washington mutual (wmi) - transcript of the court hearing on 2/8/2011

8/7/2019 Washington Mutual (WMI) - Transcript of the Court Hearing on 2/8/2011

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1

2 UNITED STATES BANKRUPTCY COURT

3 DISTRICT OF DELAWARE

4 - - - - - - - - - - - - - - - - -*

5 In the Matters of: *

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

7 Debtors. *

8 - - - - - - - - - - - - - - - - -*

9 BROADBILL INVESTMENT CORP., *

10 Plaintiff, *

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

12 WASHINGTON MUTUAL, INC., *

13 Defendant. *

14 - - - - - - - - - - - - - - - - -*

15 MICHAEL WILLINGHAM and ESOPUS *

16 CREEK VALUE LP, *

17 Plaintiffs, *

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

19 WASHINGTON MUTUAL, INC., *

20 Defendant. *

21 - - - - - - - - - - - - - - - - -*

22

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VERITEXT REPORTING COMPANY212-267-6868 www.veritext.com 516-608-2400


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2 - - - - - - - - - - - - - - - - -*

3 WASHINGTON MUTUAL, INC. and *

4 WMI INVESTMENT CORP. *

5 Plaintiffs, *

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

7 PETER J. AND CANDANCE R. ZAK *

8 LIVING TRUST OF 2001 U/D/O *

9 AUGUST 31, 2001, et al., *

10 Defendants. *

11 - - - - - - - - - - - - - - - - -*

12

13 United States Bankruptcy Court

14 824 North Market Street

15 Wilmington, Delaware

16

17 February 8, 2011

18 10:31 AM

19

20 B E F O R E:

21 HON. MARY F. WALRATH

22 U.S. BANKRUPTCY JUDGE

23

24 ECR OPERATOR: BRANDON MCCARTHY

25

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1

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

3 Claims

4

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

6 Claims

7

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

9 to Claims

10

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

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

13 Intellectual Property

14

15 HEARING re Debtors Nineteenth Omnibus (Substantive) Objection

16 to Claims

17

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

19 Objection to Claims

20

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

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

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1

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

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

4 Situated

5

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

7 Fund, Ltd. (Claim No. 2206)

8

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

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

11

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


14

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


17

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

19 to Claims

20

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

22 to Claims

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1

2 HEARING re Debtors' Motion to Estimate Maximum Amount of

3 Certain Claims for Purposes of Establishing Reserves Under the

4 Debtors' Confirmed Chapter 11 Plan

5

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

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

8 Goldman, Sachs & Co., and Credit Suisse Securities (USA) LLC

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

10 the Bankruptcy Code

11

12 HEARING re Motion of Daniel Hoffman to Reconsider Order Denying

13 Request to Unseal Documents

14

15 HEARING re Motion of the Official Committee of Equity Security

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

17 Bankruptcy Rule 2004-1 Directing the Examination of the

18 Washington Mutual, Inc. Settlement Noteholders

19

20 HEARING re The Official Committee of Equity Security Holders'

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

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

23 Certification of Direct Appeal to the United States Court of

24 Appeals for the Third Circuit of the Opinion and Order Denying

25 Plan Confirmation

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1

2 HEARING re Motion for Reconsideration of Order Estimating

3 Maximum Amount of LTW Claims for Purposes of Establishing

4 Reserves

5

6 DISCOVERY and SCHEDULING CONFERENCE re Broadbill Investment

7 Corp., Nantahala Capital Partners, LP, and Blackwell Capital

8 Partners, LLC v. Washington Mutual, Inc. (Adversary Proceeding

9 No. 10-50911); Motion to Schedule a Discovery Conference Filed

10 by Blackwell Capital Partners, LLC, Broadbill Investment Corp.,

11 Nantahala Capital Partners, LP

12

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25 Transcribed by: Lisa Bar-Leib

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1

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

7

8 BY: BRIAN S. ROSEN, ESQ.

9 PATRICIA ASTORGA, ESQ. (TELEPHONICALLY)

10 KELLY DIBLASI, ESQ. (TELEPHONICALLY)

11 DIANA M. ENG, ESQ. (TELEPHONICALLY)

12 JULIO C. GURDIAN, ESQ. (TELEPHONICALLY)

13 DAVID LITVACK, ESQ. (TELEPHONICALLY)

14 ALEXANDER NG, ESQ. (TELEPHONICALLY)

15 RAHUL K. SHARMA, ESQ. (TELEPHONICALLY)

16



19 1300 Eye Street, NW

20 Suite 900

21 Washington, DC 20005

22

23 BY: ADAM P. STROCHAK, ESQ.

24

25

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4 100 Federal Street

5 Floor 34

6 Boston, MA 02110

7

8 BY: LISA N. CLOUTIER, ESQ.

9 VIRGINIA H. JOHNSON, ESQ.

10 (TELEPHONICALLY)

11

12 RICHARDS, LAYTON & FINGER, P.A.


14 One Rodney Square

15 920 North King Street

16 Wilmington, DE 19801

17

18 BY: CHUN I. JANG, ESQ.

19 MARK D. COLLINS, ESQ.

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2 ELLIOTT GREENLEAF

3 Special Litigation and Conflicts Counsel to the Debtors

4 and Debtors-in-Possession

5 1105 Market Street

6 Suite 1700


8

9 BY: NEIL R. LAPINSKI, ESQ.

10

11 QUINN EMANUEL URQUHART & SULLIVAN LLP


13 51 Madison Avenue

14 22nd Floor


16

17 BY: BENJAMIN I. FINESTONE, ESQ.

18 PETER E. CALAMARI, ESQ. (TELEPHONICALLY)

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2 PEPPER HAMILTON LLP

3 Attorneys for the Official Committee of Unsecured

4 Creditors

5 Hercules Plaza


7 Suite 5100


9

10 BY: DAVID B. STRATTON, ESQ.

11

12 U.S. DEPARTMENT OF JUSTICE

13 Office of the United States Trustee

14 844 King Street

15 Room 2207

16 Lockbox #35


18

19 BY: JANE LEAMY, TRIAL ATTORNEY

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2 ANDREWS KURTH LLP

3 A tt or ney s fo r Br oa dbi ll I nv es tm en t C or p.

4 450 Lexing ton Avenue

5 New York , NY 10017

6

7 BY: PAUL N. SILVERSTEIN, ESQ.

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9 ANDREWS KURTH LLP

1 0 A tt or ne ys f or B ro ad bi ll I nv es tm en t C or p.

11 450 Lexing ton Avenue


13

14 BY: JEREMY RECKMEYER, ESQ.

15 (TELEPHONICALLY)

16

17 ARCHER & GREINER, P .C .

18 At torneys fo r Danie l Hoffman

19 300 De laware Avenue

20 Sui te 1370

21 Wilmington , DE 19801

22

23 BY: CHARLES J . BROWN, I I I , ESQ.

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2 A R C H E R & G R E I N E R , P . C .

3 A t t o r n e y s f o r D a n i e l H o f f m a n

4 O n e C e n t e n n i a l S q u a r e

5 3 3 E a s t E u c l i d A v e n u e

6 H a d d o n f i e l d , N J 0 8 0 3 3

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8 B Y : J O H N V . F I O R E L L A , E S Q .

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1 0 A R E N T F O X L L P

1 1 A tt or ne ys f or W il mi ng to n T ru st C om pa ny

1 2 1 6 7 5 B r o a d w a y

1 3 N e w Y o r k , N Y 1 0 0 1 9

1 4

1 5 B Y : L E A H M . E I S E N B E R G , E S Q .

1 6 ( T E L E P H O N I C A L L Y )

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1 8 A R E N T F O X L L P

1 9 A tt or ne ys f or W il mi ng to n T ru st C om pa ny

2 0 1 0 5 0 C o n n e c t i c u t A v e n u e , N W

2 1 W a s h i n g t o n , D C 2 0 0 3 6

2 2

2 3 B Y : J E F F R E Y N . R O T H L E D E R , E S Q .

2 4 ( T E L E P H O N I C A L L Y )

2 5

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2 ASHBY & GEDDES, P.A.

3 Attorneys for the Official Committee of Equity

4 Noteholders

5 500 Delaware Avenue


7

8 BY: GREGORY A. TAYLOR, ESQ.

9

10 BLANK ROME LLP

11 Attorneys for Appaloosa Management, L.P.; Aurelius

12 Capital Management, LP; Centerbridge Partners, L.P.; Owl

13 Creek Management, L.P.


15 Suite 800


17

18 BY: VICTORIA A. GUILFOYLE, ESQ.

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2 BROWN RUDNICK LLP

3 Attorneys for the Ad Hoc Group of Trust Preferred Holders

4 Seven Times Square


6

7 BY: LAURA F. WEISS, ESQ.

8 (TELEPHONICALLY)

9

10 BROWN RUDNICK LLP


12 One Financial Center

13 Boston, MA 02111

14

15 BY: JEREMY B. COFFEY, ESQ.

16 (TELEPHONICALLY)

17

18 CAMPBELL & LEVINE, LLC


20 800 North King Street

21 Suite 300


23

24 BY: MARLA R. ESKIN, ESQ.

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2 DLA PIPER

3 Attorneys for FDIC, Receiver

4 1251 Avenue of the Americas


6

7 BY: THOMAS R. CALIFANO, ESQ.

8

9 EDWARDS ANGELL PALMER & DODGE LLP

10 Attorneys for the Law Debenture Trust Company of New York


12 15th Floor


14

15 BY: R. CRAIG MARTIN, ESQ.

16

17 FOX & ROTHSCHILD LLP

18 Attorneys for Wells Fargo Bank, N.A.

19 Suite 1300



22

23 BY: SETH A. NIEDERMAN, ESQ.

24 L. JOHN BIRD, ESQ.

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2 FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP

3 Attorneys for Appaloosa Management, L.P.; Aurelius

4 Capital Management, LP; Centerbridge Partners, L.P.; Owl

5 Creek Management, L.P.

6 One New York Plaza


8

9 BY: SHANNON L. NAGLE, ESQ.

10 MICHAEL B. DE LEEUW, ESQ.

11 STEVEN M. WITZEL, ESQ.

12 CARL I. STAPEN, ESQ. (TELEPHONICALLY)

13

14 KING & SPALDING LLP

15 Attorneys for Nantahala Capital Partners, LP



18

19 BY: ARTHUR J. STEINBERG, ESQ.

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2 KRAMER LEVIN NAFTALIS & FRANKEL LLP

3 Attorneys for Aurelius Capital Management, LP;



6

7 BY: THOMAS MOERS MAYER, ESQ.

8 JEFFREY S. TRACHTMAN, ESQ.

9

10 LANDIS RATH & COBB LLP

11 Attorneys for JPMorgan Chase Bank, N.A.

12 919 Market Street, Suite 1800


14

15 BY: ADAM LANDIS, ESQ.

16

17 LATHAM & WATKINS LLP

18 Attorneys for Centerbridge Partners, L.P.

19 885 Third Avenue

20 Suite 1000


22

23 BY: RICHARD D. OWENS, ESQ.

24 MARK A. BROUDE, ESQ.

25 AARON M. SINGER, ESQ. (TELEPHONICALLY)

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2 LATHAM & WATKINS LLP

3 Attorneys for Centerbridge Partners, L.P.

4 233 South Wacker Drive

5 Suite 5800

6 Chicago IL 60606

7

8 BY: DAVID S. HELLER, ESQ.

9

10 LOEB & LOEB LLP

11 Attorneys for Wells Fargo Bank, N.A.

12 345 Park Avenue


14

15 BY: VADIM J. RUBENSTEIN, ESQ.

16 WALTER H. CURCHACK, ESQ. (TELEPHONICALLY)

17

18 LOWENSTEIN SANDLER, PC

19 Attorneys for Lead Plaintiffs in Securities Litigation;

20 Lead Plaintiffs in MBJ Litigation

21 65 Livingston Avenue

22 Roseland, NJ 07068

23

24 BY: IRA M. LEVEE, ESQ.

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2 PACHULSKI STANG ZIEHL & JONES LLP

3 Attorneys for Washington Mutual Bank Bondholders

4 10100 Santa Monica Boulevard

5 11th Floor

6 Los Angeles, CA 90067

7

8 BY: DEAN A. ZIEHL, ESQ.

9 ALAN J. KORNFELD, ESQ.

10 JEREMY V. RICHARDS, ESQ.

11 (TELEPHONICALLY)

12

13 PATTERSON BELKNAP WEBB & TYLER LLP

14 Attorneys for Creditor, Law Debenture Trust Company of

15 New York



18

19 BY: BRIAN P. GUINEY, ESQ.

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2 PA UL , HA ST ING S, J AN OF SK Y & WAL KE R LL P

3 A tt or ney s fo r Ap pa loo sa M an ag em en t, L . P.

4 75 Eas t 55 th S t r ee t


6

7 BY: BARRY G. SHER, ESQ.

8 MARIA E. DOUVAS, ESQ.

9

10 PI LL SB URY W IN TH RO P SH AW PI TT MA N LL P

11 A tt or ney s fo r Ba nk of N ew Yor k Me llo n

12 1540 Broadway


14

15 BY: LEO T . CROWLEY, ESQ.

16 MARGOT P . ERLICH, ESQ.

17 (TELEPHONICALLY)

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19 SCHULTE ROTH & ZABEL LLP

2 0 A tt or ne ys f or O wl C re ek M an ag em en t, L .P.

21 919 Th i rd Avenue


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24 BY: ADAM C. HARRIS , ESQ.

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2 STUTMAN TREISTER & GLATT

3 Attorneys for El l iot t Management

4 1901 Avenue of the Stars , 12th Floor

5 Los Angeles , CA 90067

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7 BY: K. JOHN SHAFFER, ESQ.

8 (TELEPHONICALLY)

9

10 SULLIVAN & CROMWELL LLP

11 A tt or ne ys f or JP Mor ga n C ha se B an k, N .A.

12 125 Broad Street


14

15 BY: BRIAN D. GLUECKSTEIN, ESQ.

1 6 S TA CE Y R . F RI ED MA N, E SQ . ( TE LE PH ON IC AL LY )

17 B RU CE E . C LAR K, E SQ . (T ELE PHO NIC ALLY)

18 J OS HU A J . F RI TSC H, E SQ. (T ELE PHO NIC AL LY )

19 M . D AVI D P OSS ICK , E SQ . ( TE LEP HON ICA LLY)

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4 1888 Century Park East

5 Los Angeles, CA 90067

6

7 BY: ROBERT A. SACKS, ESQ.

8 HYDEE R. FELDSTEIN, ESQ.

9 (TELEPHONICALLY)

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13 1701 Pennsylvania Avenue, N.W.

14 Washington, DC 20006

15

16 BY: BRENT J. MCINTOSH, ESQ.

17 (TELEPHONICALLY)

18

19 SUSMAN GODFREY LLP

20 Co-Counsel to Official Committee of Equity Holders

21 560 Lexington

22 15th Floor


24

25 BY: SETH D. ARD, ESQ.

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2 SUSMAN GODFREY LLP

3 Co-Counsel to Official Committee of Equity Holders

4 1201 Third Avenue

5 Suite 3800

6 Seattle, WA 98101

7

8 BY: EDGAR G. SARGENT, ESQ.

9 JUSTIN A. NELSON, ESQ. (TELEPHONICALLY)

10

11 WHITE & CASE LLP

12 Attorneys for the Committee of Bondholders



15

16 BY: GERARD UZZI, ESQ.

17 GREGORY M. STARNER, ESQ.

18 KATHERINE MONAHAN, ESQ. (TELEPHONICALLY)

19 THOMAS MACWRIGHT, ESQ. (TELEPHONICALLY)

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2 YOUNG CONAWAY STARGATT & TAYLOR, LLP

3 Attorneys for FDIC, Receiver

4 The Brandywine Building

5 1000 West Street

6 17th Floor


8

9 BY: M. BLAKE CLEARY, ESQ.

10

11 ALSO APPEARING:

12 NATE THOMA, IN PRO PERSONA

13 On Behalf of Himself as Shareholder of Various WMI

14 Securities

15 105 South Jefferson Street

16 Wenonah, NJ 08090

17

18 BY: NATE THOMA, PRO SE

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WASHINGTON MUTUAL, INC., et al.

1 P R O C E E D I N G S

2 THE CLERK: All rise. You may be seated.

3 THE COURT: Good morning.

4 MR. ROSEN: Good morning, Your Honor. Brian Rosen,

5 Adam Strochak, Weil Gotshal, on behalf of the debtors. With us

6 here also representing the debtors, Mr. Collins and Mr. Jang

7 from Richards Layton and Mr. Finestone from Quinn Emanuel.

8 Your Honor, although it's not on the agenda, I just

9 thought it would be helpful to start with just a brief update

10 as to where we are in the process so the Court is aware. Your

11 Honor, this morning, the debtors filed the modified sixth

12 amended plan, corresponding supplemental disclosure statement

13 as we had indicated, together with all of the exhibits to those

14 documents.

15 Your Honor, when we were before you on January 20th,

16 the Court had, based upon the discussions that we had then and

17 the timing that we thought we would be filing that, given us

18 some tentative dates for a disclosure statement hearing and

19 confirmation. And we had been in contact with the Court's

20 chambers to talk about possible other dates and, in fact, the

21 Court had set aside one and we missed that one again. We don't

22 want to shorten any of the bankruptcy rule timetable of the

23 twenty-eight days, Your Honor. So with the filing that we made

24 this morning and based upon our discussions with the Court, the

25 Court has been able to provide us with a disclosure statement

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1 hearing for 10:30 on March 21st. And we will be sending out

2 later today the notice of that hearing. And obviously, that's

3 well in excess of the twenty-eight days that are required by

4 the new bankruptcy rules.

5 Likewise, Your Honor, and for the benefit of the

6 people here in the courtroom, we've been told that, based upon

7 the Court's availability, that if the Court were to approve the

8 disclosure statement that the confirmation hearing will be held

9 on May 2nd at 9:30. And that was because of the Jewish

10 holidays intervening and, I believe, the Court's calendar

11 itself being jammed.

12 So that is the time frame that we are looking for

13 right now, Your Honor. As I indicated, we will be sending out

14 the notice of the confirmation -- excuse me -- of the

15 disclosure statement hearing and the objection period later

16 today.

17 With that, Your Honor, I believe that takes us to item

18 number -- and I want to make sure I get it right -- 32 -- 31,

19 excuse me, in the agenda which is on page 32. And the first

20 item on the calendar is the motion of Daniel Hoffman to

21 reconsider. So I'll -- Mr. Hoffman's counsel's here.


23 MR. FIORELLA: Good morning, Your Honor. John

24 Fiorella of Archer & Greiner appearing for Daniel Hoffman.

25 Your Honor, this is a motion for reconsideration of the prior

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1 motion to unseal a submission by the equity committee on which

2 the Court determined -- or, more accurately, the debtor

3 consented to the appointment of an examiner.

4 I think that the issue that the reconsideration was

5 originally based on was the belief that the particular document

6 had been disclosed to the United States trustee, the FDIC and

7 other interested parties and chambers. The debtor represented

8 in its response that that did not, in fact, occur. And Your

9 Honor certainly knows that it did not, in fact, occur.

10 THE COURT: Correct.

11 MR. FIORELLA: So that is withdrawn as a basis --

12 THE COURT: Okay.

13 MR. FIORELLA: -- for the reconsideration.

14 THE COURT: No documents were exchanged in chambers.

15 MR. FIORELLA: Now -- but where we are is that I think

16 Your Honor's prior decision was based, in part, upon the belief

17 that there was a joint defense or common interest privilege

18 that attached to the document. And we've submitted in the

19 moving papers the Teleglobe decision which makes clear that

20 those privileges just don't exist in this case and that what

21 we're left with is the attorney/client privilege.

22 The history is that the privileged documents were

23 disclosed to the debtors under Your Honor's order under Federal

24 Rules of Evidence 502(d). And that preserved the privilege.

25 As to that, we don't have a problem. What our problem is that

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1 when the equity committee submitted the privileged documents to

2 the Court and sought a motion to have them sealed that that is,

3 in fact, a waiver of the privilege because Section 107 does not

4 really apply to documents which are privileged. It applies to

5 basically nonprivileged documents which should be protected for

6 some other reason that's particular to the debtor. And we

7 renew our request that the Court consider unsealing the

8 documents because the privilege was, in fact, waived. It was

9 waived --

10 THE COURT: But wasn't this argument already made?

11 MR. FIORELLA: Yes, Your Honor.

12 THE COURT: So why should I reconsider? I think I

13 already ruled on that.

14 MR. FIORELLA: Your Honor did rule on it but Your

15 Honor also ruled on the issue of that there was another

16 privilege which attached which was the common interest

17 privilege.

18 THE COURT: But I ruled on that. I mean, if you

19 disagree with me, you can appeal it. But what basis is there

20 to reconsider? There's no new law or new facts.

21 MR. FIORELLA: I don't believe that the Teleglobe

22 where Judge Ambro laid out the nature and the distinction

23 between that privilege and the attorney/client privilege was

24 before the Court specifically. And that based on that

25 decision --

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1 THE COURT: Well, but that ruling had come out before

2 my ruling.

3 MR. FIORELLA: That's correct, Your Honor. But it was

4 not an issue that had been raised, I believe, by either party

5 in the motion and the response but was rather raised by Your

6 Honor in her decision. And that the basis that Your Honor's

7 consideration of that privilege was contrary to what Judge

8 Ambro explained the privilege to be and that once the parties

9 disagreed and made the submission to the Court that the

10 privilege was waived.

11 THE COURT: As between the two of them --

12 MR. FIORELLA: No. I be --

13 THE COURT: -- but not as to third parties.

14 MR. FIORELLA: I believe as to third parties, Your

15 Honor. Once it's before the Court, it's before the Court and

16 then it becomes open.

17 THE COURT: I don't -

18 MR. FIORELLA: I don't believe that the privilege

19 continues to exist between the two parties. And, in fact, that

20 privilege never applied to these three parties.

21 THE COURT: I don't know that the Teleglobe said that.

22 MR. FIORELLA: Your Honor, I think what the Teleglobe

23 case did say was that there has to be other common interest or

24 joint representation. And in this case, there is neither joint

25 representation or common interest. In fact, these parties are,

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1 if anything, adversarial. So it's hard to understand how a

2 document given from one party to another in this context could

3 be deemed to be either a joint defense or a common interest

4 privilege.

5 THE COURT: Well, again, I don't think any new facts

6 or new law has come down since my ruling. So I don't think

7 this is proper for a motion for reconsideration. You could

8 have made these arguments at the hearing.

9 MR. FIORELLA: Your Honor, I believe -- there is no

10 new decision and there are no new facts. The new facts which

11 we believed existed, we have to concede, do not, in fact,

12 exist.

13 THE COURT: All right. Does the debtor want to add

14 anything?

15 MR. FINESTONE: We're happy to rest on our papers,

16 Your Honor.

17 THE COURT: Yeah. I 'm going to deny the motion for

18 reconsideration. I don't think there's any basis --

19 MR. FIORELLA: Thank you, Your Honor.

20 THE COURT: Okay.

21 MR. ROSEN: Your Honor, that takes us to item 32

22 which, I believe, Mr. Ard is going to be handling on behalf of

23 the equity committee. Your Honor, we do have an order prepared

24 denying the last motion of Mr. Hoffman. May I approach?

25 THE COURT: You may. Thank you.

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1 MR. ARD: Good morning, Your Honor.


3 MR. ARD: Seth Ard of Susman & Godfrey on behalf of

4 the equity committee. As Your Honor is aware, the equity

5 committee is seeking discovery primarily into the insider

6 trading allegations made against the settlement noteholders.

7 In Your Honor's decision denying confirmation, this Court twice

8 cited these allegations as a reason for not deciding an open

9 issue. In particular, this Court found that the insider

10 trading allegations were relevant to the release issue and the

11 interest rate issue. So the equity committee, taking its cue

12 from this Court, seeks discovery to get to the bottom of these

13 allegations. And, frankly, as fiduciaries to the estate and to

14 the equity, we think we would have been remiss had we not

15 investigated an issue that this Court twice flagged as

16 significant and unresolved.

17 There are two steps in adjudicating a discovery

18 dispute like this one. The first question is whether the

19 discovery seeks relevant information. If so, the second

20 question is whether there's some special reason to deny

21 discovery such as a new burden or some other ground to warrant

22 a protective order. In applying these two simple tests, we

23 think this motion presents a simple matter.

24 On the first question, discovery is clearly relevant.

25 It clearly seeks relevant information. As discussed above

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1 briefly and as reflected in our papers, this Court explicitly

2 recognized the relevance of these issues to the interest rate

3 issue and to the release issue. And yet, somewhat incredibly,

4 the settlement noteholders argue that "the alleged conduct is

5 simply irrelevant to the plan process".

6 It's worth briefly rebutting the argument that they

7 give for this outlandish claim. At least one settlement

8 noteholder argues that the allegations cannot possibly be

9 relevant to the interest rate issue because the facts in Your

10 Honor's decision in In re Coram are different from the facts

11 here. Now this argument goes nowhere. To begin, we can't tell

12 how closely the facts in this case resemble the facts in In re

13 Coram until discovery is had. Further, this Court has broad

14 equitable powers to set the interest rate. And the federal

15 judgment rate may be warranted for any number of equitable

16 reasons that go beyond what was discussed in In re Coram. And

17 finally, and most important, it should be enough to note that

18 this Court disagreed with the settlement noteholders by

19 flagging this as an important unresolved issue that bears on

20 the interest rate question.

21 Now some noteholders argue that the release issue is

22 foreclosed because the settlement noteholders will not obtain a

23 release under the new plan. Now, I guess a new plan was filed

24 this morning. We haven't seen it and don't know what terms are

25 in the new plan. But it's worth noting that last time around,

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1 at the confirmation hearing, the debtors couldn't explain which

2 parties were being released under the opaque release language

3 in that plan. And similarly here, we fear that the language in

4 the new plan will be opaque enough that we won't know until

5 confirmation perhaps whether the settlement noteholders are, in

6 fact, being released in any way. So the release issue is, and

7 likely will continue to be, very much an open issue.

8 Finally, the allegations on insider trading are also

9 relevant to the possible disallowance of some of the settlement

10 noteholders' claims.

11 In sum, the discovery clearly seeks relevant

12 information.

13 Now, second, the burden of producing this relevant

14 information is not high. Indeed, at the last hearing, the

15 settlement noteholders, in an attempt to delay the hearing

16 until today, promised that they would be able to produce this

17 request for discovery within two weeks. By definition,

18 discovery that can be produced within two weeks is not unduly

19 burdensome to produce.

20 Further, the settlement noteholders declined to meet

21 and confer on this issue as is required by Rule 26(c) prior to

22 getting a protective order. And they fail to explain in any

23 detail in their papers why producing these documents would

24 cause them any undue burden.

25 On the merits, the requests are not too broad or

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1 overly burdensome. We request, in sum, information relating to

2 their trading history, their acquisition of confidential

3 information, their plans for reorganized WMI and any applicable

4 trading walls they may have erected. This information should

5 be readily available to the settlement noteholders as they

6 represented to this Court at the last hearing.

7 Rule 26(b)(2)(C) is also instructive in this context.

8 It asks the Court to balance the burden and expense of a

9 discovery against "the amount in controversy, the parties'

10 resources, the importance of the issues at stake in the action

11 and the importance of discovery in resolving the issues.

12 Now here, the amount in controversy in the interest

13 rate dispute alone is several hundred million dollars. The

14 settlement noteholders' resources are vast. And the request of

15 discovery is the only way to resolve the allegation flagged by

16 this Court.

17 So, in sum, there's simply no reason to deny this

18 request on the grounds of undue burden or expense. Nor is the

19 request too intrusive. Notably, the debtors already sought and

20 obtained the detailed trading history of every member of the

21 equity committee. Every member of the equity committee was

22 required to sit through a full day deposition that went into

23 their personal and business lives. The discovery here pales in

24 comparison to the discovery that was propounded there. And any

25 concern for privacy can be cured by an order that seals the

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1 depositions or an order that protects the confidentiality of

2 any information that they give.

3 Now, that should end the matter. The discovery is

4 relevant, not burdensome. But the settlement noteholders make

5 a few side arguments that feature prominently in their papers

6 that are worth just briefly addressing. The settlement

7 noteholders argue that the equity committee lacks the proper

8 factual foundation to go forward with this discovery. Now that

9 argument is doubly fought.

10 First, the settlement noteholders mistake the law.

11 Under the liberal discovery afforded by Rule 26 and Rule 2004,

12 there's no need to make a threshold showing that the other side

13 is likely to have the relevant information that's being sought.

14 The settlement noteholders make much of the fact that Rule 2004

15 is more restrictive than Rule 26. But they misstate the nature

16 of the restriction. Rule 2004 is more restrictive than Rule 26

17 in that Rule 26 requires a threshold showing of relevance

18 whereas Rule 2004 does not. But relevance isn't the issue

19 here. The issue is whether a factual foundation is required.

20 And the settlement noteholders confuse matters by suggesting

21 that Rule 26, unlike Rule 2004, requires a threshold showing

22 that the other side is likely to have the factual information.

23 They cite no case to that proposition. And their

24 interpretation of Rule 26 plainly runs afoul of the

25 interpretation the Supreme Court gave in Hickman v. Taylor that

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1 verify that they, in fact, adhered to ethical trading wall

2 procedures.

3 And finally, Your Honor, our right to discovery has

4 not expired. The prior period of discovery was geared to the

5 prior confirmation hearing which resulted in a denial of the

6 prior plan. Now a new plan must be put forward which will

7 require a new hearing. The settlement noteholders give no

8 reason in law, equity or practice to preclude discovery in the

9 new plan especially with respect to the unresolved issues that

10 this Court flagged in its decision denying the prior plan.

11 If the record were closed, as they suggest, this Court

12 would not have twice cited this unresolved allegation as a

13 ground for not deciding the release and interest rate issue.

14 In In re Coram, this Court followed the same path and allowed

15 post denial discovery into the issues that were left open by

16 denial of the prior plan.

17 Unless Your Honor has any questions, I 'll rest on the

18 papers and sit down.

19 THE COURT: Thank you.

20 MR. ARD: Thank you, Your Honor.

21 MR. SHER: Good morning, Your Honor. My name is Barry

22 Sher from Paul Hastings. I represent Appaloosa. I have spoken

23 with counsel for the other settlement noteholders,

24 Centerbridge, Owl Creek and Aurelius, so we can try to limit

25 the number of speakers.

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1 THE COURT: Okay.

2 MR. SHER: I'm going to address just the main point

3 that we made in our papers on behalf of Appaloosa which is this

4 factual basis that we just heard discussed for this

5 speculation, as we put it in our papers, is demonstrably false

6 just based on the record as we have it here today. Mr. Mayer,

7 counsel for Aurelius, will then address procedural and

8 bankruptcy issues relating to the history of the case and what

9 we think is going on here with this request for discovery. And

10 then counsel for Centerbridge and Owl Creek will only address

11 any follow-up that's specific to their clients.

12 Now, Your Honor, what do I mean when I say that this

13 id demonstrably false on its face? As the Court is aware, this

14 motion is based on an objection that was filed by a shareholder

15 back in November, November 19, Mr. Nate Thoma. He also came to

16 the Court and spoke here in this courtroom on December 7th.

17 And I want to explain, using that which is the basis for the

18 motion, why the equity committee does not have a good faith

19 basis or good cause to proceed here to seek an examination of

20 Appaloosa or the others. And I'm not going to focus on for now

21 which rules apply, 2004 or Rule 26. Counsel for Aurelius will

22 do that. Whichever rules are used, the motion ought to be

23 denied.

24 Your Honor, the essence of this issue is this

25 statement that there was heavy trading of the PIERS securities

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1 of 2009 to March 2010, this is the period in the history of

2 these cases where the most positive information was publicly

3 announced to the market. If you take a look at the chart I

4 just handed up, you start back in September of 2009 when the

5 act that led to 2.6 billion dollars additional NOLs coming back

6 to this estate gets passed by the houses of Congress and then

7 in November gets signed into law. And if you were to extend

8 this chart back, you'd see this being introduced into the

9 houses back in January. You then see some price increase as a

10 result of that positive information.

11 You then see an extremely important fact that occurs

12 December 30 of 2009. That's when the debtor filed its

13 operating report estimating an additional 2.6 billion dollars

14 in NOLs. If you take a look at this l ine --

15 THE COURT: Does this chart purport to include all the

16 facts on which I would make a determination as to whether or

17 not there was insider trading?

18 MR. SHER: What it does is include all of the material

19 public information that is out there that the Thoma objection

20 ignores.

21 THE COURT: But is that the only relevant information

22 that I would consider?

23 MR. SHER: Well, there isn't any other material

24 information that is mentioned anywhere in any of these papers.

25 All there is --

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1 THE COURT: Because there has been no discovery as to

2 what other information the settlement noteholders might have

3 had, isn't that true?

4 MR. SHER: There hasn't been. But should there be --

5 I guess my question --

6 THE COURT: That 's the issue. Should there be

7 discovery.

8 MR. SHER: Right. But why should i t be -- just

9 because there's an increase in the stock price -- I mean,

10 remember what the Thoma objection is based on. There's this

11 big increase in January that is supposedly unexplained. If you

12 look at what happens here, it's just based on the filings of

13 the debtor.

14 THE COURT: Is i t? Do I know that? How do I know

15 that?

16 MR. SHER: Well, there's no way that any party can

17 state --

18 THE COURT: Unless there's discovery.

19 MR. SHER: No, no, no. Even with discovery, no

20 individual party can explain what occurred in the marketplace.

21 The only thing you can look at --

22 THE COURT: Well, we can explain the activities of

23 your clients perhaps through discovery of them.

24 MR. SHER: Well, why would that be limited to my

25 client, for example?

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1 THE COURT: Well, I 'm not suggesting it should be.

2 MR. SHER: Okay. I mean, it just seems a little odd

3 to say when there's no factual basis for this objection -- and

4 the reason I say -- well, the reason I say that is the

5 objection focuses on the increase in the stock price in January

6 and says there is no publicly available information that could

7 explain that increase.

8 THE COURT: No. I think Mr. Thoma's objection focused

9 on the increase in your client's positions not solely on the

10 increase in price.

11 MR. SHER: Well, if you take a look at the objection

12 itself filed on November 19, what he says is that "there was no

13 particularly positive public information that the price

14 movement can be attributed to".

15 THE COURT: Okay. I don't have it in front of me.

16 But --

17 MR. SHER: Okay. Well, I'll just --

18 THE COURT: -- I don't think that was his only

19 allegation.

20 MR. SHER: But it is the main one. In other words,

21 there's no allegation in there of any particular -- there are

22 two -- there's no allegation against Appaloosa with respect to

23 any particular trade. And there's almost nothing with respect

24 to any others.

25 Look, my point is that you have to look at the basis

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1 is that the -- that Appaloosa points out some public

2 information that could explain these price movements. I have

3 to say that when a filing is made -- and it sounds like we'll

4 be back here based on what you just said -- but when a filing

5 gets made on December 30, a 2.6 billion dollar filing, and the

6 price moves up immediately as a result of that, some

7 recognition of the impact of that filing on the debtors' estate

8 and the value and its impact on price movements in the

9 securities should be recognized. And to just say that some

10 information was out there is to dramatically underplay what

11 information was there.

12 With that, Your Honor, I 'm going to turn it over to

13 Mr. Mayer.


15 MR. MAYER: Thank you, Your Honor. Tom Mayer from

16 Kramer Levin for Aurelius Capital Management. When I was last

17 here, Your Honor stated that issues at the hearing on the plan

18 the debtors have just filed -- and I haven't seen it but I have

19 some notion of what's in it, I think -- would be limited to the

20 issues posed by the modifications themselves and the issue that

21 was left open and this trading issue that was in question, we

22 left open. And you've already indicated that you think

23 discovery may be appropriate in connection with that issue.

24 Our view, which I will not spend much time on since

25 Your Honor has indicated where you're going, is that that

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1 actually isn't appropriate. It's a second bite at the apple.

2 These issues were all raised and everybody had a chance to take

3 discovery and people decided not to do so. And so, you're

4 giving the equity committee a second bite at the apple. And if

5 you take a look at what they've asked for, it is an enormous

6 bite because there is no time limitation and there is almost no

7 scope limitation on the discovery they've asked for. They are

8 going to require people to go back over two years worth of

9 history in this case and go over again the good faith and the

10 process that led to the JPMorgan settlement that has already

11 occupied what nine months of objections and the examiner's

12 report at the cost of approximately six million dollars and

13 many days of this Court's trial time. And all of it gets

14 reopened again.

15 Because -- and this gets to relevance, Your Honor.

16 And I am going to take a crack at persuading you that, in fact,

17 they have not borne their burden on relevance on discovery.

18 I've listened to the equity carefully today. I listened to

19 them carefully two weeks ago and I've read their papers. And I

20 can't fathom why anything they want discovery on bears any

21 relation to what happened in this case. People cut a deal.

22 People negotiated that deal. I've been waiting for them to say

23 that this trading allegation that they have had any effect on

24 timing, on amount, on anything that matters to people who are

25 before this Court waiting to get distributions for this case.

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1 The reason that we distinguish Coram, this is the anti-Coram.

2 This is a situation where every day that goes by, my client as

3 a PIERS holder loses money. Every day that goes by, JPMorgan

4 holds on to our money and pays nothing for it. Every day that

5 goes by, more interest accrues on debt that is senior to us and

6 we pay the price. This is not like Coram where the allegations

7 bore some relationship to what actually happened in the case.

8 The equity committee has now had several opportunities to try

9 to link the issues they want discovery on with what actually

10 happened here. And they have failed to do so. If there was

11 trading, if there was no trading, why does it matter to them?

12 There's no allegation they're in the money. They're raising

13 valuation. In fact, if you take a look at the omnibus reply

14 that they filed, they have a footnote that says, oh, and we

15 reserve the right to relitigate valuation to the nth degree.

16 Your Honor, it depends on what kind of hearing you

17 have in mind for May 2. I keep thinking it's a hearing on a

18 modified plan with a limited set of issues. But if the equity

19 committee gets its way, this is going to be a hearing on the

20 whole entire case again because it isn't just about what did

21 people know when they traded where, incidentally, we feel

22 highly confident that will be no issue but it will be extremely

23 expensive to establish. How many years of e-mails are we going

24 to have to look at? How many fights are we going to have over

25 how many people get deposed at various different firms? If we

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1 need to prove our bona fides, we're going to need to take

2 depositions of other people to prove that we didn't interfere

3 with this process which, in addition to the unfairness of

4 proving a negative, doesn't respond to any allegation by the

5 equity that anything wrong happened to them or to this case.

6 All they say is that there was trading and they have,

7 I believe, unsubstantiated allegations that there was trading

8 based on nonpublic information. But the trading wall analysis

9 today is completely irrelevant. That has to do with official

10 committees. I don't think Your Honor wants to render a

11 decision that every unofficial committee that comes to a case

12 is going to come to you with a trading wall order. People

13 trade because they are free to do so when they don't have

14 public information. The information they have changes over

15 time. But this is all a sideshow. It's a sideshow because it

16 has nothing to do with how much the equity is getting, how much

17 the PIERS are getting, how much the sub debt is getting, how

18 much the senior debt is getting and when they're getting it.

19 The two are completely unrelated. That's why we are exercised

20 about this exercise because it's going to be very expensive.

21 And the scope of what they've asked for is months and months of

22 discovery.

23 With all due respect to the characterization of Mr.

24 Witzel's statements, one, the issue of discovery was not before

25 the Court at the time. Two, Aurelius, as I indicated at the

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1 hearing, has not itself made a determination as to how long it

2 would take to comply with these discovery requests. And Mr.

3 Witzel does not speak for us on that score. And third, no

4 lawyer can talk about how long it takes to comply with a

5 discovery order until you know what kind of discovery is being

6 offered. Your Honor, this is an enormous discovery task. And

7 frankly, it has nothing to do with this case because every day

8 that goes by, it costs the alleged traders money. We're not

9 the ones delaying this case; the equity committee is. And the

10 equity committee has no skin in the game. That gets to the

11 valuation point.

12 You'll notice that they reserve the right to

13 relitigate valuation. They want all of our valuations right

14 now. They have not even alleged that they're in the money.

15 The only way valuation came up in the context of the

16 confirmation hearing is that you had a rights offering with

17 some large PIERS holders who were going to participate and some

18 small PIERS holders weren't. And Your Honor said that's not

19 right. There are valuation issues that are implicated by large

20 PIERS holders having the ability to participate and small PIERS

21 holders not having the ability to participate.

22 THE COURT: I don't think the valuation issue was

23 limited to that. The valuation was based on the fact of

24 whether the plan was confirmed before or after January 1.

25 MR. MAYER: Yes. But the issue of valuation, at least

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1 as I recall Your --

2 THE COURT: Well, let me posit this. The valuation

3 comes back that the reorganized debtor is worth ten billion

4 dollars. Isn't that something I have to take into

5 consideration when I determine who is getting the equity in

6 that entity and whether or not those creditors are receiving

7 more than they're entit led to under the plan?

8 MR. MAYER: Your Honor, if the equity committee had at

9 any time relevant to this hearing even alleged that that was

10 the case, I would say assuming that you view this hearing as a

11 completely new hearing that, of course, you have to determine

12 what the equity is. But they haven't even alleged that they're

13 in the money. I add, parenthetically, given the trading prices

14 of the PIERS, that seems highly unlikely. But again, if this

15 is going to be a completely new hearing on a completely new

16 plan, we're not talking May 2. We're talking another nine

17 months.

18 THE COURT: Well --

19 MR. MAYER: I hope that 's not where we're going

20 because nothing in the record justifies that. The equity

21 committee simply hasn't made the allegations that it needs to

22 make. It is a failure of argument and pleading here. That's

23 why we say --

24 THE COURT: Well , but we're not there yet.

25 MR. MAYER: -- what discovery they take is not

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1 relevant.

2 THE COURT: Nobody's filed objections to the plan.

3 MR. MAYER: Yes, Your Honor. That is correct.

4 THE COURT: So --

5 MR. MAYER: But we don't think it's appropriate to

6 order this kind of discovery in a situation where the only

7 allegations that have been made seeking discovery relate to an

8 activity, namely, the trading appliance that the equity

9 committee cannot even explain how it relates to what is

10 happening in this courtroom. They said they don't know whether

11 Coram applies until they take discovery. Are we going to open

12 up the entire negotiating history of this case so that they can

13 try to fi t in within the facts of Coram?

14 THE COURT: Well, Coram stated that the Court has

15 equity. It's not limited to the facts of Coram.

16 MR. MAYER: Your Honor, your ruling is, of course,

17 yours to make. But I do not myself believe that the law on

18 post-petition interest is such that the Court has a roving

19 commission to decide whether or not people are good people and

20 deserve interest and people who are bad people don't. There

21 has to be some link between the conduct that is observed and

22 what happened in the case. The Third Circuit's law on that is

23 clear. Even in a case where the facts were as egregious as

24 Papercraft, the Third Circuit said you have to find a link

25 between what people are alleged to have done and how it

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1 affected other parties in the case. And that link isn't even

2 alleged here.

3 Let me just check my notes for a second, Your Honor.

4 Excuse me.

5 (Pause)

6 MR. MAYER: Your Honor, the equity committee itself

7 has said that the stakes are very high and they're right about

8 that. The stakes are hundreds of millions of dollars.

9 Unfortunately, the stakes here are hundreds of millions of

10 dollars that will either be received by PIERS holders or will

11 be received by subordinate and senior debt holders in the form

12 of additional interest. That's what's before the Court.

13 That's what's so disturbing about the issue that's raised by

14 the equity. The contract rate of interest is a material term

15 to the deal that we cut and that this Court approved. And

16 again, if Your Honor wants to hold a completely new hearing, I

17 guess there are no issues that are foreclosed and all issues

18 will be open. And all parties will be free to raise whatever

19 issues they wish to raise including issues that various parties

20 decided not to raise and not to litigate because we had a deal.

21 Now if the deal no longer holds and the hearing is completely

22 open then, of course, everybody is free to raise whatever

23 issues they want.

24 That 's not what we want, Your Honor. We're not

25 interested in months of litigation. We're not interested in

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1 reopening everything. We have our deal. We'd like to try to

2 enforce that deal. And we don't think that the facts necessary

3 to question that deal have even been alleged before this Court.

4 And the subject of discovery has nothing to do with that deal.

5 I think that 's all I have unless the Court has

6 questions.

7 THE COURT: No, thank you.

8 MR. OWENS: Your Honor, may it please the Court. Very

9 briefly, Richard Owens of Latham & Watkins on behalf of

10 Centerbridge. I'd like to -- I don't want to repeat what my

11 co-counsel have said earlier to the Court. But I do really

12 want to hone in on two issues that I think are very important

13 here.

14 And the first is I heard Your Honor express a concern

15 about the propriety of the trading that may have occurred here

16 based on the allegations that have been made. And I also heard

17 what the equity committee said in saying essentially there's no

18 threshold showing that they need to make to obtain discovery.

19 They only have to show relevance and burden. And I think it's

20 important to step back for a moment and think about that in the

21 overall context of American jurisprudence which is the burden

22 is being shifted here on us (a) to prove a negative; and (b) to

23 essentially prove our innocence before any real material

24 showing of any reason to suspect guilt is put before the Court.

25 So I think really the threshold question to the Court

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1 scrutiny, particularly in light of what we've submitted to the

2 Court and therefore discovery should not go forward. We

3 shouldn't be in a position, I think, Your Honor, in this case

4 or in any case that comes along after this where any party to

5 the bankruptcy can stand up at any point in time in the

6 proceedings and scratch their head and say, gosh, I looked at

7 the market and it looked like there might be insider trading

8 here. So what I really want to do is take discovery of

9 everybody who traded in the market at any point in time during

10 the bankruptcy or --

11 THE COURT: I don't think the discovery request is

12 that broad. The discovery request is limited to those who

13 might have had insider information. And that is the crux of

14 the allegation. It's not that parties traded and --

15 MR. OWENS: Well, let's then --

16 THE COURT: -- the price went up. That wasn't the

17 allegation.

18 MR. OWENS: Let me address that then, Your Honor.

19 What that would essentially say is that it's now fair fame to

20 take discovery of any party in a bankruptcy proceeding who may

21 or may -- who there is some colorable reason to think may have

22 insider information at any point in time during their

23 participation in the markets and at any point in time during

24 their participation in the case. Because while the discovery

25 request is limited to four parties, four creditors, the scope

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1 of the discovery is not limited to any particular time period.

2 It's not limited to any particular class of securities. It's

3 not geared to any particular allegation of the possession of a

4 particular bit of information. It isn't -- said all the

5 trading at any time and any communication they ever had with

6 anyone about the debtor. And on the strength of the

7 allegations that have been made, Your Honor, that's simply

8 unfair and the Court ought not to grant that but should instead

9 grant only such discovery as these specific allegations that

10 have been made that are plausible suggest appropriate. And

11 with respect to Centerbridge, the only specific allegation that

12 has been made is with respect to the March 12th date. And

13 there, I think we've demonstrated to the Court that that

14 allegation is implausible and there should be no discovery then

15 as against Centerbridge and we should move on with the germane

16 issues to plan confirmation. Thank you, Your Honor.


18 MR. HARRIS: Good morning, Your Honor. Adam Harris

19 from Schulte Roth & Zabel on behalf of Owl Creek Asset

20 Management. And I'm not going to belabor the record, Your

21 Honor. I do want to rise to say that the comments that have

22 been made by my colleagues representing the other settlement

23 noteholders we certainly ascribe to. And with respect to Owl

24 Creek in particular, Your Honor, it goes without saying this

25 Court has taken the allegations raised by Mr. Thoma seriously.

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1 demonstrative does show, there's plenty of public information

2 coming about the status of that legislation throughout all of

3 2009 and into -- and obviously, the impact of that, the debtors

4 reported in their operating statement after the passage of the

5 bill at the end of 2009.

6 Your Honor, just a couple other points to make. And

7 that is, the settlement noteholders here were not the only

8 people in this case that had access to material nonpublic

9 information. Various other parties were engaged in

10 negotiations with the debtors during various points in the case

11 in other creditor constituencies represented by other people.

12 They were restricted for some periods of time. They were

13 unrestricted for some periods of time. But we were not the

14 only people who were out in the marketplace. And the question,

15 as Mr. Owen put it to you, Your Honor, is what is the necessary

16 threshold in order to start down the path of investigation of

17 the sort that appears to be headed in this case against these

18 four particular settlement noteholders. There's got to be some

19 threshold in order to go down these types of paths, Your Honor.

20 Otherwise, we're literally opening up floodgates to anybody who

21 wants to walk in and say I'm shocked that this is happening

22 here. We really need to investigate i t.

23 There's an emphasis in bankruptcy, as Your Honor well

24 knows, on people trying to get together and cut the kinds of

25 deals that were cut in this case. We want to incentivize

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1 people to sit in the room and look at the economics here, look

2 at the timing and try and resolve cases in a consensual manner.

3 If the import of that, Your Honor, of engaging in that kind of

4 productive conduct is that you end up on the wrong side of a

5 Thoma type allegation, as we have here, what is the incentive

6 for noteholders like us in the future who have large economic

7 stakes to sit down and try and work out these arrangements to

8 engage to try to get material nonpublic information and to work

9 with companies and other constituencies to try and get to the

10 right result?

11 THE COURT: The allegation of wrongdoing is not that

12 you've received nonpublic insider information in an effort to

13 settle the claims that you held. The allegation that troubles

14 the Court is that you used that information to trade in the

15 debtors' securities. And I don't know that anybody would

16 suggest that that's proper. Just 'cause other people may be

17 doing it is not a defense.

18 MR. HARRIS: And I'm not suggesting it is, Your Honor.

19 And I understand the nature of the allegation. But the issue

20 that I'm presenting to the Court is one of -- it becomes a sort

21 of binary decision by significant creditors in the case. Do I

22 want to put myself in the position of receiving material

23 nonpublic information and thereby open myself up to the

24 potential allegations such as have been raised by Mr. Thoma if

25 I later decide to trade in the securit ies or --

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1 THE COURT: Well, there are other protections that you

2 can insti tute to protect yourself from that.

3 MR. HARRIS: And we do, Your Honor. The question is

4 whether there should be a broad range investigation into what

5 those are based on the limited amount of information allegation

6 that has been raised here. There does not seem to be any

7 threshold to opening the door by making these allegations. And

8 there's certainly no downside to the person who's making them

9 because Mr. Thoma is not going to incur any expense here having

10 made these allegations. The equity committee is certainly not

11 going to incur any expense. All that is going to be shifted on

12 to the settlement noteholders in this case to have to respond

13 to what, frankly, are fairly broad-reaching discovery requests

14 on matters that go well beyond trading and get into issues like

15 what are our valuations with respect to WMI and its affiliates.

16 How does that bear on the question of whether we did or didn't

17 trade on material nonpublic information. We either --

18 THE COURT: No. But --

19 MR. HARRIS: -- had information traded or we didn't.

20 THE COURT: No. But that may bear on the issue of

21 whether or not -- what the true valuation of the reorganized

22 debtor is. That's a relevant issue still open.

23 MR. HARRIS: I -- Your Honor, I understand that but I

24 beg to differ on whether an investor's particular view of that

25 actually bears on -- what we think it's worth bears on

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1 tailored. But when I go back and look at the requests and I

2 see a request like document request number 15 which says "All

3 documents and communications related to WMI or WMB since

4 September 1, 2008. That's a very broad request. And we would

5 not want to see when we come back for our next omnibus hearing

6 that we have another discovery dispute here because the equity

7 committee has reverted to the broad blunder bust discovery

8 request that we see here rather than what they've represented

9 as narrowly tailored. So we urge the Court to require the

10 equity committee to keep its discovery request narrowly

11 tailored so we can keep to our plan schedule. Thank you.


13 MR. THOMA: Good morning, Your Honor. I don't know if

14 now's the appropriate time for me to come up or --

15 THE COURT: You may speak, Mr. Thoma.

16 MR. THOMA: Mr. Thoma -- oops, sorry -- Nate Thoma,

17 retail creditor. I just -- I'm sorry. I have to apologize. I

18 missed the earlier arguments from counsel. So if I repeat

19 anything, by all means, please stop me.

20 THE COURT: Okay.

21 MR. THOMA: And I think a bit of historical review

22 might be warranted. I wasn't the first to suggest that a

23 further scrutiny of the creditors in this case was needed.

24 JPMorgan Chase was. They filed their motion to compel certain

25 parties to comply with Federal Rule 2019 on August of 2009.

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1 Basically, in response, docket number 1515, the noteholders

2 group objected and they noted that in March 2009 certain of the

3 noteholders participated in negotiations with JPM, the FDIC,

4 the debtors, the official committee of unsecured creditors and

5 other noteholders represented by Fried, Frank, Harris, Shriver

6 & Jacobson LLP. As a condition to participation in those

7 negotiations -- in the negotiations, the participating

8 noteholders were required to execute limited confidentiality

9 agreements which, in effect, precluded them from trading in WMI

10 securities or required them to establish an observe the

11 internal screening procedures during the term of the

12 confidentiality agreement.

13 So given that Fried Frank, as of January 2nd, 2009,

14 only claim they represent Appaloosa and Centerbridge -- it's

15 docket number 256 -- the question remains were one or both at

16 the negotiating table at that point. Also given that White &

17 Case also claimed to represent Aurelius, docket number 102, as

18 of October 20th, 2008. Were they a party to negotiations or

19 received nonpublic information as a result. Finally, there

20 appears to be some laxity with regards to many parties in

21 interest in compliance with Rule 2019 not just those

22 represented by Fried Frank and White & Case. And given that

23 Owl Creek appears in White & Case's August of 2009 first

24 supplemental verified statement, docket number 1518, when did

25 they join the group and, likewise, were they a party to

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1 negotiations and/or receive nonpublic information as a result.

2 JPMorgan had similar concerns. They stated in docket

3 number 1535, "The significance of the Rule 2019 disclosure

4 requirement is highlighted here by the fact that the Washington

5 Mutual noteholders group is apparently buying and selling large

6 quantities of WMI notes and may be changing their positions in

7 those securities based upon the events in this case. And I

8 don't recall anybody threatening JPMorgan with discovery or

9 claiming that this inference was demonstrably false or

10 defamatory. I may have missed i t, though.

11 JPMorgan continues on to say "Disclosure of what

12 securities these noteholders own, when and what price they

13 acquired them, what they have sold or additionally purchased

14 and at what price is critically important to the Court and the

15 parties in interest in assessing" the level -- "(1) the level

16 and nature of their interest in this proceeding; (2) the bias

17 and motivation behind the positions they are urging the Court;

18 and (3) their credibility."

19 They discuss the last criterion further but given the

20 remarks by the various parties here, especially at the October

21 18th hearing, I'm disinclined to believe this group is even the

22 smallest modicum of credibility.

23 In any case, during this exchange, Aurelius and Owl

24 Creek ostensibly left the group represented by White & Case and

25 joined the group represented by Fried Frank, Appaloosa and

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1 Centerbridge, in October of 2009. The Court went on to grant

2 JPMorgan's motion to enforce compliance with Rule 2019. But

3 this group, before represented by Fried Frank, never fully

4 complied. They did eventually five months after the Court's

5 ruling submit, docket number 3761, the first supplemental

6 verified statement of Fried Frank. Apparently, JPMorgan and

7 all the other parties were satisfied one way or another with

8 these results and the issue was probably moot in JPMorgan's

9 eyes as they had -- both parties had agreed to over three

10 months by that point.

11 But in multiple in-court representations and in

12 various filings made by their counsel, these parties claim to

13 have been intimately involved in areas of these proceedings not

14 accessible to the public which insofar as those representations

15 are accurate, by definition, this would have made them privy to

16 nonpublic information. The fact that the confidentiality

17 agreements were required for the March 2009 discussions further

18 reinforces this fact. They have also freely admitted to

19 continuing the trade in the debtors' securities throughout

20 these proceedings with noted exceptions recently made by

21 certain of the settlement noteholders, certain very specific

22 time frames likely covered by the confidentiality agreement

23 noted in the White & Case filing cited previously.

24 I haven't seen any discussion regarding whether or not

25 confidentiality agreements were utilized during the

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1 negotiations beginning in November 2009. I likewise haven't

2 seen any mention of any steps taken or systems utilized that

3 would insulate the trading activities of the parties involved

4 from undue influence as a result. But I maintain that the date

5 of interest with regards to this matter is actually March of

6 2009. Knowledge of the various parties' positions, the FDIC,

7 JPMorgan, the debtors, with respect to any potential

8 settlement, which was not public information, should preclude

9 any further trading activity in any of the debtors' securities

10 regardless of whether or not the public is aware of the tax

11 carryback legislation or its likelihood of being signed into

12 law. It's precisely this knowledge that would allow an

13 informed party to know how the resulting billions of flow to

14 the estate would affect the likelihood of recovery for the

15 debtors' various securities.

16 So, in my opinion -- and I could be wrong here. It's

17 not just a question of timing. It's not just a question of

18 price but how the overall results of those tax benefits might

19 affect the estate.

20 That's all, Your Honor. Thank you.

21 THE COURT: Thank you, Mr. Thoma.

22 MR. COFFEY: Good morning, Your Honor. Jeremy Coffey

23 with Brown Rudnick. We represent the TPS consortium. We'd

24 like to just make a couple of points. First of all, Your

25 Honor, I've seen the papers and I've heard spoken today the

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1 allegation the equity committee's constituency is out of the

2 money and therefore the gravity of the situation should be

3 ignored. Your Honor, let me start out with Your Honor's aware

4 that we have alleged that we don't own WMI preferred stock,

5 that we own the trust preferred securities. Your Honor has

6 ruled on that by order dated January 7th. With all due

7 respect, we disagree with that and we're appealing that. But

8 for the time being, we do have a vested interest in what

9 happens to WMI preferred stock. So it's in that context that I

10 rise.

11 While I agree it's going to be a challenge to get

12 value to common equity, preferred equity, I think, is a

13 different story, Your Honor, for a couple of different reasons.

14 First, Your Honor's opinion notes the problematic nature of the

15 valuation that was attached to the last plan and indicates

16 that's going to have to be updated and reviewed in connection

17 with whatever new plan goes forward. Your Honor, to us, it's

18 not a coincidence that the valuation corresponds with the

19 places in the capital structure where the settlement parties

20 happen to have significant holdings. So we think under a true

21 independent real valuation of the debtors' assets, it's not

22 unlikely that value would trickle down to preferred holders

23 such as my group is purported to be.

24 Second, on the point of us being out of the money,

25 Your Honor, is that the Court's recognition of the potential

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1 wrongdoing came in the context of what is the appropriate rate

2 of interest to be paid to post-petition claim holders. Your

3 Honor, we calculate that to be, if you go from contract rate to

4 federal judgment rate, potentially a 700 million dollar issue.

5 So if you add that back into the pot that's being distributed

6 through the waterfall, we think that clearly covers any

7 impaired debt and trickles value down to preferred stockholders

8 as well. So again, we think there's a real chance of us being

9 in the money depending on how this goes forward.

10 And finally, with respect to us being out of the

11 money, let me -- we don't know w