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PACHULSKI STANG ZIEHL & JONES LLP 10100 Santa Monica, Boulevard, 11th Floor Los Angeles, California 90067 Telephone: (310) 277-6910 Facsimile: (310) 201-0760 James I. Stang, Esq. (admitted pro hac vice) -and780 Third Avenue, 36th Floor New York, New York 10017 Telephone: (212) 561-7700 Facsimile: (212) 561-7777 Alan J. Kornfeld, Esq. Ilan D. Scharf, Esq. Counsel for the Official Committee of Unsecured Creditors of The Christian Brothers Institute and The Christian Brothers of Ireland, Inc. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Chapter 11 In re: THE CHRISTIAN BROTHERS INSTITUTE, et al., Debtors. Case No. 11-22820 (RDD) (Jointly Administered)

REPLY TO OBJECTION AND OPPOSITION TO MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR ENTRY OF AN ORDER COMPELLING PRODUCTION OF DOCUMENTS FROM IONA PREPARATORY SCHOOL The Official Committee of Unsecured Creditors (the Committee) of The Christian Brothers Institute (CBI) and The Christian Brothers of Ireland, Inc. (CBOI and, collectively with CBI, the Debtors), the debtors and debtors in possession in the above-captioned cases (the Cases) under chapter 11 of Title 11 of the United States Code (the Bankruptcy Code), by and through its undersigned counsel, hereby replies (the Reply) to the objection and opposition

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(the Objection) [Docket No. 320] to the Committees Motion (the Motion to Compel)1 [Docket No. 288] for entry of an order, pursuant to Rule 45 of the Federal Rules of Civil Procedure (the Civil Rules), made applicable herein by Rule 9016 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules), compelling Iona Preparatory School (Iona Prep) to produce documents to the Committee. In support of its Reply, the Committee respectfully states as follows: Preliminary Statement 1. The Committee seeks production of Iona Preps organizational and related

documents that describe the relationship between Iona Prep, the Congregation and debtor CBI. One of the central issues that the Court may have to address at the sale hearing for the Properties is the nature of the relationship between Iona Prep and CBI and whether the sale is an insider transaction subject to higher scrutiny. Specifically, if CBI accepts Iona Preps bid notwithstanding a higher and better offer from another bidder the issue of CBIs relationship with Iona Prep will be an important issue at the sale hearing. The requested documents are directly relevant to that issue. They should be produced. 2. Iona Prep has failed to produce the requested documents (as defined in

the Motion to Compel, the Withheld Information). Iona Prep objects to production of the Withheld Information essentially on the basis that it is not relevant to the sale of the Properties. Specifically, Iona Prep asserts that [t]he Committee seeks documents from Iona Prep regarding its relationship with CBI in an attempt to portray the purchase price offered for the Propert[ies]

Capitalized terms used but not defined herein shall have the meanings and definitions ascribed to them in the Motion to Compel.

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by Iona Prep as an insiders price. That is almost right. Indeed, if there are bids for the Properties that are superior to Iona Preps, but CBI accepts Iona Preps bid, the Committee will argue, among other things, that the sale is an insider sale and thus subject to higher scrutiny. The Withheld Information is directly relevant to that argument. Without the Withheld Information the Committees ability to support that argument is prejudiced. The Withheld Information should be produced. Reply A. The Requested Information Is Likely to Be Relevant In a Contested Sale Hearing 3. Iona Prep argues that the sale procedures for the Properties will assure that

the highest and best price for the Properties will be determined by the market and thus the Committee has no need to see any documents that address the relationship between CBI and Iona Prep. That assertion assumes that nothing could possibly go wrong and that the sale procedures will be effective in flushing out all potential bidders by the bid deadline. 4. The Committee was successful in obtaining significant modifications to

the sale procedures. However, the adjustments to the sale procedures helped allay some of the fundamental problems with the original sale process, but they did not clear the fundamental problem that the Debtors clearly signaled to the market that they prefer Iona Prep as a buyer notwithstanding the amount of its bid. In that regard, CBI has stated as follows: Because CBI is a not-for-profit charitable Institution, CBI appropriately considered various factors - including but not limited to price - when considering whether to accept the offer made by Iona Prep and proceed with the sale subject to higher and better bids. CBI took into consideration, among other things, whether such a sale would further the goals of CBIs teaching mission and

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continue the operation of [the] school In that regard, a premium was placed on continued use of the [Property] for Christian based education - as it ensures that the Brothers teaching mission will be continued. See Debtors Reply to Official Committee of Unsecured Creditors Objection to Debtors Motion for Orders Pursuant to Sections 105(a) and 363 of the Bankruptcy Code and Bankruptcy Rule 6004 Approving (i) Sale Procedures and Notice of the Auction Relating thereto, (ii) Sale of Real Estate to Iona Preparatory School or a Party Making a Higher and Better Offer Free and Clear of the Liens, Claims, Interests and Encumbrances, (iii) Approving the Stalling Horse Purchase Agreement, and (iv) Granting Related Relief at 22 (the Debtors Sale Reply) [Docket No. 246]. 5. Based on CBIs stated position, the Committee is concerned that CBI may

select Iona Preps bid for the Properties even if another bidder makes a higher and better bid. The Committee believes that Iona Prep may be an insider of CBI. Sales to insiders are subject to review under a heightened scrutiny standard which closely examines transactions, rather than the more relaxed business judgment standard. See In re Innkeepers USA Trust, 442 B.R. 227, 231 (Bankr. S.D.N.Y. 2010); see also In re Summit Global Logistics, Inc., Case No. 08-11566, 2008 WL 819934*9 (Bankr. D.N.J., March 26, 2008) (citing In re Univ. Heights Assn, 2007 Bankr. LEXIS 2000*12 (Bankr. N.D.N.Y., January 22, 2007)). CBI has asserted that it is not an insider of the Iona Prep. See Debtors Sale Reply at 29. The Withheld Information will allow the Committee to test that assertion. 6. The Committee has been informed by two parties that they intend to

submit bids for the Properties. Based on CBIs stated preference to sell the Properties to Iona

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Prep, there is a possibility that CBI will select Iona Preps bid even if it is not the highest and best bid. The Committee will object to any sale that does not sell the Properties to the highest and best bidder. In addition, the Committee may object to the sale if any party is precluded from bidding on account of the actions of the Debtors or any other party. Moreover, at the February 15 Hearing, the Court held that it would not pre-approve the agreement with Iona Prep if there are no other offers. See Transcript of February 15 Hearing 27:13-22 attached as Exhibit B to the Motion to Compel. Thus, the Committee may still argue that a sale to Iona Prep should be subject to higher scrutiny. The relationship between Iona Prep and CBI is still relevant and may still be raised by the Committee at the June 28 sale hearing. 7. Any hearing regarding CBIs acceptance of a low bid by Iona Prep will

require the Committee to address, among other things, the relationship between CBI and Iona Prep., in particular, whether Iona Prep is an insider of CBI. Iona Preps organizational documents as requested by the Subpoena clearly go directly to that issue. 8. Iona Prep is asking the Court to allow CBI to argue that a sale is an arms-

length transaction while depriving the Committee of the evidence that goes to the heart of that matter. The sale hearing is scheduled to go forward less than 30 days after the hearing on the Motion to Compel. As such, the Court should compel production of the Withheld Information within five business days after the hearing on the Motion to Compel in order to allow the Committee time to prepare for the sale hearing.

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B.

Iona Prep Has Not Stated a Proper Basis to Quash or Modify the Subpoena 9. Civil Rule 45(c)(3)(A) sets forth the basis upon which the Court must

quash or modify a subpoena, as follows: (A) When Required. On timely motion, the issuing court must quash or modify a subpoena that: (i) fails to allow a reasonable time to comply; (ii) requires a person who is neither a party nor a party's officer to travel more than 100 miles from where that person resides, is employed, or regularly transacts business in person--except that, subject to Rule 45(c)(3)(B)(iii), the person may be commanded to attend a trial by traveling from any such place within the state where the trial is held; (iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) subjects a person to undue burden Fed. R. Civ. P. 45(c)(3)(A). 10. Iona Prep has not stated any basis to quash or modify the Subpoena

pursuant to Civil Rule 45. a. Iona Prep has had more than three months to produce the Withheld Information and thus has had more than ample time to comply with the Subpoena. The Subpoena does not require anyone to travel more than 100 miles. The Subpoena does not require the disclosure of privileged or protected information (even though Iona Prep has waived any objection on this basis). The Subpoena does not subject Iona Prep to undue burden. The Withheld Information requested by the Subpoena seeks largely organizational documents that go directly to the relationship between CBI and its prospective purchaser. The request is

b. c.

d.

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narrowly targeted to address issues that are highly likely to be relevant in a contested sale hearing. C. Iona Prep Has Not Timely Objected to the Requests in the Subpoena 11. Civil Rule 45(c)(2)(B) provides, in relevant part, as follows:

(B) Objections. A person commanded to produce documents or tangible things or to permit inspection may serve on the party or attorney designated in the subpoena a written objection to inspecting, copying, testing or sampling any or all of the materials or to inspecting the premises--or to producing electronically stored information in the form or forms requested. The objection must be served before the earlier of the time specified for compliance or 14 days after the subpoena is served. Fed. R. Civ. P. 45(c)(2)(B) (emphasis supplied). 12. Further, Civil Rule 45(c)(2)(3)(A) requires that a motion to quash must

be made on a timely motion. Iona Prep did not make a timely motion to quash or modify the Subpoena. Iona Prep did not object within fourteen days after service of the Subpoena. Iona Prep did not ask for an extension of its deadline to respond to the Subpoena. Iona Prep ignored the Committees request to meet and confer regarding the Withheld Information. Iona Prep did not articulate its concerns until it filed its Objection to the Motion to Compel more than three months after the Subpoena was served. As such, Iona Preps objection is untimely and should not be considered.

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WHEREFORE, the Committee respectfully requests entry of an order, substantially in the form attached as Exhibit F to the Motion to Compel, compelling Iona Prep to produce the Withheld Information within five business days. Dated: New York, New York May 25, 2012 PACHULSKI STANG ZIEHL & JONES LLP /s/ Ilan D. Scharf Alan J. Kornfeld, Esq. Ilan D. Scharf, Esq. 780 Third Avenue, 36th Floor New York, NY 10017-2024 Telephone: (212) 561-7700 Facsimile: (212) 561-7777 -andJames I. Stang, Esq. (admitted pro hac vice) 10100 Santa Monica Blvd., Suite 1100 Los Angeles, California 90067-4100 Telephone: (310) 277-6910 Facsimile: (310) 201-0760 Counsel for the Official Committee of Unsecured Creditors of The Christian Brothers Institute and The Christian Brothers of Ireland, Inc.

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