROSEN: Your Honor, that takes us to agenda item
4 number 33 which is also a motion by the equity committee.
5 MR. SARGENT: Good morning, Your Honor. Thank you.
6 Edgar Sargent, Susman Godfrey, also on behalf of the equity
7 committee. We have moved, under Section 158(d)(2)(A) for this
8 Court to certify a review by the Third Circuit the order
9 finding that the GSA is fair and reasonable under Rule 9019.
10 Your Honor, this motion is likely to determine whether
11 or not there will ever be appellate review of the seven billion
12 dollar settlement that is at the heart of this bankruptcy.
13 Postponing appeal until after a plan has been confirmed and all
14 related issues have been resolved risks foreclosing appeal
15 altogether. At that point, the issue may well be found to be
16 equitably moot. But appeal now of the discreet legal issue
17 presented in our moving papers can continue on a parallel track
18 with the plan proponents' efforts to present a plan that meets
19 the requirements of the Court's January 7th order.
20 The plan proponents are well aware of this dynamic.
21 They understand what's at stake in this motion. They want to
22 take advantage of the situation and try to squeeze the life out
23 of any possibility of an appeal of this order which explains
24 some of the contorted positions that the plan proponents have
25 taken. On the one hand, they insist that the order approving

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1 the terms of the GSA is the law of the case, cannot be
2 challenged. On the other hand, they argue that the terms of
3 the settlement are still in flux and therefore present a moving
4 target that can't be appealed.
5 THE COURT: No. I think they say it's an
6 interlocutory order. Law of the case -- an order that is law
7 of the case may nonetheless be an interlocutory order.
8 MR. SARGENT: Well, several of the briefs, Your Honor,
9 say that the terms of the settlement are still being
10 negotiated. They use the word "in flux" and say that the
11 settlement itself is not final and therefore cannot be
12 appealed.
13 It's clear to me that the plan proponents want to
14 foreclose any further challenge to the terms of the GSA. They
15 hope to foreclose it in this Court because the issue's finally
16 been decided and is the law of the case. They hope to
17 foreclose it from an immediate appeal by arguing that no review
18 is possible because the order is not final. And then to
19 complete the circle, you know, close the fence, they will
20 undoubtedly argue that no appeal will be possible once this
21 Court enters a final order on a plan based on the GSA because
22 at that point it will be moot. This kind of gamesmanship, Your
23 Honor, should not be allowed to obscure the very real need for
24 a full, fair and open process in this massively public and
25 controversial bankruptcy.

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1 Now, despite the mixed messages in the plan
2 proponents' briefing, everyone in this room knows what's really
3 going on. The terms of the settlement are fixed. The Court
4 has issued an order approving those terms as fair and
5 reasonable. And the plan proponents intend to rely on that
6 ruling to get approval of a plan based on that settlement with
7 changes to the release provisions and some plan elements that
8 are distinct from the GSA. The standing arguments, the
9 finality arguments, are formalistic and they ignore these
10 realities.
11 Now the tension between the need for appellate review
12 of orders issued during the course of a bankruptcy and a need
13 to proceed with an expeditious distribution of the assets and
14 winding up the estate is not new. It's been addressed in many
15 cases. Both Courts and Congress have taken steps to loosen the
16 standards for taking up issues on appeal during the course of a
17 bankruptcy proceeding to address this very tension. The Third
18 Circuit has counseled in several cases that the concept of
19 finality for purposes of appeal is to be given a -- and this is
20 their word -- "pragmatic interpretation". It has been held --
21 they have held that orders that would not be final in other
22 cases and not be appealable should be considered final and
23 should be appealed in bankruptcy.
24 Now Congress recently adopted a new procedure for
25 certification directly from a bankruptcy court to the circuit

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1 court. Its justification for creating this procedure was
2 explicitly the need for more appellate review, particularly
3 circuit court review, of bankruptcy decisions. It is exactly
4 this circuit court procedure that we've invoked in this motion.
5 Your Honor, the statutory requirements for appeal are
6 readily satisfied in this case. We have shown that the order
7 approving the terms of the GSA is appealable as a final order
8 under the collateral order doctrine satisfying U.S.C. Section
9 158(a)(1). Now under the collateral order doctrine, an order
10 may be appealed and filed if three conditions are met:
11 First, if the order conclusively determines a disputed
12 question. That prong is easily satisfied based on the law of
13 the case argument that the plan proponents have been making;
14 A second requirement is that the order resolve an
15 important issue completely separate from the merits of the
16 case. It's also satisfied here. Once the GSA has been
17 determined to be fair and reasonable, the amount provided to
18 the estate in that settlement is established. There's no
19 further need for the Court to go back or the parties to
20 reassess the merits of this order or the underlying GSA;
21 Finally, the third requirement is that it be
22 effectively unreviewable on appeal from a final judgment. And
23 again, as we have argued, and none of the plan proponents have
24 disputed, at least on the merits, appeal from this order will
25 almost certainly be equitably muted by final plan confirmation

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1 and distribution rendering it unreviewable at that point.
2 So the elements of collateral order doctrine are
3 satisfied and the GSA order is appealable as final.
4 The order also satisfies, Your Honor, the requirements
5 for appeal of an interlocutory order under 158(a)(3).
6 Interlocutory review requires that the order address the
7 controlling question of law. Again, there are three elements:
8 The controlling question of law over which there is a
9 substantial ground for difference of opinion and that appeal at
10 this stage will materially advance the ultimate termination of
11 the bankruptcy case.
12 Now the legal question at issue here is the nature of
13 the evidentiary record necessary to support a finding that
14 settlement of legal claims is fair and reasonable under Rule
15 9019. The plan proponents submitted, as the Court is aware, no
16 evidence of any legal analysis of the claims being settled. No
17 testimony from their lawyers was offered. No expert testimony.
18 No other evidence on this issue. And the objectors, including
19 the equity committee, challenged the plan proponents' ability
20 to meet their burden, to prove that the settlement was fair and
21 reasonable, including the element of likelihood of success,
22 without any such evidence. The Court addressed this issue in a
23 distinct -- as a distinct legal question in the beginning of
24 its analysis in the January 7th order. It was separate and
25 apart from the analysis of the factual record. It determined

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1 that the Court -- the Court determined that it could rule, in
2 the absence of any such evidence, based on its own legal
3 analysis. Now this legal question is decisive for the Court's
4 ruling on the GSA. If such evidence is required to support a
5 fairness analysis then the GSA cannot be approved. So the
6 first prong of the test is met.
7 There's also clearly room for disagreement on this
8 issue. The plan proponents argue that this appeal involves
9 only the well settled question of the standard for approval of
10 a settlement. It's a strawman argument, Your Honor. The
11 equity committee is not challenging this Court's statement of
12 the applicable standard for determining fairness. We are
13 challenging the ability to make that determination under the
14 well settled factors and, in particular, under the factor of
15 likelihood of success with no record evidence of the legal
16 analysis of the claims.
17 The Court, in its January 7th opinion, cited no
18 authority in support of its conclusion that it could conduct
19 such an analysis. And the parties also have cited no cases
20 holding that a Court can conduct such an analysis without
21 supporting evidence in the record. The best they've come up
22 with are some other bankruptcy court cases in which the Courts
23 discuss likelihood of success on fraudulent conveyance or other
24 claims without citing any support -- any expert testimony or
25 other attorney support. But there's no sign that those cases

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1 involve challenges to the sufficiency of the record on this
2 issue by objectors, no indication that the legal analysis
3 involved was in any way controversial or disputed. And they
4 certainly contain no holding that such challenges may be
5 overcome by having the Court review allegations and pleadings
6 and make its own determination based on its own analysis
7 outside the scope of the record.
8 Now, to be clear, the equity committee is not
9 contending that plan proponents in this situation must waive
10 the attorney/client privilege in order to meet their burden.
11 The creditors' committee cited two cases from the Ninth
12 Circuit. Looking for authority supporting their proposition,
13 they went to the west coast in their brief in an effort to show
14 that there was no genuine legal dispute. But these cases have
15 all a waiver of privilege in a completely different context.
16 They do not address anything analogous to the likelihood of
17 success showing on legal claims that's at issue here. There
18 are a number of ways that a plan proponent can meet the burden
19 on this issue without waiving privilege. Expert testimony is
20 the most obvious and, I think, most commonly used one.
21 In any case, the point is not waiver. The point is
22 that legal analysis supporting likelihood of success cannot be
23 a black box. It must be addressed within the evidentiary
24 record so that the parties have the ability to debate that
25 legal analysis, provide the Court with opposing views about the

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1 validity of various theories.
2 Now the third and final prong in the test for
3 interlocutory appeal is also met here. Appeal at this point
4 would materially advance the progress of the bankruptcy. The
5 Court's order approving the seven billion dollar settlement is
6 the single most important ruling in the bankruptcy. The
7 objectors' only real challenge on this point is to argue that
8 an appeal would be piecemeal which is, of course, true in any
9 interlocutory review of a bankruptcy order and which is
10 therefore expressly provided for by the rules and the statutes
11 that we've cited. They also argue that appeal would be
12 inefficient because a reversal would require additional
13 factfinding. But again, that's hardly a reason to delay. If
14 the approval of the GSA is ultimately reversed on appeal,
15 factfinding would be required no matter when the appeal was
16 taken.
17 Your Honor, any order subject to appeal under Section
18 158(a), either its final under the collateral order doctrine or
19 as interlocutory, is subject to immediate certification of the
20 circuit court under 158(d)(2). And this is the new provision
21 and the relief sought in this motion.
22 Under the plain terms of the statute, this Court must
23 certify if any one of the following criteria are met:
24 First, if the case involves a question of law as to
25 which there is no controlling decision. We contend that this

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1 is very similar to the analysis I just discussed in the context
2 of the interlocutory appeal. There is no controlling decision
3 about the nature of the evidence required to meet the
4 settlement proponents' burden on the likelihood of success.
5 The plan supporters' arguments that this case involves
6 settled law again refer only to the more general question about
7 the standard for a fair and reasonableness determination under
8 9019. They do not address the specific and much narrower issue
9 that we raise on this appeal.
10 The second standard under 158(d) for certification of
11 the circuit court, certification is also required if the order
12 involved a question of law resolving conflicting decisions.
13 And we believe, Your Honor, that this requirement is met by the
14 Spansion decision. In your opinion, you distinguished
15 Spansion. And we acknowledge that Judge Carey in that case did
16 not announce a rule requiring legal analysis in the record for
17 a 9019 hearing. But he did note the absence of any such
18 analysis and he did find the record inadequate to support the
19 fair and reasonable conclusion that despite the absence of an
20 explicit holding on the evidentiary requirement, Spansion is in
21 conflict or, we allege, at least in tension with the Court's
22 analysis here.
23 Now the plan supporters emphasize that Judge Carey's
24 finding -- that he did not believe that the debtors had decided
25 to settle without advice of counsel. And the Court, in its

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1 January 7th order, also mentioned this aspect of Spansion.
2 It's true that Judge Carey does conclude that the debtors'
3 testimony on this point was not credible. But this was not the
4 basis of his finding that the record contained insufficient
5 evidence to support the 9019 analysis. It can't be the basis
6 for that finding because Rule 9019 is not a test of the
7 reasonableness of the debtors' process. It's an objective test
8 of the evidence before the Court and whether or not the
9 settlement is fair based on that evidence. It's that evidence,
10 the evidence in the record, that Judge Carey found to be
11 inadequate to support the ruling about the fairness of the
12 settlement.
13 Finally, Your Honor, certification is required if an
14 immediate appeal to the circuit court would materially advance
15 the progress of the case. And I think it's getting repetitive.
16 This is a similar factor that I've already discussed. It
17 overlaps with the test for interlocutory appeal. For the
18 reasons I've already explained and we covered more thoroughly,
19 I think, in our brief, it's more efficient and expeditious to
20 certify this issue for appeal now rather than waiting until a
21 final plan has been confirmed.
22 Your Honor, this is the single most important order in
23 the bankruptcy resulting from the largest bank failure in the
24 history of this country. Bankruptcy procedure incorporates
25 several means for immediate appeal of significant and

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1 controversial orders prior to the conclusion of the entire
2 case. If any situation is appropriate for pre-confirmation
3 appeal, it is this one. We ask that the Court recognize the
4 significance of its order and certify that order for immediate
5 review by the Third Circuit. Thank you.
6 MR. STROCHAK: Good afternoon, Your Honor. Adam
7 Strochak, Weil Gotshal & Manges, for the debtors. Let me
8 start, if I could, with the jurisdictional argument. That's
9 the way we laid out our papers. The jurisdictional arguments
10 aren't formalistic, Your Honor. I mean, there's a process and
11 a procedure for appeals and appellate jurisdiction is a
12 critical element necessary for every appeal.
13 The Third Circuit has laid out the standard. In order
14 to appeal from an order you have to be a party aggrieved by it.
15 We're not suggesting that the equity committee is somehow the
16 wrong party here. What we're saying is that this is not the
17 time for an appeal from the decision that they're challenging.
18 They're not aggrieved by the Court's findings in the opinion in
19 the confirmation order because the confirmation order denied
20 confirmation, exactly the relief that they sought, that is,
21 denial of confirmation. So it's not a question of are they the
22 right party at this point. They're the wrong party because
23 they got the relief that they were looking for in connection
24 with confirmation which was denial.
25 They've suggested somehow that the Drelles case that

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1 we cited from the Third Circuit is not on point, but it's
2 exactly on point. In that case the appellee sought review of
3 certain statements made by the magistrate judge in connection
4 with the prior opinion. And the Third Circuit said we're not
5 going to address that issue and the reason why we're not going
6 to address it is because in this circuit we have established
7 rules as to who can appeal from what types of orders. And you
8 can't appeal from subsidiary findings in an opinion when the
9 order that is entered is exactly the one you are looking for.
10 So there simply is no standing to seek appeal from this order
11 at this time.
12 Let me turn to the collateral order doctrine. The
13 equity committee has thrown at least three theories out as to
14 why they can appeal right now. They've argued simply by filing
15 their notice of appeal that the Court's decision was a final
16 appealable order and they cite primarily the Armstrong decision
17 on that. They've argued that well, if it's not final it's
18 interlocutory and we'd like permission to appeal it as an
19 interlocutory order. And then they came back in their reply
20 and in Mr. Sargent's comments with another variant, which is
21 the collateral order doctrine.
22 So they start out by saying well, this is the key
23 issue in the case, Judge, you really ought to let us go up
24 directly to the Third Circuit and get resolution on this key
25 issue because everyone knows that the whole case is all about

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1 the findings concluding that the settlement was reasonable.
2 And then they kind of fall back from that and say well, no, it
3 really wasn't a key issue in the case, it was a completely
4 collateral issue in the case and we ought to be able to appeal
5 it under the collateral order doctrine exception.
6 So let me focus on the collateral order doctrine. By
7 definition, under the collateral order doctrine you have to
8 have an issue that's completely separate from the merits of the
9 action. That's an element of the test. You don't get to the
10 collateral order doctrine unless it's completely separate.
11 This couldn't be further away from completely separate, Your
12 Honor. The settlement was an integral part of the plan. The
13 settlement doesn't exist in the absence of a confirmed plan.
14 The Court's order did not approve the settlement in the sense
15 that it was a final order approving it, authorizing the debtors
16 to consummate the settlement in any way. What happened, of
17 course, is that the Court made findings with respect to the
18 reasonableness and the fairness of the basic economic
19 compromises in the settlement and of course recognized that
20 there were many other issues that precluded confirmation and
21 that those were going to have to go forward at a later time.
22 The settlement simply is not in effect right now. In
23 fact, it has been amended and a new form of settlement was
24 filed before the Court today. That, of course, will proceed
25 along the schedule that we've discussed. And I certainly hope

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1 that the Court will confirm the plan on May 2nd. I hope we
2 don't get delayed past May 2nd. And I hope on May 2nd the
3 Court finds that we've satisfied all the applicable
4 requirements. But I certainly can't say for certain that Your
5 Honor is going to get there. I don't think there would be
6 quite as many people in this courtroom today if we all knew for
7 sure that this was just a matter of a couple of minor technical
8 changes and we knew for sure that a plan was going to be
9 confirmed and that this plan, the modified plan, was going to
10 be confirmed. I also think if that was the case quite a few of
11 the people in this room today would have had a lot more sleep
12 over the last several weeks and they might have had need for
13 fewer Rolaids as we moved the settlement process forward in
14 order to get to the point where we could file an amended plan.
15 Another critical element of the collateral order
16 doctrine is that the order has to be effectively unreviewable
17 if a collateral order appeal were not permitted. That's not
18 what we have here. What the equity committee has pointed to,
19 and really the only thing it's pointed to, is the risk that a
20 subsequent appeal from an order that actually confirms a plan
21 might be foreclosed as a result of the equitable mootness
22 doctrine.
23 So what would we have to do in order to get to a
24 conclusion that the decision confirming a plan, one that hasn't
25 even been made yet, is effectively unreviewable? First of all,

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1 the Court has to actually confirm a plan. Second of all, we
2 actually have to be able to go effective with the plan. There
3 has to no stay of a confirmation order barring us from going
4 effective. And then even all that occurs we would still have
5 to demonstrate -- in order to foreclose an appeal under
6 equitable mootness we have to convince the reviewing court that
7 no effective remedy could be constructed in order to grant
8 relief.
9 That litigation, Your Honor, is out in front of us.
10 We will all take whatever positions we think are appropriate if
11 and when we get to that point. But to prejudge it and say now
12 that there can be no effective way to review the Court's finds
13 with respect to the settlement in the confirmation opinion is
14 simply flat out incorrect.
15 There's a recent decision from the Supreme Court, Your
16 Honor, on the application of the collateral order doctrine.
17 It's called Mohawk. It's a 2009 decision from the Supreme
18 Court reported at 130 S.Ct. 599. The Court goes over those
19 issues. It talks about the standards that are applicable for
20 permitting a 130 collateral order appeal. It found that there
21 was no appellate jurisdiction over the order in that case which
22 was an order relating to discovery issues and privilege issues
23 in discovery. The Supreme Court found that applying the test
24 for is the matter effectively unreviewable on appeal, the
25 Supreme Court said no in that case, it was reviewable. Even

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1 though the order might require the turnover of privileged
2 documents or anything else, it found that there was an
3 opportunity for review of that decision later on, therefore the
4 standard was not satisfied.
5 The key point that the Supreme Court makes in Mohawk
6 is the idea that you have to balance the institutional costs of
7 allowing individual separate matters to go up on appeal against
8 the risks that appellate review would be foreclosed later on.
9 There are real institutional risks to both the courts and the
10 parties, of course, in having these separate issues go up on
11 appeal.
12 You know, Mr. Sargent talks about the parallel track.
13 But the parallel track is not the rules for appeals; that's the
14 exception. The normal track for appeals is we get the whole
15 decision and the whole decision goes up on appeal at once so
16 that the appellate court can have a complete record on all
17 issues before it at the time and we don't have a situation
18 where we have multiple recourse to the court of appeals anytime
19 a party is unsatisfied with a particular finding that the court
20 might make on a particular issue.
21 Now, we all know that bankruptcy is a little bit
22 different. I'm not suggesting that every matter in the
23 bankruptcy case must be held and must go up only once. We all
24 know that that's not the rule. But it is the rule with respect
25 to confirmation, is we don't break out separate confirmation

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1 issues.
2 Had the Court made a series of findings on 1129
3 factors and then denied confirmation of the plan because one
4 particular factor or two particular factors had not been
5 satisfied, we wouldn't have an automatic parallel appeal of the
6 findings that the Court did make and then continue to deal with
7 the ones that the Court decided adversely to confirmation and
8 have a separate appeal from them. That's not the way that
9 bankruptcy confirmation appeals proceed.
10 What Mr. Sargent is suggesting is that we have this
11 parallel track so we go up Interstate 95 to Philadelphia on the
12 findings on the settlement and then we continue here in this
13 court on the remainder of the confirmation issues. And again,
14 this is not a case where the equity committee is saying look,
15 Your Honor, whatever you decide on confirmation we're going to
16 be find with it, we just want to -- all we want to challenge is
17 your findings on the settlement. They specifically said --
18 they said today in court that the releases in the plan, they
19 thought the original releases were too opaque and they're
20 afraid that the new ones might be too opaque and they may be
21 challenging those on appeal. That was Mr. Ard's comments in
22 connection with the discovery matter.
23 Mr. Coffey, on behalf of the trust preferred holders,
24 said that he might have issues with the valuation going
25 forward. So those issues are going to have to be dealt with on

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1 confirmation and we're going to have to deal with them. And I
2 am quite certain that the equity committee and any other party-
3 in-interest that has an objection is going to be heard on that
4 objection and the Court will decide it, and if they're
5 aggrieved by the Court's decision on May 2nd going forward, I'm
6 quite certain that they're going to want to appeal those
7 decisions too.
8 So we have the findings going up in Mr. Sargent's
9 parallel world. We have the findings in the settlement going
10 up to the Third Circuit. In the meanwhile the proceedings here
11 continue. And then let's say lightning strikes and Mr. Sargent
12 is able to convince the Third Circuit that this Court abused
13 its discretion in determining that the settlement was
14 reasonable and the debtors were wrong and the creditors'
15 committee was wrong and the settlement parties were all wrong,
16 everybody got this wrong and the order should be reversed and
17 remanded for further findings.
18 Well, I don't know when that might happen. I don't
19 think it's ever going to happen but if it ever did happen --
20 well, let's say it happens three weeks after May 2nd so this
21 Court has confirmed a plan -- and I certainly hope the Court
22 has confirmed a plan but we're not certain we're going to get
23 there -- so now we have a confirmation order that says the plan
24 is confirmed and they're going to appeal that one. So that
25 appeal goes up Interstate 95 and in the meantime the appeal of

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1 the findings in the settlement is coming southbound on 95 back
2 to this court. Well, what happens then and where are we then?
3 So you've got this multiplicity of appeals going on.
4 Let's say that my scenario actually happens and the
5 Third Circuit says Judge Walrath should have considered legal
6 issues and should have required expert testimony, so now we
7 have another hearing and now we have a hearing with this expert
8 testimony. And well, let's say we get the same result, the
9 Court approves the settlement. Well, back we go to the Third
10 Circuit, don't like that decision either. That's just the
11 exact opposite of the way the appellate process should work.
12 Now let me turn to the interlocutory appeal issue
13 because the argument we've made has been misconstrued in the
14 equity committee's reply papers. I'm not suggesting that this
15 Court can't decide certification. What I'm suggesting is that
16 the standards for certification of a direct appeal to the court
17 of appeals are virtually identical to the standards for
18 permission to take an interlocutory appeal. And it doesn't
19 make any sense, when we have a process that says it's not the
20 bankruptcy court that decides to grant permission to take an
21 interlocutory appeal, it's the appellate court, either the
22 district court or the bankruptcy appellate panel in a
23 jurisdiction where there is one, or the Third Circuit in the
24 case of a direct appeal. What I'm saying is it makes no sense
25 to permit certification here where the standards that an

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1 appellate court would have to apply in order to determine if
2 interlocutory appeal is appropriate are far from that under
3 these circumstances.
4 So you've got the standards for a certification --
5 you've got the standards for permission to take an
6 interlocutory appeal, which we take a look at: Is there a
7 controlling question of law here? Are there substantial
8 grounds for a difference of opinion with respect to that matter
9 of law? And would an interlocutory appeal materially advance
10 the ultimate termination of the case? And I think the answer
11 to that is no on all three counts.
12 We don't have a controlling question of law here. The
13 approval of the settlement is subject to well established
14 standards. These are matters that bankruptcy courts and many
15 other courts take up, if not on a daily basis then certainly on
16 a near daily basis. What they've done is they've simply tried
17 to slice the legal issue as thin as they possibly can to say
18 no, this doesn't have anything to do with approval standards,
19 this doesn't have anything to do with the standards that are
20 applied day after day in case after case and under Rule 9019
21 and under circumstances where settlements are incorporated into
22 a plan.
23 What they're saying is there's this very tiny little
24 legal issue and it's whether or not the Court improperly acted
25 as an expert in evaluating the likelihood of success on the

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1 merits prong of the settlement test. And that's not the way
2 you deal with a controlling question of law in considering an
3 interlocutory appeal or in considering certification of a
4 direct appeal.
5 The Court's decision was committed to the Court's
6 discretion under well established standards. And the fact that
7 they've innovated this legal argument that says well, the Court
8 improperly acted as an expert and that wasn't right, that
9 doesn't make it a controlling question of law by any means.
10 The substantial grounds for difference of opinion
11 prong is really very, very similar to the conflicting decision
12 prong under the test under 158(d)(2)(A) for direct
13 certification. There aren't substantial grounds for difference
14 of opinion here, Your Honor.
15 There's one decision that they point to: Spansion.
16 The Court distinguished it. The Court didn't say I find that
17 Judge Gross (sic) was wrong as a matter of law, I disagree with
18 his conclusion and I reach a different one. The Court simply
19 distinguished the Spansion case and came to a result here that
20 said look, we're not dealing with the same types of issues.
21 This is the anti-Spansion case because the debtors did
22 not come in and say that they had disavowed in any way or not
23 relied upon the advice of their professionals and counsel.
24 They said just the opposite. They said they did rely on it,
25 here are all the facts and circumstances, Your Honor, you can

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1 decide that the settlement is fair and reasonable based on the
2 evidence that's before you.
3 Spansion wasn't decided on a neat little issue of law.
4 Spansion was decided under the business judgment test. Judge
5 Gross (sic) said that he found that on the record before him
6 that the debtors had not convinced him that they had properly
7 exercised their business judgment in settling. That's right
8 out of the decision. It's clearly distinguishable from the
9 decision here and it does not give rise to a substantial
10 difference of opinions among the courts. And even if it did,
11 it's one decision from this very court.
12 The case law on certification and interlocutory
13 appeals should be no different, is that there's a good reason
14 for matters to percolate through the district courts, that we
15 don't send everything straight to the court of appeals just
16 because it might be beneficial for the party that's appealing
17 to do so. There is good reason why the district courts
18 continue to have appellate jurisdiction. There is good reason
19 why matters need to continue to filter up through the district
20 courts before they get to the court of appeals.
21 The third factor on interlocutory standard is the idea
22 that it has to advance the case in some way. That's the
23 argument that I made already. Appealing here would not advance
24 the case at all. Appealing here would create multiplicity of
25 appeals. It would detract resources. It would create

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1 conflicts as decisions go up and down and back and forth to the
2 appellate courts under these circumstances.
3 The reasons why immediate certification to the court
4 of appeals are inappropriate are the same that are articulated
5 with respect to the interlocutory appeal. I'm not going to
6 repeat them again because I think the standard is so similar
7 that I've gone through it already.
8 I'm just reviewing my notes, Your Honor. Just bear
9 with me one second.
10 (Pause)
11 MR. STROCHAK: Your Honor, just to summarize, we think
12 appellate jurisdiction is lacking here because appellate
13 jurisdiction is lacking for many reasons. This Court is
14 certainly well within its authority to simply deny the
15 certification because there is no jurisdiction on the appeal.
16 Should the Court reach the question of the direct
17 certification we think it's easily resolved under the standards
18 set forth in the statute. Direct certification is the
19 exception not the rule. Only if the standards of the statute
20 are met is it appropriate for a direct appeal to the court of
21 appeals. This is not a matter where there is an absence of
22 controlling precedent. There is ample precedent for the
23 Court's decision. The Court correctly applied precedent,
24 recited the precedent in its opinion. It's a matter that's
25 devoted to the bankruptcy court's discretion and there is no

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1 matter of -- the controlling precedent standard simply is not
2 satisfied here because there is ample precedent here on this
3 issue.
4 The conflicting decision prong is not met. Spansion
5 is not a conflicting decision for purposes of the statute.
6 And then a direct appeal here, Your Honor, would not
7 materially advance the progress of the case. A direct appeal
8 here, in all likelihood, would retard progress of the case if
9 we set a precedent of allowing direct appeals to the court of
10 appeals of subsidiary findings in an opinion then we're going
11 to have a situation where we in practice can never get to the
12 end of this case because any time someone finds that they don't
13 like a finding they're going to go off to the court of appeals
14 and we'll never be able to get to a final resolution of this
15 matter. Thank you, Your Honor.
17 MR. JOHNSON: Your Honor, Robert Johnson from Akin
18 Gump on behalf of the official committee of unsecured
19 creditors. I'll be brief and I'll not repeat the points that
20 have been made by Mr. Strochak. I'd like to focus on the
21 issues under 28 U.S.C. 158(d)(2)(A) and specifically this idea
22 that has been argued by the equity committee that there's no
23 controlling law here. And specifically I'd like to point to
24 what we had provided in our papers -- it's at paragraph 28 of
25 our brief -- that the controlling law here is the United States

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1 Supreme Court's decision in T.M.T. Traylor and the Third
2 Circuit's guidance in In re Martin. This Court must provide an
3 informed independent judgment of the reasonableness of the
4 settlement, including an intelligent and objective opinion of
5 the probability of success. And Your Honor, that's exactly
6 what the Court did here. And it's precisely that authority in
7 T.M.T. Traylor and in In re Martin which shows that there is
8 controlling law here, there is no conflict, and also there's
9 nothing that would further the case by having a direct
10 certification of appeal at this time.
11 In the reply brief the equity committee brought up the
12 idea that perhaps there should have been some expert testimony
13 regarding the legal conclusions of the settling parties. But
14 that's a red herring. And the reason for that is that experts
15 may not render legal opinions because doing so would not assist
16 the trier of fact.
17 And that's well established in the Third Circuit. I
18 point to the Berkeley Investment v. Colkitt, 455. F.3d 195 (3d
19 Cir. 2006). Also United States v. Leo, a well established
20 case, 941 F.2d 181, 196 (3d Cir. 1991).
21 And going back to 1981 for the same proposition that
22 you can't have expert testimony regarding legal opinions:
23 First National State Bank of New Jersey v. Reliance 668 F.2d,
24 725. This concept was also recently stated in a District of
25 New Jersey case: Pfizer v. Pentech Pharmaceutical 2006 WL

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1 3041097.
2 I would also like to point out that when I was looking
3 at the other motion made today by the equity committee
4 regarding 2004 there were some very interesting points in that
5 reply brief which really relate to this motion as well.
6 In paragraph 11 of the 2004 reply brief, the equity
7 committee clearly argues: "A new plan must be put forward. A
8 new hearing will be held on the plan. It is specious to argue
9 that discovery is foreclosed by that opinion. The record
10 cannot possibly be deemed closed." All of these are admissions
11 that this is an interlocutory situation. And so the committee
12 can't have it both ways where they say simultaneously we want
13 to proceed with discovery, we're going forward with this new
14 plan but yet we want to be able to take this immediate appeal.
15 Another point that was raised in that same reply
16 brief, it's very curious, paragraph 6 of the reply brief on
17 2004. The equity committee wrote: "The equity committee has
18 no intention of relitigating approval of the global settlement
19 for those issues previously decided by the Court." Well, I
20 haven't been able to figure out exactly why they would argue it
21 in that way, and yet today on this motion they're arguing that
22 they should be able to appeal directly and to attack the
23 approval of the global settlement. It's the kind of playing
24 fast and loose that shouldn't be allowed and the equity
25 committee shouldn't be able to have it both ways. They've made

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1 their argument that they should have discovery. They prevailed
2 on that argument. And I would contend they're actually
3 judicially estopped from pursuing the petition for direct
4 certification of appeal. Thank you, Your Honor.
5 THE COURT: All right. Does the equity committee wish
6 to reply?
7 MR. SARGENT: If I may, Your Honor, I do have a couple
8 of quick response points.
9 Mr. Strochak argued that the equity committee is not
10 aggrieved by the Court's January 7th order. But that's exactly
11 the point I was making about formalistic distinctions. You can
12 only get there by claiming that there's no way to sever the
13 Court's ruling that the GSA is fair and reasonable from the
14 separate ruling which was contained in the same written
15 document that the plan could not be approved.
16 And the Marvel case in this circ -- in this court,
17 citing several other Third Circuit cases and I think opinions
18 from other courts, makes it clear that the inclusion of two
19 different orders in one document does not mean that they're one
20 order and you can't distinguish between the two for purposes of
21 appeal. That's exactly why I emphasized the significance of
22 the finding that the GSA is fair and reasonable. We think that
23 that is, again, the key ruling in this case and that appeal
24 from that order is appropriate at this time for that reason.
25 Another thing, Mr. Strochak went through this analysis

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1 about things coming up and down highway 95 and what was going
2 to be complicated by the fact of the appeal write now. The
3 equity committee's position I think is actually fairly
4 straightforward. It's important that this particular decision
5 be reviewed on appeal and it's most efficient to have that
6 appeal be conducted sooner rather than later.
7 If it is, as Mr. Strochak hypothesized, potentially
8 going to be reversed, it seems clear that the earlier that
9 happens the less work will have been done here, the more
10 efficient the result, the less waste judicially.
11 Mr. Strochak also said that there's good reason --
12 good reasons why appeals have to go through the district court.
13 That may be. He didn't explain what any of them are. He also
14 ignored the --
15 THE COURT: Well, I think Congress has recognized them
16 for whatever reason.
17 MR. SARGENT: I'm sorry?
18 THE COURT: Congress has recognized there may be good
19 reasons why appeals go through the district court.
20 MR. SARGENT: It's true, but Congress has also passed
21 the statute that provides specific factors for cases that
22 should go directly to the circuit court.
23 THE COURT: If we meet those factors --
24 MR. SARGENT: And he --
25 THE COURT: -- I agree.

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1 MR. SARGENT: And he didn't address those in saying
2 there's good reason to go through the district court.
3 He also ignored -- and I think this is an important
4 point, Your Honor -- the benefits of going straight to the
5 circuit court again as far as efficiency goes. I mean, the
6 equity committee, continually being accused of dragging its
7 feet, slowing things down, trying to stop this bankruptcy, is
8 constantly trying to approach this in the most efficient and
9 expeditious manner possible. Instead of going through two
10 layers of appeal, first to the district court and then to the
11 circuit court, we're trying to take what we think is the key
12 issue in this case, again, immediately to the circuit court for
13 a single layer of appeal.
14 And Mr. Johnson argued that this Court must make its
15 own determination on the fairness. We agree. The Court isn't
16 bound by the evidence that would be submitted. I mean, this is
17 the citation to the Truck case and the Third Circuit's
18 jurisprudence on it.
19 It's true that the case law on 9019 says that it's the
20 Court's decision whether or not there's a likelihood of
21 success. And we have never alleged that any evidence submitted
22 to the Court on this question would be somehow binding on the
23 Court. The Court must make its own determination. The
24 question is what is that determination to be based on and what
25 is the evidentiary record necessary to make such a

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1 determination.
2 By the same token, Mr. Johnson's arguments that expert
3 opinion is not permitted on legal questions are completely off
4 point. This is a factual determination involving legal issues.
5 The Court makes a factual ruling about the likelihood of
6 success of certain legal claims. The analogy is not to an
7 expert coming in and testifying that something is or is not
8 negligent or some other sort of legal conclusion that goes to
9 the merits of a claim. The analogy, I think, is to legal
10 malpractice claim where you have an expert testify about the
11 relevant legal standard and whether or not an attorney has met
12 that.
13 Just one second, Your Honor, if I may.
14 (Pause)
15 MR. SARGENT: It's also argued that -- the citations
16 to our brief that this appeal is interlocutory versus final.
17 We would certainly agree that with respect to the plan, final
18 plan confirmation, this is interlocutory. The plan has not
19 been confirmed. We think that additional discovery is
20 appropriate into issues for plan confirmation that don't have
21 to do with the approval of the GSA. But the GSA order that the
22 Court issued is final, is the law of the case, as I conceded
23 here when you asked me the question in January. And we have
24 not challenged that.
25 And again, in our brief where we say that we do not

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1 intend to relitigate the fairness of the GSA that's correct; we
2 do not intend to relitigate the fairness of the GSA in this
3 court. That issue has been decided, it is the law of this
4 case, and that's why it's appropriate for an appeal.
5 Now if it's reversed on appeal then we would relitigate that
6 issue. But we believe that it is final in this court and
7 that's why we filed this motion. Thank you, Your Honor.
8 THE COURT: I understood that you did not waive your
9 right to appeal my decision on that point.
10 MR. SARGENT: Thank you, Your Honor.
11 MR. JOHNSON: One last point, Your Honor. Again, for
12 the record, Robert Johnson from Akin Gump on behalf of the
13 official committee of unsecured creditors.
14 We just heard Mr. Sargent say now that it's the
15 question of the application of the facts of this case to the
16 law. And that would seem to be a concession that this is such
17 a fact-specific question that it is inappropriate for
18 certification for direct appeal to the Third Circuit. Thank
19 you.
20 THE COURT: All right. Well, let me make my ruling on
21 the motion. I think it has to be denied. I think that a
22 direct appeal at this time is neither permissible nor
23 warranted.
24 I reject the debtors' jurisdictional issue, though I
25 do think that the committee was aggrieved by my ruling on the

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1 global settlement. Even though I denied confirmation, clearly
2 they opposed the global settlement and my determination that it
3 was reasonable did -- was a ruling against them. But I think
4 neither the collateral order doctrine nor the standards for
5 certification of a direct appeal would permit the granting of
6 this motion. The decision is not on an issue that can be
7 separated from the confirmation. I was not asked to approve
8 the settlement in the absence of confirmation; it was part and
9 parcel of the plan of reorganization.
10 Secondly, it was not a question of law with
11 conflicting decisions. The decisions on approval of
12 settlements are straightforward and are not conflicting. I did
13 apply that law to the facts. This isn't really a conflicting
14 question of law. It's a conflicting application to the facts.
15 And I don't think that type of a decision is the type of
16 decision that should be certified for appeal. What should be
17 certified for appeal is if there's a strict question of law as
18 to which there are conflicting decisions, i.e. the rule of law
19 is this versus the rule of law is a different factor. And the
20 application or the discussion of Spansion I think makes that
21 clear. I did not reject the Spansion decision. I applied that
22 decision to the facts of this case and found it was
23 distinguishable. That is not, again, the type of conflicting
24 issue of law that would warrant a direct appeal.
25 Further, I don't think it will materially advance this

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1 case by allowing a direct appeal now. I agree with the
2 debtors' argument that piecemeal appeals of specific issues or
3 elements of a confirmation can only completely derail this case
4 if it isn't already derailed. But clearly it's not going to
5 advance the case. The only way to advance the case is to get
6 to a final order and permit that to be appealed.
7 I think the argument that any appeal may be equitably
8 moot is insufficient. I think in many cases confirmation
9 orders or sale orders may become equitably moot but it does not
10 warrant a direct appeal under either the collateral order
11 doctrine or the certification process of 158.
12 So for those reasons I'll deny the motion.
13 MR. STROCHAK: Your Honor, it's Adam Strochak. We
14 have an order which I can present.
16 (Pause)
17 THE COURT: Yes?
18 MR. STROCHAK: Adam Strochak again, Your Honor. I
19 think the next matter is our motion for reconsideration or
20 clarification on the estimation of the litigation tracking
21 warrants claims.
22 This one, Your Honor, I don't have much to say. We're
23 really just confused and we're looking for some guidance as to
24 the rationale for the 347 million dollar number that the Court
25 entered. You know, we --

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1 THE COURT: Well, you -- that part of the record, my
2 recollection was I said that the 347 was the number on the
3 record. Is that not correct?
4 MR. STROCHAK: The transcript from the hearing when we
5 did the estimation --
6 THE COURT: Yeah.
7 MR. STROCHAK: -- says 337 -- three, three, seven.
8 And we walked away from the hearing thinking that the Court's
9 ruling had been 337 and we saw it in the transcript and that's
10 what we thought it was. And you know, we had a bunch of back
11 and forth with Mr. Steinberg about how to submit the order and
12 we ultimately submitted it in blank.
13 And I think there were three separate numbers in
14 different contexts. There was 337 which was stated on the
15 record at the hearing. There was 347, three, four, seven,
16 which I think was in the confirmation opinion. And I think
17 there was a 334 number in a third document. And really the
18 purpose of our motion was just to seek clarification because we
19 just aren't sure of the basis for the Court's conclusion of
20 347.
21 THE COURT: Well, I'll tell you what happened. I
22 thought I heard 347. My court notes that I take here had 347
23 and at the conclusion of the hearing I went back and changed
24 the opinion to say 347. If I'm wrong and it was 337 on the
25 transcript then I think that should be the correct number.

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1 Mr. Steinberg, do you have anything to add?
2 MR. STEINBERG: Your Honor, I think on the transcript
3 for the reserve hearing you said 337. The confirmation hearing
4 said 347. We had argued throughout the --
5 THE COURT: Well, at the hearing there was a
6 discussion on -- or the opinion said 347?
7 MR. STEINBERG: The opinion said 347.
8 THE COURT: That was based on my notes from the
9 hearing, though.
10 MR. STEINBERG: Right, but the whole purpose of the
11 hearing that we had on the reserve as it related to the
12 expenses was our belief that the expenses that were built into
13 the number were much, much inflated. When Your Honor wrote
14 your confirmation opinion, in the footnote 30 in the opinion
15 you referred to the expenses. The 337 number that we proffered
16 in our objection said that it should be not less than 337, said
17 it would be subject to discovery. And we took discovery and
18 had a cross-examination with regard to the expenses.
19 We believe that when we argued at the reserve hearing
20 we established clearly way more doubts about the plug number on
21 the expenses which kept on changing throughout the entire
22 process, including the fact that there were -- Mr. Goulding
23 testified that he reviewed bills that were rendered by Jones
24 Day but all the bills were addressed to JPMorgan and that they
25 had been recreated and he hadn't known that bills had been paid

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1 and that he didn't see bills from 2000 which was half the
2 expense and that he looked at the 10-K and the 10-K didn't
3 have -- that he didn't know what the backup was for the 10-K
4 and he never looked at the expert opinions. And we thought
5 that we clearly established that the numbers that they had
6 proffered were wrong. We also established, we thought, at the
7 hearing that we were entitled to post-judgment interest from
8 March of 2010 on a judgment that could be above 600 million
9 dollars.
10 The fact of the matter is, is when this order was
11 proffered to Your Honor on under certification it was left
12 blank, but it was an argumentative pleading which didn't
13 present our view as to what the numbers should be and was
14 simply the debtor saying it's obvious that this was an
15 inadvertent error by the court and left a blank and didn't say
16 what our view was as to why we didn't think it was an
17 inadvertent error and we actually -- I think we established a
18 number that would have been greater than 347. But Your Honor
19 then filled in the number as 347. That was the number that was
20 in the confirmation hearing.
21 So when we see a motion to reargue where they're not
22 arguing anything new, there's not new law, there's not new
23 facts, they're not even arguing inadvertent error because they
24 already argued it in the certification. And then they asked us
25 for the second time -- we filed a pleading which not only said

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1 that there was ample justification on the expenses and on the
2 post-judgment interest to justify a 347 number we went through
3 a recitation of this is a long line of litigation tactics that
4 the debtor has made in the context of this case to try to wear
5 down the class representatives who are funding this -- the
6 class representatives who are funding this out of their own
7 pocket and asking the Court to fashion a remedy that deals with
8 and creates a fair playing field. So that is the essence of
9 our pleading.
10 But the direct answer to your question was -- is that
11 at the end of your ruling you basically said I'm giving you the
12 maximum amount, the number 337 was in our original pleading
13 before we had done any discovery on the expenses and we thought
14 that we had clearly established a case for way more than 337.
15 I mean, the debtor has proffered their Alvarez & Marsal
16 treasurer who basically hasn't done any work really as to what
17 the expenses are, yet we're stuck with a number and a cap basis
18 and that's unfair.
19 THE COURT: All right. Well, I think I'm going to
20 grant the motion because apparently it was based on my error.
21 I mistakenly put down 347 in my notes which is what I thought
22 had been said. So it should be granted and let's make it 337.
23 MR. STROCHAK: Thank you, Your Honor. I have a
24 revised order with 337 in it. May I hand it up?
25 THE COURT: Yes.

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1 MR. STROCHAK: Would you like a bottle of water, Your
2 Honor?
3 THE COURT: I have water, thank you. It won't help
4 me.
5 MR. STROCHAK: I sympathize; it's been a rough winter
6 for me, too.
7 THE COURT: What are we doing on 35?
8 MR. STROCHAK: I think we have a brief discussion for
9 the Court on that and I'll just wait until Mr. Steinberg
10 finishes with the order.
11 MR. STEINBERG: Could you represent this is the same
12 order and all you did is change the number and add a paragraph
13 but the other decretal clauses are the same, since I haven't
14 had a chance to compare it? Is that correct?
15 MR. STROCHAK: Yes, that's correct. May I approach?
16 (Pause)
17 MR. STROCHAK: The next matter is the status
18 conference in the adversary, right, Your Honor?
19 THE COURT: Um-hmm.
20 MR. STROCHAK: I think that Mr. Steinberg and Mr.
21 Silverstein and I have been able to agree on something although
22 not nearly enough in terms of scheduling and let me just start
23 by kind of appraising the Court of where we are.
24 What I thought -- after the Court's opinion on summary
25 judgment what I thought made the most sense was to essentially

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1 start fresh and have a scheduling order that'll get us to a
2 resolution of this claim. I think it's in the plaintiff's
3 interest to get a prompt resolution because if they're right it
4 will allow distributions to be made to them if the plan is
5 ultimately confirmed. If they're wrong it will allow us to
6 release the substantial reserve that the Court has established.
7 So I think it's in everyone's interest to move as promptly and
8 as quickly as we reasonably can to a conclusion.
9 And what I suggested, and I sent around a draft
10 scheduling order, was that we ought to consider a basic
11 scheduling order that would set some basic deadlines, a
12 discovery cutoff, a deadline for amending the pleadings, and
13 ultimately get us to the point where we're ready to try the
14 case before the Court.
15 And I tried to engage with the plaintiff's counsel on
16 this and we didn't have a whole lot of luck in moving forward
17 over the last several weeks. Late on Friday I got a discovery
18 letter requesting that we go back and look at our discovery
19 responses, suggesting they hadn't received a lot of the
20 documents they thought they were entitled to. And we had a
21 call yesterday and we discussed the proposed scheduling order
22 and here's what we agreed on. So I'd like to start with what
23 we agree on.
24 We've agreed that we ought to have a deadline for
25 amending the pleadings and we've agreed that that deadline

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1 ought to be March 1 so that we know exactly what the shape of
2 the this lawsuit is going to be.
3 I think we've agreed that by March 18th the parties
4 can serve whatever additional written discovery requests they
5 have, that is, interrogatories or requests for production of
6 documents and we'll get all those on the table by March 18th so
7 we know what the scope of discovery is going to be.
8 That's about where our agreements ended. I am in
9 favor of setting a discovery cutoff and if not a firm trial
10 date then certainly an aspirational date by which we can get to
11 a hearing on this matter as promptly as possible. The
12 plaintiffs think that we need to address the discovery issues
13 that they raised in their letter on Friday before we consider a
14 date. And what they'd like to do is postpone a discussion of a
15 more complete scheduling order until the next omnibus hearing
16 which I believe is February 25th.
17 I'm not opposed to that, in principle, Your Honor.
18 It's a couple of weeks. I think the unfortunate effect is that
19 a couple of weeks delay in getting a scheduling order means a
20 couple of weeks more in terms of getting to a resolution of the
21 case. So I'm not opposed to not setting a firm discovery
22 cutoff now or not setting a firm trial date, but I do think
23 it's important to get a sense from the Court and certainly from
24 the parties as to what we're anticipating in terms of
25 deadlines.

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1 And from the debtors' perspective, you know, there's
2 some complex issues here but a fair amount of work has been
3 done so far on them and we ought to be able to, from our
4 perspective, get to a trial in a matter of months, not years,
5 certainly. And I would hope that by the late spring we can get
6 to the point where we can have a trial on this matter, if one
7 is necessary, and get it moving forward.
8 So I'm happy to let Mr. Steinberg and Mr. Silverstein
9 comment further. I've tried to be neutral in my presentation.
10 We do have differences of opinion on the best way to proceed.
11 My guide has been -- this may be the first and last time I ever
12 say this but my guide has been the trust preferred adversary
13 proceeding that we dealt with in the fall. We did agree on a
14 scheduling order reasonably promptly in that case and I think
15 the parties were able to stick to it. It is a good driver to
16 get to a decision.
17 I completely understand the plaintiff's reluctance to
18 commit themselves to a firm date because they don't control the
19 documents and they don't want stuff from us and they don't know
20 for sure how long it's going to take to get it. And I'm not
21 unsympathetic to that. I do think the deadline is a good idea.
22 We will work as hard as we can toward the deadline and it's
23 obviously subject to any party's right to move to extend it if
24 the discovery can't be completed. If it can't be completed
25 because it's my fault or their fault or anything else we could

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1 always deal with those issues.
2 So that's where we are for today on scheduling. I do
3 think that since we're in agreement on the March 1 deadline
4 for amendment of the pleadings and the March 18 deadline for
5 service of discovery, that at a minimum we ought to have those,
6 I don't know whether so-ordered for the record is appropriate
7 but we ought to have an understanding that those are the
8 applicable deadlines for now.
9 I'm happy to take any guidance from the Court if the
10 Court has suggestions on a way to proceed. And if not then I'm
11 happy to turn the podium over to Mr. Steinberg or Mr.
12 Silverstein.
13 THE COURT: Mr. Silverstein?
14 MR. SILVERSTEIN: Thank you, Your Honor. Paul
15 Silverstein, Andrews Kurth for Broadbill.
16 Mr. Strochak was very neutral until perhaps the last
17 sentence, but even then my only comments are that yes, we have
18 agreed to the March 1 amendment deadline, we have agreed to the
19 March 18th deadline.
20 The gating issue for us was the documents that we
21 requested a long time ago, and those documents basically are
22 the e-mails among the parties who negotiated and implemented
23 the litigation tracking warrants, and without those it's very
24 difficult to fill in the other blanks. We clearly will fill in
25 the other blanks but we believe that the issue of those

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1 documents has to be resolved first. I don't think this is
2 complex and hopefully we'll be back before you at the next
3 omnibus with firmer dates. I mean, if Mr. Strochak feels very
4 strongly that he wants those two dates so-ordered, that's fine
5 with us.
6 THE COURT: Mr. Steinberg has something to add?
7 MR. STEINBERG: Yes, I'd just like to add --
8 MR. SILVERSTEIN: That's about all I have.
9 MR. STEINBERG: Yeah, I'd just like to add with what
10 Mr. Silverstein said and what we had actually proposed to Mr.
11 Strochak is that when we served our document request in this
12 case, it was actually in and around May of last year, documents
13 were produced on a rolling basis but it took over three months
14 before the first document was produced. And in our review of
15 the documents when we got them we did not see any e-mail
16 discovery from before 2008 and we saw only scattered e-mail
17 discovery.
18 In our discussion with Mr. Strochak we said we saw an
19 absence of e-mail discovery and want to know why it hadn't been
20 produced. The answers -- I think we were catching him a little
21 off guard, the letter may have caught him off guard. He didn't
22 have an answer. So we said that instead of -- get an answer,
23 find out how long it'll take you to do e-mail discovery but
24 don't box us in without knowing when we're going to get our
25 documents before we start taking a discovery. And I said

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1 adjourn this till February 25th so you can get some answers and
2 we could have an intelligent discussion about that.
3 I also said you asserted work product on documents
4 that were produced in 2000 -- that were generated in 2000.
5 That's totally inappropriate under the circumstances. They
6 weren't done in connection with any kind of litigation. And
7 you have an underlying issue in this case as to who owns the
8 attorney/client privilege if you sold the Anchor litigation or
9 either -- or to JPMorgan as to who's going to assert it or
10 who's going to waive it. And those are not easy issues. Those
11 are more complicated issues. I asked them to think about it
12 and have a discussion.
13 So I want to make it clear we want to move the case
14 forward as well too. We've been trying to move the case
15 forward. But there are issues and I would have preferred
16 having discussed it privately before February 25th to see if we
17 can reach resolution. But as long as Mr. Strochak wanted to
18 make a little speech about how he wants to move it over and get
19 it to trial, I wanted to be able to raise what were the
20 concerns that we had, concerns that have lasted in this case
21 for four or five weeks which were put on hold when they moved
22 for summary judgment.
23 I will also note that if there was a scheduling order
24 done at the very beginning of this case after they had promised
25 us discovery they wouldn't have been able to move for summary

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1 judgment because they would have been out of order. So we had
2 to wait until the summary judgment order was resolved.
3 MR. STEINBERG: Your Honor, unless Mr. Strochak feels
4 very strongly why don't we leave it at that?
5 THE COURT: Why don't we continue this till February
6 28th? Is that the date?
7 MR. STEINBERG: 25th.
8 THE COURT: 25th.
9 MR. STROCHAK: 25, Your Honor.
10 MR. STEINBERG: Thank you, Judge.
11 MR. STROCHAK: Thank you, Your Honor.
12 MR. SILVERSTEIN: Thank you, Your Honor.
13 THE COURT: Hopefully you can talk and get me a
14 scheduling order by then. All right, we're done?
15 MR. STROCHAK: Yes, Your Honor.
16 THE COURT: We'll stand adjourned.
17 MR. STROCHAK: Thank you very much.
18 ALL: Thank you, Your Honor.
19 (Whereupon these proceedings were concluded at 1:05 p.m.)
20
21
22
23
24
25

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2 I N D E X
4 R U L I N G S
6 DESCRIPTION PAGE LINE
7 Motion of Daniel Hoffman to reconsider order 32 17
8 denying request to unseal documents denied
9 Motion of equity committee for an order pursuant 81 13
10 to Bankruptcy Rule 2004 and Local Bankruptcy
11 Rule 2004-1 directing examination of the
12 WMI settlement noteholders granted in
13 limited fashion as directed by the Court on
14 the record
15 Motion of equity committee, under Section 115 21
16 158(d)(2)(A), for the Court to certify a
17 review by the Third Circuit order finding
18 that the GSA is fair and reasonable under
19 Rule 9019
20 Motion for reconsideration or clarification 121 20
21 on the estimation of the litigation tracking
22 warrants claims - granted
23
24
25

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2 C E R T I F I C a T I O N
4 I, Lisa Bar-Leib, certify that the foregoing transcript is a
5 true and accurate record of the proceedings.
Digitally signed by Lisa Bar-Leib

6 DN: cn=Lisa Bar-Leib, o, ou,
Lisa Bar-Leib email=digital1@veritext.com,
c=US
7 ___________________________________
Date: 2011.02.09 12:17:18 -05'00'
8 LISA BAR-LEIB (CET**D-486)
9 AAERT Electronic Certified Transcriber
10
11 Veritext
12 200 Old Country Road
13 Suite 580
14 Mineola, NY 11501
15
16 Date: February 9, 2011
17
18
19
20
21
22
23
24
25

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Washington Mutual (WMI) - Transcript of The Court Hearing On 2/8/2011

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Washington Mutual (WMI) - Transcript of The Court Hearing On 2/8/2011

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2 UNITED STATES BANKRUPTCY COURT

5 In the Matters of: *

6 WASHINGTON MUTUAL, INC., et al., * Case No. 08-12229(MFW)

9 BROADBILL INVESTMENT CORP., *

11 v. * Adv. Pro. No. 10-50911(MFW)

12 WASHINGTON MUTUAL, INC., *

15 MICHAEL WILLINGHAM and ESOPUS *

16 CREEK VALUE LP, *

18 v. * Adv. Pro. No. 10-51297(MFW)

19 WASHINGTON MUTUAL, INC., *

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3 WASHINGTON MUTUAL, INC. and *

4 WMI INVESTMENT CORP. *

6 v. * Adv. Pro. No. 10-53420(MFW)

7 PETER J. AND CANDANCE R. ZAK *

8 LIVING TRUST OF 2001 U/D/O *

9 AUGUST 31, 2001, et al., *

13 United States Bankruptcy Court

14 824 North Market Street

21 HON. MARY F. WALRATH

22 U.S. BANKRUPTCY JUDGE

24 ECR OPERATOR: BRANDON MCCARTHY

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2 HEARING re Debtor's First Omnibus (Substantive) Objection to

5 HEARING re Debtors' Fifth Omnibus (Substantive) Objection to

8 HEARING re Debtors' Seventh Omnibus (Non-Substantive) Objection

11 HEARING re Motion to Approve Pursuant to Sections 105 and 363

12 of the Bankruptcy Code, Procedures for the Sale of Certain

15 HEARING re Debtors Nineteenth Omnibus (Substantive) Objection

18 HEARING re Debtors' Twenty-First Omnibus (Substantive)

21 HEARING re Debtors' Twenty-Third Omnibus (Substantive)

22 Objection to Claims (Claim Nos. 2463, 2470, 2500, and 2505)

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2 HEARING re Objection to Claim by Claimant(s) Robert Alexander

3 and James Reed, Individually and on Behalf of Others Similarly-

6 HEARING re Objection to Claim by Claimant(s) Tranquility Master

7 Fund, Ltd. (Claim No. 2206)

9 HEARING re Debtors' Amended Thirty-Second Omnibus (Substantive)

10 Objection to Claims (Claim Nos. 3812, 2689, 3174, 3179, 3187)

12 HEARING re Debtors' Forty-Sixth Omnibus (Non-Substantive)

15 HEARING re Debtors' Fifty-Fourth Omnibus (Non-Substantive)

18 HEARING re Debtors' Fifty-Fifth Omnibus (Substantive) Objection

21 HEARING re Debtors' Fifty-Sixth Omnibus (Substantive) Objection

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2 HEARING re Debtors' Motion to Estimate Maximum Amount of

3 Certain Claims for Purposes of Establishing Reserves Under the

4 Debtors' Confirmed Chapter 11 Plan

6 HEARING re Debtors' Twenty-Ninth Omnibus (Substantive)

7 Objection to Claims Filed by Morgan Stanley & Co., Inc.,

9 (Claim Nos. 2584, 2909 and 3794) Pursuant to Section 510(b) of

10 the Bankruptcy Code

12 HEARING re Motion of Daniel Hoffman to Reconsider Order Denying

13 Request to Unseal Documents

15 HEARING re Motion of the Official Committee of Equity Security

16 Holders for an Order Pursuant to Bankruptcy Rule 2004 and Local

17 Bankruptcy Rule 2004-1 Directing the Examination of the

18 Washington Mutual, Inc. Settlement Noteholders

20 HEARING re The Official Committee of Equity Security Holders'

21 Petition, Pursuant to 11 U.S.C. Section 105(a), 28 U.S.C.

22 Section 158(d)(2), and Fed. R. Bankr. P. 8001(f), for

23 Certification of Direct Appeal to the United States Court of

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