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VERITEXT REPORTING COMPANY www.veritext.com
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 10-13800-scc - - - - - - - - - - - - - - - - - - - - -x In the Matter of:
INNKEEPERS USA TRUST, ET AL.,
Debtors.
- - - - - - - - - - - - - - - - - - - - -x
U.S. Bankruptcy Court One Bowling Green New York, New York
August 2, 2011 2:06 PM
B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Gershom Benayahu Motion to Allow Five Mile Bidder's Application Pursuant to Sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code for Allowance and Payment of Administrative Expense Claims filed by Daniel A. Fliman on behalf of Five Mile Capital Partners LLC [1643]
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: JORDAN WISHNEW, ESQ. MORRISON & FOERSTER LLP Attorneys for Official Committee of Unsecured Creditors 1290 Avenue of the Americas New York, NY 10104 BY: JOHN D. PENN, ESQ. HAYNES AND BOONE LLP Attorneys for Midland Loan Services 201 Main Street Suite 2200 Fort Worth, TX 76102 BY: BRIAN S. LENNON, ESQ. A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtors 601 Lexington Avenue New York, NY 10022
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DECHERT LLP Attorneys for Lehman ALI 1095 Avenue of the Americas New York, NY 10036
BY:
NICOLE B. HERTHER-SPIRO, ESQ.
KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP Attorneys for Five Mile 1633 Broadway New York, New York 10019
BY:
ADAM L. SHIFF, ESQ. DANIEL A. FLIMAN, ESQ.
SCHULTE ROTH & ZABEL LLP Attorneys for Cerberus Capital Management LP 919 Third Avenue New York, NY 10022
BY:
ADAM C. HARRIS, ESQ.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. LENNON:
P R O C E E D I N G S Mr. Lennon, how are you? Good afternoon, Your Honor. Im well.
Brian Lennon on behalf of the debtors.
Your Honor, Im pleased
to report to you that weve gone effective on the plans of reorganization for the Ontario debtors, the Anaheim debtors, and nine of the sixteen remaining debtors. THE COURT: MR. LENNON: All right. We have another seven remaining debtors
that will go effective after the fixed floating plan. THE COURT: MR. LENNON: those entities. THE COURT: MR. LENNON: All right. Your Honor, were also working with Okay. Because they hold equity interest in
Cerberus and Midland towards closing the fixed floating plan hopefully on Friday. There seems to be a lot of momentum
towards that date, and were hopeful that we will be able to close. Your Honor, we do need some assistance from the Court with respect to closing, however. THE COURT: MR. LENNON: Okay. First, Your Honor will recall that
Chartis had objected to confirmation. THE COURT: Right.
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MR. LENNON:
And as part of the confirmation order, we
put off the Chartis objection in the hopes of negotiating a consensual stipulation. We have, what we believe, are final
drafts of the stipulation, out and circulated to the parties, and were hopeful that well be able to submit that to the Court some time this week. THE COURT: MR. LENNON: All right. Your Honor, a second issue has arisen.
During the cases, some of the inter-company operating leases between debtors had expired, and the debtors went ahead in the ordinary course of business and entered into new leases, or extended them, or replaced them as needed. You know, although were confident that the lease transactions are all a hundred percent done in the ordinary course of business, the purchaser and Midland as the lender to the purchaser, has asked that we request Court approval of those lease transactions, I guess retroactively. Your Honor, in order to keep the timetable and keep the trains on track for Friday, what Id propose is that we submit an order to show cause and a motion seeking approval of those lease transactions at some point this week. Were
working on the motion now, and hoping that well be in a position to file it hopefully no later than tomorrow morning. THE COURT: MR. LENNON: Okay. So tomorrows Wednesday.
Uh-huh.
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THE COURT: cause returnable? MR. LENNON: afternoon. THE COURT:
So when would you want the order to show
If it could be returnable Thursday
Thats what I thought you would say.
Yes,
it can be returnable Thursday afternoon. MR. LENNON: THE COURT: Excellent. All right. And this has been socialized
among all the parties? MR. LENNON: Its been socialized between Midland,
Cerberus, and the debtors so far, and we will reach out to other parties today and just let them know that -THE COURT: MR. LENNON: THE COURT: All right. -- this is the path that were pursuing. All right. And youre going to do it in
one motion covering all the leases? MR. LENNON: Itll be one motion covering all the
I think theres in the neighborhood of twenty leases
that needs to be addressed. THE COURT: Okay. All right. Well keep an eye out
MR. LENNON:
And with that, Your Honor, Ill turn the
podium over to Mr. Shiff -THE COURT: MR. LENNON: All right. -- with respect to the Five Mile motion.
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THE COURT:
Thank you, Mr. Lennon.
Mr. Shiff, would you like to sit? MR. SHIFF: I appreciate it. I think Id like to try
to start up there and then if it becomes an issue -THE COURT: All right. Well, Im going to -- its
really unnecessary for me, so I just want to ensure that youre comfortable. MR. SHIFF: Okay. I appreciate that, Your Honor.
Well see if we can try to start up there and see how long it goes. Thank you. THE COURT: All right. Yeah, Im not really going to
let you stand up very long.
Mr. Harris -- even Mr. Harris
would agree to let you sit down. MR. HARRIS: In fact, Your Honor, the sooner he sits
down the happier Im going to be. THE COURT: MR. SHIFF: Im sure thats the case. Good afternoon, Your Honor. Good afternoon. Adam Shiff of
Kasowitz, Benson, Torres & Friedman on behalf of Five Mile. Your Honor, were here today on the application pursuant to Section 503(b) of the Bankruptcy Code seeking the allowance and payment of administrative expense claim. The
motion was originally filed about two months ago on June 8th with an original hearing date set of June 23rd. The hearing
has subsequently been adjourned two times, and we are now here today.
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The total amount sought in the application is approximately 718,000 dollars. And as the Court will recall at
-- from seeing the papers, essentially the way that number was calculated, was there was a total expenses sought of 3.7 or so, leaving aside certain items that were backed out, such as fees incurred in connection with preparing the substantial contribution claim and a few other matters. Theres three million dollars, as the Court will recall, thats due and owing subject to, you know, reasonableness review and the like under the bid procedures order, so the amount were seeking is the admin expense above and beyond that is the 718,000 dollars. Your Honor, as we state in our papers, and I think as everyone has acknowledged throughout these cases, the result here has been terrific at the fixed floating debtors. And this
is what well do, of course, with the guidance of the Court as well as the efforts of certain parties, including and we think very specifically, Five Mile. THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: Let me -In the papers --- interrupt you right away and -Sure. -- I think, you know, everybodys been
through this for quite some time and can certainly see where things ended up versus where they began. And you make the
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point in your papers specifically with respect to the evolution of the bid about the carving out of the Seven Sister properties. MR. SHIFF: THE COURT: Thats correct, Your Honor. So you make the point that, in effect, you
say, look, obviously there was increased recoveries to the fixed and floating pool, but this was also a really good thing for the remaining debtors, took the Seven Sisters out -MR. SHIFF: THE COURT: and that. So why is that your application is only seeking payment, if you will, from the fixed and floating debtors as opposed to from -- as opposed to the remaining debtors? MR. SHIFF: THE COURT: MR. SHIFF: The remaining debtors. Its -Threw out the Seven Sisters. -- set the stage for the Chatham (ph) bid
As well as the fixed and floating debtors. Thats an excellent question, Your Honor,
and when we first prepared the application as I indicated back in June, quite frankly, it was our understanding actually at that time, that these debtors were certainly flush with cash collateral. We thought we had the support of Midland and
Lehman, and we thought quite frankly, that it might lead to less of -- less controversy, as it were, to seek it there. Certainly in hindsight, I mean today and certainly we could amend the papers, one could seek an administrative
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expense claim against the estates, as I think maybe claims in this case thats happened, subject to a sort of distribution or allocation later. Our thought is thought that, quite frankly, that the 700,000 dollar or so number that were talking about, that its more than justified just at the fixed floating debtors, so that the relief could certainly be granted at those debtors, even without considering the others. Certainly though, we are not adverse, obviously, if it makes more sense to -- and obviously those people then have the right to be heard -THE COURT: MR. SHIFF: heard today so -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Right. -- we couldnt tag them today as it were. Right. But certainly we could or would be Well, the chairs empty, were -Right. No, no, which theyre not being
amenable if the Court thought it made sense or the parties made sense to come back and amend it to seek it across all to be allocated. But we do think in and of itself, because of all
the items we mentioned, were not going to belabor it now going through what they are, that the 700,000 dollars is more than justified at these debtors, I mean as -- you know, whether its the 173 million incremental consideration and all the other
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items. So Im not sure if -THE COURT: MR. SHIFF: reallocating or -THE COURT: MR. SHIFF: THE COURT: No, I just was -No, no, its a fair question. As I was reading the application, you Okay. -- theres a view that we should be
know, and I start out reading the story of these cases, I think quite properly you point to the evolution of the bids, and that very important moment when the Seven Sisters were liberated and then that led to additional value. MR. SHIFF: Understood. And, Your Honor, I think one
of the other issues is, you know, we might have confronted -one of the issues that the debtors had raised in their papers, Im not sure its an issue at this point, was the issue of, you know, being a creditor, of being an actual creditor of certain entities in order to collect. And Im not sure quite frankly
if we -- we would be a creditor at some of those entities, I believe, because they would be jointly and severally liable for some of these prepetition DIP obligations that have been funded on September 24th or whenever it got funded. But there also might be some -- there might have been some other, I think, gaining issues that may have been a little more complicated and we thought given -- again, where I thought
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this was headed number one, but also given the demonstrable benefits or undeniable benefits of these two estates in particular that we thought there was a sufficient basis. THE COURT: All right. But when you said you --
Lehman and Midland didnt oppose, that was because as the plan and deal is structured, Cerberus has to pay for this. MR. SHIFF: theres no question. Well, Your Honor, sitting here today I think the point Mr. Harris, you know, I mean, just this sort of review, the
has made in his papers.
way the basic plan plumbing works, and quite frankly, were probably a little further than that, than some of the other people in this room who are obviously working towards a Friday closing. The way it originally was supposed to work or essentially though is the cash collateral that was in the company -THE COURT: MR. SHIFF: Right. -- as of the effective date would And
essentially go to Midland and Lehman respectively.
Cerberus had agreed to pick up any administrative expense claims, presumed -- you know, that exists, whether its us or somebody else. At the time we filed the motion as I had indicated, it was our belief, quite frankly, that there was still going to be actually the cash collateral of those entities, and it might
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have been Midland and Lehmans oxes that would have been gored, if anyone, and that even with that, we had their consent to having gotten it done. So I was only bringing that up in terms of why were focused on these two debtors. In terms of the point that
Cerberus raises and the Courts now eluded to, Your Honor, we think one of the key points, and its interesting because Mr. Harris and I both cite to the same provision to support our respective arguments -THE COURT: MR. SHIFF: Right. -- and you know, we say, hey, this
provision supports a hundred percent, right. You know, its -- our view, certainly as expressed in the papers, that part of what the deal encompasses and we would stay one step further, part of what demonstrates the tremendous deal that we were able to get pushed forward for the estate was a requirement that we were prepared to do as bidder that provided that whoever the bidder is would get saddled, so to speak, with any -- you know, over and above any additional administrative expenses. And thats a provision that everyone had to sign on to eyes wide open, it happens -THE COURT: MR. SHIFF: THE COURT: Right. Theres --
-- to be now --- a footnote in the term sheet and Ive
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heard the avoidance of doubt footnote that says that To the extent the fixed floating debtors incur administrative expenses in excess of the ten million dollar estimate, the successful bidder shall be required to fund such amounts. MR. SHIFF: Right. And, Your Honor, I do believe the
bid procedures order even more specifically than the footnote -THE COURT: MR. SHIFF: Okay. -- in the tax claim said, and we quoted I
think in paragraph 24 of our reply that the successful bidder shall be required to fund all unpaid allowed administrative expenses of the fixed floating debtors estates that accrue on or before the effective date. So its our view now that we get to this point that this notion that either were surprised, or you know, its not fair or whatever it is, is really a misnomer, because one of the provisions -- an important provision in the plan, and not done through testimony but when we were negotiating the plan, that was an important provision for the debtors. And whether
it was because someone might show up one day with a 503(b) or because the estate incurred additional professional fees, or because in the life of the cases something happened and they were forced, you know, a horrible situation, the hotel burns down without insurance, and you have to sort of pick it up. Obviously, everybody has whatever MAC (ph) rights they
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wouldve had -THE COURT: MR. SHIFF: Right. -- if something wouldve gone up so big,
but when youre talking about 700,000 dollars on about 1.1 billion, certainly I think its hard to argue that thats a MAC type of situation. Its an incremental -- I tried to do the
math on my way down here, but I got lost in all the little decimal points wed have as to what percentage that is. THE COURT: MR. SHIFF: The 700 over the one billion? 700 on 1.1 billion.
So -- I mean, so the fact is that that is a provision that was obviously negotiated. I guess we each have different
interpretations of what that means, but to us, the meanings clear that if this Court allows an administrative expense claim for whatever reason, it should get paid. And to think about it in another context, if you will, right now, and I dont know what other administrative expense claims theyre dealing with and what their closing schedules look like, but I mean, were sort of set up here, we're the outsiders, were the bad guys, were coming at the end maybe, were sort of being looked at, hey up to the line were okay, youre below the line. You can reshuffle those eggs, and we could be on line three and someone else moves down. You know, again a
professional fee, another expense item.
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THE COURT:
Well, I think its a different point,
I think that the point is more, and we can get to this
is that this is categorically different, and we have to go back to March 11th, and we have to go back to the evolution of the bid procedures, and the dropping of the break-up fee, and the specific language in the 503(b) waiver, which as you recall, you and I talked about at the hearing. And I mean, you each -- everyone here is taking turns telling me that the other sides points are hyper technical, which is somewhat amusing, but be that as it may, I think you really have to drill down into what happened when the break-up fee went away, and we were left with the expense reimbursement, and the discussion of the 503(b) waiver, and Five Miles resting its hat on the fact that the defined term, competing bidder, does not include Five Mile. MR. SHIFF: so let me describe. Correct, Your Honor, but let me -- okay, So one issue as we talked about, as we
sort of addressed already is admin expense, whos responsible, whos not. THE COURT: MR. SHIFF: Right. And my -- as I was positing to you is if
we make the list, we shouldnt necessarily be number ten, we could just as easily be number three. The question is whether
or not we make the list, or whether there was some kind of waiver or the like --
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THE COURT: MR. SHIFF:
Right. -- that happened in connection with the As to the 503(b) waiver, Your Honor,
bid procedures hearing.
I think you do answer it as we would answer it, youve read our papers, that the defined term competing bidder clearly dealt with competing bidders, as opposed to the original bidder, and then the original bidder plus whoever competing bidders become qualifying bidders all became the qualifying bidders. But I think also if you look at the colloquy that we had that day, which I think focused more than just the 503(b) because I think youll see interspersed in that discussion words like break-up fee, expense reimbursement, getting bidder protections as it were to anybody. I think if you look at
that, Your Honor, I think throughout the colloquy, both you and me, and I can tell you what was in my head, not what was in your head obviously, talked about bidders coming in. I mean, I think on page 22, Your Honor, when you first asked the question to me after Mr. Sathy was done, you say, I see that it reflects the provision on page 5 that any bidder that comes in is not going to have the right to request expense reimbursement. THE COURT: Right. Because my concern at that moment
was that we would be keeping someone out from coming in because they couldnt get expense reimbursement or the 503(b). MR. SHIFF: No, I remember exactly.
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Right? Right. And, Your Honor, I think that was
And I think you said, in other words, any competing bidder And I think as we
shall be deemed to waive was the question.
continued the colloquy, and I think, you know, as you flip through it, I mean again, youve said consistent with what you just said now, you wanted to, on page 27, Is it possible we need to encourage interested parties to come in, and you were very concerned about the other parties. And then I say, For example, weve eliminated the break-up fees, now page 28, For example, now someone else can come in now. And I then said my rationale and I answered the
question, I said, Im wearing my bidder hat, but for the estate you shouldnt be worried because it doesnt seem like you need to write any add incentive at this point for people to do -- to do that, just for people to come in. We were talking about new people. read all of them, Your Honor. I dont want to
I mean, its only a five-paged
transcript, and you can read it. THE COURT: MR. SHIFF: Right. Im just -- let me read one more and then,
You know, I think we said at this point, I think its really -- its sort of a price to entry, but the price is a little low, the works been done, its a 50-day period. So, Your Honor, what I would -- I thought what we were
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certainly discussing was answering your question that we didnt want to keep -- close the door on people, and you know. THE COURT: But you were asking me to approve a It didnt It
provision that said the up to three million dollars.
say plus any substantial contribution claim we might make. didnt say that. MR. SHIFF: Right. But, Your Honor, I think there
are two different provisions that were talking about here. THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Okay. That the objectors raised. Right. One, I think is the provision that, you
know, period finished end, bidders including Five Mile waived your 503(b), that was it, and thats what you said shift and you spoke to Judge Chapman and thats maybe -- thats what the maybe bid procedures order says, even though I dont think thats what it says, so thats one thing. I think its a separate argument -THE COURT: Well, the bid procedures order everyone -And
it clearly says competing bidder and its a defined term. competing bidder does not include Five Mile. -- the words -MR. SHIFF: THE COURT: MR. SHIFF: Right, okay. -- say that. And I think thats what were relying
I think that that
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on -THE COURT: point. MR. SHIFF: Okay. Well, we would suggest to Your But I dont think thats the end of the
Honor on that provision before you get to the three million for a moment, we would suggest to you specifically thats what the words say, so thats what it should say, and that our colloquy, which I would normally say, shouldnt detract from the words or not, because the words are still the words that got entered even after the colloquy and the like, but even the colloquy as I started to read to you, some of the examples I think are consistent with that notion. So then you asked the question, right, which is what theres a separate provision in there that says, you get three million dollars as an expense reimbursement. THE COURT: MR. SHIFF: Right. Now, Your Honor, as to that provision, you
know, what we believe and I say believe, believe it now, believed it then, although quite frankly sitting here that day on March 11th, I wasnt thinking about being the losing bidder, we think that that provision provided that we had an agreement with the debtor that they would support and agree to pay three million dollars on the effective date with no hoops and hurdles, reasonably -- you know, reasonable, but not -THE COURT: Right.
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MR. SHIFF:
-- applications and fights and stuff, just
give them a bill, they look at it, it looks good, well sign you a check. But we dont think in any way that that provision provided any other type of waiver of anything else. And, you
know, when we say -- and we ask why, and I think there are a few -- a couple of reasons why. One, I mean, it doesnt say that, but before when wed even read into it, if you look at the paragraph in the term sheet -- well, let me take a step back. In the actual bid
procedures order after the paragraph that provides that we shall receive up to three million dollars, the next paragraph, for example, addresses the break-up fee, right, that we talked about. THE COURT: MR. SHIFF: Right. The break-up fee we waived, theres no
And you know what the order says, notwithstanding
anything to the contrary, and a whole bunch of other stuff, any other document recently followed with the Court, Five Mile/Lehman shall not be entitled to a break-up fee under any circumstances in connection with the Five Mile/Lehman bid. If I came in today and said, Judge, you know, you owe us that break-up fee, we waived it, theres no question about it. It doesnt say anything about that in the 503(b) and not
only does it not say anything about that in the 503(b), we just
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went through the language of the bid procedures order, that talks about how -- we talk about how a competing bidder waived the 503(b), it didnt say a competing bidder and the original bidder. And then -THE COURT: MR. SHIFF: to -THE COURT: MR. SHIFF: Go ahead. Go ahead. All right. But let me ask you a question.
Im sorry, just give me one more, just
And I think the third point on that as to
why we think it specifically is not a cap, is because if you look at the term sheet that is attached to the bid procedures order thats incorporated, that has the box -- the stalking horse fee and it talks about, you know, all you get is this, the liquidated damages, and concludes that nothing in the stalking horse fee section of the term sheet shall limit any rights and remedies at law or in equity that the plan sponsors have or may have as creditors of the company. And as the debtors point out -THE COURT: All right. But thats mixing apples. In
my view, thats mixing apples and oranges. MR. SHIFF: Well, Your Honor, respectfully, I
understand that you think thats not what it was intended to do, but I think if youre -- and I dont want to use the hyper technical terms, because Your Honors clearly had enough of those already, but if youre talking about hey, youre boxed in
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because of this box says, this is all you can do.
Well, I
think you have to look at what the rest of the box says you can do or you cant do. I dont think you need to get there,
because I think as the order and the competing bid term are all give you the flexibility, and the fact that it just doesnt say anywhere theres a cap, gives you all the flexibility. But if someones going to hang their hat on this little box here, then I think you have to read the whole box that allows -- that doesnt limit the right, which as the debtors point out is a creditor type right. THE COURT: Under your view though, and this is true
about Cerberus being obligated to pick up this tab, and consistent with your view about their not being a waiver, theres no cap on this amount other than reasonableness, right? MR. SHIFF: THE COURT: The only -Suppose we had gone another round in LNR
vs. CRES, suppose any number of things had happened, it could easily be that your additional fees and expenses were a million five, and you would tell me the same thing, which gets you into the predicament I think that either Mr. Sathy raises in his papers or perhaps it was Mr. Harris, that creates a moving target for a competing bidder to bid against, because essentially you have a blank check for the expenses. MR. SHIFF: Okay. Your Honor, first of all I think as
you point out, obviously things are always limited to
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reasonable -THE COURT: MR. SHIFF: contribution. Right. -- and what would be a substantial
And just to give you an example, lets take the
LNR CRES one, just as a hypothetical, which doesnt answer your basic question, Ill come back to it. THE COURT: MR. SHIFF: Right. Lets go three more rounds right now,
right, well, I mean if this didnt close on Friday it doesnt matter, right. THE COURT: MR. SHIFF: True. I mean, it just doesnt matter, so itd be
hard for me to say then we have to keep Midland in to get the deal closed once it closes. So Im not sure that that would
really be an issue, or we could really have a basis to seek substantial contribution for something like that. As to the amount, you know, obviously theres the reasonableness as the Court points out, and number two, I mean, we also have to bear in mind, listen, this is the nature -this is the -- everyone came and bid on a contract. The
contract that Mr. Harris was criticizing us for having agreed to it, but the contract said, you shall pick up admins. I
mean, it couldve said you pick up cap ends, you have a bucket of twenty-five, if it gets over twenty-five million you have a walk right, or it has something like that. It didnt have that
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for reasons either because we didnt think of it, or because we were smart, or because we thought we had such a good handle on the case that we knew what would come in. But, I mean, that was the nature of this deal. It
couldve been capped that way, and I think the only other item to get out of it, if it does get to something ridiculous, fifty million, a hundred, you know, whatever it is, I mean, obviously there -- it gets to the points of MACs and change in circumstances. But I think there is nothing that would
specifically limit it, if its 700, you know, it was, you know, nine hundred or -- you know, I think we might have a hard time, obviously on reasonableness and the like. THE COURT: Okay. All right. I may have some more
questions after I hear from the others. MR. SHIFF: Okay. Is there anything else youre going
to need from me at this point, or thats -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. LENNON: THE COURT: MR. LENNON: THE COURT: I think were good. You can take --
I will hobble back slowly and -All right. Very well.
-- be back in a second. All right. Thank you, Mr. Shiff.
Afternoon again, Your Honor. Good afternoon. Brian Lennon on behalf of the debtors. Mr. Lennon, Im sorry, there was one more
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thing I wanted to ask Mr. Shiff. seated.
Just stay seated.
Just stay
Under your view, can a bidder who is not a creditor or one of the other listed parties in the statute properly lodge a substantial contribution claim? indentured trustee, etcetera? seated. MR. SHIFF: sitting down. No, Im going to sit, Im going to take it Do you have to be a creditor, Dont stand up, please remain
And Im going to take it sitting down and Im
probably going to punt on your question because I think we thought, and it was responded in the papers, that we are creditors, by virtue of both the indemnification claims and the unpaid DIP amounts. THE COURT: Right. Which I may not agree with it, but
we can put that to one side. MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Yeah, no, no, thats fine. Okay. And thats sort of how we addressed it. All right. Go ahead.
You know, listen, I think a literal
reading of the statute does say -- does use the word creditor. THE COURT: MR. SHIFF: Right. We would argue to you, Your Honor, that
you know, that we dont always read things as literally as we
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do in cases, and that creditor really, you know, talks about a real participant. like this -THE COURT: doesnt. MR. SHIFF: doesnt. THE COURT: MR. SHIFF: Right. And, you know, we obviously are stuck, if It could, it could. It doesnt, it But it could say party-in-interest, but it And in the case of -- particularly a case
it were, with the you know -THE COURT: MR. SHIFF: statute. Hyper technical reading of the statute. -- language of -- the statute is the
I dont think we called that one hyper technical. THE COURT: MR. SHIFF: Okay. That one I think we called technical. But
I think, for example, it doesnt address the situation like -that we deal with here with the -- the CMBS stuff is a great example, and we understand the Court did limit standing for CMBS certificate holders for certain items, but you know, you could certainly see a scenario, which is, you know, not what happened here. CMBS holder not a bidder comes in and puts
together a whole package of what should be so great, you know, youre -- theyre a one step removed creditor -THE COURT: MR. SHIFF: Right. -- and they come in and say, Your Honor,
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come on -THE COURT: MR. SHIFF: Okay. -- this was done, altruistic, you know, we
helped the whole estate, we helped everyone, and I would think that the right determination there is notwithstanding the plain language of the statute, and I cant tell you -THE COURT: MR. SHIFF: Right. -- that the statute says something else,
and Ive looked at it a lot of things, that you do have the flexibility even beyond the literal, you know, creditor and the creditor as of the specific date. THE COURT: MR. SHIFF: THE COURT: you rest. All right. And what about --
And I think you can -- you know, you -Let me ask one more question, and Ill let
What about Hunt Realty, theyre not a creditor? MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: Hunt is -Theyre your partner. They were our partner in the deal. You have a -We have mutual obligations -You do. -- or sort of reimbursement -You do. -- amongst each -All right.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 correct. guess.
MR. SHIFF: expenses -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF:
Its basically like a pooling of
Right. -- in an allocation. But theyre not a creditor of the debtors. They are not a creditor. They are a CMBS
holder, they are not a creditor.
Theyre an original -- they
were supposed to be a participant in the DIP, I dont think they ended up being one quite frankly. THE COURT: They gave their piece to Appaloosa, I
MR. SHIFF:
Actually, I -- you actually may be
THE COURT: MR. LENNON:
All right.
Mr. Lennon.
Your Honor, Ill start with the argument We
about whether or not Five Mile is actually a creditor.
dont dispute that the DIP commitment letter did include the indemnification provisions and said that certain fees may become due and owing. THE COURT: MR. LENNON: Right. The point, though, Your Honor, is that I
all of the DIP claims have been or will be paid in full.
believe that all of the prepetition claims have already been paid in full, and it -- I think the case law is fairly clear, that as a post petition DIP lender, youre not entitled to a
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status as a creditor of the estate; and therefore, I dont think that Five Mile qualifies under the 503(b)(3)(D) standard. THE COURT: Even though they make the argument that
they incurred the indemnification obligations prepetition? MR. LENNON: I think that the DIP credit agreements
indemnification provisions probably supersede the commitment letters indemnification provisions. THE COURT: In other words, they dont go live until I
approve the DIP, and therefore theyre post petition? MR. LENNON: I think -- thats certainly one way to
look at it, but I think that if you look at the DIP credit agreement, the -- there is a superseding clause in it, and I dont have it in front of me right now. THE COURT: MR. LENNON: THE COURT: Okay. -- apologize. All right. So in the debtors view, that They dont -I --
could be the beginning and the end of the story?
theyre not an eligible party to submit a 503(b) claim and on that basis alone, I could deny it? MR. LENNON: I believe so, Your Honor, and I think you
can take it a step further as well, and you know, in the -there should be at least a causal connection between the role as a creditor and the substantial contribution claim. As the
DIP lender, the fees and expenses, we agreed to pay them pursuant to the credit agreement. As far as I know, they have
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been paid.
I dont think theres any dispute as to that.
The -- a substantial contribution claim is limited to fees and expenses that you incur as a creditor. So to the
extent that theyve already been paid, it appears to me, at least, that there should be nothing left to assert in a substantial contribution claim. THE COURT: MR. LENNON: bidding procedures. Okay. Your Honor, with that, Ill turn to the I think that the notion that there is --
the three million dollar expense reimbursement was not a cap is flawed. a cap. The three million dollars was certainly intended to be I think if you look at the minimum over bid increment
of three million dollars it was taken into account, if I recall correctly, there was -- Im just looking. I believe the bid
increments included the three million dollar expense reimbursement. Im looking at page 8 of the bid procedures in
the cash requirements. THE COURT: MR. LENNON: Right. And to take it outside of the scope and
to increase that amount just seems fundamentally unfair to the debtors at this stage. I dont think that its a message that
debtors would want to see in any cases that bidding procedures are approved, that the expense reimbursement may come back three months after the fact, and be renegotiated. THE COURT: What about the point that Mr. Shiff made
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regarding the explicit waiver of the break-up fee and the fact that there is no such explicit waiver with respect to the potential -MR. LENNON: I disagree, Your Honor. I think that Theres been a
there actually is a -- is an explicit waiver. lot of focus on the term competing bidder. THE COURT: MR. LENNON: Right.
I think if you look at the definition of
competing bidder, it was combined with the definition of bids, and the definition of bids were higher or otherwise better proposals for the sponsorship and funding of the debtors Chapter 11 plans. competing bidder. THE COURT: MR. LENNON: Okay. And if you look at the sequence of events And any entity that submits a bid is a
here, we had a bid deadline of, I believe it was April 25th, Cerberus submitted their bid, Cerberus and Chatham, they were then selected as the base line bid. At that point, the Five They
Mile bidder had no obligation to show up at the auction.
wouldve still been entitled to three million dollar expense reimbursement. THE COURT: MR. LENNON: Right. They chose to come to the auction, and
were all very thankful for that, and as a result, they submitted the first over bid. At that point, they certainly
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were a competing bidder, as contemplated in the bid procedures. I think also if you look at the paragraph where, you know, where the debtors would submit that there is a deemed waiver of the 503(b), but the language there makes clear that Five Mile/Lehman is considered to be a competing bidder or contemplated that at one point they would become a competing bidder. THE COURT: MR. LENNON: Where is that, Mr. Lennon? I think if you read the second section of
paragraph J, which is on page six of the bid procedures, it reads, Each competing bidder (other than the Five Mile/Lehman) to" -THE COURT: MR. LENNON: court. THE COURT: -- noted that construction because that Right. But I --
-- the extent approved by the bankruptcy
implies that you have to carve out Five Mile/Lehman from the definition of competing bidder. MR. LENNON: Correct. So I think its clear that the
intent was that Five Mile/Lehman could very well become a competing bidder. THE COURT: But go back to the page 2 of the bidding
procedures, and maybe this was your point a few moments ago. MR. LENNON: THE COURT: It was, Your Honor. It was --
Entities that submit such bids.
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MR. LENNON:
And Five Mile submitted upwards of five
or six bids, I believe at the auction that were not the stalking horse bid. If the debtors were to have selected one
of those bids as the successful bid, we wouldve had to go back and renegotiate or update the documents at least, and in my view, that is an entirely new bid, thats based on the documents as required by the bid procedures. THE COURT: MR. LENNON: Okay. Your Honor, just going back to paragraph
J, you know, obviously that was the subject of a lot of discussion at the hearing. The debtors -- you had asked the
debtors whether, what our view was on that provision -THE COURT: MR. LENNON: Right. -- and Mr. Sathy explained that, you Obviously, there
know, we viewed it as part of the package.
were parts of the bidding procedures that the debtors were not thrilled about, but they were -- it was a hard fought negotiation and they got in. The 503(b) waiver got in for the exact purpose that were here today. Five Mile, under the assumption that it
would be the successful bidder, did not want any other bidder to come in and submit a substantial contribution claim, yet here we are today with their substantial contribution claim. think that if the roles were reversed here, I think you certainly would see Five Mile sitting in Cerberus seat there I
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and objecting to the motion based on this paragraph. THE COURT: So I take it that your view would not
change if as I talked to Mr. Shiff about at the beginning of the hearing, if they were to make their request for pro rata as between the fix and the floating and the remaining debtors, given your view of this terminology, what transpired at the hearing, your view wouldnt change? not change? MR. LENNON: Correct, Your Honor, because I think that The debtors view would
-- well, the -- these bid procedures were originally negotiated back in January when we were contemplating the enterprise level deal. At that point, theres -- this language, I believe, was And there certainly was a
in those -- in that provision. waiver.
I dont think that whether they asserted it against
the fixed floating debtors or the remaining debtors, it would change the fact as to whether or not they are actually a creditor entitled to assert a substantial contribution claim, and you know, granted these bidding procedures did not necessarily cover the remaining debtors, I think that the debtors would be -- would take the position that they would have no choice but to object. And Im sure that the other
interested parties and the remaining debtors certainly would object. THE COURT: All right. But the debtors dont
seriously dispute the importance that Five Mile had to this
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process? MR. LENNON: Mile added value. added value. No, Your Honor. We believe that Five
We believe that many parties in the process But I think the
Theres no dispute as to that.
burden of satisfying a substantial contribution claim, its an extremely difficult burden, and a stalking horse bidder, who had agreed to expense reimbursement up to three million dollars or not to exceed three million dollars, I think the language is -- both forms of language is used in various places, I think that it would be -- it would contravene the bidding procedures and the commitment letter, in order for them to come back in at a later date, and seek a substantial contribution. Now, when the break-up fee was eliminated on March 11th or 12th or 13th, whatever day it was, if the Five Mile bidder had come to the debtors and said, listen well eliminate the break-up fee, but we may need a little bit more of a cushion on the expense reimbursement, I think that that wouldve been a perfectly reasonable request and something that the debtors wouldve strongly considered and probably agreed to. THE COURT: Well, that was one of the points that was
made that everybody had their hand out, that was -- we had a period of time where everybody had their hand out. We had
bidder D, who got a half a million dollars, and I think thats one of the points that Mr. Shiff makes, was that subsequently
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the ad hocs got something.
I think theyre feeling that I think
everybody else got something more, and they did not. thats the -- thats what theyre feeling. MR. LENNON: expense reimbursement. THE COURT:
Well, they got three million dollars of
Well, let me -- and let me stop on that
because Mr. Shiff I think made it sound as if the debtors really havent looked at those expenses, and I presume that thats not the case. That the debtors have done a Its not
reasonableness review for up to the three million. just a blank check, right? MR. LENNON:
We have -- we received invoices from Five The invoices that
Mile, we have done a review of the invoices.
were submitted were for the total amount thats being requested of the 3.7. THE COURT: MR. LENNON: Okay. So we were never told what is being
submitted as part of the expense reimbursement versus what is part of the substantial contributions. So standing here today,
Im not even sure if we got to the three million dollar cap. THE COURT: MR. LENNON: Okay. All right. Thank you.
Your Honor, the last point that I wanted
to raise was just with respect to the LNR CRES litigation. Theres a dispute as to whether or not were supposed to be covering all of Five Miles reasonable and documented expenses
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in connection with this case. isnt correct.
Well, actually that last phrase
Whether we should be covering all of Five
Miles reasonable and documented expenses, we would submit that we certainly are not. Under Five Miles reading, it would imply that were supposed to be covering expenses that are not even related to this cases. we should be. With respect to the CRES litigation, we certainly dont think that that litigation was integral to the bid. know, Five Mile argues that -THE COURT: They say it was integral to the process You I dont think anybody in this room would say that
because the process wouldve been derailed had they not come in and acquired CRES. MR. LENNON: statement. Well, I think thats a speculative
I think that theres a parade of horribles that I think you just
Five Mile lays out if LNR had gotten control.
need to look at the remaining debtor plan to see that LNRs goal here was to maximize the value of the loans that they were the servicer for. THE COURT: well? MR. LENNON: THE COURT: well? Excuse me? You think I might have been on to that as You think I might have noticed that as
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MR. LENNON: THE COURT: MR. LENNON:
Yes. Yeah. So LNR, you know, I think their objection
to the original bidding procedures motion was the Seven Sisters needed to be carved out. Once they were carved out, LNR was
very quiet on the fixed floating front. So I think its speculative to say that the LNR CRES litigation was integral to the bid and to making sure that we -- this whole process wasnt derailed. Im not sure that we
wouldnt be standing here, you know, on the cusp of confirmation if LNR had replaced Midland. anybody can be in a position to say that. The second point, the concept that were responsible for all of their fees, whether or not its in connection with the bid. I think if you look at the provision in the term I dont think
sheet where the expense reimbursement is included, its clear that its the stalking horse fee, and granted this was when the break-up fee was in there, but the break-up fee was clearly in connection with the bid. The expense reimbursement follows.
I think its clear that the intent there was that it was fees and expenses incurred in connection with the bid. then, Your Honor, the reasonableness qualifier, I think reasonable should be read to mean fees and expenses that are incurred in connection with the bid. THE COURT: All right. And
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MR. LENNON: THE COURT: from Mr. Harris. MR. HARRIS:
Unless Your Honor has any questions. Not at the moment. I may after I hear
Thank you, Your Honor.
Adam Harris from
Schulte Roth & Zabel on behalf of Cerberus Capital Management. THE COURT: Mr. Harris, I did read your views about
the timing of the pleadings and the advantage that you feel are -- was -- you feel was taken by the Kasowitz firm. your additional briefing. Ive read
If you feel that youve been
prejudiced on the merits by the timing, you should let me know. Otherwise, were just going to say youre both big boys and move on. MR. HARRIS: I think after having filed it last night,
Your Honor, I kind of concluded that having drafted it and filed it yesterday probably kind of undermined my own prejudice argument today. But I did feel that the substance of what was
in there needed to be said, because frankly, I have no problem extending professional courtesies in circumstances where theyre appropriate and probably in a lot of certain circumstances where theyre not, but I just felt that given the timing of things, under the circumstances under which the original adjournment was granted, that it was a little bit untoward to have papers served on us Friday night at seven oclock for a hearing on Tuesday when we made accommodations to somebody as a result of an obviously serious injury, and
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obviously nobody wants to take advantage of that. But be that as it may, Your Honor, youve read all the papers, youve seen whats in there, youve obviously well versed yourself on the issues for today, so theres no sense in belaboring that point. THE COURT: MR. HARRIS: All right. That sounds good.
Your Honor, I think it would be helpful
for just a moment to -THE COURT: I have to say though that Im not actually You unquestionably
sure you really have a dog in this fight.
have money, and I assume youre not going to tell me that youre not going to close if this doesnt go your way, because you did agree to take up to the ten million dollars of admin expenses. MR. HARRIS: Your Honor, the admin expenses are well
over ten million dollars. THE COURT: MR. HARRIS: THE COURT: price adjustment? MR. HARRIS: It is a purchase price adjustment. But Theyre over ten million? Theyre way over ten million dollars. So your view is that this is a purchase
since we agreed to take everything over ten million -- I mean, it doesnt really matter, its just -- its more money. And
no, were not going to not close because its 718,000 dollars of incremental obligations here, although as Im about to tell
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Your Honor, I think and agree with Mr. Lennon, theyre completely unwarranted, and not supported in the context of the circumstances that stand in this case. There are other issues out there, Your Honor, we neednt belabor them right now, but the companys not in a position where its, for instance, able to fund the full amount of cash thats supposed to go into the professional escrow amount. Were going to have to fund money against that stuff,
and there are other issues that were trying to work through the cash flows, not for today, not an issue. We obviously want
to get this deal closed, and want to get it closed this week. But lets talk about whats before us today, and we need to, I think, Your Honor, put in context the -- what had already occurred at the time the bid procedures orders were entered on March 11th. If you read Mr. Shiffs papers, and you read the Five Mile Capital papers, and you look at the chronology in those papers, everything that they said they did to support their substantial contribution claim happened before March 11th say for two items. The occurrence of the auction itself, and the drafting of the plan and disclosure statement, which is clearly anticipated at the time they were here on March 11th and agreed to take the three million dollar cap because it was a plan and disclosure statement which basically incorporated their bid.
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Nothing else was done in this case by Five Mile subsequent to that date that would support their arguments here today. They knew everything they had done up until that point
in time, its all laid out in their own chronology. When they sat in court on March 11th -THE COURT: Your point is that they missed the boat.
They shouldve at that moment known that they had more than three million of accrued expenses and they shouldve raised their hand. MR. HARRIS: And they couldve asked for more, they -I
maybe they under estimated what theyd already accrued. wasnt there, Your Honor, I cant tell you.
All I know is I
can read this chronology and everything that they used to support their application here today occurred prior to that date, save for the two items which Ive identified. increment -- and both of those -THE COURT: But lets go back to something more basic The
MR. HARRIS: THE COURT:
Sure. -- and I think that either the debtor or
perhaps Five Mile made the argument that nowhere in the substantial contribution case law is there a discussion of the importance of the fact that a Cerberus party, such as yourself, is paying. Its the debtor, its an admin claim against the Isnt
debtor, and that the source of payment is irrelevant.
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that true? MR. HARRIS: Im not disputing it. Im annoyed by it.
Im annoyed by it in part because we have bidding procedures and a record of transcripts where its replete with references to three million dollars of expense, three million dollars of expense reimbursement, we set the minimum over bid at eight million to take care of three million dollars of expense reimbursement, and five million dollars of incremental value to the estate. Theres long discussions of the minimum payments that would need to be made in cash for any qualified bidder, which talks about three million dollars in cash to satisfy the up to three million dollars of expense reimbursement provided for under the commitment letter. Nowhere was anybody ever put on notice that Five Mile Capital was holding back or potentially reserving a right to come to -THE COURT: me. MR. HARRIS: Your Honor, the reservation of rights They did reserve a right. He read it to
they had with respect to their rights as a creditor in the case is -- I read it as a reference to other creditors. Five Mile Right.
Capital purports to own a lot of debt under the CMBS. THE COURT: MR. HARRIS: Well, yeah, and they bought --
They are participants in this case, so.
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THE COURT: MR. HARRIS: THE COURT: MR. HARRIS:
-- CRES, too. Sorry? They bought CRESs position. They have other roles in this case that
have nothing -- maybe nothing to do with their bid -- their role as bidder, but right now, theyre mixing the two up as far as I can tell. Theyre the same matters they rely on for
substantial contributions, that theyre using to support their expense reimbursement. There doesnt seem to be any And then they want to
distinction between the two of them?
break that down and refile the application in a different manner, I guess theyre free to do that, Your Honor. But I come back to my first comment here, which was when they were here on March 11th, everything theyd done to support both their expense reimbursement and their substantial contribution claim had already happened, but for two items which were obviously, you know, they knew they were going to engage in. And one is drafting the plan of disclosure
statement, the other was showing up at the auction and bidding or not. But everything theyve done before then to set the stage, as they say, had already occurred. So when its agreed
to take the three million dollars, and they wrote it throughout these bid procedures, and throughout the plan, thats what everybody out in the marketplace, including us was relying on
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in terms of the way it was bid.
And I think the record in the
auction is also actually replete with references to having to pay the five -- the three million dollars to Five Mile as part of the plan. But I also want to point out one thing, Your Honor, and I think this is also important and supports the point Im making, is that if you look at the transcript from March 11th at page 29, in lines 20 through 23, and weve pointed out in our reply, and I think we certified, I think we may have actually referenced in our original objection as well, Mr. Shiff in talking about the waiver of the break-up fee, and the issuance of the 503(b)s says, So now suggest after having put us through these final paces -- THE COURT: MR. HARRIS: Yes. -- and really limited us to the most
minimal bidder protections which is really just this one expense reimbursement. THE COURT: Yes. That was a passage that Mr. Shiff I think its a very important
neglected to read to me. passage. MR. HARRIS:
Right.
I think that passage, Your Honor, This
acknowledges that this is their right to get paid back. is what theyre relying on.
This is what they negotiated.
They were responsible, in large part, for the negotiations of these bid procedures, by their own admission, and it seems to
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the rest of the world, Your Honor, yes, I -- we agreed that we would pay the admin expenses under the plan if they were over a certain level -THE COURT: cap -MR. HARRIS: THE COURT: MR. HARRIS: tried. Your Honor --- so to speak. -- with all due respect to the Court, we And you couldve protected yourself with a
We were told under the terms of the bid procedures, you Your
either match the Five Mile deal or dont bother bidding.
Honor, I had this issue with respect to the fiduciary out as well -THE COURT: MR. HARRIS: THE COURT: MR. HARRIS: I believe you. -- and you know how that one turned out. I do. So, Your Honor, we -- they wrote the
documents, they made the bed, we decided to lay in it, but they made the bed with respect to this one, too. They agreed to the They
three million dollars as their expense reimbursement. knew what they had done at that point in time. calculated what the right number was.
They couldve
They could easily have
anticipated what expenses were going to be to do the plan and go through the auction, they chose not to, or they chose to live with this number. I think it would be fundamentally unfair, Your Honor,
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to now force that responsibility on other parties in the case, actually no other party in the case, just me. I find it almost humorous that Mr. Shiff puts in his reply papers that nobody else is objecting to this other than the debtors and the buyer, well because theyre not bearing the burden of it, right, theyre all getting exactly what they contemplated getting under the terms of the plan, as a result of the bid that we put in. So why would they spend any time or
money to file objections to this, when the only person whos ox is arguably getting gored is ours. So we can talk -- we can say its a small number in the grand scheme of things, we can say a lot of different things about how its a rounding error, and everything else. But at the end of the day, it has nothing to do with that. What it has to do with is a court order setting a set of procedures, agreed to by parties, which everybody acted upon and should be agreeable to live with at the end of the day. Theres no second bites to the apple, I view this as very much as a motion to reconsider or reargue or reopen or however you want to view it, Your Honor, I mean, theyre trying to bifurcate this into a well, sometimes were a bidder and sometimes were a creditor. Frankly, they were here because they were protecting their own interest in these cases. They have a substantial
investment in the CMBS, they didnt like what was going on, and
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they decided to step up and protect those interests. Theres a lot of case law out there that suggests that thats not the basis for a substantial contribution claim. I
have no problem with having expense reimbursement for what they did in the capacity as a bidder in this case. With respect to
their actions relative to everything else, I think they need to step up and frankly present evidence to the Court that that constituted a real substantial contribution here, setting the stage for the bid, maybe. relative to that. Everything else, Your Honor, I wasnt here, and I cant speak to it. But it seems to me the burdens on them to I dont know what the expenses are
prove that its a true substantial contribution -THE COURT: Well, thats certainly true, that the
burden is on them, so. MR. HARRIS: Yeah. And again, I still come back to Which was, by the time we got
the same theme I started with.
here on March 11th or they got here on March 11th, it had all been done other than those matters which were easily anticipatable, they agreed to the three million and thats where we should end. THE COURT: MR. HARRIS: All right. We are prepared to pay it, and the
closing schedule already includes it. THE COURT: All right. Thank you.
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MR. HARRIS: THE COURT: MR. SHIFF:
Thank you, Your Honor. Mr. Shiff, you can stay where you are. Thank you, Your Honor. And I will try to
THE COURT:
Mr. Shiff, for openers, if you could
respond to Mr. Lennons walking us through the definition of competing bid in the bidding procedures, and the fact that, in fact, under that formulation, Five Mile was a competing bidder. MR. SHIFF: Certainly, Your Honor, I will start there.
I think you need to turn first to the first place competing bidder shows up which is I think -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Page 2. -- page 2 of the bidding procedures -Right. -- as the Court had described earlier.
And if you look at the first paragraph on page 2 before the definition of competing bidders, theres a description of the Five Mile/Lehman bid. THE COURT: MR. SHIFF: Right. It says a whole bunch of things about it, Then it says, the debtors
thats the bid, thats the bid.
continuously listed higher or otherwise better proposals -- now Im adding it other than the stuff that was described in the paragraph above, for the sponsorship and funding of the debtors Chapter 11 plans of reorganization, a bid and entities
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that submit such bid competing bidders. So to me, just to start with, paragraph -- page 2 immediately puts you at the point where competing bidders are the other guys that we were talking about earlier. you look at, in fact, what a competing -THE COURT: Wait, competing bidders -- all right. At Five And then
that point you think that Five Miles already carved out? Mile/Lehman -MR. SHIFF: I think Five Miles carved out. Where
Five Mile comes back in later is certain competing bids if they do certain things right become qualified bids. was deemed to be a -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: A qualified bid. -- qualified bidder. Right. And I think if you look at it, even -- and And Five Mile
I think we cite this in our papers briefly, some of the requirements that competing bidders have to do to submit their bids -THE COURT: MR. SHIFF: Right. -- was stuff we never did. We never gave We pledged
a twenty million dollar cash deposit, for example. some DIP money.
I dont believe we ever took a binding oath I just
that we would submit to this Courts jurisdiction. dont think it was part of our documents.
We certainly didnt
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transmit things by the date that was set forth in it -THE COURT: Really? Youre really going to take the
position that you hadnt submitted to jurisdiction? MR. SHIFF: No, not at all. My point was that we
didnt -- in order to get a bid that was accepted and into the game, we didnt -- no, we submitted to the Courts jurisdiction many times. THE COURT: stalking horse, so. MR. SHIFF: THE COURT: MR. SHIFF: here. I wasnt -THE COURT: MR. SHIFF: exciting. Okay. I know the J word always gets, you know, We did not give No, no, not to jurisdiction. Okay. You have complete jurisdiction, we belong You were the stalking -- but you were the
But with -- lets take the deposit. All right.
a cash deposit, for example.
We did pledge DIP
money, we gave a deposit, but my only point is that when you go to page 4 and it talks about what a competing bidder must do to qualify -THE COURT: MR. SHIFF: Right. -- as a qualified bid, we did not do that.
And subsequently, and Im looking for where it says it, Ive said it now a few times, its -- okay, I guess we can go to page 7 where it talks about the debtors in consultation -- can
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you still hear me if I sit back? THE COURT: MR. SHIFF: Yes, I can hear you. The debtors in consultation with Midland
and the creditors committee shall determine if any competing bidder has qualifieds to participate in the auction, that makes you a qualified bidder. that these people must do. We are set as a qualified bidder in page 9 separately, I guess paragraph -- I guess its before, carry over on 4. are just deemed to qualified bidder. So we come into these We And they list a whole bunch of things
bidding procedures as a qualified bidder, and you have this other group of people that started as potential competing bidders. THE COURT: MR. SHIFF: So under no circumstances youre saying -And then to follow through, I guess what
Mr. Lennon said and was going to say this, so then, once we got to the auction and now they say, ah-ha, and its an interesting reading, actually because if you take Mr. Lennons reading, if we wouldve not bid further at the auction, we never really wouldve waived our 503(b) right potentially, because that only happened when we became a competing bidder and that we did at, you know, ten oclock at the auction when we made our subsequent bid. THE COURT: Well, I think -- I mean, thats what Mr.
Lennon said, that their -- the papers that were submitted say
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it differently.
The papers I think take the position that
despite any technicalities, I hate to use that word, but any technicalities with respect to how the definitions work, that you were a competing bidder, and that you -- or that you waived, you waived the 503(b), and you waived the right for anything additional. I dont think that their view is that it I could be wrong.
turns on, necessarily turns on this point. MR. SHIFF: evolve, right. THE COURT:
Well, I thought their view and maybe itll
Well, let me say it a little differently.
But I think Mr. Lennon took it to another level in his presentation that wasnt in the debtors papers. MR. SHIFF: THE COURT: MR. SHIFF: of addressing -THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Right. -- sort of -Right. Because I asked you. Agreed, agreed. Okay. And that was the last one I was just sort
-- in the jocular fashion. Right. But right. But I think, Your Honor -- so
to the extent that these competing bidders, or that to the extent, I mean, the competing bidders waived the right, we submit to you as we submitted to you at the beginning of the
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hearing and in the papers, that the competing bidder, as the name suggests, says that page 2 suggests and the like, does not deal with us and things that happened on the evening of April 25th, whatever the night the auction were, or anything we might have done that night, we were doing post the auction starting, as a qualified bidder. THE COURT: Okay. But, you know, heres the
interesting thing, because the bid procedures hearing was on March 11th, right. So now were talking about all this great
stuff that happened after the bid procedures hearing, when I am really being called on to determine what everybody -- what the words meant when I entered the bid procedures order before any of that happened. MR. SHIFF: THE COURT: MR. SHIFF: Correct. And therefore, my focus -And we wouldve had a very -- right. And
as a result, right, if, for example, we were already taking Mr. Harris, you know, hypothetical, we were already above the cap lets say around that time, and theres an auction two days later, a month later, whatever it is, and lets say no new value was generated, lets say we got outbid by a dollar, you know, five million bucks it went up and it closed. THE COURT: MR. SHIFF: Right. We obviously wouldve had -- we would have So I mean, I think the fact
a tougher time to hoe on that.
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that events happened subsequent to us being here on March 11th goes directly to the fact and then can attest to the fact that we all put procedures in place and other stuff, and agreements in place and the like, that helped generate that result. And
its after the fact that we realize the entitlement to that. Because if things wouldve -- if the buses wouldve fallen off the wheel the next day, you know, we -- obviously we wouldve won, interestingly enough, if we wouldve won, I mean, we did contemplate potentially having more money, all of our fees and expenses got paid, just as I think Mr. Harris' do which makes sense. But I think as -- then when you look at what happened and the tremendous results that occurred, you then say, okay, now we look at the statute, we have a right to seek this reimbursement. We certainly didnt waive it. Now maybe we
didnt stand up and reserve rights and jump about it, but you know, I dont know if you necessarily need to ever do that. cant tell you how many times Ive heard judges, sit down, dont tell me youre reserving anymore rights and stuff, but we do -THE COURT: somewhat different. MR. SHIFF: But we do think as I said earlier, Oh, but this is -- I think this is I
regardless, I mean, that there was language in there already and Im not going to go through it again --
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Okay. -- that does that.
In terms of some of the other points if I can, in terms of the point that Mr. Lennon made with respect to the DIP claims and they go away, and this is I think where we were eluding to having it both ways, if youre going to read the statute literally as it seems, its a creditor as of the petition date. The fact that subsequently some of that stuff
went away, so now youre not a creditor as of the petition date, but then the DIP came into place but you cant be a creditor because of your DIP, I mean, if its as of the petition date its as of the petition date. There are indemnification claims, there are unpaid fees and expenses and the like, so that -- as of the petition date we were a creditor. I just dont think you can have this
also we subsequently paid some of it off or it merged into the thing. It was a prepetition contract, you know, we cite to the
provision it goes into effect immediately. Hypothetically, its before the Court, for example, lets say the DIP never wouldve made -- you know, never really made it, something wouldve happened, right. Well, we wouldve
had a claim for the unpaid fees and expenses, it may have been allowed, it may not have been allowed, and if lets say we had a problem, and we had to sue under the indemnification, we wouldve asserted a prepetition indemnification claim,
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regardless if later something happened. So I still think if youre going to look at the statute as a gating or when you look at the statute as a gating issue, youre measuring as of the petition date, well, those are the facts. We were a creditor as of the petition date. Mr. Shiff, let me ask you another question Have the clients all paid these
THE COURT:
on a totally different topic. fees and expenses? MR. SHIFF: THE COURT: MR. SHIFF: Yes.
All the amounts have been paid. Thank you.
All right.
With the exception of, I should be clear,
there are some out of pockets themselves, I guess they paid not to third-service providers, I guess, I mean, like you know, a survey and the likes, yes, theyve all been paid. THE COURT: MR. SHIFF: Okay. Theres no issue of the lawyers seeking to
be paid directly or anything like that. THE COURT: MR. SHIFF: Okay. Your Honor, in terms of, you know, some of
the other comments, in terms of CRES, just to take that one, for example. Its possible things wouldve ended up the same. I think the Court will
We certainly dont know in hindsight.
recall what CRES was saying, and we cite to it in the papers, as we need to get Midland out of there because theyre about to sign up a sweetheart deal --
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THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: THE COURT:
Oh, LNR was saying, not CRES. LNR, Im sorry, Im sorry. Right. There -- you know -CRES had -- I mean, CRES was the
controlling certificate holder, right, and the dispute is whether or not -MR. SHIFF: THE COURT: MR. SHIFF: THE COURT: MR. SHIFF: Right. -- Midland -Right. -- should -Well theres -- yeah, theres actually a
two-fold dispute which I dont think we want to get into right now, its whether CRES or Five Mile actually had a right. then if CRES had the right, which is the Court -THE COURT: MR. SHIFF: Right. -- the issue the Court was faced, were And
they compelled to put in L&R. THE COURT: Right. But CRES still had an obligation
to defend itself, did it not? MR. SHIFF: would have. frankly. CRES. CRES did, but I dont know if they
I dont know if they wouldve cared, quite
I dont think sitting here today, even with the great
result here, the holders of the CRES certificates are getting a recovery. So Im not -- you know, what -- this to me actually
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in an ironic sense, because its the thing that the debtors harp on the most is the thing that shouldnt be compensated, but if you think about it in a way, this is actually the poster child for a 503(b), because you had a situation, no, no, just hear me out here. Youre not talking necessarily about, you
know, the bidder doing this, doing that, this is included or not, you have someone whos about to get kicked out, they didnt have an incentive to really defend themselves. The debtor for right or wrong reasons, whatever the reason is, wasnt going to get -- you know, step on that scale, so someone came in and actually managed to keep it all in place. Midland didnt have standing to do it, presumably
because it wasnt them, so someone came in place, kept them in, which allowed, you know, the first deal to get signed, the second deal, and the third deal. So I actually think, although -- and I see the Courts face, so Im not going to belabor it that much further, I actually think in a way, although its the one that everyone is picking on, I actually think in a way its actually the quintessential case for a 503(b). No ones willing to do it,
someone did it, kept the structure in place, and when we got through, we had to -- Midland stayed in place, they signed on, youre closing on Friday. In terms of some of the other points, Your Honor, you know, whether someone shouldve said something before or did
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say or not, I think what Mr. Harris effectively is seeking to do, and he says hes bid it, he went to the debtors, and he said, please put a cap on the admins, they said no, because that was in the contract. And that was sort of shifting the
burden back and saying, okay, because we didnt get that in the negotiation, now theyre saying all right, well, you didnt tell us or someone didnt tell us or you couldve told us. THE COURT: To me the -- frankly, and I hinted at it,
and I dont mean this for Mr. Harris to take this personally. I frankly think that what Cerberus has to say is beside the point. The crux of the issue is when everybody left this room
on March 11th, what was the expectation, what everybody think was going to happen, what everybody think would no longer happen, thats the crux of the issue. MR. SHIFF: Okay. And, you know, I think to some
extent, I mean, there are two ways, I guess, to try to figure that out, right. We can try to read peoples minds as of March
11th, or we can look at what -- you know, what we submit the documents say. Because I think to read peoples minds is too As I said,
difficult, because people are all over the place. we probably thought we were going to win. werent as focused on it, right.
So we probably
The debtor was just happy to That was their big
knock us off the seven million dollars.
accomplishment on that day, you know, with respect to these issues.
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But the point is, so what do you do?
The only thing
you have is to look at the documents, and the documents, including the documents that were then filed a day or two or maybe it was that afternoon post the hearing, which said, for example, and I -THE COURT: MR. SHIFF: THE COURT: All right. But its first year --
You know, no break-up fee, and -But its first year law school that if the
documents are unambiguous, right, then you go to -MR. SHIFF: THE COURT: MR. SHIFF: Right, no, no, and we --- other evidence. -- suggest to you and we tried to suggest
to you in our papers is we think the documents as to a waiver of a 503(b), for example, are clear. THE COURT: MR. SHIFF: Are not ambiguous? No, we think theyre clear. We think on
the three million being a cap, we dont think you can read in a cap thats not there to go to the parole evidence, because it doesnt say theres a cap and then theres the provision that says we reserve rights to seek creditor remedies. THE COURT: Let me ask you something. Has one dollar
been written off of the fees? MR. SHIFF: Oh, yeah. Assuming youre not asking from
counsel to the client, as opposed to the group to the debtors? In other words, weve submitted bills -- lets just take us,
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although there are portions of the -THE COURT: MR. SHIFF: Okay. -- final, weve submitted bills to Five
Mile that exceed the amount Five Mile is seeking reimbursement from the debtors for. Okay. For example, we cut out any time
spent in connection with preparing the substantial contribution claim. We also did not seek as part of the request anything So, you
that was incurred post the disclosure statement date.
know, the Court may recall all the litigation over the releases and the like, that we told the client youre not seeking that, thats not part of your substantial contribution. THE COURT: MR. SHIFF: Okay. At that point youre looking for your
releases, you know, draw the line in the sand. So in that respect, yes, Your Honor, there have been. And then let me -- unless you have another question on that, I do want to just one last point, I think because it did seem to be one that the Court had some concern about, and I think it goes to page 29 of the hearing transcript from that afternoon where we talk about the waiver and the -- whats going on there. And I think we need to read, I know everyone was reading from line 20 down to 25, and focusing on, hey, we said we only have expense reimbursement. The lead into that,
though, talks about I think specifically with respect to the
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break-up fee provision, the debtors obviously got us to waive that yesterday. So now to suggest, and then we continue, that
other people can get all kinds of goodies, and now Im paraphrasing -THE COURT: MR. SHIFF: Right. -- isnt fair, and hey, the only thing we That to me --
got from them is the expense reimbursement.
first of all, I mean if what everyones going to rely on is, you know, whats stated at the end of the hearing, I think the documents are better. But to me that talks about -- we were
talking about a break-up fee, the only thing we did get from the debtors was an expense reimbursement, that is a true statement. It still doesnt talk about any of this -- this
magical hidden waiver that everyone seems to -THE COURT: MR. SHIFF: THE COURT: Well, but it also doesnt -The implicit waiver so to speak. -- talk about any of this unarticulated
possibility that there was going to be an additional request that was going to be called substantial contribution and not expense reimbursement. MR. SHIFF: Your Honor, youre right. Its silent in
both directions, and the only thing that we can tell you to that point is where its not silent is its not silent on the competing bidders, they waived it. break-up fee, we waived it. Its not silent on our
So that, you know, we would have
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waived it if that was part of the waiver.
And, you know, I --
again, as I was saying before, I think seeing on March 11th nobody anticipated, probably you know, the results that ended up happening, right. So, you know, the question probably
wasnt asked, or certainly wasnt asked. THE COURT: MR. SHIFF: Okay. But I think the only thing you can go by And, you know,
is whats in the document and thats it.
typically, you know, a waiver of a right needs to be as, everyone pointed out in the papers, express, unequivocal, and certainly thats not it. between the lines. THE COURT: MR. LENNON: THE COURT: MR. LENNON: THE COURT: All right. Mr. Lennon. Were trying to read one possibly
Your Honor, Ill be very quick. Let me ask you something. Sure. Mr. Harris said theyre going to close.
Theyre going to close. MR. LENNON: THE COURT: MR. LENNON: Why are we here? Why are you here? Your Honor, I think as counsel to the
debtors we serve in the role is sort of serving as the gatekeeper for the claims, and you know, we have a fiduciary duty to the estate to maximize value. We negotiated a
provision in our bidding procedures order that would cap the
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expense reimbursement at three million dollars.
We went out,
we had an auction, we solicited bids based on that, three months later were sitting here being told, well, the expense reimbursement shouldve been 3.7 million dollars. THE COURT: But you in your previous argument, you
told me in support of your argument that theyre a competing bidder, that they bid. So he bid him up. And your estate has
reaped the benefit of that. MR. LENNON:
Why shouldnt he be paid?
They certainly added value, and there are
other bidders that are not here today that we would oppose any substantial contribution claim by them as well. Its -- they
negotiated three million dollars, and they -- our view is that they certainly did waive the 503. I think you got the
reservation of rights language that Mr. Shiff has pointed out. I think you need to look at that in the context of who the other plan sponsor was. The other plan sponsor here was Lehman. Lehman wanted
to make sure that it wasnt going to prejudice any of its right as the lender under the floating rate mortgage loan, by agreeing that well only take three million dollars in fees and expenses. Five Mile again was a DIP lender, I dont think that
makes them a prepetition creditor, but they certainly were owed fees and expenses. They didnt want this provision to impair
their right to receive all of their fees and expenses in that capacity.
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As Mr. Shiff said, they expected that they were going to be the winners. There certainly was no intent that that
reservation of rights on March 11th or January 14th was to preserve their right to come back in with a substantial contribution claim. Your Honor, going back to the question as to whether or not they were a competing bidder. They did give a deposit, They
it was a pledge of the DIP recoveries rather than cash. did submit a bid, it was the stalking horse bid, and that
stalking horse bid was what was deemed to be the qualified bid. Im fairly certain that at the auction, after each round of bidding there was an analysis done as to whether or not the bids continued to be qualified. Your Honor, just with respect to the express waiver of the break-up fee in the bidding procedures order, again, you need to look back at the circumstances of that day. It was a
long week, and the intent at that point was lets get this deal done, lets move on to the marketing process. We did not go
back and renegotiate the provisions of the term sheet or the commitment letter, in order to eliminate the break-up fee. What we said is, lets just put an express waiver of the breakup fee into the order and move on, and lets get started with the marketing. The fact that the expense reimbursement wasnt expressly waived, or the substantial contribution wasnt
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expressly waived.
I dont think people were talking about
altering the term sheet on those terms at that point. Your Honor, with respect to whether or not they were a prepetition creditor, the section I was referencing earlier in my argument was Section 10.17 of the DIP agreement, and it says that any previous agreement among or representations from the parties or their affiliates with respect to the subject matter hereof is superseded by this agreement and the other loan documents. I think thats pretty clear that any indemnification obligation under the commitment letter was now superseded by the DIP credit agreement, and thats a post petition agreement. And the last point Ill make, Your Honor, is that there is a request for about 325,000 dollars of expenses by Five Mile in the application -THE COURT: MR. LENNON: Yes. -- and I believe theres also a request
of expenses by Hunt Realty. THE COURT: MR. LENNON: Right. To the best of my knowledge, we have not
received the back-up for those internal due diligence costs. THE COURT: All right. The 12,000 is for Hunt, and
then theres 75,000 for Sidley. MR. LENNON: received the -We received the Sidley invoices and weve
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THE COURT: MR. LENNON:
But not the 12,000. -- Arnold and Porter, we just havent I think its only
received the Five Mile and the Hunt Realty. 12,000 dollars for Hunt. THE COURT: MR. LENNON: THE COURT: All right. Okay. All right.
Thank you.
Thank you, Your Honor. All right. Its 3:20. Last licks to anyone? Id like to give you a
decision today, so that you can have certainty for the closing of the transaction, but I need a little time. do this. So why dont we If
Give me until 3:45, and Ill give you my ruling.
between now and then you settle this, come and let me know. All right. MR. HARRIS: MR. LENNON: THE COURT: Thank you, Your Honor. Thank you, Your Honor. Thank you, folks.
(Recessed at 3:22 p.m.; reconvened at 4:01 p.m.) THE COURT: All right. Im sorry for the additional
I see Mr. Penn has arrived, which is -- wants to make
sure that I dont take this out of his pocket, I guess. MR. PENN: the whole time. THE COURT: All right. Oh, Im sorry, I didnt notice you. Let me give you my view. Before the Court I never left, Your Honor, Ive been here
is the Five Mile bidders application pursuant to Section
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503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code for allowance and payment of administrative expense claims. The Five Mile bidder seeks allowance of a substantial contribution, administrative expense claim in connection with what it describes as its integral and unique role in these cases, indeed as the party that led the process that ultimately resulted in dramatically improved recoveries for creditors in this case. Both the debtors on the one hand, and Cerberus on the other hand, do not seriously dispute the fact, and it is a fact that the Five Mile bidder was an active and positive participant in the debtors auction and plan process. The Five Mile bidder was there at the hearing on the PSA. The Five Mile bidder helped move the process beyond that And
low point to obtain acceptance of its stalking horse bid. the Five Mile bidder continued to engage with parties in interest, as the process moved forward, culminating in the Cerberus Chatham bid. As the process moved forward, however, certain
concessions were made and certain changes were made to the Five Mile bidders stalking horse bid, right up until the conclusion of the bid procedures hearing on March 11th, 2011. The precise nature and extent of the Five Mile bidders eleventh hour concessions is one of the issues presented by the motion, which must be addressed. It bears
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noting before reaching that issue, however, that the allowance of substantial contribution claims is subject to certain clear principles, as indicated by Judge Drain in both the Bio Group and the DPH Holding cases. Number one, the applicant has the burden of proof on both prongs of the 503(b) analysis; and number two, that substantial contribution provisions must be narrowly construed. Judge Bernstein zeroes in on this point in Granite, 213 B.R. 440, citing to the need to discourage mushrooming expenses and not change the basic rule that the attorney must look to his client for payment. Moreover, as Judge Bernstein
also noted in Granite, there must be a direct benefit demonstrably for the estate as a whole, as opposed to something that goes to the creditor and its class, 213 B.R. 446 to 47. Let me now plause on the word creditor. Because that
is where the Five Mile bidders application first runs into difficulty. Although the Five Mile bidder characterizes the
debtors objections as hyper technical, I believe the debtor has the better side of the argument, that the Five Mile bidder is not a party eligible to submit a substantial contribution claim under Section 503(b)(3)(D). Im unpersuaded that the alleged prepetition DIP claims are indeed prepetition claims that work for the purposes of finding that the Five Mile bidder is a creditor as contemplated by 503(b)(3)(D). Moreover, the Five Mile bidder
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has not cited any case law to support the position that an outside bidder can bring an administrative expense claim. Indeed, the cases cited by the debtor support the contrary view. Even assuming the Five Mile bidder were able to get past the eligibility threshold, it must then overcome what I will call the waiver issue. And here it is the Five Mile
bidder that urges a hyper technical reading of the approved bidding procedures, by pointing out that the defined term, quote, "competing bidder," end quote does not apply to the Five Mile bidder. Specifically, the bidding procedures at page 6
provides that a quote, "competing bidder," end quote, shall be deemed to waive the right to assert or seek payment of any administrative expense claim, including a substantial contribution claim. I conclude that by virtue of the fact that the Five Mile bidder is an entity that submitted a bid, the Five Mile bidder is indeed a competing bidder. Even if the Five Mile bidder were technically correct that it is not a competing bidder as that term is defined in the bid procedures, there is a larger point which I believe is reflected in the transcript of the March 11th hearing, and specifically in the Courts colloquy with Mr. Shiff at page 29 of that transcript, in which Mr. Shiff implored me to approve the bid procedures containing no additional break-up fees or
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503(b) claims.
And I quote from the transcript as follows:
I think specifically with respect to the break-up fee provision, I mean, here the debtors obviously got us to waive this yesterday. So it now suggests after having put us through
those final paces, and we really limited us to the most minimal bidder protections, which is really just this one expense reimbursement, it seems to us, it really seems that it would be, you know, really unfair to let it go to anyone else. Moreover, even if the Five Mile bidder is not a competing bidder, I believe the Five Mile bidder should be judicially estopped from asserting a claim for additional expense reimbursement whether it is called that or called a substantial contribution claim. When a party assumes a certain position in a legal proceeding and succeeds in maintaining that position, he may not thereafter simply because his interests have changed, assume a contrary position especially if itd be to the prejudice of the party who has acquiesced in the position formally taken by him. Citing to U.S. Uzdavines vs. Weeks
Marine, 418 F3d 138 at 147, 2nd Circuit 2005. To establish a claim for a judicial estoppel, a party must demonstrate, among other things, that the party is taking a position that is clearly inconsistent and fundamentally at odds with an earlier position, that the other party has succeeded in persuading a court to accept its earlier position,
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so that judicial acceptance of a subsequent inconsistent position would create the perception that the Court was misled. And three, the parties seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. There is a fair argument for judicial estoppel here, although it has not been raised by the objectors. The Court
was certainly not left with the impression -- the Court certainly was left with the impression that all of that was left for the Five Mile bidder by way of bid productions was the three million dollar expense reimbursement and nothing more, and that that amount was capped. Stated differently, the bid procedures order, which was highly negotiated and heavily litigated to not now be renegotiated and relitigated. Moreover, the argument that the three million dollar expense reimbursement is not a cap or a quote/unquote "restrictive cap" has no support in the applicable documents or I believe in the English language. The term sheet and
everything that refers to the expense reimbursement provision refers to the quote, "up to," end quote, three million dollar expense reimbursement. far as. The reservation of rights in the bid term sheet does Up to means no more than. It means as
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not change the plain meaning of these words, nor does the fact that the expenses being sought are a denominated substantial contribution claims. Finally, even if I were able to get past all of the foregoing infirmities in the application, there is the issue of reasonableness, and whether particular expenses resulted in direct benefits to the debtors estates. I cannot conclude on the record before me, that the Five Mile bidder has carried its burden with respect to the 450,000 dollars of fees attributed -- attributable to the LNR versus CRES litigation. Five Mile was not, as it suggests, a party that stepped in when no one else would. Its view that its actions
in the LNR versus CRES dispute avoided the derailment of the bidding process are unsubstantiated and somewhat speculative, given the overall circumstances of these cases. In addition, the requested fees and expenses of Hunt and its corporate counsel, Sidley and Austin should not qualify or be eligible for a 503(b) substantial contribution claim because notwithstanding the expense sharing agreement between Hunt and the Five Mile bidder, Hunt is not eligible to file a 503(b) claim, as it is not a creditor of the debtors. So doing the math, if we subtract the LNR versus CRES litigation and the Hunt related fees, the Five Mile bidders request is down to approximately 180,000 dollars or
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approximately six percent of three million dollars. It may well be the case that I were to review the back-up for the requested fees and expenses, I would find 180,000 dollars of fees and expenses that do not confer direct benefit on the estate, and that is the type of line item review that I believe the statute and case law require. Given, however, the multiple basis for my ruling, such a detailed analysis is not necessary, nor is it necessary to reach the other issues raised by Cerberus in its objection which have not otherwise been addressed. Mile bidders application is denied. Mr. Lennon, anything else? MR. LENNON: No, Your Honor. I believe that Accordingly, the Five
everything else on the agenda has been adjourned with respect to the claims. THE COURT: MR. LENNON: THE COURT: MR. LENNON: All right. And we will submit the order -All right. Well have --
-- to show cause as weve discussed
earlier, and I believe weve gotten even closer on the Chartis stipulation during the course of the hearing. THE COURT: Okay. Very well. Do you want an order on Mr. Shiff?
this, or do you want me to so order the record? MR. SHIFF: thats fine.
Why dont we just submit a one page order,
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THE COURT:
All right.
And without expressing one of
you whether or not there can be an appeal, if there is going to be an appeal from this ruling, Im reserving my rights to fashion a more fulsome decision. MR. SHIFF: wasnt intended to -THE COURT: MR. SHIFF: THE COURT: Thank you, folks. (Whereupon, these proceedings were concluded at 4:13 PM) I understand. -- push that indirectly. No, I understand. All right? All right. And Im saying the request for an order
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Motion to Allow Five Mile Bidder's Application Pursuant to Sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code for Allowance and Payment of Administrative Expense Claims - Denied RULINGS Page 77 Line 11 I N D E X
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: August 3, 2011 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Gershom Benayahu, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N
Gershom Benayahu ______________________________________

GERSHOM BENAYAHU
Digitally signed by Gershom Benayahu DN: cn=Gershom Benayahu, o, ou, email=digital1@veritext.com, c=US Date: 2011.08.03 15:14:11 -04'00'
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Filed 08/03/11 Entered 08/04/11 09:16:08 Pg 1 of 80

INNKEEPERS USA TRUST, ET AL.,

August 2, 2011 2:06 PM

B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE

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NICOLE B. HERTHER-SPIRO, ESQ.

ADAM L. SHIFF, ESQ. DANIEL A. FLIMAN, ESQ.

ADAM C. HARRIS, ESQ.

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

Brian Lennon on behalf of the debtors.

Your Honor, Im pleased

Chartis had objected to confirmation. THE COURT: Right.

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And as part of the confirmation order, we

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

THE COURT: cause returnable? MR. LENNON: afternoon. THE COURT:

So when would you want the order to show

If it could be returnable Thursday

Thats what I thought you would say.

I think theres in the neighborhood of twenty leases

And with that, Your Honor, Ill turn the

VERITEXT REPORTING COMPANY www.veritext.com

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Thank you, Mr. Lennon.

let you stand up very long.

Mr. Harris -- even Mr. Harris

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has made in his papers.

essentially go to Midland and Lehman respectively.

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-- to be now --- a footnote in the term sheet and Ive

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professional fee, another expense item.

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Well, I think its a different point,

I think that the point is more, and we can get to this

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THE COURT: MR. SHIFF:

bid procedures hearing.