Washington Mutual (WMI) - 2011/03/21 HEARING TRANSCRIPT

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2 UNITED STATES BANKRUPTCY COURT
3 DISTRICT OF DELAWARE
4 Case No. 08-12229(MFW)
6 - - - - - - - - - - - - - - - - - - - - -x
7 In the Matter of:
9 WASHINGTON MUTUAL, INC., et al.,
10
11 Debtors.
12 - - - - - - - - - - - - - - - - - - - - -x
13
14 United States Bankruptcy Court
15 824 North Market Street
16 Wilmington, Delaware
17
18 March 21, 2011
19 10:31 AM
20
21 B E F O R E:
22 HON. MARY F. WALRATH
23 U.S. BANKRUPTCY JUDGE
24 ECR OPERATOR: BRANDON MCCARTHY
25
VERITEXT REPORTING COMPANY

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2 HEARING re Motion of Debtors for an Order, Pursuant to Sections
3 105,502, 1125, 1126, and 1128 of the Bankruptcy Code and
4 Bankruptcy Rules 2002, 3003, 3017, 3018, 3020 (i)Approving the
5 Proposed Supplemental Disclosure Statement and the Form and
6 Manner of the Notice of the Proposed Supplemental Disclosure
7 Statement Hearing; (ii)Establishing Solicitation and Voting
8 Procedures; (iii)Scheduling a Confirmation Hearing; and
9 (iv)Establishing Notice and Objection Procedures for
10 Confirmation of the Debtors' Modified Plan
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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 ALEXANDER NG, ESQ. (TELEPHONICALLY)
13 MARVIN MILLS, ESQ. (TELEPHONICALLY)
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15 WEIL, GOTSHAL & MANGES LLP
17 1300 Eye Street, NW
18 Suite 900
19 Washington, DC 20005
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21 BY: ADAM P. STROCHAK, ESQ.
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2 RICHARDS, LAYTON & FINGER, P.A.
4 One Rodney Square
5 920 North King Street
6 Wilmington, DE 19801
8 BY: CHUN I. JANG, ESQ.
9 MARK D. COLLINS, ESQ.
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11 ELLIOTT GREENLEAF
12 Special Litigation and Conflicts Counsel to the Debtors
13 and Debtors-in-Possession
14 1105 Market Street
15 Suite 1700
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18 BY: NEIL R. LAPINSKI, ESQ.
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2 QUINN EMANUEL URQUHART & SULLIVAN LLP
4 51 Madison Avenue
5 22nd Floor
8 BY: BENJAMIN I. FINESTONE, ESQ.
10 AKIN GUMP STRAUSS HAUER & FELD LLP
11 Attorneys for the Official Committee of Unsecured
12 Creditors
13 One Bryant Park
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16 BY: ROBERT A. JOHNSON, ESQ.
17 FRED S. HODARA, ESQ.
18 ROBERT J. BOLLER, ESQ. (TELEPHONICALLY)
19 CHRISTOPHER W. CARTY, ESQ. (TELEPHONICALLY)
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2 AKIN GUMP STRAUSS HAUER & FELD LLP
4 Creditors
5 2029 Century Park East
6 Suite 2400
7 Los Angeles, CA 90067
9 BY: BRIAN M. ROTHSCHILD, ESQ.
10 DAVID P. SIMONDS, ESQ.
11 (TELEPHONICALLY)
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13 PEPPER HAMILTON LLP
15 Creditors
16 Hercules Plaza
18 Suite 5100
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21 BY: DAVID B. STRATTON, ESQ.
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2 U.S. DEPARTMENT OF JUSTICE
3 Office of the United States Trustee
4 844 King Street
5 Room 2207
6 Lockbox #35
9 BY: JANE LEAMY, TRIAL ATTORNEY
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11 ARENT FOX LLP
12 Attorneys for Wilmington Trust Company
13 1675 Broadway
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16 BY: LEAH M. EISENBERG, ESQ.
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18 ARENT FOX LLP
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 BAKER & MCKENZIE LLP
11 Attorneys for Black Horse Capital Management LLC
12 One Prudential Plaza
13 130 East Randolph Street
14 Suite 3500
15 Chicago, IL 60601
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17 BY: CARMEN LONSTEIN, ESQ.
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19 BIFFERATO LLC
20 Attorneys for Black Horse Capital Management LLC
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24 BY: THOMAS F. DRISCOLL III, ESQ.
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2 BLANK ROME LLP
3 Attorneys for Appaloosa Management, L.P.; Aurelius
4 Capital Management, LP; Centerbridge Partners, L.P.; Owl
5 Creek Management, L.P.
7 Suite 800
10 BY: VICTORIA A. GUILFOYLE, ESQ.
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12 BROWN RUDNICK LLP
13 Attorneys for the Ad Hoc Group of Trust Preferred Holders
14 One Financial Center
15 Boston, MA 02111
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17 BY: JEREMY B. COFFEY, ESQ.
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2 CALIFORNIA DEPARTMENT OF JUSTICE
3 Attorneys for Department of Toxic Substance Control
4 300 South Spring Street
5 Suite 1702
8 BY: OLIVIA W. KARLIN, ESQ.
9 (TELEPHONICALLY)
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11 CAMPBELL & LEVINE, LLC
12 Attorneys for the Ad Hoc Group of Trust Preferred Holders
14 Suite 300
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17 BY: MARLA R. ESKIN, ESQ.
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2 COTCHETT, PITRE & MCCARTHY
3 Attorneys for Cotchett, Pitre & McCarthy
4 San Francisco Airport Office Center
5 840 Malcolm Road
6 Suite 200
7 Burlingame, CA 94010
9 BY: MATTHEW K. EDLING, ESQ.
10 (TELEPHONICALLY)
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12 COZEN O'CONNOR
13 Attorneys for Broadbill Investment Corp.
15 Suite 1400
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18 BY: SIMON E. FRASER, ESQ.
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2 DAY PITNEY LLP
3 Attorneys for Key Stone Holdings Partners
4 242 Trumbull Street
5 Hartford, CT 06103
7 BY: JAMES J. TANCREDI, ESQ.
8 (TELEPHONICALLY)
10 DLA PIPER
11 Attorneys for FDIC, Receiver
12 1251 Avenue of the Americas
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15 BY: THOMAS R. CALIFANO, ESQ.
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17 ECKERT SEAMANS CHERIN & MELLOTT, LLC
18 Attorneys for Truck Insurance Exchange
20 Suite 1210
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23 BY: RONALD S. GELLERT, ESQ.
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2 FOX & ROTHSCHILD LLP
3 Attorneys for Wells Fargo Bank, N.A.
4 Suite 1300
8 BY: SETH A. NIEDERMAN, ESQ.
10 GRANT & EISENHOFER P.A.
11 Attorneys for WMB Noteholders
13 Suite 2100
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16 BY: GEOFFREY C. JARVIS, 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.
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13 KING & SPALDING LLP
14 Attorneys for Nantahala Capital Partners, LP
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18 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 LOEB & LOEB LLP
18 Attorneys for Wells Fargo Bank, N.A.
19 345 Park Avenue
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22 BY: VADIM J. RUBENSTEIN, ESQ.
23 WALTER H. CURCHACK, ESQ.
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2 LOWENSTEIN SANDLER, PC
3 Attorneys for Policemen's Annuity and Benefit Fund of the
4 City of Chicago; and Ontario Teachers' Pension Plan Board
5 65 Livingston Avenue
6 Roseland, NJ 07068
8 BY: JACK SHERWOOD, ESQ.
10 MILBANK, TWEED, HADLEY & MCCLOY LLP
11 Attorneys for Washington Mutual, Inc.
12 One Chase Manhattan Plaza
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15 BY: ANDREW J. YOUNG, ESQ.
16 (TELEPHONICALLY)
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18 MONZACK MERSKY MCLAUGHLIN AND BROWDER, P.A.
19 Attorneys for Kerry K. Killinger
20 1201 North Orange Street
21 Suite 400
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24 BY: RACHEL B. MERSKY, ESQ.
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2 PACHULSKI STANG ZIEHL & JONES LLP
3 Attorneys for Washington Mutual Bank Bondholders
5 17th Floor
8 BY: TIMOTHY P. CAIRNS, ESQ.
10 PACHULSKI STANG ZIEHL & JONES LLP
11 Attorneys for Washington Mutual Bank Bondholders
12 10100 Santa Monica Boulevard
13 11th Floor
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16 BY: DEAN A. ZIEHL, ESQ.
17 ALAN J. KORNFELD, ESQ.
18 JEREMY V. RICHARDS, ESQ.
19 (TELEPHONICALLY)
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2 PATTERSON BELKNAP WEBB & TYLER LLP
3 Attorneys for Creditor, Law Debenture Trust Company of
4 New York
8 BY: DANIEL A. LOWENTHAL, ESQ.
9 BRIAN P. GUINEY, ESQ. (TELEPHONICALLY)
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11 PILLSBURY WINTHROP SHAW PITTMAN LLP
12 Attorneys for Bank of New York Mellon
13 1540 Broadway
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16 BY: LEO T. CROWLEY, ESQ.
17 MARGOT P. ERLICH, ESQ.
18 (TELEPHONICALLY)
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2 PINCKNEY HARRIS & WEIDINGER, LLC
3 Attorneys for Sonterra Capital Partners and Sonterra
4 Capital, LLC
6 Suite 950
9 BY: DONNA L. HARRIS, ESQ.
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11 POLSINELLI SHUGHART PC
14 Suite 1101
15 Wilmington, Delaware 19801
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17 BY: SHANTE KATONE, ESQ.
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2 REED SMITH LLP
3 Attorneys for Dime Trust Beneficiaries
4 599 Lexington Avenue
5 22nd Floor
8 BY: J. ANDREW RAHL, ESQ.
9 (TELEPHONICALLY)
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11 ROPES & GRAY LLP
12 Attorneys for Paulson & Co.
13 Prudential Tower
14 800 Boylston Street
15 Boston, MA 02199
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17 BY: ANDREW G. DEVORE, ESQ.
18 (TELEPHONICALLY)
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2 SCHIFFRIN & PARTNERS PC
3 Attorneys for Tricadia Capital Management
4 153 E 53rd St
7 BY: JAVIER SCHIFFRIN, ESQ.
8 (TELEPHONICALLY)
10 SCHULTE ROTH & ZABEL LLP
11 Attorneys for Owl Creek Management, L.P.
12 919 Third Avenue
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15 BY: ADAM C. HARRIS, ESQ.
16 (TELEPHONICALLY)
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19 SEWARD & KISSEL LLP
21 One Battery Park Plaza
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24 BY: ARLENE R. ALVES, ESQ.
25 (TELEPHONICALLY)

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2 SMITH KATZENSTEIN & JENKINS LLP
3 Attorneys for the ANICO Plaintiffs
4 The Corporate Plaza
6 Suite 1000
9 BY: MICHAEL P. MIGLIORE, ESQ.
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11 STUTMAN TREISTER & GLATT
12 Attorneys for Elliott Management
13 1901 Avenue of the Stars, 12th Floor
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16 BY: K. JOHN SHAFFER, ESQ.
17 (TELEPHONICALLY)
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2 SULLIVAN & CROMWELL LLP
4 125 Broad Street
7 BY: BRIAN D. GLUECKSTEIN, ESQ.
8 STACEY R. FRIEDMAN, ESQ. (TELEPHONICALLY)
9 BRUCE E. CLARK, ESQ. (TELEPHONICALLY)
10 JOSHUA J. FRITSCH, ESQ. (TELEPHONICALLY)
11 M. DAVID POSSICK, ESQ. (TELEPHONICALLY)
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15 1888 Century Park East
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18 BY: ROBERT A. SACKS, ESQ.
19 HYDEE R. FELDSTEIN, ESQ.
20 (TELEPHONICALLY)
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4 1701 Pennsylvania Avenue, N.W.
7 BY: BRENT J. MCINTOSH, ESQ.
8 (TELEPHONICALLY)
10 SUSMAN GODFREY LLP
11 Co-Counsel to Official Committee of Equity Holders
12 560 Lexington
13 15th Floor
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16 BY: SETH D. ARD, ESQ.
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18 WHITE & CASE LLP
19 Attorneys for the Committee of Bondholders
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23 BY: GREGORY M. STARNER, ESQ.
24 THOMAS MACWRIGHT, ESQ. (TELEPHONICALLY)
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2 WHITE & CASE LLP
3 Attorneys for the Committee of Bondholders
4 Wachovia Financial Center
5 200 South Biscayne Blvd.
6 Miami, FL 33131
8 BY: THOMAS E. LAURIA, ESQ.
10 WILLKIE FARR & GALLAGHER LLP
11 Attorneys for Truck Insurance Exchange & Fire Insurance
12 Exchange
13 787 Seventh Avenue
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16 BY: ROBIN SPIGEL, ESQ.
17 (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.
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11 ALSO APPEARING:
12 MICHAEL ROZENFELD, PRO SE
13 BEN MASON, PRO SE
14 JAMES BERG, PRO SE
15 BETTINA HAPER, 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 and
5 Adam Strochak from Weil Gotshal on behalf of the debtors. With
6 us from Richards Layton & Finger Mark Collins and Chun Jang.
7 Your Honor, we're here this morning with respect to the
8 debtors' motion for approval of our disclosure statement. As
9 the Court will recall, the Court rendered its decision with
10 respect to the -- excuse me -- the sixth amended plan in
11 January and we were back before the Court subsequently for a
12 status conference on January 20th where we discussed certain
13 issues with the Court that were set forth in the opinion and
14 how they were to be addressed. And then the debtors, in turn,
15 modified the plan and filed the plan -- the modified sixth
16 amended plan on February 8th. It was dated February 7th. And
17 we filed a corresponding disclosure statement. And attached to
18 those documents was the second amended and restated global
19 settlement agreement which was, in form and substance,
20 substantially similar to the prior amended and restated
21 settlement agreement but for the fact that we made
22 modifications consistent with the Court's opinion and we also
23 removed from the settlement agreement the settlement
24 noteholders.
25 Your Honor, we have received, pursuant to our motion,

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1 I believe it is approximately seventy or seventy-three
2 objections. They continued to filter in as late as this
3 weekend. But, Your Honor, as we included in the omnibus
4 response that we filed last Wednesday, we believe that they can
5 be broken down into several, which I'll term more substantive
6 ones and several which are -- were form objections that were
7 filed by some equity holders. And we, in fact, categorized
8 those as the Form A, Form B and Form C in the omnibus response.
9 Your Honor, subsequent to the filing of that, we've
10 had some additional discussions with some parties, including
11 the United States trustee, who asked us to make a modification
12 to the proposed disclosure statement. And, Your Honor, if I
13 could approach, we have in the courtroom today and I've made
14 available to everyone here, a slight modification to the
15 proposed disclosure statement that sets forth some of these
16 modifications. And I have a blackline for the Court. May I
17 approach?
18 THE COURT: You may.
19 (Pause)
20 THE COURT: Has that been filed yet?
21 MR. ROSEN: Your Honor, we did not file it. As I
22 indicated, these changes were extremely minor. We did not want
23 to file something again this morning. We do have it here and
24 we can file it. And, of course, if the Court would like us to
25 make any additional modifications, we would just roll that in

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1 and then file the subsequent one.
2 THE COURT: Okay.
3 MR. ROSEN: Your Honor, as I indicated, we filed our
4 omnibus response on Wednesday. And we set forth in there the
5 chart, as we always do, which we believe addresses all of the
6 concerns that have been raised. But we also took the
7 opportunity in the beginning of the disclosure statement --
8 excuse me -- the response to those objections to talk about a
9 few issues. And -- because we were hoping, Your Honor, to put
10 to bed once and for all what these issues are. And as it turns
11 out, we noted that there were two others who filed similar
12 kinds of responses to try and deal with those issues.
13 Your Honor, from the debtors' standpoint, the PIERS
14 issue, as it's referred to, is a non-issue. Some people say
15 that the only issue that was outstanding as a result of the
16 opinion was whether or not there had been a merger of the trust
17 into the Washington Mutual itself. And as a result, based upon
18 the Court's opinion, then there might have been an issue as to
19 whether or not it was equity or debt. And what we did, Your
20 Honor, in our omnibus response, starting on page 9, is we set -
21 - excuse me -- page 8, we set forth for the Court the actual
22 history of the PIERS and talked about the way in which they
23 formed, the way they were issued and, in fact, the outstanding
24 nature of the trust itself. And we attached as an exhibit,
25 Your Honor, the Certificate of Good Standing, which was dated

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1 March 16th to show that, in fact, the trust was still in
2 existence and had not been merged in.
3 This, Your Honor, is just one of what I will argue or
4 say are confirmation type of objections and items that we
5 believe are not worthy of this hearing today. What we're here
6 to talk about today, Your Honor, are the disclosure statement
7 and any objections that pertain to the disclosure statement and
8 the disclosure statement alone. We believe that we have
9 addressed those. We believe that we have made modifications to
10 the disclosure statement to address the objections that were
11 interposed prior to the deadline, Your Honor, and even a few
12 subsequently, that address the disclosure statement itself.
13 But the PIERS issue which is one demanding a plan modification
14 is not one. But again, Your Honor, we wanted to put it to bed.
15 Likewise, Your Honor, there was an issue with respect
16 to the assets of WMI Investment. We took the opportunity to
17 disclose that in the disclosure statement and make clear that
18 those had been liquidated in accordance with the Code and the
19 proceeds of that liquidation have been reflected on an ongoing
20 basis since the liquidation of those assets, Your Honor, since
21 the beginning of these Chapter 11 cases.
22 The balance, Your Honor, of the objections, as we
23 indicated, are confirmation related objections. They go to the
24 subordination issue. They go to the interest rate issue. They
25 go to the release issue. These, Your Honor, are issues that

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1 are not before the Court today and should not be before the
2 Court today. The issue of the interest rate, as we indicated
3 in our omnibus response, people may want to say whatever they
4 want to say because they have an opportunity to say it. But as
5 far as we are concerned, Your Honor, we believe the rate is the
6 contract rate and should be the contract rate based upon the
7 opinion. And we said in our omnibus response that we didn't
8 see any reason for it not to be that because nothing has been
9 shown to us that would rise to the level of any conduct which
10 would warrant it not to be the contract rate. Of course, Your
11 Honor, that's an issue the Court will deal with at the
12 appropriate time if, in fact, evidence is submitted to the
13 Court. But as of today, we have the debtors' plan. We have
14 the debtors' plan that says contract rate because we think it's
15 appropriate.
16 Someone else wants to talk about subordination. Your
17 Honor, again, we believe that the Court talked about that issue
18 very cleanly, clearly in the opinion. And we don't think there
19 are any modifications that are necessary in the plan. Again,
20 it's the debtors' plan. This is the plan that we're
21 proffering.
22 With respect to the release issues, Your Honor, we
23 don't think that there's anything to discuss there. We have
24 talked about them clearly in the disclosure statement. We have
25 modified the plan. We have modified the disclosure statement.

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1 We even modified the global settlement agreement to the extent
2 that your opinion impacted the releases that were set forth in
3 the global settlement agreement. So again, Your Honor, that is
4 a confirmation issue. And I'm sure the Court will take that up
5 on May 2nd.
6 So, Your Honor, what that leaves us with is, we have
7 addressed these objections, the rightful objections to the
8 disclosure statement. We believe that they are clearly set
9 forth in the proposed disclosure statement that was filed last
10 week as we tweaked it again this morning. And we believe that
11 our position with respect to these are set forth in the forty
12 some odd pages, I believe, that are in the chart, Your Honor.
13 And I'm happy to go through those if the Court would like me
14 to, but I think the Court has had the opportunity to take a
15 look at them and can address them if the Court has any
16 additional questions. And I'm sure, Your Honor, that won't
17 stop people from coming up here and it will give me an
18 opportunity to respond to them at that time.
19 THE COURT: All right. Let's hear from the objectors
20 if any --
21 MR. ROSEN: Thank you, Your Honor.
22 THE COURT: -- are not convinced by your response.
23 MR. ARD: Good morning, Your Honor. Seth Ard, Susman
24 Godfrey, on behalf of the equity committee. We're not quite
25 convinced.

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1 As set forth more fully in our papers, the disclosure
2 statement has three principal flaws. First, it fails to
3 explain the nature and possible consequences of the PIERS and
4 interest rate disputes; it contains coercive third party
5 releases that threaten to take away entitled distributions to
6 those who do not consent to the releases; and third, it fails
7 to disclose and explain the possible additional sources of
8 value to WMMRC.
9 First, in this Court's decision denying confirmation,
10 Your Honor explicitly declined to decide whether PIERS should
11 be treated as equity and which interest rate should apply.
12 We're conducting discovery now to try to get to the bottom of
13 those issues but they certainly have not been resolved to date.
14 Put together, well over a billion dollars is at stake in these
15 disputes, an amount that makes a difference between my
16 constituents being in the money and possibly not being in the
17 money. And yet, the disclosure statement barely mentions
18 either dispute and assumes that both issues will be resolved in
19 the same way that this Court declined to resolve them in a
20 prior decision.
21 This creates an untenable result, we think. If this
22 Court determines that the PIERS are equity or that the federal
23 interest rate should apply, this plan cannot be confirmed and
24 the debtors would have to go through the considerable expense
25 and delay of soliciting and litigating an entirely new plan

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1 that is identical to the current plan with the exception of
2 whatever ruling Your Honor makes on the interest rate and the
3 PIERS issue.
4 There's no justification for such a wasteful
5 enterprise given that these alternative possibilities can be
6 accounted for now. The simple remedy is to fully disclose
7 these disputes now, explain the alternative distributions that
8 would be -- that would occur under each scenario as done in
9 part in Blackstone's papers, and allow voters to vote on
10 whether they'd accept the plan under any and all of the
11 alternative scenarios. In this way, the voters could approve a
12 plan that would govern no matter how this Court decides the
13 PIER issue and interest rate issue and save considerable time
14 expended to the estate.
15 And so, we think it makes no sense to elicit a plan
16 now that assumes without discussion a particular resolution of
17 two of the main issues at confirmation rather than attempting
18 to solicit approval of a plan that accounts for those issues no
19 matter how they're resolved by this Court.
20 Second, the third party release section is still
21 contrary to settled law in that it precludes any recovery under
22 the plan to claim interest holders who decline to grant the
23 third party releases. That is contrary to In re Adelphia and
24 related cases. The effect of plan section 43.6 is to deny
25 voters the right to receive the distributions to which they

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1 would be entitled under Chapter 7 unless they grant the
2 releases, a result that is worse than a result they would
3 receive under Chapter 7. That's contrary to In re Adelphia.
4 Worse still, Section 43.2 seems to discharge all
5 claims, even if the claimants receive no distribution under the
6 plan. Put together, these sections effective coerce voters to
7 accept payment under the plan and to accept the third party
8 releases on the pain of losing their right to any distribution
9 at all.
10 A plan solicited under such circumstances is coercive
11 and prejudices both those who are coerced and all those, even
12 if not voting, who have an interest in fair solicitation of
13 that plan.
14 Now, as will be discussed a little more fully, I
15 think, by counsel for TPS, the inequity is most pronounced in
16 the face of Class 19 claimants who will not be given the
17 opportunity to accept the releases and the additional benefits
18 afforded thereby such as the JPMC consideration if they
19 previously declined to accept the release provision that this
20 Court has already found to be flawed.
21 Third, the disclosure statement ignores Your Honor's
22 criticisms of the previous valuation of WMMRC. Without
23 explanation, the disclosure statement again assumes that WMMRC
24 will not attempt to take on any new business, will make
25 effective use of the billions of dollars of NOLs that are

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1 available to it. Indeed, somewhat incredibly, the current
2 valuation, with scant explanation, places a lower value on the
3 NOLs than the prior valuation even though the face amount NOLs
4 is now significantly greater.
5 The disclosure statement is also defective in that it
6 fails to disclose the basis for the fifty million dollar fire
7 sale valuation of WMMRC in the liquidation analysis.
8 So for these reasons and those set out more fully in
9 our papers, we respectfully request this Court not to approve
10 the plan that's facially flawed and would create inequities and
11 inefficiencies. So unless Your Honor has any questions --
12 THE COURT: Well, let me ask you. With respect to the
13 releases issue --
14 MR. ARD: Yes.
15 THE COURT: -- do you think it has not sufficiently
16 disclosed the effects?
17 MR. ARD: Well --
18 THE COURT: What would you have --
19 MR. ARD: I don’t think they should sent out a
20 disclosure statement that has facially defective releases. I
21 mean, the releases are facially defective under In re Adelphia.
22 And so, there's no point in going through all the expense and
23 delay of sending out a plan that has relief provisions that are
24 facially defective. What they may intend to do which is what
25 they did last time is continue to modify this after

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1 solicitation and then prior to confirmation have release
2 provisions that they think are more acceptable. But we don’t
3 think that's how it should work. We think that they should,
4 before soliciting the plan, they should make the release
5 provisions at least facially acceptable to this Court and then
6 solicit it based on those acceptable solicitations.
7 THE COURT: All right. Thank you.
8 MR. ARD: Thank you, Your Honor.
9 THE COURT: Let me hear the debtors' response to
10 those --
11 MR. COFFEY: Your Honor, Jeremy Coffey for the Trust
12 Preferred consortium. We had a couple of points we wanted to
13 add on to --
14 THE COURT: Okay.
15 MR. COFFEY: I don't know if it makes sense to hear
16 those now and have the debtor respond to them all together.
17 THE COURT: That's fine.
18 (Pause)
19 MR. COFFEY: Thank you, Your Honor. Again, Jeremy
20 Coffey with Brown Rudnick for the Trust Preferred consortium.
21 We represent about a quarter of the Class 19 interests that are
22 proposed to be treated under the new plan. I rise very briefly
23 to speak about the nonsolicitation of Class 19 which accounts
24 the equity committee touched on. We think that this
25 nonsolicitation is both violative of Your Honor's order denying

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1 confirmation and also the Bankruptcy Code.
2 Touching first on Your Honor's opinion denying
3 confirmation, when Your Honor issued the opinion, you noted
4 serious defects not only in the plan but also in the
5 solicitation procedures that were employed in connection with
6 the plan. I focus first on page 83 of Your Honor's opinion.
7 There, the Court noted that the old plan, as originally drafted
8 and sent out for solicitation, provided that although a party
9 could purportedly opt out of what were ultimately found to be
10 impermissible third party releases, because the debtors were
11 asking the Court to enforce the releases anyway, the old plan
12 effectively did not provide that by opting out you'd be giving
13 up your consideration under the plan. The Court then noted
14 that subsequent to that point, the debtor modified the plan
15 shortly before the confirmation hearing to then clarify that
16 those opting out of granting the releases actually would give
17 up their plan consideration. And here, I quote Your Honor's
18 opinion denying confirmation, again on page 83. Your Honor
19 stated "The Court agrees with the UST that the plan provision
20 with respect to third party releases has changed materially,
21 materially being an important word I'll come back to in a
22 minute. This is equally applicable to those who originally
23 opted out of the releases (feeling that even though the Court
24 might find the opt out invalid, they would still get a
25 distribution) as to those who did not bother checking the box

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1 to opt out (feeling the Court would simply enforce the
2 releases anyway)."
3 Now, how did the debtors respond to the Court's
4 concerns raised in the opinion? Well, they're now going back
5 to all the impaired classes other than Class 19 and
6 resoliciting votes and release selections. And I quote from
7 Section 3(b) of the modified disclosure statement, this is
8 being done "to ensure that holders have had a full opportunity
9 to vote in the modified plan and to elect to grant certain
10 releases in exchange for consideration being provided to them
11 in the plan".
12 I started off by mentioning that the debtors are
13 soliciting votes and releases except from Class 19. And the
14 justification is that -- well, they say the Court's concerns
15 regarding solicitation process are invalid as it applies to
16 Class 19. They say that because of language included on the
17 ballot, Class 19 and Class 19 alone shouldn't have been able to
18 figure out that the old plan and the old disclosure statement
19 didn't actually mean what they said. So if Your Honor -- it
20 might make sense to look exactly at what was sent out to Class
21 19.
22 THE COURT: Okay.
23 MR. COFFEY: May I approach?
24 THE COURT: You may.
25 (Pause)

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1 MR. COFFEY: Your Honor, what I've handed up is a
2 binder that contains the order approving the prior disclosure
3 statement and solicitation procedures. Now, for completeness,
4 I included the plan and disclosure statement. But I'd ask you
5 to focus on tab 2 which is the ballot that was sent out because
6 this is the reason that -- or the basis or justification for
7 not soliciting Class 19 this time around.
8 Exhibit 414 is the master ballot for Class 19.
9 Exhibit 415, which is about halfway into tab 2, is the
10 beneficiary holders ballot for Class 19.
11 THE COURT: Yes.
12 MR. COFFEY: All right. Just walking through what was
13 sent out to Class 19, first, on page 2, we have a big box that
14 says "Important", everything in bolded language. It says "You
15 should review the disclosure statement of the plan, including
16 the global settlement, before you vote." Makes sense. The
17 ballot says what it says but the plan and the disclosure
18 statement control.
19 Further down in that box, three lines up, "If the plan
20 is confirmed by the bankruptcy court, the plan will be binding
21 on you whether or not you vote", the very concern that Your
22 Honor raised in the opinion.
23 Moving on to page 4 of the ballot, item 1, again in
24 bold caps, "Please read the plan and disclosure statement
25 carefully before completing the ballot." Clearly indicating

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1 the ballot says what it says, disclosure statement and plan
2 control.
3 Item 2, the last sentence, "If the plan is confirmed
4 by the bankruptcy court, all holders of claims against an
5 equity interest in the debtors, including those who abstained
6 from voting or who reject the plan, and those holders who are
7 not entitled to vote on the plan, will be bound by the
8 confirmed plan and the transactions contemplated thereby and
9 may be bound by the releases contained therein." Again, Your
10 Honor, raising the specter that no matter how you vote you may
11 be bound.
12 Moving on to item 2 of the ballot which is on page 5,
13 last paragraph is a description of who is a releasing trust
14 holder. This is substantially some of the definition that was
15 in Section 1.61 of the plan as it existed on the solicitation
16 date and of the disclosure statement, V B19, that was sent out
17 to holders. I'd focus the Court's attention on the last
18 provision which says "provided however that in the event that
19 Class 19 votes to accept the plan in accordance with Section
20 1126 of the Bankruptcy Code, releasing trust holder shall
21 include each holder of the release series and each such holder
22 shall be deemed to execute and deliver the release set forth
23 herein and shall receive the requisite payment or distributions
24 from JPMC."
25 Now, that's clearly not consistent with Your Honor's

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1 decisions in Coram, Zenith and now the Washington Mutual case
2 which provides that releases have to be individually consented
3 to rather than by class. But nonetheless, Class 19 was told no
4 matter how you vote, if the class carries, you've consented and
5 you get your release.
6 Moving on to item 4 which deals with the releases in
7 particular. Now this is the language they point to saying this
8 should have put us on notice. We should have known that no
9 matter what they said in the disclosure statement and the plan,
10 what they really meant was if you vote against the plan and
11 elect not to grant the releases, you get nothing. This is
12 where they say, "If you elect not to grant the releases, you
13 will not be entitled to a distribution except if the class
14 carries."
15 But again, in that same paragraph, the last sentence,
16 Your Honor, they say, "However, be advised that the debtors at
17 the confirmation hearing intend to seek enforcement of their
18 releases, injunction and exculpation contained in Sections
19 43.6, 43.7, 43.8 of the plan as to all parties regardless of
20 whether you elect to grant the releases or not.
21 So then, on the ballot, I think similar to what they
22 did in the other ballots, they include Section 43.6 as it
23 existed on the date they solicited acceptances. And it's a
24 long provision with numerous provided "Howevers". I think the
25 most relevant are on page 7, seven lines down. This is where

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1 it provides that, "provided, however, if you vote against the
2 plan, elect not to grant the releases, you give up your
3 recovery." But then the very next "provided however" is the
4 more important one which Your Honor focused on the opinion
5 which is "provided further that because the plan and global
6 settlement agreement and the financial contributions therein
7 are conditioned upon the releases and, as such, the releases
8 are essential to the reorganization. Pursuant to the
9 confirmation order, those entities that opt out of the releases
10 provided hereunder shall be bound and shall receive
11 distributions they otherwise would be entitled to under the
12 plan."
13 So, Your Honor, rather than being treated differently
14 or given more information of the classes, Class 19 was given
15 the exact same representations, and perhaps even more
16 egregious, told that if the class carried, they'd give their
17 releases regardless of how they voted.
18 So I started by saying that their current proposal
19 violates the -- Your Honor's opinion but also Bankruptcy Code.
20 And let me get into that for just a moment. While we hear a
21 lot about 3019, Rule 3019, that's just that; it's a rule. So
22 we need to focus on the Code provision that deals with
23 modification of plants. And I think that brings us to 1127.
24 While it's a little bit different context, typically you
25 solicit acceptances and then before you go up for confirmation,

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1 you may make some tinkering and modifications to the plan.
2 Here, we're a little bit different. We've had the solicitation
3 process. We've had the plan denied. Now we have a new plan.
4 But I think it's at least relevant to look at.
5 Section 1127(a) provides that "a plan proponent may
6 modify a plan before confirmation". But the same section
7 provides that you may not modify a plan if it violates 1122 or
8 1123. So pretty clear, you can make modifications but you
9 still have to comply with the Code.
10 This leads to the point we raised in our reservation
11 of rights which is 1123(a)(4) provides that "Unless a party
12 consents, he has to receive the same treatment as all the other
13 members of its class." So let me impose that on what we're
14 going to have under this new plan. We're going to have seventy
15 percent of the class is going to receive nothing because they
16 voted against the prior plan. Thirty percent of the class will
17 receive a recovery. It's important to note, Your Honor, that
18 of that thirty percent, I think a substantial portion of that
19 is the settlement noteholders who under the prior plan were
20 bound by the plan support agreement to vote their trust
21 preferred positions in favor of the plan.
22 Now, I know the refrain will be this is a confirmation
23 issue; let's kick it down the road. But, Your Honor,
24 respectfully, I don't think 1127(d) contemplates that. If you
25 look at 1127(d), provides that "Any holder of a claim or

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1 interest that has accepted or rejected the plan is deemed to
2 have accepted or rejected the modified plan unless within the
3 time fixed by the Court such holder changes his or her previous
4 acceptance or rejection." So as I read it, Your Honor, clearly
5 in drafting 1127, Congress contemplated that to the extent
6 material changes are made to the plan, and Your Honor ruled
7 these were material changes, creditors and interest holders
8 must be given an opportunity to review those changes and, if
9 appropriate, vote differently. In support of that, Your Honor,
10 I would direct the Court's attention to Judge Bailik's (ph.)
11 decision in Century Glove, 74 B.R. 958, which I believe stands
12 for that very proposition.
13 So in sum, Your Honor, what we have here is a quasi
14 request to use the power granted under 1127 although they don't
15 necessarily invoke the 1127 to modify the plan. But they ask
16 the Court to allow them to escape the burdens of 1127 which are
17 the plan is modified, it has to comply with the Code, including
18 1123 and 1122. And to the extent the changes are material,
19 parties must be given a fresh opportunity to vote in the plan.
20 So with that, Your Honor, we join in the equity
21 committee's objection to that portion of the solicitation
22 procedures.
23 THE COURT: Thank you.
24 MS. LONSTEIN: Your Honor, Carmen Lonstein, Baker &
25 Mackenzie for Black Horse Capital Management LLC. And I think

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1 it seems like an appropriate time to add additional points
2 related to the objections raised by the equity committee with
3 respect to the disclosure statement issues.
4 Black Horse filed an objection to the disclosure
5 statement on two primary grounds. First, the disclosure
6 statement's failure to illustrate the federal judgment rate in
7 the context of a Chapter 7 liquidation analysis that is
8 attached as Exhibit D to the plan; and secondly, on the basis
9 that the disclosure statement lacks information that is
10 sufficiently clear and complete regarding the potential range
11 of values from the billions of dollars of the debtors' NOLs
12 that are being retained by the reorganized debtor.
13 I don't want to repeat anything the equity committee
14 said so I'm going to try to focus on additional points that the
15 debtor can then respond to. On the judgment rate -- federal
16 judgment rate issue, first, it's our position it's as a matter
17 of law that the liquidation analysis must illustrate the
18 federal judgment rate. This is not a confirmation objection.
19 It's the notion that when creditors receive the plan and look
20 at the disclosure statement and attempt to assess whether they
21 are better off approving and supporting this liquidation
22 occurring in Chapter 11 versus Chapter 7, they should be
23 sufficiently informed as to what the potential outcomes would
24 be in a Chapter 7 liquidation which are different than a
25 Chapter 11 liquidation. And the disclosure statement, as

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1 currently propounded, carries over the assumption that the
2 interest rate issue would be determined in the same way in a
3 Chapter 7 liquidation. That is an incorrect assumption and
4 it's an unfair assumption particularly on an issue that the
5 Court hasn't ruled on. But the Court hasn't ruled on that
6 issue in the context of a Chapter 11 confirmation. That's an
7 entirely different issue than should the disclosure statement
8 contain an accurate Chapter 7 liquidation analysis. And as
9 it's currently propounded, it doesn't because it contains a
10 contract rate when, in a Chapter 7 context, there hasn't been
11 any case law cited by anybody saying that the contract rate
12 should apply in a Chapter 7 liquidation. Even if the global
13 settlement was accepted by a trustee in a Chapter 7, the
14 interest rate issue is not a part of the global settlement
15 notwithstanding the Aurelius response which I'll address
16 shortly.
17 So the debtor says in its response that it's aware
18 that there are contingent redistributions to preferred equity
19 interest that would occur in the liquidating trust if the Court
20 were to rule that the federal judgment rate applies. Then
21 there would be a reshuffling of those interests in the
22 liquidating trust and that is provided for in Section 24.1 of
23 the plan. That's correct. I'm not asking the debtor to change
24 the plan. We're simply asking the disclosure statement to
25 illustrate this treatment and the effect of this that could

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1 occur were the Court to rule in this way because that would be
2 an important material piece of information for creditors to
3 decide whether to vote for the plan.
4 The debtor contends also in its response that there
5 are contingencies on allowed claims that must be resolved
6 before this type of illustration could be made. And therefore,
7 that's why the disclosure statement doesn't contain this in the
8 Chapter 7 liquidation analysis. However, that liquidation
9 analysis clearly already makes certain assumptions about the
10 contingencies including what the amount of the allowed claims
11 are and that they would receive 793 million or so in interest
12 based on the contract rate.
13 And so, if the debtor can illustrate that contingency,
14 it can certainly easily illustrate another contingency which is
15 what happens if a lower rate is applied. In fact, it's quite
16 common, Your Honor, for disclosure statements to show high
17 recoveries and low recoveries. We see that all the time in
18 terms of ranges of allowed claims that might occur in a case.
19 And in this case would be relatively easy to also show ranges
20 of recoveries that might occur if there were two different
21 rates applied.
22 The other point that we make in the objection to the
23 disclosure statement, is that this information is critical for
24 creditors in deciding whether to support a liquidation
25 occurring in Chapter 11 in this case. But also for the Court

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1 in determining the equities involved, and what the impact of
2 the decision is going to be on junior classes of creditors.
3 In fact, this issue is inseparable from the equities.
4 Because when Your Honor ruled that you'll take into account the
5 equities of the case, equity is an expansive concept, and it's
6 not just the conduct of one group or another, but it would have
7 to take into account what is the equitable impact on the
8 recoveries to junior classes. When a Chapter 11 liquidation is
9 treated like a Chapter 11 reorganization by allowing a higher
10 contract rate to be applied, some have argued that the
11 Chapter -- that the legal rate issue is a floor in a Chapter 11
12 liquidation.
13 Again, I'm not arguing a confirmation objection. But
14 for purposes of an informational item in the disclosure
15 statement, the reason this is important is because in Chapter 7
16 this alleged floor is also a ceiling. It's a ceiling that puts
17 a top on the senior creditors' right to receive interest post-
18 petition, so that junior interest holders can participate in a
19 liquidation.
20 In this case there's no issue that we are looking at a
21 ten-year runoff of a business, a ten-year liquidation over
22 time. And so it's important to have complete information as to
23 what that liquidation would look like in a Chapter 7 situation.
24 Currently, as propounded, the disclosure statement
25 stacks the deck in favor of the debtor by allowing the same

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1 contract rate assumptions in Chapter 11 to be put into the
2 liquidation analysis, in essence making meaningless the
3 comparison of the best interest test, because the outcome is
4 the same in both situations under the debtors' disclosure
5 statement, because that's the way the debtor has presented it.
6 Regarding the Aurelius Capital Management response
7 alleging that this is a part of the global settlement -- the
8 interest rate issue is a part of the global settlement, I just
9 want to note for the record on behalf of Black Horse that his
10 is the first time that anyone has said that on the record. And
11 it certainly wasn't a part of the debtors' papers, or the
12 analysis at the first confirmation hearing.
13 But it is refreshing to hear a party admit that they
14 would not otherwise be entitled to a higher rate of interest
15 unless in the context of 1129(b), where creditors vote against
16 the plan and ask this Court to apply certain rules under the
17 fair and equitable test. That's clearly not the procedural
18 context. But we'll address that at confirmation. And that's
19 all I want to say about the Aurelius management issue.
20 Now, the second objection that the equity committee
21 raises a similar point, but we have a different view of it,
22 although we are aligned, and that is the NOL issue. And what
23 the disclosure statement -- how the disclosure statement
24 addresses this issue.
25 And the debtors' response on the NOL issue sheds some

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1 light. Because, in essence, what becomes abundantly clear now,
2 in looking at the debtors' response is that there is this
3 admitted tension between the debtors' concern that the IRS
4 might disallow this 3.5 billion dollars in NOLs if this entire
5 Chapter 11 liquidation is really for the purpose of tax
6 preservation.
7 And, so, therefore, because Blackstone is concerned
8 about this there's this drive to undervalue the NOLs and to
9 value the debtors' liquidating business more than the NOLs.
10 And there seems to be this tension, we don't really want to
11 talk about the elephant in the room; the NOLs, because then the
12 IRS might say this is really -- we're all here because of the
13 NOLs.
14 I understand that tension, we respect that. But at
15 the same time that is not an acceptable excuse for undervaluing
16 a potential highly significant asset of the estate. And there
17 must be a way that the disclosure statement can show a
18 potential range of recoveries of these assets in two different
19 scenarios, so that creditors can assess, number one, whether
20 this potential value that's there and the probability of that
21 value being realized, currently as it's set up, is locked up in
22 the reorganized debtors' stock. And that stock, the value
23 there, does not flow into the liquidating trusts. So you have
24 junior preferred equity holders -- holders of preferred equity
25 interest who receive only interest in the liquidating trust.

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1 But the value of the NOLs is in the stock and that does not
2 flow into the liquidating trust.
3 So these valuation issues are very important because
4 you have to be able to understand what is it that the senior
5 creditors are getting, what is it that's being potentially
6 locked up?
7 Even if parties at confirmation may have different
8 views and different experts, talk about those probabilities,
9 and whether that asset can or cannot be realized. The fact
10 that the disclosure statement is silent on this issue is
11 untenable when we're talking about a 3.5 billion dollar asset.
12 And what's interesting about this plan is that it
13 provides for senior creditors owed billions of dollars to
14 choose to take stock in an ostensibly 100 million dollar
15 company, okay, instead of cash. Why would creditors owed
16 billions of dollars take stocks in 100 million dollar company
17 instead of cash. There must be something valuable about that
18 stock. And, yet, the disclosure statement fails to address
19 that, fails to show under what scenario that stock might have
20 that value.
21 So, again, the debtor is flattening the differences
22 between a Chapter 11 liquidation and a Chapter 7 liquidation.
23 And making it impossible for creditors to assess, junior
24 interest holders to assess, does this plan violate the priority
25 schemes envisioned in the Bankruptcy Code? Are creditors

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1 retaining value they should otherwise be flowing into this
2 priority scheme simply because this is being done in a Chapter
3 11 liquidation versus a Chapter 7 liquidation.
4 And this is not a confirmation objection, these are
5 informational points that creditors need to have this
6 information, this Court needs to have this information, in
7 order to decide whether this case should be liquidated in
8 Chapter 11, or whether it should just be converted to a Chapter
9 7 case, where everyone can participate.
10 THE COURT: Okay.
11 MS. LONSTEIN: Thank you, Your Honor.
12 MR. SACKS: Good morning, Your Honor. Robert Sacks
13 from Sullivan & Cromwell on behalf of JPMorgan Chase. Mr.
14 Rosen asked me to speak about the points I'm going to speak
15 about before he goes.
16 I’m going to address two of the points that were
17 raised; the issues relating to coercive releases, and the Class
18 19 issue.
19 With respect to the coercive releases, Your Honor
20 already decided that issue. In your opinion at pages 85 to 86,
21 the same issue was presented as an objection to the plan that
22 you considered in December. You rejected the issue that it
23 violated the Bankruptcy Code. And you have ruled that you are
24 not going to reconsider the same issues that you considered the
25 first go around. You expressly -- the objection was that the

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1 plans conditioning of distribution on whether the entity grants
2 a third party release, arguing that it discriminates between
3 creditors within a class, that objection was made. Your Honor
4 said the Court disagrees, providing different treatment to a
5 creditor who agrees to settle instead of litigating is
6 permitted by Section 1123(a)(4).
7 And at the hearing on January 20th, indeed, with Mr.
8 Ard's partner; Mr. Sargent, you had a dialogue where you said:
9 "As one example. But in concept with respect to those
10 items that I did decide they're not going to be relitigated.
11 "MR. SARGENT: Correct.
12 "THE COURT: Okay, it's law of the case, basically.
13 "MR. SARGENT: We would agree with that.
14 "THE COURT: Okay."
15 So this --
16 THE COURT: Well, should they be given a right to
17 revote?
18 MR. SACKS: Oh, I'm going to address the Class 19
19 issue.
20 THE COURT: Right, okay.
21 MR. SACKS: Which is a totally different issue, Your
22 Honor.
23 THE COURT: Well --
24 MR. SACKS: That's not -- that wasn't the issue that
25 Mr. Ard was raising on the releases, that was a separate point.

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1 On the Class 19 issue, first of all, this entity
2 called -- or entities called the trust preferred consortium, I
3 don’t know what the trust preferred consortium is, they've
4 never appeared as something called the trust preferred
5 consortium. Now, maybe it's some or all of the people who
6 fought the issue. But I would note that the last person
7 represented here represented the lead plaintiff in that action.
8 So, presumably, they're no longer part of the trust preferred
9 consortium. I would suggest that a disclosure statement by
10 that group identifying who their members are and what they own
11 would be in order in this case.
12 But passing that, this is determined -- Class 19 is
13 determined to have rejected this plan.
14 Now, what they appear to be complaining about, the
15 people who fought the issue, litigated it through to conclusion
16 and lost before Your Honor is that a payment that my client was
17 making, it’s not coming from the debtors, this is a payment my
18 client was making as part of an overall settlement, it agreed
19 to make the payment to people who met certain conditions.
20 Those conditions were that you agree you don't own trust
21 preferred securities, you make clear you don't, you give us
22 releases and you don't litigate the issue.
23 That issue has now been litigated. We are not
24 reopening that offer to people. The consideration that we gave
25 for it, was, in fact, the non-litigation. And certain people

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1 accepted that, most people did not. The class rejected this,
2 they don't need to be resolicited. This was an opt-in, not an
3 opt-out release that was provided, and it was specific to
4 consideration being provided by my client.
5 If, in fact, you were to rule that this class needs to
6 be resolicited, we would just remove the fifty million dollars
7 from this plan. We're not offering that money to people now
8 having litigate -- having been forced to litigate the issue.
9 We're not offering that to people like the trust preferred
10 consortium people who took advantage, who rejected it,
11 litigated the issue and now they decided they lost it, maybe
12 they would rather have the money. It wasn't a tails you win,
13 heads you win proposition. We offered it to people who were
14 prepared to give it up and not litigate the issue.
15 So this is something that is -- that while it's part
16 of the plan and it's part of the settlement, it's money that
17 came from my client. And so if this is going to be a case
18 where you require resolicitation of those people, I believe
19 that fifty million dollars will just be stripped out of the
20 agreement, and the consequence will be to those people who
21 previously had agreed to accept that money and to not object to
22 the plan and to accept that in lieu of it.
23 So I don't think there's any reason, again, given that
24 this was an opt-in, not an opt-out, number one.
25 Number two, was the plan is conclusive -- that class

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1 is determined conclusively to have rejected the plan.
2 And, three, the circumstance is that this was money
3 being paid by JPMorgan Chase, not by the debtors, that there's
4 any reason that these people need to be resolicited. But, in
5 any event, if that is your determination that fifty million
6 dollars, they're going to be resolicited, but not for anything,
7 because there's not going to be fifty million dollars that will
8 be offered, as I say, because that goes -- the portions of that
9 were accepted, go to the people who accepted and met the
10 conditions at the time those conditions were put in place,
11 which is they weren't going to object.
12 The people you just heard from didn't accept those
13 conditions, they violently objected. They caused this to be
14 litigated through to conclusion with Your Honor at tremendous
15 expense and risk to my client.
16 And, finally, they're appealing that issue at the
17 present time.
18 Thank you, Your Honor.
19 THE COURT: Thank you. Wait, we have another.
20 MR. MAYER: Thank you, Your Honor. Tom Mayer from
21 Kramer Levin on behalf of Aurelius Capital Management.
22 I'd not planned to spend time at the podium except our
23 name was taken, hopefully in vain, by the Black Horse folks,
24 and I need to correct some things that were said.
25 First, as Your Honor knows, this is not the first time

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1 that Aurelius has said that the contract rate was part of our
2 deal. We said that in January, we said that in February. It
3 is part of our deal. And, yes, we believe that the fair and
4 equitable test compels the application of the contract rate on
5 the facts of this case, and those facts will be developed at
6 confirmation. But that's been the consistent position of
7 Aurelius.
8 I’m afraid we don't understand the Black Horse
9 position at all because occasionally Black Horse suggests that
10 their position benefits the PIERS in the some way.
11 Your Honor, will recall that in February I stood here
12 and I said every month that goes by hurts the PIERS. And
13 that's true, and it's true in spades, if a different level of
14 interest is allowed by the Court. The indentured trustee's
15 papers point out what really happens where, which Black Horse
16 persists in ignoring. Which is it's the interest on the
17 seniors that has the most impact on the PIERS. Because we have
18 to turn over value to the seniors in order to pay their
19 principle and their interest at the contract rate, subject to a
20 reservation which I will make for formal purposes, that we hope
21 we don't have to litigate the continued enforcement of that
22 clause. But that's what the document says.
23 So if you were to put a lower interest rate at
24 confirmation --
25 THE COURT: I understand.

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1 MR. MAYER: -- on the senior debt, it's not going to
2 hurt the seniors, only hurts the PIERS. And Black Horse
3 apparently doesn't understand that. And that's why every month
4 that goes by costs us, the debtors' own liquidation analysis,
5 estimates about twenty million bucks directly out of our pocket
6 and into the seniors' pockets in respect of their contract rate
7 of interest.
8 So I think that's important for the Court to
9 understand.
11 MR. MAYER: Second, I understand our name gets bandied
12 about as a sort of person to hit. Your Honor, we believe that
13 the code does contain a provision that says all creditors in
14 the class have to be treated the same. And, therefore, we all
15 rise, we all fall together, and this is a confirmation issue,
16 of course. But we don't believe the facts of this case justify
17 the disallowance of interest to post to creditors -- the post-
18 petition interest to creditors. We don't believe that that’s
19 substantively permissible under the code, we don't believe it's
20 procedurally permissible. And as a matter of fact, it would be
21 impossible under the -- any application of the Coram decision
22 to single out individual creditors and say that you don't get
23 while other people do.
24 Now, the code doesn't allow for that, and, again, we
25 reserve until confirmation the facts necessary to prove that

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1 that really can't be done. Just under the way the turnover
2 provision works here, you just can't do it. But, again, that's
3 an issue for confirmation.
4 MS. LONSTEIN: Your Honor, if I can be indulged, I
5 just want to respond very quickly to that comment regarding --
6 from Aurelius.
7 And I was going to say this earlier on the record,
8 Wells Fargo, as the indentured trustee, did file an objection
9 to the disclosure statement. And they raised the same point
10 that Aurelius just made. That -- and this is a confirmation
11 issue, it's not a disclosure statement issue. But just to not
12 let it fester.
13 The -- if a rate lower than contract rate is awarded
14 it is highly incorrect to say that the junior noteholders have
15 to turn over the difference between the contract rate and that
16 lower rate to the seniors. The reason is first and foremost,
17 the plan in the provisions for the liquidating trust and
18 elsewhere, provide that all of the subordination provisions of
19 the various indentures remain in place, the plan does not alter
20 it.
21 In this case, the junior subordinated notes, sub --
22 the junior notes subordination provision is governed by New
23 York law. Under New York law the subordination provision is to
24 be very strictly and narrowly read under the explicit --
25 THE COURT: I'm not going to get into that issue.

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1 MS. LONSTEIN: Right.
2 THE COURT: That's a confirmation issue.
3 MS. LONSTEIN: We just want to reserve it on the
4 record.
5 THE COURT: Yeah, it's preserved.
6 MS. LONSTEIN: We don't believe that there's any
7 impact, whatsoever. And, in fact, all creditors benefit from
8 the lower rate.
10 MR. STEINBERG: Good morning, Your Honor. Arthur
11 Steinberg on behalf of the litigation tracking warrants.
12 The debtor in its response that it filed March 16th
13 lumped us with the equity committee and said that our objection
14 to the disclosure statement was "absurd in their totality" and
15 then later said it was suspect because we had been provided
16 with the very information which we assert is lacking.
17 So having set such a low bar to surpass, hopefully
18 I'll be able to try to explain why I believe that our
19 objections to the disclosure statement are appropriate.
20 There are four specific objections as it relates to
21 the litigation tracking warrants. And then there were general
22 objections which had been touched upon by some of the prior
23 speakers in the case.
24 The first one was relating to the -- in the
25 exculpation section relating to the directors. There was a

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1 sentence there that would have basically said that the Court
2 will have approved through the disclosure statement a defense
3 that the directors would have in connection with the lawsuit
4 that the litigation tracking warrant holders have now brought
5 against the board of Washington Mutual.
6 The debtor has corrected the disclosure statement and
7 has said that in its disclosure that they may assert this
8 defense, but is not looking for this Court to, in effect, give
9 its judicial and premature in the context of a disclosure
10 statement, that the defense is valid. So I think there is no
11 objection to it and they've made the correction.
12 I will say that with two observations on that. If the
13 board ever asserted a reliance on counsel defense, they will
14 have blown the attorney-client privilege. And, second, the
15 testimony in this case as given is that the board never
16 considered any issues relating to the litigation tracking
17 warrant. So I’m not really sure what kind of advice of counsel
18 they would be relying on as a defense. But neither event, vis-
19 a-vis disclosure, that issue has been resolved.
20 The second issue that we raised is that we pointed to
21 inconsistency in the language of the plan, itself. And we said
22 that we thought that one of the provisions should override the
23 other. And, specifically, we said that Section 25.1 of the
24 plan had it correct and was exactly consistent with the
25 treatment that was provided in the prior plan and is described

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1 on page 102 of the prior disclosure statement that went out for
2 vote for creditors.
3 What was added into Section 1.209 of the plan, which
4 talked about the treatment of the litigation tracking warrant
5 holders, was the phrase "or as otherwise determined by the
6 bankruptcy court."
7 Now, we're not sure if there's actually a disagreement
8 on this issue. The LTW holders clearly are entitled to know
9 how the plan treats them. Are they going to be in Class 12 if
10 they win the litigation, or are they going to be in Class 21 if
11 they lose the litigation?
12 If there's another class that we can fall into then we
13 need to know what it is. And we need to know it prior to the
14 solicitation, because the solicitation embodies things like
15 third party release, and also embodies things like stock
16 election.
17 I will make three observations on this point.
18 One is the notion that he debtor's saying that in this
19 context we may have a flexible treatment based on a ruling that
20 Your Honor might make on an issue, is directly contrary to the
21 position that they've taken vis-a-vis the PIERS when there are
22 clearly threshold issues relating to whether they are debtor
23 equity, whether the post-petition interest rate should be at
24 the contract rate or the federal judgment rate. And, indeed,
25 with regard to the waterfall, as to whether the subordinated

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1 claims come ahead of them.
2 So with regard to litigation tracking warrants, they
3 like the notion of flexibility. Flexibility, though, in a way
4 that no one knows what they're talking about. Or -- but with
5 regard to others that's not true.
6 The second thing is that we have said that we actually
7 believe that we are potentially secured creditors in this case
8 secured by the proceeds of the global settlement. In Your
9 Honor's decision on page 50 you recognized that there was an
10 alternative argument that we had made that in justifying the
11 global settlement agreement that we had asserted an interest in
12 the Anchor litigation. And the proceeds of the Anchor
13 litigation, and Your Honor had said, well, the -- there's
14 enough paid by the global settlement to take care of the
15 situation.
16 We believe that if Class 12 pays, as the disclosure
17 statement says, which is you're going to get paid 100 cents on
18 the dollar, then whether we're secured or unsecured may not
19 make a difference anyway. And if that turns out to be a wrong
20 assumption then we may raise it as a confirmation issue. I
21 don't think that's necessarily going to happen.
22 But either event, just to crystallize the second
23 objection, if they want to put in their language, it's their
24 plan. So then now tell me is it Class 12, Class 21, you want
25 to make up other classes that we can fall into, tell me the

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1 circumstances for purposes of the vote.
2 THE COURT: Okay.
3 MR. STEINBERG: The third issue relates to the LTW
4 holders as to whether they should be giving third party
5 releases in the way that the debtor has fashioned it to be.
6 Your Honor's decision said that those who don't know whether
7 they're going to get a distribution shouldn't have to give a
8 third party release.
9 By way of clarification, if the debtor intended to say
10 that the third party release is conditional upon us being
11 treated as a Class 12 treatment then I think we can certainly
12 vote as to whether we would give a third party release or not.
13 If it's going to be that we're going to be in Class
14 21, and Class 21 gets nothing, then the third party release,
15 according to the debtor, won't have any effect.
16 If we're going to be landing in other classes where it
17 may or may not get a distribution, it may be a peppercorn type
18 of distribution, then I think that relates to the third party
19 release issue that I've alluded to before.
20 The second is an issue which I think is critical --
21 the last issue, rather, is critical for the LTWs, is that
22 there's currently a market that trades on the LTWs as it does
23 for many of the other debt and equity securities in this case.
24 And the debtors' plan says because under this plan there's a
25 stockholder election in favor that the LTW holders can make, we

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1 now need to have all the LTWs returned prior to confirmation.
2 And when that happens there'll be no further trading in the
3 plan.
4 And I think on this issue, if the debtor wanted to
5 narrow it so that only those who make the stockholder election
6 should have their, in effect, their tradability affected, so
7 the debtor could administratively figure out who they're
8 reserving for in a stockholder election, that may be okay. But
9 to do anything further than that is inappropriate for the case.
10 The debtor doesn't need to identify the litigation tracking
11 warrant holders in any other particular way. There is a
12 litigated established claims reserve in this case on a global
13 basis of 337 million dollars. And the only difference as to
14 this provision, which was in the prior plan, and it wasn't
15 applicable to the litigation tracking warrant holders. The
16 only reason why there's a change is because of the stockholder
17 election. And, therefore, be limited to the stockholder
18 election, I don't think that we would have a serious problem
19 with it.
20 I will say that one of the reasons why I say that, and
21 I'll get to it in the general objection, is it's going to be
22 really hard for anybody to make the stockholder election in
23 this case, and for a slightly different reason than has been
24 alluded to before by the prior speakers, and I'll get to that
25 in just a moment.

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1 So those are the four specific disclosure objections
2 relating to the litigation tracking warrants.
3 And I do want to talk about some of the general issues
4 relating to this plan, that have been alluded to by the
5 speakers before.
6 And the first is whether this plan should go out if
7 it's going to be an all or nothing proposition on issues such
8 as the appropriate interest rate for federal judgment rate of
9 contract rate, the waterfall on subordination, and whether the
10 PIERS are debtor equity.
11 I think that the debtors take the position that if
12 they're wrong on any of those issues, there will have to be a
13 resolicitation. And the debtor has said almost at every
14 hearing that I've attended, that there's a thirty million
15 dollar a month burn rate, and we know from the track record of
16 this case, that the debtor has been wrong.
17 I mean, it's okay to say we'll punt on everything to
18 confirmation when you're doing it for the first time, but the
19 debtor lost in this case. And the debtor lost on fundamental
20 issues that everybody knew was contrary to confirmation. And
21 there were probably three iterations of the release provisions
22 before we finally got to the Court, and they still lost on that
23 one. So the notion that we're going to repeat the same
24 mistakes that we had in history before, and do it again, is
25 silly. If the debtor wants to make -- if the debtor wants to

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1 press this as an all or nothing issue, then we probably should
2 decide if it's an all or nothing issue prior to any kind of
3 solicitation. Or, alternatively, the debtor should give you
4 the flexibility to decide whether -- how you think the law
5 should be interpreted and let this plan then go forward that
6 way.
7 I will note, that in the General Motors hearing -- the
8 confirmation hearing, which took place only a couple of weeks
9 ago, there was a specific provision in the General Motors' plan
10 which exactly allowed Judge Gerber to make these types of
11 edits. And Judge Gerber, in his decision on General Motors
12 said that there's been an increasing trend in plans to allow a
13 judge to do that, so we don't have the necessity of
14 resolicitation. And in General Motors the debtors' counsel was
15 Weil Gotshal, the creditors' committee counsel was Aurelius's
16 counsel.
17 And so they recognize, that at least in another case,
18 which was similar to here, a 363 sale, substantially all the
19 assets, distributions in accordance to what they think is the
20 relative priority, the Bankruptcy Code certain settlements
21 folded in. It's similar to the same case here. There they
22 wanted to be efficient. Here, after having failed the first
23 time, I don’t think they really have learned their lesson and
24 they're being inefficient.
25 And, in fact, the debtor is being somewhat schizoid

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1 because they asked you at the disclosure statement hearing for
2 almost an advisory opinion to tell me, Judge, if I'm getting it
3 wrong why don't you let me know now. But, really, don't do
4 anything because I’m punting everything to confirmation and
5 we'll decide it again. We'll do -- and we'll do the same thing
6 that we did last time.
7 And I don't think it's fair to say that it's okay
8 because I’m right and they're wrong, and, therefore, I'm just
9 going to ultimately justify myself at the confirmation hearing.
10 I think there's a serious issue as to whether they're right, on
11 any one of these three issues. But if anyone of these three
12 issues fails then we're gong to be back to where we have
13 before, with no ramifications other than what? Another third
14 plan, trying to address it again after pushing it out. And
15 we'll even hear Aurelius saying look how hard I'm going to be
16 because I'm getting eaten up but by the contractual interest
17 rate that is having to be turned over to the senior
18 noteholders.
19 I do think that the Aurelius objection that was filed,
20 or response that was filed in this issue, is significant in a
21 slightly different way than the Black Horse people had. And I
22 wanted to recite two or three of the paragraphs from the
23 objection and then make my point.
24 In paragraph 2 of the objection they say "If changes
25 are made to the interest rate or waterfall when post-petition

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1 interest is paid, it would be 'fundamentally alter the
2 economics of the global settlement' and thus likely result in
3 the loss of significant creditor support for the modified
4 plan." And, parenthetically, you know, I think it's been said
5 before, even by the debtor, that the PIERS class voted against
6 the plan, didn't have the requisite numerosity. So the debtor
7 would have had to cram down on them.
8 Anyway, but on this paragraph they have said that when
9 they were a settling noteholder, when they were at the
10 negotiating table, when they were making their proposals, the
11 interest rate, not the amount that JPMorgan should pay to
12 settle the litigation, but the wackup of the proceeds, the
13 interest rate, and their share, even if it's not entitled to as
14 a matter of law, was fundamental to how they approached the
15 settlement, and they were at the negotiating table.
16 Paragraph 3 "Payment of post-petition interest at the
17 contract rate was 'a critical component of the global
18 settlement.'"
19 Well, I know Mr. Mayer said I've made this point in
20 January and in February, but the confirmation hearing and the
21 approval of the global settlement was in December. So this was
22 the -- this was never raised as being a critical component,
23 but, if we have the person who was at the negotiating table,
24 saying that this was a critical component, which didn't come
25 out of the confirmation hearing, which was that the parties who

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1 were approving the settlement were also trying to approve what
2 their percentage share of the settlement was, then I think it
3 gives credence to anybody who objected to confirmation as to
4 the amount of the global settlement by saying that when the
5 people who were at the table got everything that they wanted to
6 get, that they were happy and they sat down. And that raises
7 the issue as to whether the global settlement number, in
8 general, was correct.
9 And Aurelius, in its paragraphs in its objection, has
10 essentially told the Court that if you're not going to give me
11 my interest rate, you're going to leave it as an open issue,
12 where you could potentially redline that I'm going back to
13 challenge the global settlement, and the amount of the global
14 settlement, that's the impact of their papers.
15 Now, the second general point that I wanted to talk
16 about, Your Honor, besides that the plan should have this kind
17 of flexibility, that is the way it should go, is the withdrawal
18 of the registration rights offering.
19 The debtor is free to do that. You know, there's
20 nothing that compels them to do that. But it does tie into the
21 point that Black Horse was making. You have a five billion
22 dollar net operating loss asset. And now what has happened
23 here is the debtor actually has added to the disclosure saying
24 because you made be share the registered -- the stockholder
25 election with a whole bunch of more people, and that created

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1 some potential problems, the registration rights offering is
2 off the table, we don't know whether we'll have any kind of new
3 capital into this reorganized entity that will, in effect,
4 better able to utilize a five billion dollar NOL, otherwise you
5 just have a liquidating portfolio, and whatever is, you know,
6 100 million dollar NOL could have shielded whatever comes out
7 of that thing, anyway.
8 So what they did was, and I think is being overly
9 cute, is they basically said we'll put the shares into the
10 settling noteholders, they'll become no shareholders again.
11 And they'll do their registration rights offering in their own
12 peculiar way outside of confirmation without any kind of --
13 THE COURT: Isn't this a confirmation issue?
14 MR. STEINBERG: It is, Your Honor, except --
15 THE COURT: So why --
16 MR. STEINBERG: It is a confirmation issue. But to
17 some extent when we see confirmation issues that are this
18 blatant, that you sometimes get criticized by saying why didn't
19 you say something at the disclosure statement hearing, I'm
20 not --
21 THE COURT: You said it, you've said --
22 MR. STEINBERG: Okay. So the next issue, Your Honor,
23 and this is sort of a commentary, but I think it does reflect
24 and it is a confirmation issue, you might recall that myself
25 and others at the prior confirmation hearing objected to the

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1 notion that there are a bunch of professional fees that were
2 going to be paid without applications to the Court. Your Honor
3 wrote an opinion that said it has to have an application. We
4 filed an objection to the disclosure statement saying even
5 though there's going to be an application, why don't you just
6 tell us the number that you didn't want to tell us the last
7 time we went to confirmation hearing.
8 And there are two numbers here, so this one will be
9 why don't you clarify which staggering number you want to put
10 in? You want to put in thirty-three million dollars, which is
11 on page 27 of the disclosure statement, or do you want to put
12 in thirty-nine million dollars, which is on your chart
13 objection. Each of which says it's going to potentially
14 increase, because they haven't gotten all the numbers. So for
15 this one just put in the right number.
16 THE COURT: Okay.
17 On the updated liquidation analysis where I had raised
18 the issue about late-filed claims the debtor says we've updated
19 it. There's never going to be an allowed late-filed claim, so
20 we don't have to put anything there. Well, that's fine. Okay.
21 But I will just say that the definition of late-filed claims
22 under this plan is wrong. It's contrary to the Bankruptcy
23 Code. If you have a claim that should be allowed because of
24 excusable neglect standard, things like the debtor never
25 noticed people about the case and especially before the bar

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1 date, the definition of late-filed claims doesn't take into
2 account those people as being allowed claims. They still call
3 them late-filed claims. That should be changed. It's just
4 contrary to the law.
5 And, finally, the debtor couldn't resist in the
6 objections to our objection to say that our trial date in this
7 case is September 12th. Lord wishes that we would have had an
8 earlier resolution, and I would say, Your Honor, and it's not
9 part of the disclosure statement, that having filed the second
10 amended complaint, having seen the mediation statement that is
11 sent out when you file a complaint, having recognized that the
12 debtor is in mediation with the trust-preferreds in connection
13 with their appeal, having seen that when the equity committee
14 tried to bypass mediation in the context of their appeal, the
15 debtor insisting that they should go through the mediation
16 process, that I think that a mediator during the month of April
17 to try to mediate our situation would be totally appropriate,
18 and if we could get another judge in this district who had the
19 time to be able to do that it would be most efficient.
20 I do think that most lawyers feel that mediation is a
21 waste of time, because they feel, with their own ego, that
22 they're certainly capable of resolving differences. But
23 sometimes parties get so entrenched in their litigation efforts
24 that they lose the ability to talk to each other and a mediator
25 does serve that salutary purpose. I note that the other major

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1 objectors to the case are already trying that, and it would
2 seem to me that the debtor has engaged in and, in fact, they've
3 encouraged it, and it would make sense to do it in our case,
4 because we have tried but we have not quite gotten there, and I
5 do think we need the assistance of somebody else.
6 THE COURT: Well, I think a judge in this district who
7 has time is not something we're going to be able to find,
8 but --
9 MR. STEINBERG: If that's the case then a good private
10 mediator would be okay.
11 MR. COFFEY: Your Honor, very briefly, if I may? I
12 want to respond to a couple of comments counsel for JPMorgan
13 made. Just, I think it may connect more logically. First, to
14 clear up any confusion, the trust-preferred consortium has, and
15 continues to file, 2019 statements identifying its members.
16 Black Horse has other holdings in the capital structure. They
17 have, at all times in the case, been represented by their own
18 counsel, and, so, Black Horse's counsel is here today in that
19 capacity. Black Horse was, is, and remains a member of the
20 trust-preferred consortium, but we'll file an updated 2019 just
21 to clarify that.
22 The next point was that non-solicitation of Class 19
23 was appropriate, somehow, because JPMorgan was the source of
24 this tip that was to be given to Class 19 if they accepted the
25 plan. Your Honor, I think the case law is pretty clear that no

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1 matter where the plan consideration comes from, whether from
2 the plan proponent, from the estates or from a third party, if
3 it's given pursuant to the plan all parties in the class are
4 entitled to the same distribution if you're going to use the
5 Bankruptcy Code to enforce a deal, which is what they're trying
6 to do here. JPMorgan is looking to force releases, get assets
7 free and clear, collect incredible sums of money out of the
8 estate again, all pursuant to the plan.
9 THE COURT: Well, but didn't I decide already that a
10 class can have, this class, specifically, can get two different
11 distributions depending on whether they have opted in?
12 MR. COFFEY: You absolutely did, Your Honor.
13 THE COURT: So why are we re-litigating this?
14 MR. COFFEY: Well, Your Honor, the opinion also makes
15 clear that it's okay to give disparate treatment to parties in
16 a class if they're given a choice. Here they were given a
17 choice under a prior plan. We have a new plan, but they're
18 seeking not to seek solicitation or seek votes or releases from
19 this class. So what we're having here is an imposed disparate
20 treatment without the choice to say yes, I want that or no, I
21 don't consent.
22 And then, Your Honor, finally, Mr. Sacks --
24 MR. COFFEY: Okay. I'm sorry, Your Honor. Mr. Sacks
25 raised that there might be some difference because there was an

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1 opt-in or an opt-out. I think Your Honor's opinion was very
2 clear that parties who were given the facial choice to give the
3 release, whether by opting in or opting out or what have you,
4 but then were told in the same breath that no matter what you
5 do we're going to enforce the release on you and force you to
6 take the plan treatment, it was irrelevant whether it was an
7 opt-in mechanism, opt-out mechanism. The holders had no idea
8 exactly what they were voting for and what they were opting in
9 or out for.
10 MR. CURCHACK: Good morning, Your Honor. Walter
11 Curchack of Loeb & Loeb on behalf of Wells Fargo Bank, the
12 indenture trustee for the PIERS creditors. I rise very briefly
13 to address a couple of points that have been made, and I want
14 to clarify the record in some respects. First of all, Wells
15 Fargo certainly did not object to the disclosure statement. We
16 did file a response to certain objections. And I would like to
17 take just a minute to address a couple of points with respect
18 to the interest issue, and I want to try to limit myself to the
19 disclosure aspects of it. Your Honor, obviously the interest
20 issue is of utmost importance to the creditors in my class, and
21 I want to point out that there is no simple on/off toggle on
22 the interest issue. There are very many variables, infinite
23 permutations and combinations that could affect how you would
24 disclose anything other than what is disclosed, which is,
25 assuming the plan is confirmed with the contract rate, what the

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1 recoveries would be.
2 Why do I say that? Well, first of all, there's the
3 very issue of the subordination, the contractual subordination
4 as opposed to the priorities under the code and the issue of
5 whether -- well, let me put it differently. If Your Honor were
6 to rule that throughout the whole case only federal judgment
7 rate of interest would apply would that impact on the
8 subordination provisions? Now, obviously, I need to reserve
9 the right to argue that that would have an impact on the
10 contractual subordinations. However, I'd be willing to save
11 Mr. Lauria having to get up. I guarantee you the senior
12 noteholders would take a different position with respect to
13 that.
14 THE COURT: But can't that be laid out in the
15 analysis?
16 MR. CURCHACK: I'm not sure that it can be
17 mathematically.
18 THE COURT: Well, one way or the other. The
19 subordination agreement still applies and you have to pay them.
20 The subordination agreement doesn't apply and you don't have to
21 pay them. And that could be laid out.
22 MR. CURCHACK: Well, let's --
23 THE COURT: So maybe there are --
24 MR. CURCHACK: Let's factor on the next level, which
25 is that Your Honor holds that certain creditors are not

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1 entitled to contract rate interest but only to federal judgment
2 rate interest. With all respect to Mr. Mayer, I would have to
3 reserve the right on behalf of the class of holders to
4 disagree, perhaps, with the issue that the entire class needs
5 to get, if you'll pardon the expression, deemed with the lower
6 interest rate.
7 Similarly, if there are creditors who cross classes,
8 who hold that in different levels, who Your Honor decides, and
9 I want to emphasize I don't believe there's any evidence in the
10 record. I don't believe there will be any evidence in the
11 record to support that, but if there were to be and they were
12 holders of, let's say, the senior subordinated debt who,
13 therefore, only got the lower rate of interest, how would that
14 impact on the subrogation rights of the junior subordinated
15 debentures? Because, don't forget, there's not going to be
16 enough on day one, probably, to pay up -- for the debtor to pay
17 everybody in the senior classes, so the odds are there will be
18 some pay-over from the junior classes up to the senior classes.
19 Well, in the principal recovery of the PIERS, because,
20 as Your Honor has ruled, all the funded debt is effectively
21 pari passu vis-à-vis the debtor, if the interest rates have
22 to -- the interest has to get paid up, until it comes back,
23 well, will we be entitled to subrogate to the contract rate for
24 the senior subordinated debentures even if we have innocent
25 PIERS holders who are now getting the result of a lower

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1 subrogation benefit because of the conduct of someone else in
2 the senior subordinated class? My point, Your Honor, is that
3 it's just impossible to calculate all of those things in any
4 kind of a meaningful way, and there are a lot of --
5 THE COURT: Well, you're going to argue it to me, I
6 know, so shouldn't we have it laid out so everybody knows the
7 mathematical effect of your arguments that all of you are going
8 to make at confirmation?
9 MR. CURCHACK: Well, I think the issue is not really a
10 mathematical one. The issue is the legal issue, which will
11 have to be decided, and it will have the consequences it has.
12 But in order to disclose what might happen is simply
13 hypothetical and speculative at this point and I think would
14 simply add more confusion than light -- shed more confusion
15 than light on the issue, and that's, really, the point I wanted
16 to make on disclosure. Thank you, Your Honor.
18 MR. HODARA: Good morning, Your Honor. Fred Hodara of
19 Akin Gump Strauss Hauer & Feld on behalf of the official
20 committee of unsecured creditors, and I'm here today, Your
21 Honor, as always, with my partner, Robert Johnson, as well as
22 David Stratton from the Pepper Hamilton firm, and, as well,
23 representatives of each of the members of the creditors'
24 committee are in the room today. And I mention that, Your
25 Honor, because the primary thing that I want to say in

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1 connection with what is a disclosure statement hearing is that
2 the creditors' committee believes that this disclosure
3 statement contains adequate disclosure for the purposes of all
4 parties-in-interest in this case. We say this mindful of the
5 additional accrual of interest and expenses that would burden
6 the estate if we are guessing wrong on the confirmability of
7 this plan of reorganization, but we're here today, as a
8 creditors' committee, to tell Your Honor that we do believe
9 strongly in this plan of reorganization. We do believe that
10 this disclosure statement contains adequate information, and we
11 do believe that it is critical for the interests of unsecured
12 creditors and all parties-in-interest in this case that this
13 disclosure statement go out now so that we can stay on track
14 for the hearing in early May on confirmation of this plan.
15 Your Honor, the other point that I want to address
16 that came up in the objections and arguments this morning is
17 the point that Mr. Steinberg made that we should resolve these
18 confirmation issues today. Your Honor, I don't think that the
19 creditors' committee or the debtor, although I can't speak for
20 them, has a problem with that. In fact, I think that there's a
21 bit of hypocrisy in the position that Mr. Steinberg is taking
22 today, because it was a few months ago that I recall all of us
23 being here in this courtroom with a very detailed concise chart
24 prepared by the debtor in which the debtor outlined all of the
25 issues that Your Honor raised in your order with respect to the

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1 prior confirmation hearing. And we, in essence, came before
2 you and said here are the issues. Here are some resolutions
3 that we think resolve each of these points. And Your Honor
4 said are you asking me for an advisory opinion? And we all,
5 sort of, chuckled, because, yes, in essence, we were, and, in
6 essence, I think, if Your Honor felt that Mr. Steinberg, who,
7 and I can't really say that he was opposed to what we were
8 trying to do that day, because there's so many parties and so
9 many positions who can remember anymore?
11 MR. HODARA: But there were certainly a lot of people
12 who were opposed to what we were suggesting you do that day.
13 If Your Honor wishes to do that, I think that we'd be happy to
14 go through the issues. We believe strongly in our positions on
15 these issues.
16 THE COURT: But you know that I cannot give an
17 advisory opinion.
18 MR. HODARA: Yes, Your Honor, and, so, I'll sit down
19 just --
20 THE COURT: As much as I'd like to opine.
21 MR. HODARA: Thank you. So I'll sit down just saying
22 that we do believe it is time for this disclosure statement to
23 go out to the parties for voting. Thank you.
25 UNIDENTIFIED SPEAKER: My I just address my --

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1 THE COURT: No. No, no, no.
2 (Pause)
3 MR. ROZENFELD: Your Honor, Michael Rozenfeld. I'm a
4 pro se litigant. Is it all right --
5 THE COURT: Okay.
6 MR. ROZENFELD: -- if I go ahead now? Thank you.
7 Your Honor, thank you for this opportunity to voice my
8 objections to this disclosure statement. I am Michael
9 Rozenfeld, an owner of preferred stock and debt in Washington
10 Mutual, Incorporated. My argument consists of three parts, and
11 it will take approximately ten minutes.
12 THE COURT: Okay.
13 MR. ROZENFELD: The first issue I'd like to discuss is
14 regarding the debtors' use of coercive and unethical voting
15 procedures to predestine the outcome of this plan voting
16 process by, essentially, forcing shareholders to vote in a way
17 favorable to the debtor. Second is how the disclosure fails to
18 meet the standards for a hypothetical investor to make an
19 informed judgment of the plan that is being presented by the
20 debtor. Third is how the debtor is effectively giving more
21 senior noteholders all due recovery, cheating the lowest
22 impaired class of their rights. I apologize if that's a
23 confirmation issue, but I feel like I need to discuss this.
24 Your Honor, the disclosure statement requires
25 preferred shareholders to determine whether they're going to

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1 grope around third-party releases in an overtly coercive
2 fashion. By forcing preferred shareholders to either grant
3 releases or forever be locked out of any and all distributions
4 they force the shareholders to have no recourse and only hope
5 that the debtor will pay fair value for their releases. There
6 is no predetermined compensation for these releases. If the
7 debtor only distributes a single penny to preferred
8 shareholders they lose all their rights for a pittance. Given
9 the clearly adversarial nature that the debtor has towards its
10 own constituency group, shareholders, such as myself, and the
11 fact that the WMI board has sit unelected, against its own
12 corporate bylaws, for over two years, to this date, it would
13 make no sense for a shareholder to trust for the goodwill of
14 her own company that no longer has any representation from its
15 owners.
16 If a shareholder does vote against their releases
17 their shares will be locked down and unable to be traded, which
18 is, again, inequitable and coercive. Why should their plan
19 shares be locked down if they are not given a release and are
20 not a party to this plan? Additionally, given the fact that it
21 took the debtor over six weeks to unlock shares from the
22 previous plans, the only period after its rejection, it has
23 shown inability to manage the voting process in a timely and
24 judicious manner. By allowing for such an absurd voting
25 process, which is the epitome of a Catch-22, the debtor is

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1 forcing shareholders to abstain completely from the voting
2 process and has fixed the ballot so it looks positive in their
3 favor. I urge the Court to reject this voting procedure, which
4 is clearly biased and unethical, in my opinion.
5 As for the second argument, U.S. Bankruptcy Code
6 requires that a reasonable investor be able to make an informed
7 judgment of the plan using the information provided in the
8 disclosure statement. I have read this disclosure statement
9 numerous, numerous times. It's confusing. I'm an engineer.
10 I'm a professional engineer in the State of Texas. I still
11 find it confusing, but that's besides the point. I find it
12 extremely deficient, due to the fact that it does not provide
13 an accurate portrayal of WMI's current financial condition. It
14 is written in such a manner as to intentionally obfuscate what
15 the plan says. The issue, Your Honor, is credibility, and I'd
16 like to show why this disclosure statement is completely
17 lacking in it.
18 If a person lacks credibility everything they say is
19 suspect and should be verified. The same applies to a company
20 such as WMI, otherwise how can an investor make a decision
21 about what they are saying is true? Effectively, the persons
22 who have conducted these analyses have put so many disclaimers
23 on their work that it is, in my opinion, impossible to
24 understand and not very likely to trust. One of the most
25 troubling portions of this disclosure statement, then, needs to

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1 be addressed as, quote, "Blackstone, WMI's financial advisor,
2 did not independently verify the projections in connection with
3 preparing the estimates of reorganized WMI value and no
4 appraisals of the debtor were sought or obtained in connection
5 with the plan. Blackstone assumed that the projection prepared
6 by the management of the debtors were reasonably prepared in
7 good faith and on a basis reflecting the debtors' most
8 accurately currently available estimates and judgments as to
9 the future operating and financial performance of reorganized
10 debtor. Blackstone's estimated organized WMI value ranges
11 assumes the debtor will achieve their projections in all
12 material aspects. Moreover, Blackstone assumed and relied on
13 the accuracy and completeness of all other financial and other
14 information furnished to it by the debtor."
15 Based on this statement and other information there
16 has never been an independent investigation, free of WMI's
17 influence, of the worth of this company. Given that accurate
18 and auditable financial information is the most important
19 information an investor can have in making a decision about an
20 investment it amazes me that Blackstone has not done any sort
21 of individual verifiable analysis. Even more remarkably, the
22 debtor even admits in a recent filing, docket number 6805,
23 "that it did not employ or retain any accounting or auditing
24 firms". The entire valuation of this company has been based on
25 opinions rendered by attorneys who have no financial auditing

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1 accounting qualifications, their board chairs by an unelected
2 chairman, who doesn't even know the simple fact of how many
3 members are on his own board. The monthly operating report, he
4 even states, is not purported to present the financial
5 statements in accordance with generally accepted accounting
6 principles and was made with the information and work product
7 made available by JPMorgan, who is an adversary party in this
8 bankruptcy.
9 Finally, the debtor took it upon itself to liquidate
10 tens of millions of dollars of subsidiary company investments,
11 which they finally admitted to in the recent objection filings,
12 without any sort of Court approval or notice. How can WMI know
13 what the value of their subsidiaries are if they haven't even
14 hired the appropriate accounting staff to determine it? What
15 right do they have to make such large financial decisions with
16 this Court's approval?
17 Your Honor, you took it upon yourself to determine the
18 settlement is fair and reasonable. Although it is not
19 something I agree with I can respect your decision. As a U.S.
20 bankruptcy judge you've seen thousands upon thousands of hours
21 of bankruptcy proceedings and are far more knowledgeable about
22 the subject than I will ever pretend to be. Please consider
23 for a moment the debtor is presenting a valuation of a 5
24 billion dollar net operating loss being worth between 10 to 25
25 million dollars, less than 1.5 percent on the dollar given a 35

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1 percent tax rate. This fact, alone, should make it clear the
2 debtor lacks any sort of good faith and requires an external
3 audit, independent of its influence, into its asset.
4 As a Houstonian who lived through the Enron debacle I
5 can tell you where there is smoke, there is fire, and there is,
6 most definitely, smoke here. I smell it, and so do thousands
7 of other shareholders who have written, e-mailed and called
8 this Court, the U.S. Trustee's Office, and the SEC.
9 Finally, given the Court's ruling that all members of
10 the junior subordinated debt should have access to the rights
11 offering, debtors decided to remove it and give the company to
12 the more senior noteholders, who are already getting paid in
13 full for the value of their notes. I, again, apologize if this
14 is a confirmation objection.
15 This is clearly an attempt to prevent small retail
16 shareholders like myself from participating in the ownership of
17 the reorganized debtor. The senior noteholders receive an
18 additional windfall profit, as the reorganized debtor is
19 clearly undervalued in this plan, and should not be given the
20 option to receive shares in the new company.
21 Quote from the general unsecured creditors' ballot,
22 page 7. "The modified plan provides each holder of an allowed
23 general security to receive reorganized company stock in light
24 of creditor cash or cash in Liquidating Trust". As the junior
25 unsubordinated debt is the lowest impaired class they should

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1 have the right to any potential upside in the reorganized
2 debtor and be given the rights to have their claims converted
3 into a new common stock.
4 As an excuse to cancel the rights offering the debtor
5 has claimed they cannot abide by SEC regulation. A company
6 valued at over 100 million dollars should not be making excuses
7 about following ethical accounting standards and listing
8 requirements made by the U.S. government. In fact, a company
9 that has that type of a market cap can be listed on the AMEX
10 exchange, as the minimum market cap required is only seventy-
11 five million dollars. If it is such a burden to abide by SEC
12 regulations I'm sure there's a securities attorney that can be
13 hired and paid for by the estate.
14 Your Honor, the debtors' actions throughout this case
15 have clearly demonstrated the loss of any credibility they
16 might have once had. How can an investor trust anything they
17 now put forth without an independent auditable third-party
18 analysis? It is clear to me long ago that Mr. Rosen drew a
19 line in the sand and decided that creditors get everything and
20 equity gets nothing. How else could he tell potential equity
21 committee members in January, 2010 that equity would receive
22 nothing?
23 In conclusion, it all comes down to this, Your Honor.
24 If you were a hypothetical investor would you trust a company
25 that calls shareholders vultures and accuses them of trying to

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1 milk money out of JPMorgan? Would you trust someone who says
2 that you will not get any recovery months before even finishing
3 negotiations and doing any sort of actual financial analysis?
4 Would you trust someone that tells you a five billion dollar
5 net operating loss, five billion dollars, a huge, astronomical
6 sum of money -- I can't even imagine how much money that -- is
7 worth absolutely nothing. I know I wouldn't. I've come here
8 to explain my upset with this, and I apologize if I'm a little
9 bit emotional about this.
10 I believe WMI has lost any and all credibility.
11 They're not to be trusted in regards to anything they've
12 written in this disclosure statement when they haven't stated
13 all the necessary facts and presented misleading financial
14 analysis. I hope the Court will hold them accountable for this
15 information and will, thus, deny the motion.
16 Thank you, again, for this opportunity to speak.
18 MR. JARVIS: I think just barely good morning, Your
19 Honor. Geoff Jarvis, Grant & Eisenhofer, for the WMB
20 noteholders. I will be brief. A number of people have come up
21 and objected to the disclosure plan on grounds of interest rate
22 things, and I think they have eloquently put forth, Your Honor,
23 why the issue of the interest rate and you have interest being
24 paid to the more senior creditors is something that is relevant
25 for disclosure. I stand before you only to briefly say that

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1 there's a slight variation on that theme that my client has
2 raised, and that is not, necessarily, the question of the
3 interest rate but the question of who receives the interest
4 first. In other words, does it go to -- does it wrap around
5 right after the bottom of what, I guess, is Class 16 or does it
6 go to all unsecured creditors? My guys, as Your Honor is well
7 aware, were unsecured, but fully subordinated under Section
8 510(b), creditors of WMI, and Your Honor in the opinion
9 specifically said interest gets paid when all unsecured -- only
10 when all unsecured noteholders get paid first. On this
11 unsecured creditors get paid first. My guys are unsecured
12 creditors. They're not equity. There's a legion of case law
13 out there indicating that the only time interest is to be paid
14 under 726(a)(5) is when the remaining money is going to go to
15 the debtor. On this case their plan puts forth that it should
16 go back up to some of the creditors before it gets down to all
17 unsecured creditors and then to the debtor. The issue is,
18 obviously, one for plan confirmation on the merits --
19 THE COURT: Right.
20 MR. JARVIS: But is an important one because of the
21 statements made by Aurelius and others that the amount of
22 interest that they had received is an absolutely sine qua non
23 of their agreement to the plan. If Your Honor were to decide
24 as one alternative, perhaps, that said Class 18 should receive
25 interest before, there will be less interest up. Therefore, it

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1 is an alternative, just as other alternatives have been put
2 forth, Your Honor, that should be expressed in a disclosure
3 plan, because if that money -- if Your Honor says that's an
4 open issue they should explain that it -- there's a possibility
5 that some of that interest money goes to 18, then that changes
6 the calculus upon high, and, as a result, just like the amount,
7 whether it's contract or federal rate, whether it goes to this
8 class or doesn't, is something that is an option that should be
9 expressed in the disclosure plan.
10 THE COURT: Okay.
11 MR. JARVIS: And that's all I have. And I still made
12 it in the morning, I think.
14 MR. BERG: Thank you, Your Honor. James Berg, equity
15 shareholder. Allow me a moment. I have a question, Your
16 Honor. I have filed two letters with this court and the
17 objection. I included those letters by reference in my
18 objection and the debtors did not address it. A fair amount of
19 my presentation today involves backup material, foundational
20 material to the endpoint. Would you like me --
21 THE COURT: Well, tell me what your issues are before
22 I tell you whether I'm going to consider any documents.
23 MR. BERG: Okay. Let me start with my -- let me
24 begin, if I could, with my presentation. Good afternoon, Your
25 Honor. I am James Berg, a preferred and common equity holder

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1 of WMI. I have filed an objection at docket number 6876 to the
2 supplemental disclosure statement which includes, by reference,
3 my previous letters to this Court, docket numbers 5864 and
4 6698. Thank you for this opportunity to address my concerns.
5 No doubt the debtors will wish to object that part of
6 my presentation here today is procedurally improper, as it is,
7 in their view, unrelated to the supplemental disclosure
8 statement. I would like to, again, state that it's
9 foundational material to an issue that I believe Your Honor
10 will find --
11 THE COURT: Well, tell me what it is.
12 MR. BERG: Okay.
13 THE COURT: What is the issue?
14 MR. BERG: Let me go ahead and make the point then.
15 Your Honor, the debtors have filed, in spring of 2009, a suit
16 against the FDIC in both its corporate and receivership
17 capacities. These are two separate legally distinct entities.
18 They're not one, as they are often treated, but two individual
19 separate entities. A global settlement agreement purports to
20 release the FDIC based on releasing the claims the FDIC holds
21 against the debtors. However, the owner of those claims
22 against the debtors is solely the FDIC-Receiver. FDIC
23 Corporate, whom we have valid claims against, and that is what
24 my foundational material is for, is providing no consideration
25 whatsoever in this case.

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1 Your Honor has found --
2 Many of the actions responsible for the loss of value
3 at WMB appear to have been committed before the receivership
4 came into being and, so, by default the FDIC Corporate must
5 have been responsible for those losses. It was the FDIC
6 Corporate who negotiated the terms of the P&A agreement,
7 deciding to conduct a whole bank transaction. It is obvious to
8 me that barring some other systemic reason the FDIC should have
9 broken WMB up into smaller regional pieces. With more than a
10 handful of banks who could qualify for the bidding process the
11 FDIC could have fulfilled their statutorily imposed duty under
12 the Federal Deposit Insurance Act to maximize the net present
13 value of WMB's estate. Despite all this FDIC Corporate is one
14 of the entities being proposed to be released under the
15 debtors' proposed revised modified sixth amended plan of
16 reorganization, and they are to be released despite the fact
17 that FDIC Corporate appears to be providing no consideration at
18 all to WMI. Upon information and belief all of the claims
19 being given up as consideration by the FDIC for releases are
20 owned by FDIC-Receiver for the benefit of WMB's receivership.
21 MR. ROSEN: May I ask what you're reading from?
22 MR. BERG: It is my statement that I was preparing --
23 MR. ROSEN: Oh, I thought you were reading from the
24 judge's decision.
25 MR. BERG: No.

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1 MR. ROSEN: I apologize.
2 MR. BERG: No. It is a statement that I had prepared.
3 It is, actually, the conclusions. I am completely lacking the
4 foundational material up to that point which they're drawn
5 upon.
6 THE COURT: Okay.
7 MR. BERG: I just felt it was such an important
8 issue --
9 THE COURT: Okay.
10 MR. BERG: -- that I needed to jump and cut to the
11 chase.
13 MR. BERG: My intent was --
14 THE COURT: I understand your issue then. Okay.
15 MR. BERG: My intent was to carve out the -- the
16 letters I had written to this court, no one, basically, they've
17 been completely ignored. To my knowledge, no one has responded
18 in any way, shape or form.
19 THE COURT: Well, you can't send letters to the Court.
20 I don't read letters. If they're docketed you --
21 MR. BERG: Yes, they are docketed, Your Honor.
22 THE COURT: They have to be. You have to raise an
23 objection or file a motion. Letters, even if docketed, are not
24 considered in the -- except in the context of something like
25 this. If it raises an issue --

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1 MR. BERG: Okay.
2 THE COURT: -- you've got to raise it.
3 MR. BERG: Well, then, allow me to finish this. This
4 single issue is dispositive, as it contains a fatal flaw which
5 renders the latest proposed POR unconfirmable. The law of the
6 case works in equity's favor, since Your Honor has already
7 determined that parties receiving no consideration are
8 providing no release. It certainly must also extend to the
9 debtors' provision of a release to FDIC Corporate, as they are
10 providing no consideration. They cannot have provided
11 consideration, because doing so would require public
12 disclosure --
13 THE COURT: All right.
14 MR. BERG: -- due to the nature of the FDIC Corporate's
15 citizenship.
16 THE COURT: I understand your argument. Okay? You
17 had another issue?
18 MR. BERG: The other issues, I have extensive
19 documentation about a project code named Project Fillmore.
20 Basically, a plan to stream 20 billion dollars in -- 20.75
21 billion dollars in net assets to WMB, the first phase of which
22 was scheduled to have happened September 30 of 2008. It was
23 awaiting OTS approval, and that was addressed in my first
24 letter, partially, and set -- augmented in my second letter.
25 The remaining issues --

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1 THE COURT: What is the issue with respect to that?
2 MR. BERG: The issue goes entirely to the validity of
3 claims against the FDIC.
4 THE COURT: Corporate?
5 MR. BERG: Yes.
6 THE COURT: Okay.
7 MR. BERG: FDIC Corporate. And I had prepared a
8 statement and had printed copies, but I've made some minor
9 modifications. I can -- well, perhaps -- perhaps it would be
10 best if I --
11 THE COURT: Well, I don't want to get into --
12 MR. BERG: Okay.
13 THE COURT: -- the merits of your claim against FDIC
14 Corporate.
15 MR. BERG: Right.
16 THE COURT: But I understand your arguments.
17 MR. BERG: I understand. You have no jurisdiction
18 over them yourself.
19 THE COURT: And I understand your argument is that the
20 releases should not be of Corporate since they gave no --
21 MR. BERG: Yes, Your Honor.
22 THE COURT: -- consideration.
23 MR. BERG: That is correct.
25 MR. BERG: My argument is that --

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1 THE COURT: Okay.
2 MR. BERG: -- given the FDIC-Receiver and Corporate are
3 separate legally distinct entities and --
5 MR. BERG: -- the FDIC Corporate is not providing any
6 consideration, that they should not be provided any release.
7 THE COURT: Okay.
8 MR. BERG: As a result, that litigation should not be
9 released under the global settlement agreement. The FDIC-
10 Receiver, if they're willing to strike a separate deal under
11 the global settlement agreement that's entirely up to them, I
12 would imagine, but FDIC Corporate --
13 THE COURT: Okay.
14 MR. BERG: -- absent any consideration the debtors
15 have --
16 THE COURT: I understand your argument.
17 MR. BERG: -- stated repeatedly that those are valid
18 claims --
19 THE COURT: I understand your argument.
20 MR. BERG: -- and they should be pursued, in my
21 opinion.
22 THE COURT: All right. Any other issue?
23 MR. BERG: I had raised in my second letter a number
24 of litigation areas where I felt that your opinion had not
25 addressed. They were also not addressed in the examiner's

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1 motion, and I can briefly cover what those were. If Your Honor
2 isn't interested in seeing the --
3 THE COURT: Is this relating to the releases of FDIC
4 or JPMorgan?
5 MR. BERG: It is related to the claims we have against
6 FDIC and JPMorgan as well, but, presumably -- presumably
7 JPMorgan's will be settled under the global settlement
8 agreement. The areas that I had raised were intellectual
9 property. Your Honor found that they had a very -- presumably,
10 a low value, and that they had not been
11 THE COURT: Well, you understand I'm not going to re-
12 raise any of those issues. You can't raise those issues again.
13 MR. BERG: Yes, but there are a number of issues
14 that -- intellectual property is the only one that -- I believe
15 that -- well, that and business tort claims -- that you had
16 addressed. There were counterclaims against JPMorgan.
17 The -- Washington Mutual's tenth counterclaim against JPMorgan
18 requests the finding that the entire P&A transaction be deemed
19 a fraudulent transfer and so avoided in whole or in part. Your
20 Honor did not even address this in your finding. WMI states
21 that the P&A transaction is avoidable as a fraudulent transfer,
22 that WMI was an actual creditor of WMB, that WMB was rendered
23 insolvent by the P&A transaction, that WMB did not receive
24 reasonably equivalent value for the assets from JPMorgan, that
25 JPMorgan Chase did not acquire WMB's assets in good faith.

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1 There can be little doubt that both WMI and WMB were
2 rendered insolvent by the P&A transaction. The WMB
3 receivership has just 1.888 billion dollars in assets and
4 approximately 14 billion dollars due to the noteholders of WMB.
5 Similarly, WMI presently has only 900 million dollars of
6 undisputed assets, with over 7 billion dollars due its own
7 creditors, an additional 7 and a half billion in liquidation
8 preference due to the preferred shareholders.
9 The debtors also have tried to argue that the Series K
10 preferred are more debt-like than Series R preferred stock.
11 This is incorrect, in my view, because each series is due their
12 respective liquidation preference due to the bankruptcy default
13 event.
14 Given what we now know of Project West we can also
15 discount the possibility that JPM purchased WMB's assets in
16 good faith. While JPM is likely to argue vociferously to the
17 contrary, it is clear that most of the elements needed to
18 establish the P&A transaction as a fraudulent transfer are
19 already met. The only element remaining is a complete and true
20 valuation of WMB's assets at the time of seizure. JPM has
21 tried to stymie such a valuation by failing to provide an
22 inventory of the assets it received.
23 Even so, it is still possible to piece together a
24 rough valuation based upon JPM's SEC filings.
25 THE COURT: Again, I'm not going to let you re-

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1 litigate that issue. I think the issue of the settlement with
2 JPMC was already litigated.
3 MR. BERG: All right, Your Honor. Let me make sure
4 I've covered every other -- anything that might be interpreted
5 otherwise. Just a moment. The other area was a discussion of
6 claims against the FDIC in Judge Collyer's court. I understand
7 you do not have jurisdiction over that area, so I'm assuming
8 you would want me to avoid that area as well.
9 THE COURT: Yes.
10 MR. BERG: Thank you, Your Honor. I have some
11 documentation basically documenting the spat between the FDIC
12 and the OTS regulators that, again, probably falls under the
13 same category.
14 THE COURT: Okay.
15 MR. BERG: All right. I had a number of -- the
16 debtors did address some of my objections, and, I suppose,
17 those are all fair game. Wells conflict, well, I believe that
18 early in full disclosure of the exact contents of the -- while
19 JPMorgan legal services agreement included in Exhibit 8 may
20 have changed this Court's -- actually, you don't have the
21 exhibit. Sorry, Your Honor. May I approach your bench?
22 THE COURT: Well, but if -- I think I did also address
23 the conflict of interest argument, so --
24 MR. BERG: Yes. Yes.
25 THE COURT: -- again, I'll not --

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1 MR. BERG: I understand, Your Honor.
2 THE COURT: -- incline to re-litigate that.
3 MR. BERG: Okay. I do feel it is important, Project
4 Fillmore, if I could go into that. It is very critical to
5 understanding what was going on with WMB.
6 THE COURT: I don't want to go into the details of
7 your claims.
8 MR. BERG: Okay.
9 THE COURT: That were either settled by the global
10 settlement or you contend shouldn't be settled because they are
11 against Corporate.
12 MR. BERG: Yes. These are probably all primarily
13 background material for, I mean, these could be asserted
14 against FDIC-Receiver as well as Corporate, but the
15 receivership assets, obviously, are much -- Judge Collyer kept
16 the FDIC Corporate in the lawsuit. She declined to dismiss the
17 FDIC Corporate, and, in fact, the lawsuit against the FDIC
18 survived a motion to dismiss as well. But she declined to
19 dismiss FDIC Corporate, because she was concerned that the
20 FDIC-Receiver had only 1.888 billion dollars in assets and
21 those would not be adequate to --
22 THE COURT: Okay.
23 MR. BERG: -- cover any reasonable claims. But this is
24 foundational material which could be used to argue against
25 either FDIC-Receiver or Corporate.

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1 THE COURT: All right. We're not dealing with the
2 substance of the claims.
3 MR. BERG: Sure.
4 THE COURT: We're dealing with disclosure today.
5 MR. BERG: Thank you, Your Honor. Do you have any --
6 I think it -- I basically gutted a fair amount of what I
7 intended to cover, but I've hit the major points, obviously,
8 that I believe it was necessary to cover, and that is probably
9 my primary goal today. Are there any questions that you have?
10 THE COURT: No. Thank you.
11 MR. BERG: Thank you.
12 MR. MASON: Good afternoon, Your Honor. My name is
13 Ben Mason. I'm here to represent -- I'm an equity shareholder.
14 I'm here to represent myself, Tom White, Joe Shorp, and,
15 basically, what the debtors refer to as Form Letter C. I'm
16 here from Texas.
17 And, so, we had, really, three main objections that I
18 wanted to discuss about the disclosure statement, and the first
19 one, and I will -- I promise you I'm not going to go through
20 all three of those, but the first one had to do with in the
21 original minutes schedule of assets and liabilities filed over
22 two years ago there's no reference to any holding company
23 ownership of any aircraft. But, however, in the November, 2000
24 liability statement of Alvarez & Marsal there are multiple
25 references to a B 767 sale, okay? And, so, this is something

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1 that, of course, you read the billings, you go through, and you
2 say well, I don't see this anywhere as an asset. So I filed an
3 objection, one of my three, and the response from the debtor
4 was the aircraft reference by Mr. Mason was sold by a non-
5 debtor subsidiary, WM Citation Holdings, LLC, thus the sale of
6 such assets is not subject to bankruptcy court approval, and,
7 additionally, all material related to the sales process were
8 communicated to the creditors' committee as professionals,
9 okay?
10 Of course, my first concern is that the creditors'
11 committee has access to information regarding asset ownership
12 that we don't have, but, also, may I ask, is that accurate that
13 if it's owned through WM Citation Holdings that they don't have
14 to disclose any asset sales or values?
15 THE COURT: Well, I normally don't give legal
16 opinions, but I will tell you that I do not have jurisdiction
17 over the sale of assets of non-debtors.
18 MR. MASON: Okay. Okay. Well, that's important.
19 Thank you, Your Honor, for that. That's important, because
20 for, you know, for example, WM Citation Holdings, there are
21 multiple subsidiaries. My second objection had to do with --
22 but prior to 2008 there were 133 subsidiaries listed, both
23 indirect and indirect and not listed as such within, you know,
24 as which were which within the corporate filings of Washington
25 Mutual. Afterwards -- I said in my filing that there were ten,

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1 and then, however, their reference is to thirty-three
2 subsidiaries within the -- within -- the references within --
3 by Alvarez & Marsal within their filings. And, so, the log
4 books show the debtors' reply. They basically stated that
5 there were -- that I was incorrect on my date, i.e. they said
6 it was 2008 on the -- on the -- the thirty-three. I said 2010.
7 We were both wrong, but I didn't bill the estate for it, so I
8 guess we'll call it a draw. It was 2009. And, so, but it did,
9 however, raise some rather big questions regarding we have one
10 subsidiary around which the company is being restructured. We
11 have no idea what these other thirty-two are worth. And, then,
12 there's -- and then, additionally, within the response the
13 debtors stated that there are fifteen subsidiaries and that the
14 value is accounted for. And, so, I went through the -- then,
15 at this point, so, I mean, with the disclosure statement, and
16 just, kind of, just, kind of, the laundry list. You know, book
17 value is not, necessarily, a really good way of looking at what
18 a company is worth. Obviously it has -- they can greatly
19 overestimate or underestimate what a company is worth. It's
20 somewhat, it does give you a sense of what something is worth
21 from time to time.
22 So one of them is H.S. Loan Corporation. Now, H.S.
23 Loan Corporation in '05 lent seventy-three million dollars to
24 WMB, and that seventy-three million dollar loan is going to be
25 extinguished in the global settlement, and I'm not objecting to

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1 that, obviously. What I'm objecting to is that for once --
2 small companies typically don't get seventy-three million
3 dollar loans. And we don't really have any idea what the
4 assets of H.S. Loan Corporation were. Now, I feel that this
5 asset may have some value, because the stock of H.S. Loan
6 Corporation was to be transferred to JPMorgan Chase in the very
7 first disclosure statement of the global settlement. But it's
8 not listed as a transferred asset any longer within the current
9 disclosure statement.
10 Now, this is troubling, because it suggests that DS
11 has been a, you know, we get upset. We yell conflict of
12 interest, and they're trying to aim at the H's. But this, kind
13 of, suggests that not only were you trying to aim at the H's,
14 but we also have, like, a shifting -- we have a shifting bow
15 and arrow, that we move the bow and arrow around as well. And,
16 so, more importantly, if this is something that was important
17 enough to be mentioned directly, the only subsidiary reference
18 within the original global settlement, but now it's gone, what
19 value does it have? It had to have some value to someone, but
20 it's not a -- it's not really listed anywhere. So where is it
21 now? It states within the loan agreement this loan which is to
22 be forgiven by H.S., by and between WMB, as borrower and as
23 lender is now, basically, a successor is under WM Citation
24 Holdings. So you have this other asset that's now been slid --
25 and now slides under this non-debtor subsidiary, okay?

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1 Now, we have Great Western Service Corporation Two,
2 Ahmanson Residential Developments and ACD2. I don't know what
3 these do. I wish I could figure that out, but, unfortunately,
4 I couldn't. I know that they had -- they had book values of
5 109 million, 148 million and 103 million that are listed on the
6 books. Once again, so, I say well, I can't find them. Where
7 are they? So I look -- then I look around and I see the book
8 value, and then here we are. Since the petition date no
9 response from the debtors, they stated. ACD2, Great Western
10 Service and Ahmanson Residential have been merged into WM
11 Citation Holdings, once again, this nondebtor subsidiary that
12 we can't have any information on, okay? Now, it's to be sent
13 into the Liquidating Trust, but the problem is that Liquidating
14 Trust is listed as having zero to one percent value. If we
15 know that even one thing, if a jet, a typical B 767 new is
16 worth 140 to 180 million dollars, if it is, you know, used it
17 can be under 100. I can't find any for under sixty-five or
18 seventy million. But if they knew there was even this one
19 asset then that's -- that's deliberately misstated a disclosure
20 statement value of, like, you'll get a Liquidating Trust value
21 of zero to one. Well, if you know anything's in there it's not
22 zero, and, so, but that's -- the only real percent -- that's
23 the only real recovery that we know.
24 Now, the, kind of, going forward, I'm going to -- I
25 could also, just briefly, because there's just so much there.

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1 I mean, thirty-three subsidiaries is -- it's -- that's a lot.
2 And now we're down to fifteen. But, also, you'll notice that
3 Ahmanson Developments has merged and WI Renier (ph.), which
4 I'm -- according to their first stuff, I'm going to assume that
5 they list that as, also, as a nondebtor subsidiary, okay, and,
6 then, also Ahmanson Obligation will be listed to the
7 nondebtor -- essentially, all these things. And then when I
8 requested value for these they stated that these all are going
9 to be included within the 7.4 billion estimate of net proceeds.
10 Now, within the original, within -- and very often
11 within the references they'll say go ahead and check the 8-Ks,
12 go ahead and check the SOFAs. We do that. We read them a lot.
13 I mean, we're a small community across the United States of
14 very, very upset people that have love/hate relationships with
15 various members of our constituency and the legal firms
16 involved with this case. But we, as we are talking through
17 these we, kind of, say, like, within the MORs you'll see 1.7
18 billion listed as the value of investments and subsidiaries.
19 Within the disclosure statement that number is now, mystically,
20 seventy-four million dollars. So is that seventy-four million
21 dollars a value of the money that's in the subsidiaries? Is
22 that now beyond our understanding? Has that, now, somehow,
23 gone away? I don't know. If I were to suddenly lose 1.7
24 billion in value, in book value, I would probably have a fairly
25 massive tax asset from those. It's worth nothing, so, but now,

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1 if I - if I have a 1.8 billion investment in a company, those
2 go away, I would have a tax asset that somewhat approximates
3 about a 1.8 billion dollars. That's my understanding. And I
4 understand -- I went to a state school. I'm from the south.
5 I'm a schoolteacher. Like, I have to file stuff, you know, but
6 let's be honest. I use the EZ form, you know? Until I got
7 married I did. And, so, that's -- but that -- these are, kind
8 of, like, the big points we have no information on.
9 Now, 1031 Exchange is really interesting for a number
10 of issues, right? First of all, 1031 Exchange is, and I
11 learned this also. I love, I mean, I love the Internet. It's
12 incredible. You -- the 1031 Exchange, two people have
13 properties. They would like to not pay capital gains on those
14 properties. They set up an exchange and they, essentially,
15 say, it's trade-like properties. Now, the only information
16 that's been given to us about 1031 Exchange is this. "WaMu
17 1031 Exchange was formed as a combination of three predecessor
18 1031 Exchange companies and processed 15,000 exchanges
19 annually, with each exchange averaging 300 to 400,000 in size".
20 Okay. It doesn't say what year. It doesn't say when. It
21 could be ten years ago. It could be this last year. I'm going
22 to assume that, since I don't have any yearly information, I'm
23 going to assume last year, and they can correct me if they'd
24 like.
25 "1031 Exchange currently has no employees or offices

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1 and is undergoing a wind-down process much like WMMRC." We're
2 going to assume that they're not going to continue to do
3 business, and I have difficulty with that whole, sort of,
4 undertaking. And the WaMu 1031 Exchange is involved in two
5 pending litigations. Well, I'm pretty sure they're involved in
6 one right now. We have a really big one. I don't know what
7 the other one is, but we have no range of expected losses or
8 damages, et cetera.
9 Now, a qualified institutional -- a qualified
10 institution for 1031s makes about 800 dollars per transaction.
11 That works out to about twelve million in revenue, but, see,
12 and 1031 Exchange --
13 THE COURT: Okay.
14 MR. MASON: I don't have to go into all that.
15 THE COURT: You don't have to go into all that.
16 MR. MASON: Okay. That's fine.
17 THE COURT: Is this something you think we should have
18 information about?
19 MR. MASON: You should --
20 THE COURT: In a word.
21 MR. MASON: -- have some information on that. Well,
22 you know, and that was -- and I was really -- I thought I
23 sounded really impressive when I explained that when I was
24 practicing, and, so -- but it's okay. I'll be honest with you.
25 That's okay. I'm a legal --

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1 THE COURT: Well, I understood what you were saying,
2 so it works.
3 MR. MASON: And the very last thing about 1031 is that
4 there were at least two interested buyers. And they were
5 listed within the Alvarez & Marsal as of 9/23/2009. They were
6 discussing with these buyers back and forth. And then, for
7 example, 9/23/2009, 1031 Exchange buyer called with references.
8 I can look at the billings and I can see this. They chose not
9 to sell it. But then it would still give us no value. So if
10 it had not value -- if there's no value then why didn't they
11 sell it for whatever it is anybody would want to offer. Okay?
12 Now, and once again, they listed book values and they
13 say that we're going to list these within here. And then I
14 look and I can't really figure that out. And I read a lot of
15 these things. But I read a bunch of them, I listen to people.
16 Very quickly; Marion -- there were two. WMMRC was one
17 insurance company, Marion was the other. Disclosure of Marion
18 is, it had a book value of about sixty-seven million, but that
19 doesn't really tell us too much, considering that 1031 Exchange
20 was probably making well over twenty million a year, and it
21 only had a book value of five. And but it says, "By the
22 beginning of June 2010, Marion had successfully commuted all
23 reinsurance agreements with the four companies, including its
24 reinsurance agreement with Assurant," the four companies being
25 the people that they essentially farmed out, got rid of

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1 these -- all of these, essentially, reinsurance contracts.
2 Now, I like words, because that's why I'm a school
3 teacher. I like words. We talk about things -- commuted means
4 to substitute one thing for another, exchange. Now, we have no
5 idea what that idea what that exchange. We have no exchange
6 (sic) what the value was. You don't essentially just give over
7 reinsurance contracts without some sort of value to be given in
8 return. And then so another fellow shareholder, Tom White,
9 requested that, a friend of mine. And the response was from
10 the debtors -- this is going to shock everybody -- specifically
11 Marion was merged into Citation Merger Subs LLC a Vermont LLC,
12 which was then merged into WM Citation Holdings, a Delaware LLC
13 wholly-owned subsidiary of WMI.
14 Now, what nondebtor subsidiary, how that relates to
15 wholly-owned subsidiary, I have no idea. I have no idea if
16 these are the same or different. This is above my pay grade.
17 And so I don't really know.
18 And then kind of moving on very quickly. There's a
19 couple of tax issues. Tax refunds aren't fully completed. We
20 had like a 5.8. They said that there's still 300- to 600
21 million that's unresolved because there's some conflict. They
22 still expect this recovery. I wanted to make sure that this is
23 listed within the final disclosure statement, because that's a
24 fairly big number. 120 million is almost what they estimated
25 the entire restructured debtor to be worth.

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1 And then capital contributions. By giving this money
2 to JPMorgan Chase -- I know this sounds like a plan objection,
3 but it's actually not, Your Honor, if you'll just indulge me
4 for a moment. When we first -- when shareholders were aghast
5 and first found out that money was going to be actually be
6 given to JPMorgan within these proceedings, we were like, that
7 can't be legal. They accepted TARP, they can't receive any of
8 this carryback funds. And so within the disclosure statement
9 it states that there's this first refund and there's a second
10 refund.
11 Well, it's contrary to the law. There's actually one
12 refund. It's -- the carryback you had to do one refund. It's
13 an irrevocable decision. Everything gets moved into one big
14 box. And that's stated within the law. And if Your Honor
15 would indulge me, or is interested in that, I can file that
16 with the court and I can black line everything that states
17 that.
18 So we were like, oh, my gosh, what are we going to do?
19 How do we stop this? This is illegal. Well, it's interesting.
20 Within the disclosure statement, this is how they handle it.
21 It's very clever. Pursuant to Section 2.4 of this agreement,
22 et cetera, et cetera, et cetera, okay, the money that goes to
23 the excess of two billion dollars, it goes to JPMorgan Chase,
24 is going to be listed as a capital contribution to Washington
25 Mutual Bank -- okay -- from WMI to WMB, and then is applicable

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1 as a transfer from WMB to JPMC pursuant to the terms and
2 conditions of the P&A.
3 Not even dealing with the legality of trying to back
4 door money to JPMorgan Chase that they couldn't ever really
5 actually claim directly, without even addressing that -- that's
6 a confirmation issue if someone wants to take that up. This is
7 a long flight for me and I'm far from the south, but I may or
8 may not come back. But the sort of second issue is that
9 whenever you make a capital contribution and that -- to a
10 failed subsidiary, once again, that's a tax benefit. That
11 renders -- I don't know if we can -- it says here that it's "as
12 conditions of P&A". So we're going to assume that this is a
13 P&A deal; it's going to be backdated to 2008. And so now
14 there's an additional two-plus billion dollars that goes away.
15 But we have no idea what the tax -- how this works out from a
16 tax perspective, because this could be an additional two-plus
17 billion dollar NOL. I don't know. And this isn't disclosed.
18 If they would prefer to make it basically a payment, then it
19 would be clear to me. But then, again, that would violate law.
20 And so -- and then in closing, the last little bit is
21 about WMMRC. And you know, the horrible thing about -- I guess
22 the good thing about a case that goes two and a half years is
23 you get lots of filings and things to go through and read what
24 people said. The bad thing is, it lasts two and a half years.
25 This is like -- this is like -- these are not normal years.

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1 These are aging us faster than normal years. But in WMMRC, the
2 reinsurance business -- essentially everyone knows it's PMI.
3 Essentially, that's what a reinsurance business is. It has a
4 very controlled risk metric. Essentially, you know what your
5 range of risk and what you're going to lose, et cetera.
6 Now, we looked at the -- at how much money WMMRC made.
7 And it was -- 2005 is the last data that you actually get, it
8 was seventy-seven million dollars. But these are ten-year --
9 these are running ten years. So that's -- so unless there is a
10 catastrophic drop in the value of these PMI payments, that
11 would be kind of close to what it was.
12 Now, going back to what they -- the debtors state -- I
13 said "they", I'm sorry; I need to be precise -- the debtors
14 have disclosed that the Blackstone, et cetera, they say -- they
15 describe the annual data from starting in 2009, to say there
16 are 471 million in assets, just over 4 million in receivables,
17 and just under 4.5 million in interest. But then we show
18 December data. Okay. So we don't know, was that 8 million
19 times 12 months? Was that 96 million that was brought in?
20 Because the majority of reinsurance money is actually typically
21 from the interest that's on these assets.
22 And so we don’t really know if this is a 96 million,
23 if it's a 30 million or 100 million dollar a year in premium
24 stock company. And so we can't really know -- we have no idea
25 what the real value of WMMRC is. And then of course, these

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1 things are, of course, always kind of fascinating to me. But
2 JP -- but they were discussing -- I don't want to lose my
3 momentum, but I have to actually find this one little notation.
4 Essentially, back in December of 2008, the debtors filed to
5 take a look -- they said that we need to put seventeen million
6 back -- they came to court, said we need to put seventeen
7 million in one of the trusts, otherwise we'll go below an
8 expected number, and we need to preserve value.
9 Now, this is really -- this is important. Because
10 essentially, when they stated that, they knew -- we knew what
11 the value of the trusts were. It was 390 million dollars were
12 in the trust at that time. Okay? And they stated, we'd like
13 to preserve -- as their value accumulates -- their estimated
14 value -- not the number that was in the trust -- we knew what
15 was in the trust -- but their estimated value was 330 to 395
16 million dollars, which in that time assumes that the value of
17 the company -- value of WMMRC to Washington Mutual was between
18 85 percent and 102 percent of what was actually sitting in the
19 trust.
20 Now, here we are, December of 2009. They state the
21 number's now 490 million. We're close now -- we're getting
22 close to -- I'm sorry, was it 490? Let me double check. No,
23 460 million, sorry. December 31, 2009, the value of the six
24 remaining trust assets was estimated to be 460 million. But
25 due to the nature -- like, but essentially, now, following

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1 their numbers, we're now well over 500 million dollars. And
2 using their valuation numbers that they offered up to the Court
3 as a reason why you should allow them to take money and put it
4 into these trusts, that was -- we're talking about over half a
5 billion dollars, that's now suddenly worth 150 million dollars,
6 assuming all these various things. Okay?
7 I believe -- if you have any questions, Your Honor.
8 If not, I think I've probably -- oh, I have one last thing, and
9 that's Joe Schorp. Joe Schorp is a very good friend of mine
10 who filed numerous requests for real estate-related
11 information. Now that we know that more or less the subsidiary
12 information is a black box; we can't really look at it; they
13 don't value it; we don't really know; we have no real idea what
14 the expected claim value is; Joe found numerous instances where
15 he said look, we think there's property owned by Washington
16 Mutual Investments that's not necessarily WMB.
17 And this is, once again, a disclosure issue, because
18 it's not within the global settlement, because it's not listed
19 as an asset that's transferred in any way, shape or form. In
20 fact, there's no reference anywhere to real estate. And he
21 says, you know -- and he calls me at my house at odd hours, and
22 my wife gets angry because I answer them. And for the eleventh
23 time he says look, I just found another -- this listed as
24 Washington Mutual Bank, but the actual land is listed under
25 Washington Mutual, the holding company, WMI. And we go through

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1 all this.
2 And eventually I said look, at the end of the day is,
3 if they're going to resolve these things, they're just going to
4 give it away. You can prove it's a Washington Mutual
5 Investments asset. They'll go back and sit at the table and
6 they're going to say, oh, we're going to give that too. All
7 right? We decided that we like you guys, JPMorgan Chase.
8 Everyone loves Jamie Diamond, he's got that great silver hair.
9 And so we're going to give you guys additional real estate
10 assets. And so, but he asked me to kind of essentially address
11 his objection. Because when he filed this, the debtors gave
12 him three pieces of evidence.
13 Now this is a multibillion dollar asset. It
14 represents the ownership of at least 550 banks, physically.
15 And the FDIC has the ability to go, here's your charter; here's
16 all the deposits. But they couldn't -- before Dodd Frank --
17 they couldn’t go in and strip up your building and say now we
18 own the building. If the holding company owns the real estate,
19 they have all the right to say, okay, fine, you can have all
20 those things. However, we'd like you to vacate. We'd like to
21 sell this property.
22 And so, in response, the debtors sent -- this is a
23 request for information regarding the disposition and status of
24 Second and Union. Their response, they give three pieces of
25 evidence that Second and Union was not an estate asset. Their

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1 first piece of evidence was a heavily redacted meetings minutes
2 from 2003, almost a decade ago, that references -- that's not
3 even referenced, Second and Union. It references Driver (ph.)
4 Street and then a little notation below it that says they then
5 changed it to this and then they changed it to this. It's
6 something that you would have difficulty within like the
7 People's Court, much less within a multibillion dollar asset
8 disposition.
9 But secondly they offered the 8-Ks, the SOFAs, which
10 we know are -- had been -- I mean we have a half a billion
11 dollar tax claim from the IRS that's been sitting there since
12 September 2008. We had a 550 million dollar intercompany loan
13 from WMI Investments that's been sitting there since 2008. We
14 can't trust those. We don't have -- they have no basis in
15 reality.
16 And then the third one is JPMorgan's 10 -- you know,
17 JPMorgan's corporate filing where they say that they owned
18 Second and Union. I'm sure they do they think they own that.
19 They've said that about everything. When they found out we had
20 a deposit, they came back and said, oh, yeah, we own that too.
21 But it doesn't necessarily mean that they have any
22 title, any real reason to own it, and really more importantly,
23 that the negotiated settlement would use this asset. Okay.
24 I really would love to address the global settlement,
25 but I know you probably won't let me.

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1 THE COURT: I won't.
2 MR. MASON: Okay. Thank you, Your Honor.
3 MR. MIGLIORE: Good afternoon, Your Honor. Mike
4 Migliore, Smith, Katzenstein & Jenkins, on behalf of several
5 insurance companies, collectively referred to as the ANICO
6 plaintiffs.
7 THE COURT: Yes.
8 MR. MIGLIORE: Your Honor, I will keep this brief. As
9 Your Honor certainly recalls, in the opinion issued denying
10 confirmation, the Court expressed three safeguards that it
11 required and directed the debtors to include in any future
12 modified plan of reorganization.
13 Your Honor, specifically, with respect to the ANICO
14 litigation, the Court instructed the debtors at page 80 and 81
15 of the opinion, that in order to be confirmable, any modified
16 plan of reorganization must contain three safeguards of the
17 ANICO plaintiffs' rights in the ANICO litigation. The Court
18 expressly stated firstly that the plan must provide that there
19 is no release being provided under the plan or the global
20 settlement by the ANICO plaintiffs of their direct claims
21 against any party other than the debtors.
22 Secondly, the Court directed that the plan must
23 provide that the Court is making no determination as to who
24 owns the claims in the ANICO litigation. And third and
25 finally, Your Honor, the opinion noted that any stipulation of

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1 dismissal that the debtors file in the ANICO litigation, must
2 expressly state that the debtors are dismissing only claims
3 which they own.
4 Your Honor as to -- subsequent to the ANICO
5 plaintiffs' objection to the motion, the debtors did file a
6 modified plan in which they addressed item 2 of our objection,
7 and specifically that the Court is making no determination as
8 to who owns the claims in the ANICO litigation. There are two
9 issue that remain. And, Your Honor, on their face, they may
10 look to be only confirmation objections, however, because of
11 the procedural posture here in which the Court directed that
12 these -- this language expressly be included in any plan to be
13 confirmed, I believe that they are ripe at this point too.
14 They go to the issue of whether or not disclosure of -- and
15 whether the plan is confirmable.
16 Your Honor, dealing with these issues briefly, one at
17 a time here, as to whether or not -- I think, the first matter
18 can be dealt with straightaway. I mean, it's plain that the
19 Court directed that there be language included in the plan that
20 the ANICO plaintiffs are not -- none of their direct claims are
21 being dismissed. So we simply request, pursuant to the Court's
22 directive, that that be included in --
24 MR. MIGLIORE: -- the plan.
25 As to the third safeguard, Your Honor. The

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1 stipulation of dismissal that the debtors propose to file in
2 the district court for the District of D.C. -- District of
3 Columbia, rather -- contrary to the directive of this Court,
4 also refers to claims of Washington Mutual Bank, a nondebtor.
5 The effect of this is that the debtors are dismissing not just
6 derivative claims owned by the debtors, but also derivative
7 claims owned by WMB, a nondebtor. And importantly, this is
8 contrary to the Court's opinion and the order.
9 Your Honor, because of that, we believe that it's
10 inappropriate to expand the scope of the stipulation to be
11 approved by this Court to pertain to claims of WMB, a
12 nondebtor. And we think by incorporating the language in the
13 Court's opinion, that issue should be remedied.
14 THE COURT: Okay. I understand.
15 MR. SACKS: Can I just address that objection, Your
16 Honor, please? Again, Robert Sacks, on behalf of JPMorgan
17 Chase. First, as to the plan and your decree that it
18 specifically state. If you look at Section 43.6(g) of the
19 plan, it expressly states that nothing is dismissing their
20 direct claims. I mean, it couldn't be any clearer. It's in
21 the plan.
22 With respect to the second object -- so I don't know
23 what the continuing objection is. With respect to the second
24 point, counsel -- this is a stipulation that dismisses WMB's
25 claims by the FDIC. It controls WMB's claims, not the debtor,

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1 WMI, in this case. And it's a global settlement agreement that
2 includes the FDIC, JPMorgan Chase, and the debtor. There is
3 nothing in the stipulation that has WMI, the debtor, dismissing
4 anything other than what Your Honor indicated it could dismiss,
5 which is, its claims, including its derivative claims.
6 But the FDIC is dismissing derivative claims on behalf
7 of WMB, because the FDIC owns those claims. It is a
8 stipulation as part of the global settlement agreement. So
9 there's nothing in this plan that suggests otherwise. And the
10 stip -- I just do not understand this continuing objection,
11 Your Honor.
12 THE COURT: Well, let me hear.
13 MR. MIGLIORE: Your Honor, as to the stipulation, it's
14 the stipulation to be approved by the bankruptcy court to be
15 filed in the U.S. district court.
16 THE COURT: I'm not approving it.
17 MR. MIGLIORE: Okay.
18 THE COURT: The district court would approve it.
19 That's up to the district court to decide that.
20 MR. MIGLIORE: Well, I think, Your Honor, the issue
21 has been raised on appeal as to who owns those claims in the
22 district court -- I'm sorry, in the United States Court of
23 Appeals for the District of Columbia. We think it goes beyond
24 the scope and it's unnecessary to include any language
25 pertaining to WMB. We think it's certainly appropriate to --

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1 THE COURT: Well, it's --
2 MR. MIGLIORE: -- limit it to WMI.
3 THE COURT: -- required -- it's required by the global
4 settlement agreement. They are requiring that the FDIC release
5 claims.
6 MR. MIGLIORE: That's right, Your Honor. But I don't
7 think it's necessary to include language pertaining to WMB in
8 the stipulation.
9 THE COURT: Well, I think it's part of the global
10 settlement requirements.
11 MR. SACKS: Correct, Your Honor. And it's a
12 stipulation to be filed in a different action. You're not
13 approving that stipulation. It is effectuating the terms of
14 the global settlement agreement, which is the debtor is
15 dismissing whatever claims it has in that action, direct or
16 derivative; and the FDIC, on behalf of WMB, which it controls
17 today, is dismissing whatever claims WMB has in that action.
18 If these people have direct claims in that action, the
19 stipulation isn't going to affect that one bit. There is
20 nothing Your Honor is doing in this action that affects that
21 one bit. And it is not for ANICO to say what the FDIC and
22 JPMorgan Chase should or shouldn't agree to as part of the
23 global settlement agreement.
24 Your Honor is not issuing any determination on that
25 issue in approving this plan and the global settlement

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1 agreement.
2 MR. MIGLIORE: Counsel's last point goes to,
3 essentially, the heart of our concern, and that is that any
4 inclusion of language pertaining to WMB may in some way suggest
5 that there's a determination that those claims exist. And so
6 that's the concern. We believe the claims in the district
7 court now on appeal are direct claims.
8 THE COURT: I'm not deciding whether either the -- and
9 maybe the disclosure statement can be amended to say that I am
10 not deciding whether the debtor or the FDIC has any claims to
11 that litigation.
12 MR. SACKS: Fine.
13 MR. MIGLIORE: That would be fine.
14 THE COURT: That should solve it.
15 MR. SACKS: Fine, Your Honor.
16 MR. MIGLIORE: Thank you.
17 MS. HAPER: Good morning, Your Honor. My name is
18 Bettina Haper. Your Honor, Mark Brodsky of Aurelius Capital
19 Management once wrote in a letter to Tribune's creditors where
20 he was quoted as saying, we believe wrongdoers should be held
21 accountable rather than rewarded. And we have decided to make
22 a stand.
23 Your Honor, my name is Bettina Haper, and I am here
24 today, present in your court to make a stand. On March 16th
25 the debtors submitted their response to a multitude of

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1 objections in their omnibus. As it pertains to my objection,
2 the debtors stated the following -- and I represent the Form A
3 shareholders, Your Honor -- "Certain holders of WMI equity
4 interests submitted form letters in which they stated their
5 disapproval of the supplemental disclosure statement, including
6 that the debtors more fully disclose the assets of WMIC,
7 including all securities held."
8 The debtors responded to my objection by implying they
9 had addressed it in the omnibus response to the EC counsel. In
10 their omnibus response the debtors invoked Section 345(b) as
11 the impetus for their actions in selling certain WMI
12 securities. Your Honor, 345(b) is as follows: "Except with
13 respect to a deposit or investment that is insured or
14 guaranteed by the United States or by a department agency or
15 instrumentality of the United States Trustee, the Trustee shall
16 require from an entity with which such money is deposited or
17 invested, a bond or a deposit of securities of the kind
18 specified in Section 9303 of Title 31, unless the court, for
19 cause, orders otherwise."
20 A surety bond is an instrument established to protect
21 the investments of the estate in the event of a potential
22 default on the investment obligation by the entity that the
23 estate has investments with. Obviously, Your Honor, Section
24 345 was never intended to be used as a vehicle for the debtor
25 to liquidate their assets without leave of the court.

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1 Furthermore, the debtors certainly shouldn't have considered
2 any liquidation during the worst economic crisis since the
3 Great Depression, since doing so would yield a significantly
4 lower value for those securities than simply waiting out the
5 market.
6 The debtors state that they were required to sell
7 these securities after the petition date, in order to comply
8 with 345(b) of the Bankruptcy Code. However, the debtors do
9 not explain how Section 345(b) specifically forced them to
10 liquidate these securities. If the debtors are relying on
11 Title 31 9303, then precisely who were these securities sold
12 to? Why did the debtors liquidate securities such as Georgia
13 Power, which were not associated with the banking crisis?
14 If the debtors were compelled to initiate a sale under
15 9303, then why did the debtors negotiate less than a tenth of a
16 percent interest rate on the cash account these securities were
17 converted to? It is their fiduciary responsibility to maximize
18 the estate's interests, Your Honor.
19 The purpose of Section 345 and 9303 is to prevent
20 asset loss, Your Honor, not create it. However, this is all
21 moot, since these securities were sold after the passage of
22 TARP. TARP was enacted to demonstrate the U.S. Treasury's
23 determination to give its full faith and backing to
24 systemically significant institutions. And since those
25 institutions were backed by the U.S. government, these

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1 securities were backed by the U.S. government and never
2 qualified for sale under 345(b). TARP was the mechanism for
3 the surety bond of these securities. And once that was in
4 place, the debtors had no cause to execute under 345.
5 So, in essence, the debtors violated the very code
6 they are invoking as a defense against their actions. Selling
7 these securities was not in compliance with Section 345(b),
8 which is why the U.S. Trustee intervened on January 11, 2009,
9 docket 334. The U.S. Trustee didn't believe the debtors'
10 request to sell interests in certain securities free and clear
11 of liens, claims and encumbrances and without further court
12 approval was in compliance with the law. And of course, this
13 is not the first time the debtors have had difficulties with
14 procedures -- with following procedures of this Court.
15 These assets were disclosed in December of 2008 and
16 valued at 116 million, that were listed at their September 2008
17 prices. It should be noted that the day after the debtors
18 filed for bankruptcy was one of historic market disruption, and
19 the prices listed quickly recovered from these lows. And as
20 leave was never filed with the Court to sell over 100 million
21 in preferred securities, the current total value of these
22 shares would be almost 160 million dollars.
23 Since the debtors have admitted to disposing of these
24 assets, this represents a loss to the estate of more than 43
25 million dollars in recovery and over 10 million dollars in

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1 dividends paid to holders of these securities, since 9/26/2008.
2 The 565 million dollar intercompany loan that was
3 recently addressed by the debtors in their omnibus, however, if
4 WMI Investments loaned this money to the parent company, why
5 has it been listed on the monthly operating reports for two and
6 a half years as a liability? Basically, half a billion dollars
7 in liabilities were created out of thin air, since this loan
8 was actually a loan to the parent company. If you add this --
9 I'm sorry -- if you add this to the 555 million dollar IRS
10 claim which will be zeroed out as soon as the debtors file to
11 remove it, there will be 1.1 billion dollars in phantom
12 liabilities, Your Honor, that should no longer be on the books.
13 The filed 8-Ks that the debtors have referenced in
14 their omnibus response, suggest business is still being
15 conducted at WMI Investments. For example, WMI Investments in
16 December of 2009, had a gain in earnings from subsidiaries of
17 equity or investments of 18.7 million dollars. Where's this
18 money coming from and what business is being conducted? Also,
19 what is the value -- what value is being ascribed to the over
20 112 million dollars in capital losses at WMI Investments, and
21 how is that value addressed in the disclosure statement?
22 The debtors have repeatedly referred to the prior DS
23 to bolster various arguments in their omnibus. But the POR
24 represented by the prior DS was denied by this Court and the
25 debtors' fiscal situation has changed significantly since then.

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1 The debtors can state that the NOLs, taxes and certain
2 distributions are not DS issues. And that might have been a
3 valid argument last year. But since the IRS ruling, various
4 other court decisions, and the passing of January 1, 2011, this
5 is no longer the case. These changes greatly affect the asset
6 balance of the estate, and indisputably, those -- the changes
7 in those assets must be adjusted and addressed in the
8 disclosure statement. The additional NOL that became available
9 as of January, hasn't been addressed. Additionally, 2010 tax
10 returns have not been filed, and we have heard no mention of
11 the 2009 returns. So we have little knowledge as to what tax
12 returns may be available to the restructured debtor. Also, we
13 still have no idea what actual NOLs are currently available to
14 the debtors. This doesn't come close to meeting adequate
15 information standards.
16 The IRS has recently ruled that a bank is an operating
17 company, in a decision entitled LTR 2011-0-8001. This ruling
18 refers to a change that allows a bank holding company to treat
19 the loss of value in its shares in a subsidiary bank as an
20 ordinary loss as opposed to a capital loss. This change
21 greatly increases not only the amount of loss available to the
22 bank holding company as in a NOL, but also greatly increases
23 the potential that the full value of that NOL can be
24 transferred to a third party post-reorganization.
25 It is this shareholder's belief that LTR 2011-0-8001

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1 is the ruling that was requested by the debtors. And that is
2 this ruling. And that this ruling affects the manner in which
3 the debtor may take the loss on its twenty-six billion stock
4 ownership in WMB. However, the debtors again have not
5 recognized this positive within the structure of the DS.
6 Your Honor, U.S.C. 1125 states that, "The Court may
7 approve a disclosure statement without a valuation of the
8 debtor or an appraisal of the debtor's assets." This is true.
9 The Court may approve. What I am asking is, if it is indeed
10 appropriate for the Court to approve. The debtors are still
11 constrained by the law and are required to adhere to certain
12 standards. With so many questions surrounding the disclosure
13 of assets and new changes in the law, this DS simply does not
14 reflect the true value of the estate's assets.
15 As Charles Eldridge stated in his March 7th objection
16 to the DS regarding the debtors' nondisclosure of assets, "In a
17 case of this magnitude and complexity, it is incomprehensible
18 that an interest holder could make an informed judgment
19 regarding the plan without this information."
20 The debtors are essentially asking the various classes
21 to buy a car, only they won't tell us what kind of car it is.
22 And they won't tell us if the car runs. And they won't tell us
23 what's in the car. They won't even tell us how much the car
24 costs. But -- and in fact, we don't even know if we're going
25 to receive this car after we pay for it. And I suppose my

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1 question is, would Your Honor enter into such an agreement?
2 THE COURT: Okay.
3 MS. HAPER: This is bankruptcy court. And it is
4 incumbent upon the debtor to disclose all the assets to the
5 Court so that a lawful and reasonable process can take place.
6 It is incumbent upon the debtors to maximize the value of the
7 estate. How can this happen when the debtors refuse to open
8 their books? How can this occur when the debtors seemingly
9 take steps to minimize the estate's value? The debtors are
10 aware of all of this, and yet they have continued to operate as
11 if none of this matters, as if the orders of the Court don't
12 matter, as if the rule of law doesn't matter.
13 And we are fast approaching a moment where we will all
14 bear witness to the inescapable truth, that this Court agrees
15 with the debtors or it doesn't. Your Honor, it is my belief
16 that the disclosure statement fails to provide sufficient
17 detail as to the value of securities owned by WMI Investments
18 and their current value and final disposition; that the DS
19 fails to consider the impact of recent legal rulings on the tax
20 assets; and as such, the DS does not accurately reflect the
21 estate's true value.
22 Hence the DS does not meet the adequate information
23 standard; that the debtors have failed to disclose all of these
24 assets, with the intent of preventing them from being included
25 in the estate. As such, I am requesting this Court deny the

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1 debtors' request for approval of the disclosure statement.
2 And finally, Your Honor, I have some information that
3 I need to bring before the Court, and it's not a confirmation
4 issue, so. I only recently became aware of this, and in light
5 of the recent allegations, I feel that Your Honor needs to hear
6 about it, as well as the EC.
7 Either prior to confirmation -- prior to the
8 confirmation proceedings of last December or while Her Honor
9 was rendering her opinion, Appaloosa Management purchased over
10 half a million shares of JPMorgan securities. This is a matter
11 of grave concern, not only since JPMorgan is an adverse party
12 in this bankruptcy proceeding, but also because the debtors
13 relied upon attorney-client privilege as a factor in denying
14 the public material information regarding the value of assets
15 conveyed to JPMorgan as well as the value of the dismissed
16 claims.
17 As I stated in the letter to -- in my letter to the
18 Court, there are hundreds of references in court filings to
19 calls between the restructuring bodies and the noteholders
20 regarding assets and claims values that shareholders have never
21 been given access to because of this client privilege claim.
22 And in proffering this claim, not only did the noteholders have
23 access to nonpublic material information, they were able to
24 direct that information to benefit a specific area in the
25 waterfall as they desired.

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1 Given the ambiguous nature of the DS and the GSA, the
2 number of parties who knew the actual values conveyed to
3 JPMorgan as well as the claims dismissed, was limited to a
4 handful. And yet, one of those handfuls --
5 THE COURT: That is a confirmation issue. Why is that
6 not a confirmation issue?
7 MS. HAPER: They were -- what I'm saying, Your Honor,
8 is that they were trading on shares before they knew the
9 outcome of the confirmation.
10 THE COURT: I know. Isn't that a confirmation issue
11 raised by the equity committee with respect to the interest
12 rate issue.
13 MS. HAPER: All right, Your Honor. All right. Thank
14 you, Your Honor.
16 MS. HAPER: That's all.
17 (Pause)
18 THE COURT: Any other party want to be heard?
19 MR. BERG: Your Honor, James Berg again. I found one
20 point that I intended to raise, if I could --
21 THE COURT: All right. You have to talk so that the
22 record picks you up. I don't think --
23 MR. BERG: Your Honor, James Berg again. I missed one
24 point earlier in the confusion that is not related to JPMorgan
25 Chase, the FDIC. One of the debtors' responses to my objection

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1 appears to suggest that I might be threatening to sue the
2 liquidation trustee. In their -- their interpretation of what
3 I had said was incorrect. In actuality, what they interpreted
4 as a comma was actually a semicolon. My intention was to ask
5 what litigation might be retained by the liquidation trustee.
6 Since affiliates of JPMorgan, the FDIC, and nondebtor
7 affiliates of the debtor are no longer being given releases, I
8 asked for information about which causes of action would be
9 retained by the trustee. I gave several examples, including
10 Banco Santander, who I thought, based upon a JPM e-mail, might
11 be guilty of Sherman Antitrust Act violations. I have a copy
12 of that e-mail, if you're interested, Your Honor.
13 THE COURT: No, that's fine.
14 MR. BERG: No. Would you like me to read it?
15 THE COURT: No.
16 MR. BERG: All right. Thank you.
18 I think the debtor's doing to respond, but we might
19 take a break before then.
20 MR. ROSEN: Your Honor, I don't know if Mr. Ard has
21 anything more he wants to say before we take that break.
22 MR. ARD: No, I would reply to your response. That's
23 fine.
24 THE COURT: All right. Let's take a ten-minute break.
25 (Recess from 1:04 p.m. until 1:29 p.m.)

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1 MR. ROSEN: Your Honor, I think Mr. Ard has some
2 comments he wants to make first.
3 THE COURT: Okay. You don't want to go first?
4 MR. ARD: No, he asked me to -- I'm happy to go first,
5 Your Honor.
6 THE COURT: Okay.
7 MR. ARD: I'll be -- I'll continue to be brief.
8 First, Mr. Sacks suggested that the coercive release
9 provision issue has already been decided by this Court. That
10 is incorrect. A different issue was decided by this Court at
11 the last hearing, and this is a different release provision
12 anyway. On page 85 to 86 of the order, this Court dealt with
13 an objection based on alleged discrimination within a class.
14 And the current argument has nothing to do with interclass
15 discrimination other than with respect to the Class 19 issue,
16 which clearly has not been decided before.
17 This issue relates to coercion. The argument is that
18 this release provision coerces all voters equally. There is no
19 discrimination. The prior argument was made under Section
20 1123. This argument is a Section 1129 argument. They're
21 unrelated.
22 You asked me the first time around, several hours ago,
23 now -- why the release issue is a disclosure issue, and I said
24 that you shouldn't, with all due respect, permit solicitation
25 of a plan that has a facially defective release. I wanted to

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1 add a brief second point, which is that if this disclosure
2 statement goes out as is, voters will be coerced into voting
3 for the plan and for the releases, that is, voters get no
4 distribution unless they vote for the plan and the releases.
5 And that's unduly coercive. That's our course of argument.
6 And that defect, importantly, must be remediated now, or else
7 it will be too late. Once a vote is coerced, it's too late to
8 deal with that at confirmation. So that's why this is a
9 disclosure issue.
10 Third, Mr. Mayer for Aurelius suggested that if the
11 federal interest rate applies, it would not be Aurelius' deal.
12 I think the simple answer is: so what? They're not in this
13 deal anymore anyway. They -- unlike the first time around,
14 they're no longer a party to the settlement agreement. So if
15 it doesn't meet their expectations, I'm not sure why this Court
16 would care.
17 Fourth and finally, with respect to whether the
18 disclosure statement should disclose the various permutations
19 that might arise, depending on how you decide the PIERS and
20 interest rate issue. Mr. Curchack suggested that there are
21 infinite permutations. He listed about seven or eight and got
22 to infinite. I'm not sure how he got there. That's a big
23 number and clearly hyperbole.
24 The simple fact is that the debtors should disclose
25 the main permutations -- if it's seven or eight, fine; if it's

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1 two or three, fine -- and ask voters to approve the plan no
2 matter which of those permutations occur. And then if
3 something unusual happens and Your Honor makes a ruling that's
4 not covered by any of the permutations, we'd be no worse off
5 than we are now. But they should try to list all the different
6 permutations now, say what the waterfall would be, and then
7 allow voters to vote on that, so we don't go through the
8 inefficiency of having this entire process happen again because
9 of the interest rate and PIERS issues that this Court has
10 already identified.
11 Unless you have any questions?
12 THE COURT: No, thank you.
14 MR. MAYER: Just to be clear, Your Honor, it is true
15 that Aurelius is no longer party to the settlement agreement.
16 It is also true that Aurelius expects to vote both its
17 subordinated notes and its PIERS in favor of the plan as it is
18 currently drafted. If the plan changes, as the equity
19 committee has asked that it be changed, we would expect to vote
20 no in both classes. And I can't speak for the other settlement
21 noteholders, but I would imagine that to protect their own
22 rights under 1129(b), they would have to vote no too, because
23 it wasn't part of our deal, and it's the only way we can
24 protect our deal. Thank you.
25 THE COURT: Okay.

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1 MR. ROSEN: Your Honor, in case you forgot, Brian
2 Rosen, Weil, Gotshal & Manges, on behalf of the debtors. And I
3 will be brief.
4 Your Honor, we've heard a lot here this morning and
5 now this afternoon -- a lot about people's thoughts. Some
6 based in reality, some based on the facts, some based upon what
7 they've been able to develop themselves.
8 Let me first start off with the equity committee. I
9 think it's important to note that while a lot of people sit in
10 this courtroom and the equity committee gets it first, because
11 they were the first ones who stood up, and they talk about the
12 value of WMMRC. And they all want to say what they think
13 Blackstone didn't do and how Blackstone didn't respond to
14 something the Court may have said. Your Honor, the debtors
15 believe that Blackstone did the correct analysis. They believe
16 that they were responsive. But what's most important, Your
17 Honor, here, is that no one has anything to dispute it.
18 Peter J. Solomon has been the retained professional of
19 the equity committee since it was formed. They have drawn a
20 monthly stipend from the debtors' estate. Peter J. Solomon has
21 never, ever said that the analysis is incorrect. And, Your
22 Honor, as part of the confirmation process, we will -- we will
23 take discovery of the equity committee and Peter J. Solomon.
24 But as far as we know, Your Honor, in everything that we have
25 been told -- and there have been dialogues between the debtors

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1 and the equity committee -- there is no one that disputes the
2 valuation by Blackstone, notwithstanding the fact that they
3 stand here today.
4 THE COURT: Well, I think they all do. We're not at
5 that point yet.
6 MR. ROSEN: I agree with that, Your Honor. But
7 everyone wants the disclosure statement to say something that
8 doesn't exist, is my point. They want Blackstone to say I gave
9 you a valuation, but I'm wrong. Blackstone isn't doing that.
10 The debtors are not asking Blackstone to do that. The debtors
11 stand by the analysis that has been performed.
12 And to the extent that something comes out of the
13 process, Your Honor, we'll deal with it. But if somebody has
14 something -- and this goes throughout every comment here today,
15 Your Honor -- if somebody has something that they would like us
16 to put in the disclosure statement, give me the words. If it's
17 Mr. Steinberger who wants to stand up and say something, say
18 the LTWs or Nantahala, if it's Nantahala, says this. The
19 debtors disagree.
20 I'm happy -- the debtors are happy to move this
21 forward, Your Honor. But nobody wants to say what they want
22 included. So, Your Honor, I start from that premise. If
23 somebody says that there's an additional value to WMMRC, other
24 than supposition, if there's something to do it, we will
25 include that in the supplemental disclosure statement. We

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1 don't care, Your Honor.
3 MR. ROSEN: We're not trying to hold anything.
4 THE COURT: -- what about the --
5 MR. ROSEN: Notwithstanding what people say.
6 THE COURT: -- what about the value of the nondebtor
7 entities?
8 MR. ROSEN: All of that is already reflected by way of
9 the dividends that flow up to the debtors' estate. All of that
10 is in the opening balance sheet of the liquidating trust. If
11 somebody wants a breakdown of that, Your Honor, we will go
12 through the brain damage to do that, and we will include it.
13 It doesn't matter. The number is already there. But if they
14 want the breakdown, so be it, Your Honor. It doesn't matter.
15 We will include it.
17 MR. ROSEN: Again, Your Honor, I go back to the
18 valuation. If Peter J. Solomon would like to provide us with
19 alternative language to include in the supplemental disclosure
20 statement about what value Peter J. Solomon on behalf of the
21 equity committee thinks is appropriate, we will include that
22 valuation that Peter J. Solomon and the equity committee thinks
23 is correct. But to date, Your Honor, we haven't seen anything.
24 Your Honor, there was also a comment by Mr. Ard at
25 some point about 43.2. And I think this is just confusion on

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1 his part, perhaps. And it was in their papers. He's confusing
2 the third-party releases with the discharge of the estate, Your
3 Honor. 43.2 deals with the discharge. And we are entitled to
4 the discharge no matter what; no matter whether someone signs a
5 release or not. The debtors are still entitled to that
6 discharge.
7 Your Honor, Black Horse and others have asked for this
8 valuation or liquidation analysis. Black Horse talked about
9 it. They want contingencies; they want it on a claim-by-claim
10 versus all. And I think Mr. Curchack said it at one point,
11 Your Honor. And the problem that we have is, and as we said in
12 our reply, we don't know what the determination will be by the
13 Court with respect to whether anybody did anything
14 inappropriately or not.
15 THE COURT: But that's an issue.
16 MR. ROSEN: It is, Your Honor.
17 THE COURT: And if it's decided, shouldn't the
18 creditors and the shareholders know the effect of that?
19 MR. ROSEN: It is, Your Honor. But I can't do it --
20 meaning I, the debtors -- cannot do it on a person-by-person
21 basis. Because I can't say what the effect would be if Your
22 Honor were holding securities and somehow that was no good, but
23 Mr. Collins, it was okay. I don't know how that would flow
24 through the process.
25 If it were done on a class basis, which I think is

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1 what Mr. Curchack was saying, that might be something that was
2 mathematically possible to do. But then you get into all of
3 his additional permutations, which whether they're infinite or
4 there are six or seven or two or three, I don't know, Your
5 Honor. That is something that you will ultimately have to
6 make a determination. Could I say that it's one or two?
7 Possibly, Your Honor, but I think --
8 THE COURT: How many settlement noteholders were
9 there?
10 MR. ROSEN: There were four.
11 THE COURT: I think that's what the allegation goes
12 to, isn't it?
13 MR. ROSEN: Well, I think that's the first -- I don't
14 know if they're going to try and do more. I have no idea.
15 THE COURT: Well, you can certainly do as to them.
16 MR. ROSEN: So you're asking us, then, to make a
17 determination, using the calculations --
18 THE COURT: Make an assumption, and then tell us what
19 the --
20 MR. ROSEN: -- as to what their holdings are?
21 THE COURT: -- value.
22 MR. ROSEN: Okay. Again, Your Honor, we won't know,
23 taking Mr. Curchack's permutations, the effect that that would
24 have on some other issues: the payover, the subrogation,
25 things like that. But we will do our best to try and put

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1 something out there.
2 THE COURT: Um-hum. I'm sure you can put footnotes in
3 there.
4 MR. ROSEN: They'll be longer than the disclosure
5 statement by the time we're done.
6 Your Honor, with respect to the LTWs, Mr. Steinberg
7 had laid out four specific objections and then his general
8 musings. And with respect to the exculpation, we put in some
9 specific language. With respect to the inconsistency of the
10 language, he focused on 25.1 and 1.209. Your Honor, I think
11 that's a situation of Mr. Steinberg is looking at part of the
12 disclosure statement and trying to limit what the litigation is
13 all about. And all that the plan provides is, it could be a
14 claim; it could be equity; or if the Court determines that it's
15 a claim but it's subordinated under 510, it will be so
16 subordinated. That's exactly what the plan provides. That's
17 what the litigation is all about. People can decide what they
18 want to do based upon that. But the language is very, very
19 clear.
20 With respect to his desire -- he needs to know the
21 class. I think I've just addressed that. His invocation of
22 other people's treatment and flexibility versus 9, Your Honor.
23 I think what we've decided was, with respect to the PIERS, we
24 don't know of any issue with respect to debt versus equity. We
25 make it very clear. It's set forth in the supplemental

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1 disclosure statement. It was set forth in the omnibus
2 response.
3 The only thing that we can set forth is what the
4 determination is going to be in the LTW adversary proceeding.
5 So all we can do there, Your Honor, is provide for that
6 flexibility. And that is why it provides that it will be a, b
7 or, if it were to be the claim, it could be, again, b or
8 subordination.
9 With respect to whether or not LTW holders know what
10 they are getting. The ballot that was attached to the motion,
11 and it's been filed with the Court, is full of language that
12 I'm sure that if the LTW holders read it, they will be very
13 aware as to what they will be getting or not getting.
14 Specifically, even on the first paragraph, there's a big clause
15 at the end that says, "If you are otherwise entitled to such
16 distribution."
17 The problem that we have, Your Honor, is -- and as the
18 Court made clear in the opinion -- we don't know who is going
19 to get what, pursuant to this plan. And the Court asked us to
20 make sure that if somebody is going to be getting a release --
21 excuse me -- providing a release, that they will only be
22 providing the release to the extent that they receive a
23 distribution. And that's exactly what the supplemental
24 disclosure statement makes clear; that's exactly what the
25 ballots make clear.

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1 The issue of the tying up of the ballots is because
2 you need to do so. Because people want to trade, but it's
3 important from a DTC perspective, Your Honor. And we've
4 learned this too much. I think we've had to get schooled on
5 this. You need to block the CUSIP, if you will. You need to
6 set aside, if somebody makes an election. You need to set it
7 aside if somebody decides to make a release. And these are the
8 things that we have to safeguard against, where somebody makes
9 the election and then they go ahead and trade, and then
10 somebody says, well, I didn't make that election. The only way
11 you can do it is if you flag these issues and you make them
12 untradeable.
13 The fact of the matter is, that the LTWs have been
14 generating a market all by themselves and pumping up the value
15 of those LTWs. And they want to continue to do so, Your Honor.
16 Whether they continue to do so, it doesn't matter to us, as
17 long as they don't make an election. Specifically, if they
18 decide they want to trade, then they don't have to make the
19 election; they don't have to give the release. They can sit
20 back and continue to trade all they want. From our standpoint,
21 though, Your Honor, if the vote is made where an election is
22 made, where a release is made, they're required to lock them
23 up. It's been the same with all the other classes throughout,
24 Your Honor. When this election is made, when the release is
25 made, they have been locked up.

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1 We did our best, Your Honor, subsequent to the Court's
2 determination on the opinion to release these. I know that one
3 person who stood up was a little upset that it took six weeks
4 to do so. But it does take a while to get these things done,
5 get them through DTC, CD, et cetera. So Your Honor, it is a
6 requirement. I apologize to Mr. Steinberg and his clients.
7 But if they want to participate in the process, they can do
8 that.
9 Your Honor, we also pointed out in our omnibus
10 response that they didn't even have to do it now. Because we
11 said, based upon the plan provision and the one that you and I
12 talked about on January 20th, where we were concerned that
13 people had an allowed claim but they weren't going to file
14 something, or they were going to throw it into the wrong pile
15 and say, I already did that once. And we were concerned that
16 people were not going to get their distribution.
17 We provided in the plan, Your Honor, that they had up
18 to a year to make that election and to get their recovery. So
19 if Mr. Steinberg is concerned about his clients being locked
20 up, he doesn't have to make that election now. He can wait
21 until his September 12th adversary proceeding is heard or
22 commenced to be heard. He'll still have a year after the
23 effective date for his people to submit their ballots and the
24 elections. So there is no harm to Mr. Steinberg and his
25 clients.

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1 THE COURT: What about a suggestion of going to
2 mediation now rather than later?
3 MR. ROSEN: Your Honor, I love how people like to
4 bring things up and I refer back to it -- and he's not here, so
5 I'll take liberties with Mr. Stark -- the open mike night.
6 Clearly, people like to use this as a forum to say whatever
7 they want. Your Honor, we've tried. We don't think there's
8 any benefit to mediation. And the debtors -- you know, we can
9 go to any forum and say no, Your Honor. But we've tried.
10 We've done our best. And based upon where things are, there is
11 no benefit.
12 If the Court orders us to do it, we will go and we
13 will sit through the process. But based upon the demands that
14 have been made and based upon the facts and the law as we know
15 them, there will be no success in mediation. It will be a
16 waste of the estate's assets and time and something else that
17 will be foisted upon the estate, where someone is looking to
18 get paid for that time. We don't want to do it.
19 Your Honor, I think with respect to all the other
20 issues, they've either been addressed in our omnibus response
21 or by, in some instances, Mr. Sacks responding. And I don't
22 think it's necessary for me to take any more time of the Court.
23 But again, I would like to say in closing that if the
24 Court believes that there's some additional items you would
25 like us to include, the debtors are prepared to include any

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1 such language in the supplemental disclosure statement.
2 THE COURT: Are you done?
3 MR. ROSEN: Yes.
4 THE COURT: Now, you may.
5 MR. STEINBERG: Your Honor, Arthur Steinberg. Mr.
6 Rosen said he'd like to have some specific language, and then
7 maybe he'd accommodate. So with regard to the four specific
8 points that we had talked about with regard to the litigation
9 tracking warrants, they have already met the first one with
10 regard to the exculpation of directors. The second one is that
11 we ask whether the LTWs can be in Class 12 or Class 21. If
12 they have another legal theory that requires us to be in
13 another class besides 21 or 12, then this disclosure statement
14 should tell them that there's a possibility that you're going
15 into another class as well, too. And that has ramifications
16 with regard to the release, and is a strict disclosure issue,
17 as to what you're having here.
18 So if he wants to say that the Court can order
19 otherwise, that will force us into Class 21, then I understand
20 that. But if he's going to put us in another class besides 12
21 or 21, then anybody who looks at this plan should have a right
22 to know. So that's the second point that needs to be addressed
23 specifically.
24 The third thing is that if there are third-party
25 releases, and if he wants to make it conditioned on having

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1 Class 12 treatment, then I can understand that, because people
2 know that Class 12 is going to get paid a substantial sum on
3 account of their claim. But if it's going to be in Class 21,
4 then I know they're not going to get anything. And if it's
5 going to fall into any other class, I first need to know what
6 the class is. And if it's highly remote that that class will
7 get anything now, then I think under Your Honor's opinion they
8 shouldn't have to give and deal with a third-party release now.
9 THE COURT: Aren't we going to know that before your
10 one-year election period is up?
11 MR. STEINBERG: Yes. So if the attitude is, is that
12 no one should select a third-party release at all, wait until
13 we are closer to the one year, we'll see how the adjudication
14 go, or whether there's another resolution. Then the only thing
15 that will matter is if you're going to make a stock election.
16 Otherwise you're not going to be tied up, and then no one in
17 the -- who checks off the third-party release box right away
18 will have to --
20 MR. STEINBERG: -- deal with it.
21 THE COURT: -- well, does the one year also extend to
22 the stock option if they're in the 12 -- if they are found to
23 be in Class 12?
24 MR. ROSEN: Your Honor, the stock election, we do need
25 to know on day-one. It's whether they want to give the

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1 release.
2 THE COURT: Do they have to give a release to do the
3 stock option?
4 MR. ROSEN: No.
5 MR. STEINBERG: Then that's okay.
6 THE COURT: Okay.
7 MR. STEINBERG: I think, Your Honor, the only thing I
8 would add is that if there's any reason why I would want to
9 come back within the one year and say that that one year should
10 be extended for circumstances that relate to the release, I'd
11 like to have the opportunity to do that. I would hope that a
12 year from now this matter is resolved finally --
13 THE COURT: Me too.
14 MR. STEINBERG: -- so I don't have to do that.
15 The last thing is that if you're going to tie up the
16 LTWs, it should be for only those people who made a stock
17 election. I guess that's what I heard now, is if you don't
18 give a third-party release, then only if you need to make a
19 stock election will you get tied up. And I think that that
20 would address the general concerns.
21 I won't try to respond to the colorful language used
22 in the rebuttal. The one comment I would make about the
23 mediation is that it's not unusual for parties to say I'm not
24 moving and I'm not moving. That's what happens which requires
25 sometimes to have a mediation.

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1 I will note that when the equity committee appealed
2 the global settlement, they wanted to bypass the mandatory
3 procedures for mediation, and the debtor refused. The
4 debtor -- and I wouldn't -- I assume it wouldn't be because
5 strategically they were trying to slow down the equity
6 committee in their litigation -- but they actually thought it
7 made sense to actually have a dialogue with an equity
8 committee. And I assume the equity committee is asking for
9 money. So I assume if they have flexibility talking to the
10 equity committee in a mediation, because they don't think that
11 that's a waste of estate assets, then they should be talking to
12 me.
13 And I understand that he's dug in. And you know what,
14 some people on our side are dug in too. But a good mediator
15 will have the opportunity to save this estate a lot of money
16 and maybe save my participation at the confirmation hearing, by
17 doing something active in the month of April, and it won't slow
18 down the litigation. I promise you, I will take the
19 depositions that we've noticed in April. They've noticed no
20 depositions. But I promise you we won't slow down the
21 litigation.
22 But the idea of foreclosing mediation under these
23 circumstances, when they're mediating with the trust preferreds
24 and they're mediating with the equity, and I assume they're
25 mediating for a reason, which means they're going to offer them

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1 something more than nothing. So the notion is why aren't they
2 mediating with us. And I do think that the world changed.
3 They thought they had a clear case --
4 THE COURT: Okay. Okay.
5 MR. STEINBERG: Okay?
6 THE COURT: I'm going to order them to go to mediation
7 with you in April, because I agree. And I won't make any
8 assumption as to why somebody wants to or doesn't want to go to
9 mediation, but --
10 MS. LONSTEIN: Your Honor, Carmen Lonstein for Black
11 Horse Capital Management. Just a clarification. I think
12 there's two issues that are sometimes getting confused on the
13 informational point in the disclosure statement that should be
14 there. One is if, in this case, for Chapter 11 liquidation
15 purposes, the Court rules one way or the other, what impact
16 that might be for creditors voting on the plan.
17 The other issue -- which I believe the debtors said
18 they were going to make a good-faith attempt to illustrate that
19 in the disclosure statement. The other issue is in the
20 liquidation analysis, which is a Chapter 7 scenario, is a
21 liquidation scenario, there isn't an 1129(b) invocation of what
22 fair and equitable interest rate might apply in Chapter 7.
23 There is simply one rate that would apply in Chapter 7. And I
24 don’t think that issue -- no one has suggested that a different
25 outcome in Chapter 7 would apply.

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1 So I just wanted to clarify that the disclosure
2 statement should illustrate, in Chapter 7, a straight, clear-
3 cut application of the federal judgment rate. Because that's
4 what's most relevant for the best interests test under
5 1129(a)(7) and 726(a)(5). So there's two different types of
6 illustrations that relate to the federal judgment rate issue.
7 THE COURT: Understood.
8 MR. MAYER: Your Honor, with due respect, I think the
9 additional disclosure you're asking them to make really can't
10 be done. And I will try to illustrate why. Your Honor, when I
11 first got involved in this case and my client started talking
12 about post-petition interest, I thought what was at issue was
13 the post-petition interest on the PIERS, okay? I thought we
14 were getting a hundred cents plus post-petition interest, and
15 that would put us right in the equitable discretion issues that
16 Your Honor has already focused on.
17 But we're not talking about that. The recovery on the
18 PIERS that's estimated in the disclosure statement is forty-
19 nine cents. If you said to the PIERS holders -- individual
20 PIERS holder, all PIERS holders, you don't get post-petition
21 interest, it probably doesn't make any difference. What makes
22 a difference is if you tell the senior noteholders, which don't
23 include my client -- I don't know if they include any
24 settlement noteholders -- if you tell the senior --
25 THE COURT: Well, I don’t know that either.

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1 MR. MAYER: -- if you tell the senior noteholders, you
2 don't get post-petition interest at anything other than the
3 federal judgment rate, that then increases the burden on all
4 PIERS holders to bring them back up under their contract rate.
5 That's why, as I said at the beginning -- and it was a
6 confirmation issue, except that because you've asked for
7 disclosure, you make it a disclosure issue -- you can't
8 determine what the effect of a denial of contract rate of
9 interest is on individual PIERS holders. The math just doesn't
10 work. It's not possible to do.
11 As a legal matter, what you're asking the disclosure
12 statement to reflect is the result of an equitable
13 subordination action against my client and the other settlement
14 noteholders, that hasn't been brought, and that the equity
15 doesn't have standing to bring. Because that is the only way
16 you can justify taking one, two or four creditors and saying,
17 you get a different distribution than everyone else in your
18 class. It has nothing to do with denying them their interest
19 in the PIERS. It has everything to do with denying the senior
20 noteholders their interest, forcing them to dock all PIERS
21 holders to bring them back up to level.
22 That's why it's difficult to impossible to do a
23 disclosure that says just assume those four guys get it.
24 Because it doesn't work that way. Not unless there's a
25 subordination action brought against each one of the four of

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1 us, which no one has done, and which the equity committee
2 doesn't have standing to bring in the first place, because you
3 can't subordinate a debt to equity.
4 That's why it's class by class. That's why individual
5 people don’t -- it doesn't work. I'll save for confirmation
6 the arguments about how nothing we did ever hurt anybody who's
7 complaining about it, but --
9 MR. MAYER: -- I just don't think the disclosure can
10 be done.
11 THE COURT: Anyone else?
12 MR. MASON: Briefly, Your Honor, is it okay if I
13 respond?
14 THE COURT: Yes.
15 MR. MASON: Just very briefly --
16 THE COURT: You have to step up the podium though, or
17 else the record's not picking you up.
18 MR. MASON: Just really briefly. Mr. Rosen stated
19 that there wasn’t any other value put forth by anyone within
20 this -- within these proceedings as far as to value WMMRC. And
21 I actually -- I referred in my objection to what the debtor
22 stated the value was. The actual value of those trusts was 386
23 million in September of 2008. The debtors' attorneys
24 themselves, Weil Gotshal, when they requested to supplement
25 those trusts, stated that that was an estimated value for the

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1 estate of 330 to 395 million, which is about 85 percent to 102
2 percent of the actual trust values. Those are now 460
3 million -- actually, not now -- in December 2009; we don't have
4 December 2010 issues. And those values did not include any
5 tax -- any sort of tax analysis about what would be the value
6 of the debtor including these tax attributes.
7 And so that was -- I mean, that was from them. It was
8 from no one else. I don't know how they came about that
9 estimate, but that's actually from them. And so I just wanted
10 to mention that very briefly.
11 Is there anything else that I disagreed with
12 vehemently? I don't think so.
13 THE COURT: Okay.
14 MR. MASON: Thank you.
15 MR. ROZENFELD: Michael Rozenfeld, again. Very
16 briefly. I apologize. I just wanted to verify that I
17 understood what Mr. Rosen said. So only people that accept the
18 plan will have their shares locked. No one else will have
19 their shares locked. So if you vote against the plan as a
20 preferred shareholder, you shares will not be locked. Is that
21 correct or not correct? The plan as it's currently stated is
22 that's the way it is. If you vote against the plan, you'll not
23 be allowed to.
24 MS. DIBLASI: Kelly DiBlasi, from Weil Gotshal, Your
25 Honor. The procedures that we proposed would require both

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1 people who are agreeing to grant the releases or specifically
2 rejecting the releases to have their securities locked. The
3 only people who will remain free to trade are those who do not
4 respond at all. And the reason for this is, in order to comply
5 with Your Honor's order, which required that we distinguish
6 between those people who affirmatively grant the releases
7 versus those people who affirmatively reject the releases, we
8 need to be able to track those groups. And the only way that
9 we can effectively do that is by locking up the securities.
10 Similarly, any security holder who's entitled to elect
11 to receive stock as part of their distribution, will also be
12 required to tender and lock their securities.
13 THE COURT: Somebody who is not returning a ballot,
14 will not -- their claim will not be released?
15 MS. DIBLASI: Correct, Your Honor. Their securities
16 will remain freely tradable. And in accordance with, I
17 believe, it's Section 32.6 of the plan, which is the provision
18 that Mr. Rosen referred to earlier, they will have up to a year
19 to decide whether they'd like to grant the releases. And the
20 debtors have proposed following up with such individuals on a
21 periodic basis in order to get a decision from those security
22 holders.
23 But unless and until they affirmatively grant the
24 releases, they will not be bound by them. If, after the
25 expiration of the one-year period, they still haven't responded

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1 at all, they will have forfeited their right to a distribution,
2 but will retain whatever claims they believe they have.
3 THE COURT: Okay.
4 MR. ARD: I just wanted to reply real quickly to what
5 Mr. Mayer said. I’m at a little bit at a loss. I'm not quite
6 sure what he said. But he seemed to be saying that if the
7 federal interest rate applied it couldn't be calculated how the
8 recovery would break down. He said that a number of times. He
9 said it was impossible once; and then he said it would be
10 difficult to impossible later. I never understood the point.
11 It clearly could be calculated. It would have to be
12 calculated one day. So why can't it be calculated now? It
13 would have to be calculated one day, that is, if the Court so
14 rules. So I was at a loss to understand what he meant by
15 saying it couldn't be calculated now.
16 As to his point about equity committee's standing,
17 while it may be true that the equity committee wouldn't have
18 standing to seek an equitable subordination claim, the equity
19 committee clearly would have standing to seek an equitable
20 disallowance claim, which is what we talked about earlier when
21 we asked for this discovery in the first place, so.
22 MR. BERG: Your Honor, James Berg again. I would like
23 to briefly address the point she made in that apparently those
24 who do not return a ballot have their shares freely tradable;
25 the remainder have theirs locked. To me it seems that this is

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1 an attempt to be coercive. What can happen is if the vast
2 majority of these shareholders do not vote, a very small
3 portion is then able to control the vote on whether the people
4 accept or reject the plan. Thank you, Your Honor.
5 THE COURT: For that class, yes.
6 MR. BERG: Yes.
7 MR. MAYER: Let me see if I can explain to the equity
8 committee why it's arithmetically impossible. You can't come
9 up with a number for post-petition interest for the four
10 settlement noteholders. What does it mean? Let's assume that
11 one of them happens to not -- I don't know if any of them holds
12 a senior claim. But let's assume one of them held a senior
13 claim for a million bucks, and there was ten percent worth of
14 post-petition interest, or a hundred grand. And you disallowed
15 that -- or the difference between the two interest rates was a
16 hundred grand, and you said fine, I'm not going to let you
17 collect that hundred grand from the estate. That one senior
18 noteholder will turn to the PIERS and say, all of you, pro
19 rata, fill me up.
20 THE COURT: Um-hum.
21 MR. MAYER: I have a contract with you and it says I
22 get paid whether or not my claim is allowed in bankruptcy
23 court. This is something that Black Horse doesn't understand.
24 So on the one hand --
25 THE COURT: Or --

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1 MR. MAYER: -- if you could -- if you could figure out
2 the number, it wouldn't work. But you can't even figure out
3 the number. Can you calculate the different between federal
4 judgment rate and contract rate on a class basis? Yes. That
5 can be done. Can it be calculated on the basis of four
6 individual holders? I don't think you can do it. I don’t
7 think arithmetically, it's possible. Because you don't know
8 what it means to say you don't get post-petition interest or
9 you don't get post-petition interest at a contract rate versus
10 federal judgment rate. Because you have to start with the
11 seniors, and they all get lifted back up to contract rate from
12 all of the PIERS holders. And if you tell the debtors --
13 THE COURT: From the PIERS holders but not from the
14 debtor.
15 MR. MAYER: That's correct.
16 THE COURT: You can certainly do at it from the
17 debtors' perspective.
18 MR. MAYER: That's correct. You can do it on a class
19 basis. But if you tell the debtors do it on a noteholder-by-
20 noteholder basis, I don't think it can be done. I don't think
21 it's intellectually possible to do.
22 THE COURT: Well, yes you can calculate it without
23 giving effect to what the PIERS have to pay to those who are
24 only getting --
25 MR. MAYER: But, see, Your Honor, this is my problem.

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1 Let's assume that all the settlement noteholders have are
2 PIERS. Okay? That's all we have. Let's just assume that --
3 THE COURT: Okay.
4 MR. MAYER: -- for a moment. Okay? Right now, the
5 post-petition interest on the PIERS is zero.
6 THE COURT: Right.
7 MR. MAYER: Right. So when you say --
8 THE COURT: No, what I'm saying is, you can say --
9 let's assume the four of you have senior notes, and let's
10 assume that I decide that you are only entitled to federal
11 judgment rate rather than contract. We can calculate how much
12 the debtor pays the senior noteholders based on that
13 determination.
14 MR. MAYER: I don't have an issue with that.
15 THE COURT: Okay.
16 MR. MAYER: That is clearly true. If there were
17 senior noteholders in the settlement notes, you could say okay,
18 that particular senior noteholder, he is not getting from the
19 debtor --
20 THE COURT: Right. So instead of --
21 MR. MAYER: -- full interest.
22 THE COURT: -- a hundred million dollars in interest,
23 you're only paying ninety million in interest, to that class.
24 MR. MAYER: That is -- arithmetically, that is
25 absolutely correct. But notice what happens when you do that

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1 based on your judgments to the equities of the case. You don't
2 actually hurt that senior noteholder.
3 THE COURT: I understand. Do you want the debtor to
4 put that in that it's not going to in fact hurt the senior
5 noteholder and it will waterfall down to you?
6 MR. MAYER: I think that that would be appropriate,
7 actually.
8 MR. ROSEN: Actually, I think the water then keeps
9 flowing up.
10 THE COURT: Water up. Yes.
11 MR. ROSEN: No, the water flows down and then goes
12 back up. It always should reach the same level at the end of
13 the day.
14 MR. MAYER: I just wanted to make that point. You can
15 only do it if you start off by showing the difference between
16 what the debtor has to pay the seniors --
17 THE COURT: Right.
18 MR. MAYER: -- and particular settlement noteholders
19 who hold senior debt, which I should probably sit down, because
20 my client doesn't hold that.
21 THE COURT: Okay. But also talk about Black Horse's
22 comment that that's a Chapter 11 issue, but that the Chapter 7
23 liquidation analysis should all be at federal judgment rate,
24 based on Section 726.
25 MR. MAYER: Well, I understand that's her theory, and

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1 we can deal with that at confirmation. But once again, Your
2 Honor, you have to enforce subordination agreements under 510,
3 even in a Chapter 7 context. I suggest this really is a --
4 THE COURT: You're focusing on the effect on you, not
5 the effect on the debtor. What the debtor has to pay is what
6 the liquidation analysis shows.
7 MR. MAYER: But each individual class, Your Honor, has
8 to get -- or individual creditor who has voted no -- has to
9 get, under the plan, not less than that creditor would get in
10 liquidation, correct?
11 THE COURT: But isn't the analysis what the debtor
12 pays them in a liquidation?
13 MR. MAYER: I believe that the -- it says under --
14 "must receive under the plan". I think the actual language of
15 the statute -- and we can deal with this at confirmation. I
16 don't know that it is a disclosure statement -- I’m happy to
17 engage in colloquy now. I believe it says "must receive under
18 the plan, not less than such creditor would receive in a
19 Chapter 7 liquidation."
20 THE COURT: And the issue is whether --
21 UNIDENTIFIED SPEAKER: Your Honor --
22 THE COURT: -- 726 talks about distribution of the
23 assets of the estate.
24 MR. MAYER: Yes, but --
25 THE COURT: But I know there is case law to suggest

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1 that, you know, if you're releasing something and otherwise
2 would get it in --
3 MR. MAYER: -- but in other contexts, Your Honor, as
4 you have noted, 510 is part of the 726 waterfall. And
5 1129(a)(7), which is the statute that keeps getting mentioned,
6 talks about, each creditor must receive under the plan, not
7 less than that creditor would receive in a Chapter 7. And in a
8 Chapter 7, the PIERS holders would still have to kick up to the
9 seniors their distributions at the contract rate. Which means
10 that notwithstanding Black Horse's arguments, they'd be worse
11 off. You can't get away from the contract rate that the
12 seniors hold.
13 I will footnote that and say, we reserve our rights to
14 argue that the contract rate can't be enforced. But frankly,
15 the contract says what it says. And it says that such interest
16 shall be paid not -- even if not allowed in the bankruptcy
17 case. Which is why the mention of the rule of explicitness is
18 completely irrelevant.
19 I've taken a lot of Your Honor's time. I'm happy to
20 answer other questions. But I don't think you can -- it is
21 intellectually possible to do a creditor-by-creditor analysis
22 of interest. If we're going class-by-class, yes; creditor-by-
23 creditor, no.
25 MS. LONSTEIN: Your Honor, for Black Horse -- Carmen

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1 Lonstein for Black Horse Capital Management. Black Horse does
2 hold the senior notes. And it also holds the junior
3 subordinated notes as well as claims in Class 19. And we have
4 a different view of how the subordination provisions work. And
5 that's a matter that is disputed. I think the indenture
6 trustee earlier indicated that that is an issue that would be
7 the subject of further litigation.
8 And so all -- I think it's very simple that a Chapter
9 7 liquidation analysis would simply say, payments from the
10 debtor -- from a Chapter 7 trustee in a Chapter 7 liquidation
11 would be at this rate; footnote, subject to the rights of the
12 varying indenture holders to assert their view of how the
13 subordination provisions work under applicable indenture
14 documents and applicable law. Very simple.
15 THE COURT: All right. I agree with you about
16 (indiscernible) -- I think that the debtor can (indiscernible)
17 make the (indiscernible) rather than the (indiscernible) debtor
18 (indiscernible) --
19 (Indiscernibles due to judge's microphone being turned
20 off)
21 THE CLERK: Judge, I'm sorry. Did you hit the mic --
22 THE COURT: Yes, I did. I'm sorry. Sorry about that.
23 Do I have to start all over again?
24 THE CLERK: That part, yes.
25 THE COURT: Okay. With respect --

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1 THE CLERK: With respect to the debtors.
2 THE COURT: With respect to the Black Horse argument
3 regarding the effect of the Court possibly deciding that the
4 federal judgment rate rather than the contract rate must be
5 applicable, the debtor should do a liquidation analysis that
6 shows the effect of that possibility on distributions to
7 creditors as well as -- I shouldn't have said liquidation
8 analysis; a distribution analysis as to what distributions
9 would be under Chapter 11 in the event the Court decides that.
10 The debtor should also modify its liquidation analysis to show
11 the possibility that they are correct and I would order that --
12 or determine that in a Chapter 7 liquidation, they are only
13 entitled to the federal judgment rate.
14 You can put a footnote regarding the effect of that on
15 the waterfall down or up as to specific -- and the
16 enforceability of the subordination agreements or provisions.
17 But I think that you have to state that there's apparently a
18 dispute as to the effect of those subordination provisions or
19 their applicability in this case.
20 I also agree with -- and I'm not sure who raised it,
21 but I also agree with the objectors who said that there has to
22 be a disclosure as to the ranges of value of the NOLs. I don't
23 think it's sufficient to limit it to what the debtor is
24 projecting will be the use of the NOLs.
25 And with respect to the objections raised by some of

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1 the shareholders, I think the debtor does have some information
2 that it should be including in the disclosure statement as to
3 the value of the assets of its nondebtor subsidiaries, as well
4 as the value of WMMRC. The debtor has filed public filings
5 that disclose some of those values and I think the debtor
6 should include those in the disclosure statement.
7 I disagree with the Trust Preferred consortium
8 argument regarding their ability to revote; however, I agree
9 with JPMorgan that I've already made that decision. And in
10 addition, I find that to the extent they are allowed to revote,
11 JPMorgan has asserted that the distribution to their class is
12 only available to those who previously voted to give the
13 release. So I think it would be a big waste to go ahead and
14 revote that class.
15 I already stated that I will direct the debtors to
16 participate in mediation with the litigation tracking warrant
17 holders. But I suggest the parties consult and get to me a
18 recommended mediator within a week, say. And if the parties
19 can't agree on somebody, I will select somebody from our
20 mediation panel.
21 I think Mr. Rozenfeld's arguments are largely
22 confirmation issues. I'm not going to require any change to
23 the disclosure statement with respect to those and
24 specifically, I'll note that the Blackstone analysis is what is
25 typically done, rather than attaching appraisals. I'm not

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1 going to require the debtor to attach appraisals to the
2 disclosure statement and the reference to book values is not
3 helpful, either. But I would suggest that since the debtor is
4 going to include values with respect to the nondebtor subs,
5 that there be a clear indication of the debtors' estimate of
6 the value of those, rather than simply a reference to book
7 value.
8 Let's see if I missed anything. The analysis or the
9 information given by the debtor should also include any real
10 estate owned by WMI Investments or any of the nondebtor subs.
11 I think that's self-evident. And since you're doing an
12 analysis which includes the range of values of the NOLs, I
13 think that would include any tax consequences of the capital
14 contribution with respect to the WMB tax refund issue.
15 I think the ANICO plaintiffs' objection is largely
16 resolved or I've already decided that.
17 I think I've hit all of the objections. Did I miss
18 anybody's objection? Mr. Steinberg?
19 MR. STEINBERG: Your Honor, I think we had one final
20 objection which is that we're not Class 12 and we're not Class
21 21. Tell us what you think we are and the circumstances of it.
22 THE COURT: Well, I think that right now you have a
23 year to make that election.
24 MR. STEINBERG: That's the election to decide when I
25 want to give a third party release. I do have a plan that says

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1 you're either going to be Class 20 -- you're in Class 21 now --
2 THE COURT: Well, if you're in 21, you're not going to
3 give a release.
4 MR. STEINBERG: Right. This is not a release issue.
5 This is strictly a matter of they've -- the language where they
6 said, "You're going to be Class 21 unless you're Class 12 or as
7 otherwise ordered by the Court." But it doesn't say what
8 "otherwise ordered by the Court" means. Does that mean --
9 THE COURT: Well, don't you get --
10 MR. STEINBERG: -- there's another reason you're in
11 Class 21?
12 THE COURT: Let me assume somehow I put you in Class
13 18 for whatever reason after trial. I mean, you have your
14 election at that point.
15 MR. STEINBERG: Right, we --
16 THE COURT: Once you determine what distribution you
17 may or may not get from whatever class --
18 MR. STEINBERG: I think they've satisfied me on the
19 election. If Your Honor is satisfied that the language "or as
20 otherwise ordered by the Bankruptcy Court" is sufficiently
21 clear for the circumstance of this case, then I don't have
22 anything further.
23 THE COURT: Well, I think the election protects you
24 regardless of what I may --
25 MR. STEINBERG: That is true.

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1 THE COURT: -- decide. Yes?
2 MR. COFFEY: Your Honor, Jeremy Coffey of Brown
3 Rudnick. Just a quick point of clarification on your ruling of
4 nonsolicitation of Class 19. To be consistent with the theme
5 that we're not doing anything to day that affects conf - or
6 deals with confirmation issues and to be consistent with Your
7 Honor's opinion denying confirmation -- which, I apologize, I
8 didn't have when I was at the podium last, but I've gone back
9 and read. Your Honor's ruling did not apply to Class 19
10 specifically; it was a general proposition. And Your Honor
11 ruled that what is important is that each claimant within a
12 class had the same opportunity to receive equal treatment.
13 With -- in that spirit, I would ask that we preserve
14 for confirmation, the issue of whether or not their decision
15 not to solicit Class 19 in fact does give rise to confirmation
16 issues.
17 THE COURT: You can reserve your right to object to
18 confirmation.
19 MR. COFFEY: Thank you, Your Honor.
20 THE COURT: All right, anything else?
21 MR. ROSEN: Your Honor, I just wanted to address
22 timing. We will go back and make these changes as the Court
23 suggested. What is the process that the Court would like us to
24 do at that point? Submit a blackline to the Court so that you
25 can see the changes that we've made?

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1 THE COURT: Yes.
2 MR. ROSEN: That would be fine, Your Honor.
3 THE COURT: I will ask that you --
4 MR. ROSEN: Of course.
5 THE COURT: -- circulate it among all the objectors
6 and --
7 MR. ROSEN: Of course, we will.
8 THE COURT: -- give me a certification saying that
9 it -- they all agree that it addressed my rulings today.
10 MR. ROSEN: Or that they still --
11 THE COURT: Or disagree on why.
12 MR. ROSEN: That's fine, Your Honor.
13 MR. ARD: I apologize, Your Honor. One point of
14 clarification. I didn't hear you rule on the argument that the
15 release is coercive in so far as voters get notes of
16 distribution unless they give the releases.
17 THE COURT: I will reserve that for confirmation. I
18 don't think that's a disclosure issue and I don't think
19 anything --
20 MR. ARD: And just --
21 THE COURT: And I'll reserve the debtors' right to
22 argue that's already been decided.
23 MR. ARD: Okay, fair enough. And I just also wanted
24 to confirm. I think you said it earlier but I'm not sure if
25 you said it during the ruling that the distribution analysis

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1 should be done on a party by party basis. That is, for each
2 settlement noteholder, so you'd have one analysis based on --
3 THE COURT: Well, I suggested they could do it that
4 way but I think my ruling is that they need to do it on a -- at
5 least a class by class basis. And the analysis should be what
6 distribution is coming from the debtor. They can do a footnote
7 saying the effect that it may have on if the subordination
8 provisions are enforceable or not, but I don't think it needs
9 to be done on a creditor by creditor basis.
11 MR. ROSEN: Thank you, Your Honor. I believe that
12 concludes today's agenda.
13 THE COURT: All right. We'll stand adjourned then.
14 (Whereupon these proceedings were concluded at 2:21 p.m.)
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2 I N D E X
4 R U L I N G S
6 DESCRIPTION PAGE LINE
7 Debtors are ordered to participate in 151 6
8 mediation with Nantahala and Dime Warrant
9 Holders in April
10 Debtor does not need to attach appraisals to 167 1
11 the disclosure statement
12 Debtor's analysis should include any real 167 10
13 estate owned by WMI or nondebtor subsidiaries
14 and should also include any tax consequence
15 of the capital contribution with respect to
16 the WMB tax refund issue
17 Debtors to make changes, circulate blackline 170 9
18 to all objectors and present it to the Court
19 with a certification of counsel
20
21
22
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.
6 Digitally signed by Lisa Bar-Leib
Lisa Bar-Leib DN: cn=Lisa Bar-Leib, c=US

Reason: I am the author of this document
Date: 2011.03.22 16:16:18 -04'00'
7 ___________________________________
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: March 22, 2011
17
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25

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Washington Mutual (WMI) - 2011/03/21 HEARING TRANSCRIPT

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Page 1

2 UNITED STATES BANKRUPTCY COURT

4 Case No. 08-12229(MFW)

7 In the Matter of:

9 WASHINGTON MUTUAL, INC., et al.,

14 United States Bankruptcy Court

15 824 North Market Street

18 March 21, 2011

22 HON. MARY F. WALRATH

23 U.S. BANKRUPTCY JUDGE

24 ECR OPERATOR: BRANDON MCCARTHY

VERITEXT REPORTING COMPANY

2 HEARING re Motion of Debtors for an Order, Pursuant to Sections

3 105,502, 1125, 1126, and 1128 of the Bankruptcy Code and

4 Bankruptcy Rules 2002, 3003, 3017, 3018, 3020 (i)Approving the

5 Proposed Supplemental Disclosure Statement and the Form and

6 Manner of the Notice of the Proposed Supplemental Disclosure

7 Statement Hearing; (ii)Establishing Solicitation and Voting

8 Procedures; (iii)Scheduling a Confirmation Hearing; and

9 (iv)Establishing Notice and Objection Procedures for

10 Confirmation of the Debtors' Modified Plan

25 Transcribed by: Lisa Bar-Leib

VERITEXT REPORTING COMPANY

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 ALEXANDER NG, ESQ. (TELEPHONICALLY)

13 MARVIN MILLS, ESQ. (TELEPHONICALLY)

15 WEIL, GOTSHAL & MANGES LLP

16 Attorneys for the Debtors and Debtors-in-Possession

17 1300 Eye Street, NW

21 BY: ADAM P. STROCHAK, ESQ.

VERITEXT REPORTING COMPANY

2 RICHARDS, LAYTON & FINGER, P.A.

3 Attorneys for the Debtors and Debtors-in-Possession

4 One Rodney Square

5 920 North King Street

8 BY: CHUN I. JANG, ESQ.

9 MARK D. COLLINS, ESQ.

12 Special Litigation and Conflicts Counsel to the Debtors

14 1105 Market Street

18 BY: NEIL R. LAPINSKI, ESQ.

VERITEXT REPORTING COMPANY

2 QUINN EMANUEL URQUHART & SULLIVAN LLP

3 Attorneys for the Debtors and Debtors-in-Possession

6 New York, NY 10010

8 BY: BENJAMIN I. FINESTONE, ESQ.

10 AKIN GUMP STRAUSS HAUER & FELD LLP

11 Attorneys for the Official Committee of Unsecured

13 One Bryant Park

14 New York, NY 10036

16 BY: ROBERT A. JOHNSON, ESQ.

17 FRED S. HODARA, ESQ.

18 ROBERT J. BOLLER, ESQ. (TELEPHONICALLY)

19 CHRISTOPHER W. CARTY, ESQ. (TELEPHONICALLY)

VERITEXT REPORTING COMPANY

2 AKIN GUMP STRAUSS HAUER & FELD LLP

3 Attorneys for the Official Committee of Unsecured

5 2029 Century Park East