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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 Page 1 of 82 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA IN RE:
NATIONAL FORGE COMPANY,
et al., Debtor CIVIL ACTION NO. 04-22 ERIE HEARING ON APPEALS FROM BANKRUPTCY COURT ORDER Proceedings held before the HONORABLE SEAN J. McLAUGHLIN, United States District Judge, in Courtroom C, U.S. Courthouse, Erie, Pennsylvania, on Wednesday, June 2, 2004.
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 Page 2 of 82 --- Ronald J. Bench, RMR - Official Court Reporter APPEARANCES:
For the Debtors:
WILLIAM CULLEN, Esquire, (via Phone) For JP Morgan Chase:
JOEL M. WALKER, Esquire For the Creditors' Committee:
JOHN M. STEINER, Esquire For the Retirees' Committee:
LAWRENCE C. BOLLA, Esquire For E. Roger Clark, Maurice J. Cashman, Dana Beyeler and Robert Kaemmerer:
DOUGLAS CAMPBELL, Esquire, and ERIK SOBKIEWICZ, Esquire For Other Individual Named Defendants: BRIAN McGOWAN, Esquire file:///A|/NATFOR62.TXT (2 of 82)9/5/2006 7:02:22 AM
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PROCEEDINGS
(Whereupon, the proceedings began at 10:00 a.m., on Wednesday, June 2, 2004, in Courtroom C.)
THE COURT: All right, this is the time we've set for argument on the issue in large part directed at this appropriateness of the nunc pro tunc authorization to the committee. First of all, Mr. Cullen is on the phone, can you hear me, Mr. Cullen?
MR. CULLEN: Yes, your Honor, I can, very clearly.
THE COURT: All right. This is our first test of file:///A|/NATFOR62.TXT (3 of 82)9/5/2006 7:02:22 AM Page 3 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 the phone system in here and it seems to have functioned appropriately. Who would like to carry the ball first on behalf of any group of appellants?
MR. CAMPBELL: Good morning, your Honor, I'm Douglas Campbell of Campbell & Levine and we represent four of the individual appellants. If the court please, we'd like to lead on behalf of the appellants.
THE COURT: That's fine, go ahead.
MR. CAMPBELL: In this appeal, I think having read everyone's submissions, that it remains clear that there are two givens. The first given is that there is a need for court approval before a committee has authority to commence an adversary proceeding for the benefit of the bankruptcy estate.
And the second given is that when the complaint filed in this case by the committee was filed with the clerk, no such approval had been given at that point by the court. Now, while it is clear that this court in the exercise of its discretion can grant after the fact, post-facto approval of a filing such as that that was made by the committee, the court's exercise of file:///A|/NATFOR62.TXT (4 of 82)9/5/2006 7:02:22 AM Page 4 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 such jurisdiction clearly requires a showing of extraordinary circumstances. As the Third Circuit stated in the In_Re_Arkansas case decision, the test to be applied is one __ __ ________ that requires a showing by the party that seeks this after the fact approval -12 THE COURT: Let me interrupt you. Now that you brought up Arkansas, let's talk about In_Re_Arkansas as a ________ __ __ ________ starting point for our discussion. If I remember correctly, the Arkansas case came on in the context of a post-hoc approval ________ of professional appointment, is that right?
MR. CAMPBELL: Yes, it did.
THE COURT: All right. I take it that you read that case for the proposition that extraordinary circumstances must be demonstrated in every nunc pro tunc situation in the Third Circuit, is that right?
MR. CAMPBELL: I do read it -- or I will go this far with it. That in every situation where there is a need for the court to control prospectively the legal process that is taking place in the bankruptcy case.
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THE COURT: All right. Then let me ask you this.
What is your response to the Hobby_Center case and the Catwil _____ ______ ______ case, wherein they specifically draw a distinction between the policy considerations driving an extraordinary circumstance analysis in the context of professional appointment, as opposed to the policy considerations driving nunc pro tunc approval in a derivative standing case; are you familiar with the rationale of those cases?
MR. CAMPBELL: I'm familiar with the facts in the
Catwil decision, which were extraordinary. Because if you ______ notice what happened in Catwil is that you had a case that was ______ filed in April, April 1st of 1992. The committee itself was not appointed in that case until almost two years later, March 7th of 1994. So there was a committee appointed with probably 30 days remaining in the time that would be available to commence an action. A truly extraordinary circumstance. And one day before the expiration of the statute of limitations, that newly appointed committee and its newly appointed counsel undertook to get an action filed. And the court in that file:///A|/NATFOR62.TXT (6 of 82)9/5/2006 7:02:22 AM
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 situation did grant the post-facto relief that was sought. That is a factual situation that is clearly distinguishable from the one that we look at here, where the case was filed almost 18 months before this committee undertook to file this -25 THE COURT: I'm going to ask you to move me through
the time line here if you can because I do not remember the date or dates?
MR. CAMPBELL: Yes.
THE COURT: When was Cybergenics_I decided, do you ___________ _ recall?
MR. CAMPBELL: You might be -- you are asking the wrong person.
THE COURT: Am I asking the wrong person -- can anybody help me with that date?
MR. STEINER: Your Honor, it's May of 2003, I don't know the specific date. It was May of 2003.
THE COURT: All right. When was it vacated?
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Document 26 Filed 09/06/2006 MR. STEINER: I believe it was October or November of 2002.
THE COURT: You're incorrect, May of 2003 is the panel decision -- is the en banc decision. I'm interested in the panel decision, the date of the panel decision, which held that a committee could not have derivative standing? MR. SOBKIEWICZ: That was in 2002, your Honor.
THE COURT: Do you know when, I presumed it was 2002?
MR. SOBKIEWICZ: May or June, I believe.
THE COURT: All right. So you have -- that decision comes down in the spring or early summer of 2002, which says that there is no cause of action. And then that was vacated --
when was that vacated?
MR. McGOWAN: Your Honor, if I may interrupt, I believe the initial Cybergenics_I decision, I believe was ___________ _ issued September 20, 2002. I believe that was vacated November 18, 2002. I believe those dates are referenced in one of the reply briefs.
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Document 26 Filed 09/06/2006 THE COURT: And then on May 29, 2003, Cybergenics_II ___________ __ came down?
MR. McGOWAN: I believe so.
THE COURT: So let me ask you a practical question. As of January 31, 2003, it's fair to say that the state of the law on this point was at best unsettled. What would have been the prospect that if Judge Bentz would have been asked to approve in advance the committee's representation, that he would have held it in abeyance anyways pending a decision by the circuit; because if he didn't, wouldn't he have run the risk that he would have appointed someone, the work starts getting done, the decision comes down and the circuit says we agree with the panel, you can't be a representative, what do think likely would have happened if an application had been made in legal waters that were so uncertain?
MR. CAMPBELL: Well, all I can say to the court is this, is that Cybergenics_II actually is a decision of what the ___________ __ law is and was throughout the entire period of this case, and always has been.
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THE COURT: That's not correct, that isn't correct. Cybergenics -- the law was not always that. For a fleeting ___________ moment in time, it was the panel decision's law that controlled until it was vacated and then, properly speaking, from the vacation point up until the time that the en banc court ruled, it would be most accurate to say that the state of the law in the circuit was completely unsettled, would it not? MR. CAMPBELL: Well -- I guess the effect of vacating it or whatever Cybergenics_II had, I was of the ___________ __ opinion, I of course is probably quite wrong about this -11 THE COURT: You shouldn't say you're probably quite wrong, you may not be wrong at all.
MR. CAMPBELL: I think it would indicate that the law can't change, I mean Cybergenics_II was really there to ___________ __ indicate that the panel was incorrect, I would think, in its decision.
THE COURT: Sure enough, the law can't change, but the law can become clarified at a particular point in time. And it wasn't until Cybergenics_II, was it, decided May 29, file:///A|/NATFOR62.TXT (10 of 82)9/5/2006 7:02:22 AM Page 10 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 ___________ __ 2003, that this circuit spoke authoritatively on whether or not a committee can represent -- a committee like this has derivative standing, is that a fair statement?
MR. CAMPBELL: That is a fair statement. I think prior to that time advocates had obviously taken positions, principal positions based upon past practices and decisions in
other circuits.
THE COURT: Now, I understand full well that your view of the appellees, excuse me, the appellants' view of extraordinary circumstances focuses on the conduct of counsel for the committee. In that your view of a excusatory situation would be some force outside acting on counsel, which through no fault of their own, rendered compliance with pre-filing approval impossible, is that a fair statement?
MR. CAMPBELL: That's a fair statement.
THE COURT: And that could run the gambit, I assume, from anything from serious and unexpected illness, to a good faith belief that some other party was going to seek approval file:///A|/NATFOR62.TXT (11 of 82)9/5/2006 7:02:22 AM Page 11 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 for you but dropped the ball, something along those lines, is that right?
MR. CAMPBELL: Yes, I think Arkansas put it ________ particular circumstances adequately excused the failure. THE COURT: Do you have the Arkansas case in front ________ of you?
MR. CAMPBELL: Yes, I do.
THE COURT: I think you will find, if you look at either the last page or one of the last two pages, that court articulates some of the factors, does it not, that a court should consider in determining whether something is extraordinary?
MR. CAMPBELL: Yes.
THE COURT: What are they?
MR. CAMPBELL: Well, in this case and it's in the context of a professional engagement, whether the applicant or some other person bore the responsibility for applying for approval. Whether the applicant was under time pressure to file:///A|/NATFOR62.TXT (12 of 82)9/5/2006 7:02:22 AM Page 12 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 begin service without approval, which is similar to the California case that we discussed. The amount of delay after the applicant learned that that initial approval had not been granted.
THE COURT: In this case the amount of delay post January 31st was slightly more than 30 days, is that right? MR. CAMPBELL: The amount of delay --
THE COURT: In our case, what was the date that the committee sought post-hoc approval of its complaint of January 31st?
MR. CAMPBELL: The same day that it filed the complaint, it filed with the court an application for authority.
THE COURT: All right, same day.
MR. CAMPBELL: And the last one of these is the extent to which compensation to the applicant will prejudice innocent third parties.
THE COURT: Now, I understand full well that you are not a proponent of the tests articulated in Hobby_Center, _____ ______ Catwil and some of those other cases. But for purposes of our ______ file:///A|/NATFOR62.TXT (13 of 82)9/5/2006 7:02:22 AM Page 13 of 82
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discussion let's try them on for size. The factors which seem to come out of these cases are overall fairness, little confusion as to who would initiate the case, whether time was of the essence, and this issue of needless dismissals. Leading up to the filing of the complaint, the many months prior thereto, was there any confusion among any of the defendants as to who it would be that would ultimately be filing the complaint?
MR. CAMPBELL: Yes, let me address that. There was,
in fact in the middle of January, a letter issued by the creditors' committee, which is part of the record in this case, in the appendix, it's dated January 14th and it goes to all the unsecured creditors from the committee's law firm. And it states that the disclosure statement and the plan of reorganization being circulated to the creditors for a vote represents the joint effort of the creditors' committee and its professionals and the debtor and its professionals. And that the creditors' committee believes that the plan provides the best return to unsecured creditors. Now, that plan did not provide for the granting of standing to the committee to bring file:///A|/NATFOR62.TXT (14 of 82)9/5/2006 7:02:22 AM
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 this action. That plan did not even suggest that the action would be brought. To the extent that the right to bring the action existed, it would have been vested in the reorganized debtor. So in light of the plan that was being proposed, in light of its terms and in light of this letter that had been
issued by the creditors' committee, it seemed to any reasonable observer that this action was not going to be brought by anybody or, if at all, was going to be brought by the fiduciaries who controlled the reorganized debtor. THE COURT: Well, let me ask the question a little differently. I'm not talking about confusion to third parties, people who may have been onlooking, I'm saying was there ever any doubt at any material point as between the debtor, the bank, and the committee, that it would be the committee that was going to carry the ball?
MR. CAMPBELL: I believe that as of January, it was the belief of the debtor and the bank, the bank could speak to this, that nobody was going to carry this ball. THE COURT: Well, I guess one person's belief, it file:///A|/NATFOR62.TXT (15 of 82)9/5/2006 7:02:22 AM Page 15 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 could differ, but how do you square that, then, with these DIP orders and Bentz's language in those DIP orders where he, essentially, and we're going talk to about this later, but in his opinion he almost goes so far as to say that they didn't need pre-approval, at least insofar as the bank was concerned, because there's language in the DIP order that grants it. Now, if the judge was of the opinion, as a matter of fact it goes somewhat further, the debtor had forsworn any intention to bring this lawsuit, hadn't it?
MR. CAMPBELL: It had forsworn any intention to bring a lawsuit against the bank.
THE COURT: All right. So the debtor knew it wasn't going to do it, the bank knew that it wasn't going to be the debtor that was going to do, so the only one that was left was the committee, is that right?
MR. CAMPBELL: Against the bank.
THE COURT: Okay.
MR. CAMPBELL: Anyone else who would get standing.
THE COURT: Well, let's talk about the individuals. file:///A|/NATFOR62.TXT (16 of 82)9/5/2006 7:02:22 AM Page 16 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 The debtor had no interest in eating its own, did it? MR. CAMPBELL: The debtor didn't have any interest in bringing an action without merit and consuming assets in the estate.
THE COURT: I understand that, that's the reason the debtor was not interested in pursuing what it perceived to be a merit less lawsuit and a wasteful lawsuit insofar as the assets of the estate were concerned?
MR. CAMPBELL: Right.
THE COURT: And so the debtor knew that it wasn't going to do it, but the debtor knew that if anybody was going to do it, it would be the committee, is that right; insofar as the individual defendants were concerned -- that's the only game piece left on the chessboard, isn't it?
MR. CAMPBELL: I can't speak for the debtor because I wasn't there for it.
THE COURT: No, but isn't that a reasonable
assumption -- I wasn't there, either, I'm looking at the record, isn't that a reasonable assumption?
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MR. CAMPBELL: Sure.
THE COURT: Okay. Now, if the only entity that is available to prosecute this action, as a matter of fact, if the only entity who had any pre-filing interests in prosecuting this action is the committee and if nunc pro tunc approval is not granted, then there is nobody else to pick up the baton and prosecute the case, is there?
MR. CAMPBELL: There is not. But I go back to the fact that as of mid January, it was the recommendation of this committee that the baton not be picked up. It indicates in this letter that the plan provides the best return to unsecured creditors, indicating it was the optimum approach to the situation. The plan didn't provide for this litigation to go forward.
THE COURT: Bentz in his opinion talks about, as one of the factors, he talks about needless dismissals, wheel spinning, in other words, if I don't grant the nunc pro tunc, another complaint will be filed. What is your position on the statute of limitations, when did the statute of limitations on the fraudulent conveyance claim run?
MR. CAMPBELL: The statute of repose, because the file:///A|/NATFOR62.TXT (18 of 82)9/5/2006 7:02:22 AM Page 18 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 statute deals in terms of extinguishment -25 THE COURT: Let me ask that question that way. Is
the statute, a statute of limitations or a statute of repose, and if it's a statute of repose, why is it?
MR. CAMPBELL: It is a statute of repose because as drafted and I happen to be on the bar committee that drafted it.
THE COURT: So you gave birth to the statute?
MR. CAMPBELL: I actually made it a four-year statute instead of two, which was standard, because I felt people needed four years to catch up with fraudulent transfers, as a little footnote.
THE COURT: Very little.
MR. CAMPBELL: And you can see that it deals with, the concept there dealt with extinguishment of the right. And the reason that that was put that way and the reason it is dealt that way is we're running into a situation in fraudulent transfer cases brought under Section 544 of the code, where the trustee can step into the shoes of any creditor that has a file:///A|/NATFOR62.TXT (19 of 82)9/5/2006 7:02:22 AM Page 19 of 82
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claim in the case. We were having situations where among the creditors we would find a governmental entity, state government, for example. There was this principle that time never runs against the king, so if you had a state taxing creditor in a case, the trustee could step into the shoes of that creditor and bring an avoidance action as if they were the state and in effect transfer the transactions going back in time almost for an indefinite period. And that happened in the
Glen Eagle's case, it was thought by those who typically represent creditors, mostly banks and stuff, that leverage buy outs and those types of transactions, which are subject to fraudulent transfer scrutiny, needed to have some certainty. And for that reason steps were taken to extinguish the possibilities of a sort of equitable tolling approach or a non running of the statute of limitations. So the approach was taken let's extinguish the actual rights so nobody can take these things and make them go on indefinitely. And that brings us to what we have, which is described in shorthand as the statute of repose. And the statute of repose in this
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particular situation runs four years from the date of the transfers in question, the transactions that we look at, which are attacked in the complaint, are from I think March 13th of 1999, I believe.
THE COURT: So, by your lights, the outermost limit
of the statute of repose was March of 2003?
MR. CAMPBELL: Yes, sir.
THE COURT: Is that right?
MR. CAMPBELL: Yes, sir.
THE COURT: Now, just as an aside, when you were
talking about time doesn't run against the king, I remember one of my first days of law school and the professor was talking about, he said tempest non fugit rex, I thought oh my God what am I in for.
MR. CAMPBELL: That's how I feel now.
THE COURT: I hope it's not that bad. Okay. Let's
assume you're right, that it's a statute of repose rather than a statute of limitations. If -- doesn't nunc pro tunc approval, if appropriate, cause a relation back such that the
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 fiction being that the originally, perhaps infirmly filed complaint, which would be within the statute of repose, new life is breathed into it such that that complaint did not come into being outside the statute, it came into being within the statute; isn't that the operative effect of nunc pro tunc, because a new complaint isn't being filed?
MR. CAMPBELL: That's correct, as I see it --
THE COURT: That's correct or incorrect?
MR. CAMPBELL: I think that is correct. As I see it, a little twist on it, what you have here is that an unauthorized act is deemed to have been authorized. THE COURT: All right. But this gets a little bit metaphysical, but a pronouncement of nunc pro tunc is a pronouncement that that which went before is okay, right? MR. CAMPBELL: Yes.
THE COURT: All right. So isn't it true that the only way, to come full circle on this, that the statute of repose would be implicated, would be if someone was required to file a new complaint now?
MR. CAMPBELL: Yes, or if a complaint as filed was file:///A|/NATFOR62.TXT (22 of 82)9/5/2006 7:02:22 AM Page 22 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 deemed to be authorized only as of the date that Judge Bentz actually entered his order.
THE COURT: All right. Now, let me see if I can find this. Now, let me read you a portion of Bentz's opinion and then ask you a question about it. Page 13 he says, "as to the banks, the debtor waived all rights it had to contest the banks' claims at the beginning of the case by language in the interim and final DIP orders. The creditors' committee was charged with the task of investigating the legitimacy of the banks' claims and pursuit of any cause of action that might be brought against the banks. The language of those orders and the subsequent stipulations put the banks on notice that the creditors' committee was investigating the redemption transaction. The prior orders provide sufficient authority for the filing of the complaint as against the banks." Don't we have a situation here where the bankruptcy judge himself apparently was laboring under the perception that a pre-approval filing, a pre-approval was unnecessary given the previous history between the parties, at least insofar as the bank is concerned -- it seems to say it?
MR. CAMPBELL: I don't know that that's for me to file:///A|/NATFOR62.TXT (23 of 82)9/5/2006 7:02:22 AM Page 23 of 82
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THE COURT: No, I don't want you to, I'm not asking you to come to the banks aid one way or the other, but here's my point. Isn't the fact that the bankruptcy judge himself in
this case appeared to have been either confused or if not confused, actually possessed of the opinion that pre-approval wasn't necessary, doesn't that kind of undercut the draconian approach of throwing this entire case out, isn't that an equitable factor that gets thrown into the hopper when the bankruptcy judge himself expresses that opinion -- what were the parties supposed to think?
MR. CAMPBELL: Well, again, whatever the judge thought in that regard is really focused on the validity of the banks' liens or secured claims, their secured position. THE COURT: Right.
MR. CAMPBELL: It didn't really go to anything beyond that.
THE COURT: How, and now I'll restrict all my questions, I'm off the banks, so you don't have to weigh in file:///A|/NATFOR62.TXT (24 of 82)9/5/2006 7:02:22 AM Page 24 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 there, how is any -- the bank can answer for itself; how are the other defendants in this case, including yours, as a practical matter prejudiced by the continuation of this case beyond the prejudice that inures in any situation where it is always better not to be sued than to be sued?
MR. CAMPBELL: Well, I don't know that the legal standard here is prejudice, it is abuse of discretion, an application of principles of law that I think control the situation. I think that there is no legal support for the standard of the lower court here, which was in the interest of
efficiency. I don't know that the law ever wants to get into making efficiency the polestar for the administration of justice.
THE COURT: Well, I suppose that's right. The best of two worlds is efficiency and correct, but sometimes that can't always work. Getting back to the individual defendants, though, when do you contend that the statute of limitations ran against the individual defendants?
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 four years after the date of the challenged or questioned transfers in the redemption context.
THE COURT: Once again in March of 2003?
MR. CAMPBELL: I think it's March, 2003. I can't give you the exact day, it's either the 11th or the 13th. THE COURT: All right. But wouldn't this be true, then -- was Bentz right or wrong on this point. If when he granted nunc pro tunc approval in November, I think it was November of 2003, and one of his reasons was to avoid needless re-filings -- as of November of 2003, if he would not have granted nunc pro tunc and the committee tried to re-file, the action was dead, wasn't it?
MR. CAMPBELL: I think that is the case. I think that is the case.
THE COURT: Okay. So in many of these cases that talk about needless administrative wheel spinning, so to speak,
they come on in the context where there was a technical failure to have obtained nunc pro tunc, excuse me, a technical failure to have obtained pre-filing approval. And oftentimes the file:///A|/NATFOR62.TXT (26 of 82)9/5/2006 7:02:22 AM Page 26 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 courts say well, yeah, there was, but all that is going to happen here is they're going to file a new complaint. So what's the point. But there was a point here because a cause of action was dead if not nunc pro tunced, right? MR. CAMPBELL: Yes, sir.
THE COURT: Okay. What else do you want to tell me?
MR. CAMPBELL: I think that what remains to be mentioned is that the very narrow approach to the extraordinary circumstance test. That it only applies in situations where you're engaging a professional or seeking to have less, a post petition loan. I really think that is overly technical because I think what we're dealing with in this notion of extraordinary circumstances goes to a bankruptcy court's need to perspectively administer the bankruptcy process. It's about controlling the process. And what strikes me about what happened in this case, I think we used the term officious intermeddling for what the committee did. I wouldn't go so far as to say vigilante, but I thought it was a preemption of the court's authority, what was done here and there didn't seem to be any justification for this in this particular case. THE COURT: Strangely, though, the court didn't file:///A|/NATFOR62.TXT (27 of 82)9/5/2006 7:02:22 AM Page 27 of 82
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powers were being preempted at all. As a matter of fact, the court appeared to be laboring under the conception, whether it was right or wrong remains to be seen, that de facto approval had been granted by virtue of the previous order. So you're more offended than the bankruptcy judge was.
MR. CAMPBELL: I think it's a question of how the court system regards this. Whether it's the bankruptcy judge or the district court or the appellate court. And the banks, the issue with the bank was a determination of whether or not it really holds a valid secured claim in the case. The issue as to those of us that represent the individuals really goes off on another thing, it's a monetary recovery from us affirmatively. It goes outside the estate in that sense. But I didn't see any emergency here, any hardship, any extraordinary circumstance. I think really that Judge Bentz -16 his order should be vacated entirely, I think that this committee was estopped -18 THE COURT: Let me ask you this. Putting aside, I'm file:///A|/NATFOR62.TXT (28 of 82)9/5/2006 7:02:22 AM Page 28 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 not here on the merits today, the merits are for another day. But only assume for purposes of my question, and I know that the position of the individuals and the banks would be that the complaint, for a variety of reasons, does not state a colorable claim, is that right?
MR. CAMPBELL: I think the banks taking that position.
THE COURT: They would and I think everybody does. But assume only that it does, states a colorable claim, then what you would be telling me is, notwithstanding everything we talked about here, for a failure to have technically complied with a requirement that perhaps only, with something that it will only become clear later on, potentially viable causes of action that could inure to the benefit of the estate should be thrown out, is that what you're telling me?
MR. CAMPBELL: Yes, but I think it was clear to everybody that if you represent a committee and you want authority, you seek it in a timely manner. You don't just go off and file it and then afterwards say that's what I did. file:///A|/NATFOR62.TXT (29 of 82)9/5/2006 7:02:22 AM Page 29 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 That's the fast and loose approach.
THE COURT: In other words, a rule is a rule?
MR. CAMPBELL: A rule is a rule. That's the question here, and that's what the statute of repose is really designed to deal with, too. When, in fact, Pennsylvania dealt with this. I can tell you, going back to the footnote, people wanted to have bright lines, wanted to have certainty here. THE COURT: One last thing, getting back to Arkansas ________ and the professional appointee cases, where somebody can get in there and start working for eight, ten months, and if they did not seek prior approval and if the circumstances are not extraordinary, they are then removed, they cannot continue -25 MR. CAMPBELL: Yes.
THE COURT: And likely what happens if the task is not done, someone else is appointed, is that right? MR. CAMPBELL: Well, actually in Arkansas what ________ happens is they can't get paid for everything that they did prior thereto. It may well be that from the time they filed file:///A|/NATFOR62.TXT (30 of 82)9/5/2006 7:02:22 AM Page 30 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 the application going forward they can be paid, so people can lose years of compensation. A relatively harsh result and one that some of us thought was pretty technical, but it is the rule that we all obey.
THE COURT: Here's my point. The rule in the professional appointee cases, the remedy only then ends up punishing and hurting the professional. If the extraordinary circumstance is applied here, it damages the estate, isn't that right?
MR. CAMPBELL: I don't think so. I mean, because I don't believe the action has any merit.
THE COURT: I had said assuming the viability of the action hypothetically?
MR. CAMPBELL: Yes.
THE COURT: All right, thank you.
MR. CAMPBELL: Thank you.
THE COURT: All right, Mr. Walker.
MR. WALKER: Good morning, your Honor, Joel Walker on behalf of the banks. I appreciate Mr. Campbell's help on behalf of the banks as usual.
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THE COURT: He gave it reluctantly.
MR. WALKER: Maybe I should address that issue first, your Honor. The language in the opinion about the prior orders giving sufficient authority to pursue the action against the banks is really just that. That caused me some pause, too, when I read that, needless to say.
THE COURT: What do you make of it?
MR. WALKER: What I did, your Honor, was then go back to the order to see what Judge Bentz did specifically in his order, which was a couple months before the opinion that was issued. And his order is limited to the nunc pro tunc authority. So I'm not sure what the effect of this language is here, but his order and thus I think the issue that is before this court is really the nunc pro tunc issue.
THE COURT: You may be right. But, in any event, do I take it that it would be your position as a matter of law, parties cannot stipulate among themselves and do an end run, so to speak, around the judicially-created court approval requirement?
MR. WALKER: No, your Honor, that wouldn't be my position. I would think that the parties could do that. file:///A|/NATFOR62.TXT (32 of 82)9/5/2006 7:02:22 AM Page 32 of 82
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THE COURT: Oh, you would.
MR. WALKER: My suggestion that they did that here,
we don't believe that the parties did it here. Certainly when the law contemplates the parties coming to court and seeking
authority to do this, all the potential parties to that action could stipulate to that, thus, avoid the necessity of argument and otherwise.
THE COURT: Well, maybe my question was a bad one, I
guess it was. Are you saying that, first of all, it is your position that prior court approval is required for committee derivative standing, is that right?
MR. WALKER: Absolutely, your Honor.
THE COURT: All right. My second question, though,
is it also your position that that can be accomplished, that that requirement can be complied with by the spirit, if not the letter, by a stipulation among all the parties that so and so is going to carry the ball?
MR. WALKER: Yes, your Honor.
THE COURT: All right. Then what does that do to
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 the gatekeeping function of the bankruptcy judge who is supposed to review the complaint, review counsel, and make an initial determination as to whether the thing should get out of the blocks at all?
MR. WALKER: Well, I think, your Honor, as we very often do, we'll go to the court with stipulations, having all gone through that analysis, present it to the court -23 THE COURT: So it's really a functional court approval after the parties have stipulated?
MR. WALKER: That's correct, your Honor.
THE COURT: All right, I take your point, go ahead.
MR. WALKER: Your Honor, a few things. I wanted to address the factors in Catwil and America's_Hobby, which I know ______ _________ _____ you raised. The first one being the fairness standard. And I understand where the committee's coming from in terms of saying it's only fair to allow them to pursue this action. But if -7 THE COURT: Right.
MR. WALKER: If the committee had come to court, to file:///A|/NATFOR62.TXT (34 of 82)9/5/2006 7:02:22 AM Page 34 of 82
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the bankruptcy court prior to filing its complaint and raised these issues and gave everyone an opportunity to kind of go through this analysis of a colorable claim, the merits of the case, benefits of the estate, and that sort of thing, and really created a record, I think that it may well have come that they wouldn't have filed this action against the banks. What didn't happen here was much discussion, if any, about the merits of this case between the parties or with the court before this occurred. So I know we're not here on the merits, but what could be less fair than the committee filing an action without this gatekeeper having an opportunity to review the action before it's filed. So the fairness standard I think kind of cuts both ways. The question about who should bring the action, I'll respond on the banks' behalf. There was no confusion. If there was an action to be brought, it was going to be brought by the committee, there is no question about it. Time of essence. Just because you delay and thus bump against
a deadline, doesn't create time of the essence.
THE COURT: You can't create your own time problem?
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MR. WALKER: Correct, and that is what I think
happened here. The time records for the committee showed that as of October of -- let me get my years straight, 2002, they were reviewing and revising this complaint. So that's at least four months before, they're reviewing and revising the complaint. Complaint's in place. They had plenty of time to file their action. America's_Hobby and Catwil basically both _________ _____ ______ dealt with 30-day timeframes. That the committees were dealing with, that they had to jump and do things. The fact that there was this uncertainty about Cybergenics when it was vacated, ___________ they may have actually been preparing their complaint before the Cybergenics_I decision even came down, I don't know the ___________ _ answer to that. But all this is happening about the same time. If I'm in their shoes and I have all this uncertainty, but I have a course of conduct that's occurred over years and years and years, and I've represented committees, we get authority. We go to the court and we ask for authority to pursue these things. I would do that, particularly in light of the uncertainty. I don't think the fact that Cybergenics_I and ___________ _ Cybergenics_II, there is a gap period and everything, does file:///A|/NATFOR62.TXT (36 of 82)9/5/2006 7:02:22 AM
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 ___________ __ anything more than say to me well, I better go to court and see if the court is going to grant me authority or not. If the court holds it in abeyance, so the court holds it in abeyance,
but we're used to that, too. Where we file something, it's essentially, for lack of a better word, will toll that timeframe, will toll that problem. That's not what happened here. So I would have been concerned with that, too. THE COURT: What would have happened, though, we can't go back in time, but one can reasonably conclude, based upon Bentz's other conduct, that don't you find it unlikely that approval would have been given on January 31st, given the pendency of the en banc decision which was hanging over Bentz at that time and ultimately didn't come down until May? MR. WALKER: Would he have held it in abeyance, I think he may well have, your Honor. But my point being that's still a step that could have been taken. For example, there are timeframes under the bankruptcy code and the rules for assuming or rejecting executory contracts. Very often the file:///A|/NATFOR62.TXT (37 of 82)9/5/2006 7:02:22 AM Page 37 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 people will come and file for extensions of time to do that. Those aren't always heard before that timeframe expires. So we all used to do that, that's what I meant essentially by saying it would toll the period. At least they would have come to court prior to filing the complaint. Whether the court holds it in abeyance or not, we'd have to deal with that. THE COURT: You take the position, you meaning the bank, the banks, that you are -- when I asked the question about prejudice, you would say you are prejudiced if this nunc pro tunc is permitted because in your view it permits a dead
cause of action against you to have been revived, is that correct?
MR. WALKER: Yes, your Honor.
THE COURT: How so?
MR. WALKER: How are we prejudiced?
THE COURT: How does a nunc pro tunc approval of the January 31, 2003 filing revive a dead cause of action against you?
MR. WALKER: I'm sorry, your Honor, I may not be file:///A|/NATFOR62.TXT (38 of 82)9/5/2006 7:02:22 AM Page 38 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 answering the question exactly the way you want. If the nunc pro tunc -- I think the action died, I do, on January 31st, as to the facts. If the nunc pro tunc -- if the nunc pro tunc authority is approved, I think the court has the right to do that given extraordinary circumstances. Those don't exist here.
THE COURT: I take your point. But January 31, 2003, was the last date upon which you could file against the bank by mutual agreement, is that right?
MR. WALKER: That's correct, your Honor.
THE COURT: Then what you mean to say, I think, is that in your view the complaint that was filed on January 31, 2003, was a legal nullity by virtue of the lack of pre-complaint approval, is that right?
MR. WALKER: That's fair, yes.
THE COURT: But if nunc pro tunc approval is
granted, then it would relate back to the operative filing of that date such that there would be no statute problem, correct? MR. WALKER: That's correct, your Honor, yes.
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Document 26 Filed 09/06/2006 THE COURT: Okay, I got your point on that. Go ahead.
MR. WALKER: In terms of the Third Circuit and in terms of this distinction that the committee's trying to draw in terms of things that are statutory, in terms of court approval, either for getting financing or for the professionals, that sort of thing, and saying because what's happened in Cybergenics is not statutory, if you will, that ___________ there should be a different standard, that's when they turned to Catwil and America's_Hobby, the cases that aren't ______ _________ _____ controlling on this court. It's hard for me to imagine that the Third Circuit, which is what they did, was took the statute and through some pretty creative viewing of the statute and picking and choosing where they want, they actually expanded the statute. It's very difficult for me to imagine that the Third Circuit is going to say oh gee, that's the court approval that we talked about in Cybergenics, is different than this ___________ court approval that Congress put into certain sections of the bankruptcy code.
THE COURT: What do you make of this argument that file:///A|/NATFOR62.TXT (40 of 82)9/5/2006 7:02:22 AM Page 40 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 some of these courts use -- they say the requirement for extraordinary circumstances where the necessity for approval is
code driven and represents Congressional intent, is much stronger because to not require extraordinary circumstances would specifically run afoul of what Congress intends. Whereas, in committee derivative cases or standing cases, pre-approval is a judicial gloss and so those same concerns aren't in play, what do you make of that?
MR. WALKER: I'm not sure that any of those cases go that far. I think the cases that deal with statutes don't go and deal with the other actions.
THE COURT: Go ahead, I didn't mean to cut you off.
MR. WALKER: That's really my point, your Honor. Is that -- frankly, even if I forget that those cases do deal with that, then I did. But those cases, there's nothing in the Third Circuit that does that. And, frankly, we are dealing with the Third Circuit.
THE COURT: Tell me if I got your point, if this is your position. Would it be accurate for me to say that in your file:///A|/NATFOR62.TXT (41 of 82)9/5/2006 7:02:22 AM Page 41 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 view there would be no bankruptcy matter that could come to mind where a technical deadline was missed or a requirement in connection with a deadline was missed that did not require for its forgiveness an extraordinary circumstance?
MR. WALKER: I don't believe that's the case when we're talking about court approval, your Honor. There are other deadlines that we deal with in the bankruptcy court. But court approval -- and this is what F/S_Airlease and Arkansas, ___ ________ ________ 33 they talk about essentially the integrity of the process. That court orders, court approval has to mean something. If you're requiring a court to approve something, then you have a very lenient standard on that, you might as well not have the standard at all. And that's what I think is the distinction. Are there other deadlines, yes, that may not require extraordinary circumstances, I can think of some potentially, in terms of notice, in terms of that sort of thing. THE COURT: Can you, sometimes it's helpful to define it in the abstract so that you know it when you see it. Can you posit for me a couple or three scenarios where counsel file:///A|/NATFOR62.TXT (42 of 82)9/5/2006 7:02:22 AM Page 42 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 for a committee of unsecured creditors could file but fail to seek pre-filing approval and yet an extraordinary circumstance excusing that would exist. Now, you have nothing to worry about because I know you think on this record it never happened, because to test your theory, one would think there almost has to be situations where it could come up? MR. WALKER: Well, I'll give you an example. I think the Catwil case and the America's_Hobby case may just be ______ _________ _____ those circumstances.
THE COURT: All right, in what respect?
MR. WALKER: Where in, I think it was Catwil, where ______ the committee was appointed with very little time to do its investigation, with very little time to proceed. The extraordinary circumstance can be more of a question in those 34 examples of the time. In the America's_Hobby case, they were _________ _____ appointed at 30 days to investigate. In this case we had 120 days, plus, plus, plus. So I can envision a circumstance where file:///A|/NATFOR62.TXT (43 of 82)9/5/2006 7:02:22 AM Page 43 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 you're bumping up against the time and you have no other chance but to proceed.
THE COURT: I'm going to ask you the question, but I think I know the answer to it. I take it, then, for instance, you would consider a situation where you had -- well, take our case. And I don't know if the record will bear this out, but I'm going to ask about it when they get their chance. But would confusion generated by stipulations between the parties, coupled with uncertainty in the state of the law, serve as a cumulative extraordinary circumstance sufficient to excuse? MR. WALKER: Well, obviously, I think not, your Honor. And particularly in a circumstance like this where it was, this was a very active committee in this case. They were very aware, active in the sense of very involved in the plan process, very involved in everything that occurred here. And so that at the end of the day the fact that those things are happening over here, in terms of the stipulations of the parties, you take them in the context of the entire case. They knew where the case was going. They knew what distribution would look like. So in this particular case, your Honor, I don't see a circumstance that, I don't see anything there. When you're talking about things happening file:///A|/NATFOR62.TXT (44 of 82)9/5/2006 7:02:22 AM Page 44 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 35 cumulatively, I'm taking the whole case into account, I'm saying there is nothing here that says they shouldn't have just gone ahead and filed.
THE COURT: Finally, getting back to your overall fairness point you made at the beginning, your point was absent pre-approval, the court doesn't have an opportunity to shoot down early an otherwise non-meritorious claim, is that right? MR. WALKER: That's correct, your Honor. In fact, there are two points to that. One is the court approval, which is the one you just mentioned. Secondly, a little more discussion with the debtor here would have, which is the initial gatekeeper under Cybergenics, a little discussion with ___________ the debtor would have made those facts clear as well. I know Mr. Cullen pointed that out to the court when we were here last.
THE COURT: But presumptively, though, only for purposes of our discussion, if there was and is a meritorious claim, wouldn't it seem that in almost every circumstance where file:///A|/NATFOR62.TXT (45 of 82)9/5/2006 7:02:22 AM Page 45 of 82
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MR. WALKER: I can see that point, your Honor. But I'd point again to Arkansas and F.S._Airlease, which basically ________ ____ ________ say this nunc pro tunc stuff is the rule and this nunc pro tunc stuff can be really harsh, too. That's basically where it comes out, you still have to look to that standard. 36
THE COURT: Finally, it's also true, isn't it, that even if the claim at the inception would have been nipped in the bud by the bankruptcy court as being non-meritorious, substantively or otherwise, I would get a second bite at that apple; in other words, you would not be remedy less, I could dismiss the claim for the same reasons that the bankruptcy court would have dismissed the claim if it would have reviewed it at its inception, is that right?
MR. WALKER: At some point we're hoping you're going to do that.
THE COURT: I take it that that's right?
MR. WALKER: Yes, your Honor.
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THE COURT: Anything else you want to tell me?
MR. WALKER: No, that's all.
THE COURT: All right, I'm going to take a short
break.
MR. WALKER: Thank you, your Honor.
(Recess from 10:58 a.m.; until 11:10 a.m.)
THE COURT: All right, let's hear from the
committee. I apologize I left you out, you'll get your chance, too.
MR. McGOWAN: Thank you. Good morning, judge.
Brian McGowan here on behalf of the other remaining individual defendants. We've been called several things, transferee defendants, but all the other individuals. Judge, first of
37
all, I was asked by the other counsel to clarify something, a couple dates. First of all, and quite frankly, in our brief, in our first brief, we got this date wrong. I believe we attempted to correct it later in our subsequent briefs. But the emergency motion was, your Honor was correct, is was actually filed over a month after the complaint had been filed file:///A|/NATFOR62.TXT (47 of 82)9/5/2006 7:02:22 AM
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THE COURT: You mean the emergency motion for approval?
MR. McGOWAN: Correct. The complaint was filed January 31st, and then the motion requesting clarification that that had approval or in the alternative to grant approval was filed on March 7th.
THE COURT: A little over two months?
MR. McGOWAN: Well, from the end of January to the beginning of March.
THE COURT: You're quite right.
MR. McGOWAN: And then Attorney Campbell asked me to clarify the fact that the four-year statute of repose in this case actually would have been April 13th of '03, not March. THE COURT: All right.
MR. McGOWAN: So we're off by a month.
THE COURT: Thank you.
MR. McGOWAN: I'm going to do my best not to be repetitive and I'm confident the court will move me on if I am. 38 file:///A|/NATFOR62.TXT (48 of 82)9/5/2006 7:02:22 AM
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 I guess a couple things I would like to bring up are the fact that it truly was clear that approval was required, prior court approval was required in order for the committee to bring a complaint. Even in light of the Cybergenics confusion, if you ___________ will -6 THE COURT: Well, it wasn't even clear at that time whether you could -- I guess here's my question. If it wasn't clear whether you could even have standing, how could it have been clear whether you needed court approval?
MR. McGOWAN: I guess my response to that is the Cybergenics' en banc opinion confirmed prior practice. It ___________ didn't establish a new right or a new procedure. THE COURT: Prior to Cybergenics_II, anybody who ___________ __ would have tried to file an action like yours, committee or action like theirs, rather, derivative standing action on behalf of the unsecured creditors, would have been bounced, wouldn't they?
MR. McGOWAN: After the panel decision?
THE COURT: Prior?
MR. McGOWAN: I don't believe it would have been file:///A|/NATFOR62.TXT (49 of 82)9/5/2006 7:02:22 AM Page 49 of 82
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THE COURT: Well, it would have been bounced during that 10 or 12-day period where Cybergenics_I lived and ___________ _ breathed, right?
MR. McGOWAN: Correct.
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THE COURT: And there's at least a reasonable likelihood that it would have been bounced prior to Cybergenics_I?
___________ _ MR. McGOWAN: I'm not certain that that's the case. Prior to Cybergenics_I, the established practice or procedure ___________ _ in various circuits and I believe even in the Third Circuit, was that creditors' committees could receive standing provided they could follow the proper procedures.
THE COURT: All right.
MR. McGOWAN: It's clear that, we believe, we take the position that it's clear that despite some of the language in the opinion, Judge Bentz, it's important to look at actually file:///A|/NATFOR62.TXT (50 of 82)9/5/2006 7:02:22 AM Page 50 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 what his order did or rather what it did not do. In the request, the motion before him was for a declaration stating that hey, we have the authority. I believe the committee referred to their filing the motion -- over an abundance of caution. They asked the court to enter a declaration stating that we have the authority in January. Or, in the alternative, please grant the authority retroactive. That's what Judge Bentz's order, even in the conclusion of his opinion, despite some of the language in the opinion, that's actually what the bankruptcy court does.
THE COURT: Do you mean the latter -- nunc pro tunc, he grants it nunc pro tunc?
MR. McGOWAN: Yes, I think what happened here wasn't 40 a declaration, despite some of the language in the bankruptcy court opinion, it's not necessarily all that clear that they definitely had the authority in January when they filed the complaint.
THE COURT: In my view they didn't -- in my view court approval is necessary, formal court approval, which can file:///A|/NATFOR62.TXT (51 of 82)9/5/2006 7:02:22 AM Page 51 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 be accomplished nunc pro tunc, don't get me wrong. But I'm just saying nunc pro tunc approval or some type of approval is necessary.
MR. McGOWAN: So we're all in agreement that that is our starting block, now we look at okay, what should we do for nunc pro tunc. Now, I don't want to rehash all the arguments stated prior as to why I believe the Third Circuit applies extraordinary circumstance remedy. But very important in that analysis, I believe City_Wide_Press and Lehigh_Valley did take ____ ____ _____ ______ ______ the Arkansas decision and extended it beyond the mere ________ appointment of counsel. And paramount was the fact that nunc pro tunc undercuts and undermines the requirement or the policy to get prior court approval. And I don't believe that it's a distinction that in this case, as the creditors' committee is trying to establish, that in this case we're dealing with judicial approval as opposed to statutory. I think actually in this case, your Honor, the prior approval is even more important and even should be required even more so. Because of the fact that when you look at the statute in this case, the 41 file:///A|/NATFOR62.TXT (52 of 82)9/5/2006 7:02:22 AM Page 52 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 statute only gives, grants the authority to a trustee. So a strict reading of the statute says that the trustee has the ability to bring the action.
THE COURT: But a clear reading of Cybergenics, ___________ I mean the law comes from many places. And the law of the circuit is crystal clear that a committee has standing equitably to bring an action?
MR. McGOWAN: And I agree with that. But what we did was we started with a statute that doesn't specifically provide for that. We have a judiciary created, through various reading of the code as a whole and polling equitable principle in order to confer that. I think that's even more reason to state that you need to get that approval prior to filing. THE COURT: In other words, that's even a stronger reason for extraordinary circumstance where it's judicially created, is that right?
MR. McGOWAN: Correct, judge. And even if the extraordinary circumstances standard is not the standard, there has to be some test, as counsel for the bank stated, when you have a rule, you need to define what exceptions you're going to file:///A|/NATFOR62.TXT (53 of 82)9/5/2006 7:02:22 AM Page 53 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 have or else -22 THE COURT: Otherwise, it swallows the rule?
MR. McGOWAN: It swallows the rule. When you look at the court decisions cited by the committee, at a minimum they require an extenuating circumstance, which arguably their 42 extenuating circumstances are closer to extraordinary. But, in any event, the Catwil decision, KDI_Holdings, Rachles, ______ ___ ________ _______ Spaulding, they all look to something as some type of _________ extenuating circumstances. I don't believe that in this case the committee can even meet that standard. In fact, the Catwil_Corporation court stated that even under their ______ ___________ extenuating circumstances test, neglect or mere inadvertence on the part of counsel in failing to obtain approval does not meet that requirement. So even under a lesser extenuating circumstances test, a party cannot benefit from creating its own problem. I will wrapup shortly.
In Arkansas, the court and I believe Attorney ________ file:///A|/NATFOR62.TXT (54 of 82)9/5/2006 7:02:22 AM Page 54 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 Campbell did walk through, if you will, the circumstances or the test, the requirements that the Arkansas court laid out. ________ Importantly, also, but the court in Arkansas stated that the ________ court should grant the nunc pro tunc relief only after it determines two things. One, it would have granted it anyway. And we'll assume that Judge Bentz -19 THE COURT: Bentz says that he would have.
MR. McGOWAN: But, number two, the delay has to be beyond the control of the party requesting it or the petitioner. I don't think that the bankruptcy court entered into an analysis on that determination. In fact, the bankruptcy court relied on I believe an unreported decision, Valley_Media, it appears at Westlaw, it's cited in the court ______ _____ 43 opinion and in some of our briefs. Even that opinion, your Honor, that district court, District of Delaware, acknowledged that nunc pro tunc relief is a form of extraordinary relief in the Third Circuit. If you look at the facts in that case, there was no statute of limitations problem, the debtor file:///A|/NATFOR62.TXT (55 of 82)9/5/2006 7:02:22 AM Page 55 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 consented and, in fact, you almost really didn't need nunc pro tunc relief because had the dismissal been granted, it would have been followed by a complaint, we would have gotten into the needless dismissal refiling argument.
THE COURT: In this case, though, there is no needless dismissal or refiling situation because in this case a dismissal would be final because of the statute, right? MR. McGOWAN: Right, I agree.
THE COURT: Doesn't that factor cut in favor of the committee?
MR. McGOWAN: Not when the delay or -- not when the delay was due to their own -18 THE COURT: In other words, you can't create your own time problem?
MR. McGOWAN: Correct.
THE COURT: I have your point, thank you.
MR. McGOWAN: Thank you, judge.
THE COURT: All right. Mr. Steiner.
MR. STEINER: Thank you, your Honor. John Steiner on behalf of the official committee of unsecured creditors. file:///A|/NATFOR62.TXT (56 of 82)9/5/2006 7:02:22 AM Page 56 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 44 I'm not really sure where I should begin.
THE COURT: I know. Why did you wait -- well, let me first of all just flat out ask the first important question. Why didn't you -- you filed a request for approval within thirty-some odd days. Something must have been nagging at your conscience, why didn't you do it prior to filing or at least contemporaneous with your filing on January 31st? MR. STEINER: I can give a very simple answer to that one. We filed on January 31, 2003. The committee believed that it had the requisite authority pursuant to the DIP order, as well as the five separate stipulations that were entered. Following the filing of that complaint, there was a hearing held in the case on an unrelated matter, at which time the parties addressed their concern that the complaint was filed without first seeking the authority from the bankruptcy court.
THE COURT: When was that meeting?
MR. STEINER: I believe that was sometime before March 7th, I honestly can't remember the date. But at that time it was agreed by the parties that the committee would file file:///A|/NATFOR62.TXT (57 of 82)9/5/2006 7:02:22 AM Page 57 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 an emergency motion and seek either confirmation of the fact that we had authority or in the alternative seeking the requisite authority.
THE COURT: Was this an informal meeting off the record?
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MR. STEINER: It was not, it was on the record -- I can't remember what gave rise to that hearing, but Judge Bentz -4 MR. BOLLA: Your Honor, I think it was the plan confirmation hearing where we agreed to do that. MR. STEINER: That might have been, it might have been the plan confirmation hearing, where it was agreed at that time -9 THE COURT: But Judge Bentz was there as well?
MR. STEINER: Correct.
THE COURT: But what is the point of telling me that?
MR. STEINER: Well, that was the reason why it took 37 days for us to file the motion because it was not something file:///A|/NATFOR62.TXT (58 of 82)9/5/2006 7:02:22 AM Page 58 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 we believed we had to do. Again, we thought under the DIP order that we had the requisite authority. And I think makes -18 THE COURT: Not to interrupt you, but you're not suggesting, are you, that in connection with that meeting, that there was a waiver on the part of the defendants to your failure to have obtained pre-court approval?
MR. STEINER: I believe, I can't speak for them, I'm going by the best recollection I can, but the purpose of the motion was to again have the judge, Judge Bentz, assess whether or not we did have the authority prior to filing, or grant us 46 the requisite authority. At which time the parties would have an opportunity to file a response to the emergency motion and set forth their positions.
THE COURT: So the first point, then, is you were of the belief that court approval was unnecessary because it was your belief that by virtue of the previous orders that are called DIPs, that court approval had functionally been granted, is that your point?
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MR. STEINER: That is correct.
THE COURT: Okay. But what does -- the DIP says something about the banks, but what does it say about the other defendants?
MR. STEINER: Well, again, when we were faced with, and I think if I could put this into perspective to answer that question. The time line was such that the committee obviously had not yet been formed at the time of the filing of the case. The interim DIP orders get entered on the first day, we see that there is a 120-day limitation period from the appointment of the committee, to pursue, among other things, avoidance actions against the banks.
THE COURT: Then you ask for several extensions -- five?
MR. STEINER: At the hearing we asked the judge to extend that or strike that from the DIP order. Unfortunately, without it, the banks wouldn't lend money, so we have no 47 choice. It's a self-imposed statute that the banks ask for. The judge in fact actually added some days to that, I believe file:///A|/NATFOR62.TXT (60 of 82)9/5/2006 7:02:22 AM Page 60 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 it was originally 90, he made it 120, when we explained to the judge it takes a lot of time to do the due diligence into these things. Ultimately, after that first 120 days we had not yet completed our due diligence, we asked the bank to agree to an extension so that we wouldn't have to file a complaint to protect the claims, some notice pleading complaint. The banks agreed. I believe after the first extension, which was 90 days, we did complete our due diligence, we determined these claims existed. We subsequently entered into additional stipulations based upon the very simple fact that the banks did not want us to file the adversary proceeding while the sale process was pending. And we didn't do that. On January 31st, the day of the sale motion hearing, we were informed by the bank that they would not agree to any further extensions. THE COURT: Let me interrupt you for a second because I'll forget it. Somebody raised, I can't remember who it was, earlier in January they mentioned this letter? MR. STEINER: Correct.
THE COURT: Do I take it that at that point in January, the committee was of the opinion or possibly of the opinion that your financial bread was better buttered by going with the reorganization?
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Document 26 Filed 09/06/2006 MR. STEINER: Well, this actually wasn't a 48 reorganization, it was a liquidation.
THE COURT: A liquidation.
MR. STEINER: And initially as part of another reason why the complaint wasn't filed early on was because the disclosure statement in the plan provided that the unsecured creditors would receive 95-percent distribution. It wouldn't make sense, I'll admit that here today, it wouldn't make sense to file this complaint if the general unsecureds were going to get 95 percent. As we moved along in the process, we, the committee, as Mr. Walker indicated, were actively involved and determined that that was a significant overstatement. THE COURT: When along the time line did you determine conclusively in your mind sufficient for you to know that an avoidance action was the way to go, that 95 percent was pie in the sky?
MR. STEINER: I couldn't pinpoint a date for you, your Honor, it would have been around the December, January timeframe; December of '02, January of '03 timeframe. file:///A|/NATFOR62.TXT (62 of 82)9/5/2006 7:02:22 AM Page 62 of 82
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Document 26 Filed 09/06/2006 THE COURT: All right. Did you have a complaint drafted in '02?
MR. STEINER: I cannot dispute that -- our records regarding the services we were providing stated that we were drafting a complaint, in fact we were. As I said, we had determined this claim, this potential claim existed. And again the reason for the delay was by agreement of the parties 49 because we didn't want to distract the lawyers or the management from maximizing the value of the assets. Which clearly made sense for all the constituents involved in the case. Certainly the bank, who was paid in full by the sale, had an incentive not to get the lawyers or the management distracted from what it felt their duties should be. THE COURT: Is this accurate to say. Given the fact that you recognized in advance the need for court approval, but believed you had court approval by virtue of the previous DIP orders, that time being of the essence is really not a relevant consideration?
MR. STEINER: Well, I believe it was. Again -- file:///A|/NATFOR62.TXT (63 of 82)9/5/2006 7:02:22 AM Page 63 of 82
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Document 26 Filed 09/06/2006 THE COURT: How could you do something, how could time have been a relevant factor in terms of a crunch factor if you didn't think you had to do it because you thought it had already been done?
MR. STEINER: Well, we had till January 31, 2003, pursuant to the last stipulation and consent order that was signed by the judge. That said if we do not file -20 THE COURT: And you did. But my point is if you would have thought that the stipulations were inadequate to represent prior court approval, you had sufficient time to obtain court approval and still make the January 31st deadline, didn't you, what would have prevented you?
MR. STEINER: I'm not sure, again, that was not 50 something we felt we had to do.
THE COURT: That's not my question, listen to it. I know it wasn't something you felt you had to do because you felt it had already functionally been done. But if you felt it had to be done, there was time to do it?
MR. STEINER: Sure, I agree with that.
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Document 26 Filed 09/06/2006 THE COURT: All right. So in that sense time is not of the essence in the sense where somebody gets a file dumped on their desk two weeks, a week before something is due? MR. STEINER: With one caveat to that. On the 31st I was actually present at the sale motion hearing, was informed by bank counsel that day that they would not agree to a further extension. In my mind we had thought, I had thought we would be getting another extension of that deadline. I was informed we would not, we filed it. So in a sense I felt on January 31st I needed court, prior court approval, I would not have had the time, I don't believe, to seek that authority before I filed the complaint. Certainly, on the other side of the coin, if the bank had felt that was also necessary, an extension could have been granted so we didn't have to file the complaint, so that we could have filed a motion seeking the requisite authority. So I think it works both ways. I think the actions of the parties -24 THE COURT: Did any of the parties do anything that legally could be akin to lulling you into a belief that you did 51 file:///A|/NATFOR62.TXT (65 of 82)9/5/2006 7:02:22 AM Page 65 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 kind of an estoppel type of thing, that lulled you into a mistaken belief that court approval was not necessary? MR. STEINER: I think that by the language of the stipulations itself, it clearly states that the committee would have the right to bring an adversary proceeding related to the stock redemption, which was signed by the bank group. THE COURT: But that's true, but here's my point. If your position is correct on that, you completely abrogate the bankruptcy court's gatekeeping function, don't you? MR. STEINER: In a sense when a judge signs those consent orders, he hasn't done any gatekeeping function. THE COURT: Because he didn't have a complaint in front of him?
MR. STEINER: He did not.
THE COURT: So how could he gatekeep without a complaint?
MR. STEINER: He could not.
THE COURT: Is this accurate to say. Assuming only for purposes of my discussion that court approval requires court approval with all the relevant documents in front of the court, did you make a legal mistake?
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Document 26 Filed 09/06/2006 MR. STEINER: A legal mistake -- in terms of filing the complaint?
THE COURT: In not seeking prior court approval, was it a mistake of law on your part?
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MR. STEINER: I think that there's a case out there that we cite in our brief -- the name of it slips my mind, but it does say that parties cannot stipulate or agree to usurp the gatekeeping function of the bankruptcy court.
THE COURT: I agree with that.
MR. STEINER: However, I believe we distinguish that case because it cites to a case that was factually distinguishable in that there were separate agreements that stated that the parties would agree to allow the committee to pursue the action. So with that argument still existing in my brief, I would say that I think that we had the authority. But if you ask me -13 THE COURT: Is it your position that you had a good faith belief that it was unnecessary?
MR. STEINER: I would certainly argue that the file:///A|/NATFOR62.TXT (67 of 82)9/5/2006 7:02:22 AM Page 67 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 committee, the committee's attorneys and the committee had a good faith belief that on January 31, 2003, it had the authority to file -19 THE COURT: Let's see if we can dispense with one half of this forest right now. Your legal view is that I should judge the appropriateness of nunc pro tunc relief through America's_Hobby_Center and Catwil's lens, is that _________ _____ ______ ______ correct?
MR. STEINER: Correct.
THE COURT: And those four factors that emerge from 53 those cases, is that correct?
MR. STEINER: Correct.
THE COURT: Based upon what you've told me as to why court approval was not obtained or at least in the classical sense, you would not survive under an extraordinary circumstance analysis, would you?
MR. STEINER: I argue that we could.
THE COURT: Well, you tell me how you possibly can if the focus on extraordinary circumstance is circumstances file:///A|/NATFOR62.TXT (68 of 82)9/5/2006 7:02:22 AM Page 68 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 that render compliance on the part of counsel impossible? MR. STEINER: I'm not sure that extraordinary circumstance means that the action taken had to be taken because if it wouldn't, it would have been impossible to do it at some future point.
THE COURT: What would be the extraordinary circumstance within the meaning of Andrews? _______ MR. STEINER: In the cases that are cited by the appellants, I think extraordinary circumstance is defined as just as it is, an extraordinary circumstance. In those cases it was timing -21 THE COURT: That's not the case here, time is not the extraordinary circumstance.
MR. STEINER: That's where I disagree with the appellants because there was a statute of limitations, a self-imposed statute of limitations.
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THE COURT: Now, you're mixing apples and oranges again, with all respect. You complied with the statute of file:///A|/NATFOR62.TXT (69 of 82)9/5/2006 7:02:22 AM Page 69 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 limitations, you did not seek prior court approval in conjunction therewith, correct?
MR. STEINER: Correct.
THE COURT: All right. I've got to take a phone call, I'll be right back.
(Recess from 11:38 a.m.; until 11:50 a.m.)
THE COURT: All right, where were we?
MR. STEINER: I believe, your Honor, we were talking about extraordinary circumstances and whether or not -12 THE COURT: As it may relate to you?
MR. STEINER: I had a bit of a revelation during our break, I'd like to convey that to the court. I think it's worthwhile to point out to the court, as you have noted, the DIP order and the stipulations may have usurped this gatekeeping function.
THE COURT: I'm sorry?
MR. STEINER: The DIP order and the stipulations may have usurped the gatekeeping function of the bankruptcy court. Of note, though, is that this is not something that the general unsecured creditors' committee negotiated or had a choice in. This was something imposed by the debtor and the bank in their DIP order. So I think that to now hold the committee file:///A|/NATFOR62.TXT (70 of 82)9/5/2006 7:02:22 AM Page 70 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 accountable for something that it had no choice in, seems 55 unfair in a court of equity. Also, I think, the courts that are cited in the briefs don't necessarily give a definitive definition to extraordinary circumstance. I think the best definition is you know it when you see it.
THE COURT: You know it when you see it. But you also know it by negative implication. You know what it's not, you know that mere mistake, delay or negligence, none of which I'm suggesting necessarily was here. But that is not extraordinary. In other words, you cannot bumble into a situation where you become the architect of your own extraordinary circumstance.
MR. STEINER: And I completely understand that, and I think, your Honor, that's why it was worth noting that if the committee had its druthers at the time of the interim DIP hearing, we would have asked the court to strike that deadline from the DIP order.
THE COURT: But you're tilting, in my view, at a straw man. Because the January 31st deadline only becomes file:///A|/NATFOR62.TXT (71 of 82)9/5/2006 7:02:22 AM Page 71 of 82
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MR. STEINER: The record reflects that the deadline was January 31st.
THE COURT: Right. All things being equal, as we're 56 getting back to our original discussion, court approval could have been formally sought, but the committee reasonably believed, to put it in your words, that it had already been obtained by virtue of the previous orders, that's the reality of it, is that right?
MR. STEINER: That's the reality of it.
THE COURT: That having been said, isn't it true, that if you were going to find salvation here, you have to find it, assuming that you're not already damned by virtue of the application of extraordinary circumstances, you fair better, don't you, under Catwil and America's_Hobby than you do under a ______ _________ _____ file:///A|/NATFOR62.TXT (72 of 82)9/5/2006 7:02:22 AM
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 strict application of extraordinary circumstances? MR. STEINER: Absolutely.
THE COURT: All right. Now, let's talk about that. Why is it fair from an overall standpoint to nunc pro tunc you in this case?
MR. STEINER: Are we addressing the overall fairness standard?
THE COURT: I am.
MR. STEINER: I believe, as the other courts noted, I believe in America's_Hobby and Catwil, that in, well -_________ _____ ______ mostly analogous to the America's_Hobby case. In that case the _________ _____ court recognized, as did Judge Bentz in this case, that the only party that would be able to bring this action was the unsecured creditors' committee. So it would only be fair to 57 allow the general unsecured creditors' committee to bring that action and not take away a potential distribution from the general unsecured creditors.
THE COURT: If there were other viable candidates file:///A|/NATFOR62.TXT (73 of 82)9/5/2006 7:02:22 AM Page 73 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 here to have brought the action and still were, would nunc pro tunc approval to your committee be appropriate? MR. STEINER: If there were other parties -- I believe if you look at the other parties that could have, which would be the debtor, the trustee -10 THE COURT: Well, obviously, we know the situation, but I'm trying to test the principle. If there were other non-conflicted parties who were capable of pursuing these claims and if those claims were not time-barred, would nunc pro tunc approval of your committee be appropriate? MR. STEINER: I think in our case if there was, let's say a Chapter 11 trustee, who had authority to bring the action, I believe that if you look at America's_Hobby, the _________ _____ fairness standard may not be met because there is another party that could protect the interests of the constituents. THE COURT: And if nunc pro tunc approval were granted then, the exception would always swallow the rule, wouldn't it?
MR. STEINER: If there was another party available?
THE COURT: If there was another party available?
MR. STEINER: Yes.
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THE COURT: How do I fashion a bright line test here that does not functionally permit every person who misses the deadline to get nunc pro tunced in, how do I do it so it simply doesn't become well, if you can't do it, nobody can do it? MR. STEINER: I think other courts have tried to do that as well. In a situation where you have a Congressional statute that dictates the prerequisites to taking a certain action, the standard is extraordinary circumstance. I think the Third Circuit has made that clear with relation to the retention of professionals or the seeking of post petition financing under Section 364 of the bankruptcy code. Other courts, and not the Third Circuit, have tried to address what the appropriate standard would be for nunc pro tunc relief in a situation where a committee is seeking derivative standing, where there is no statutory predicate as to what prerequisites apply. In fact, I believe the Valley_Media case, which is ______ _____ cited by Judge Bentz, Delaware courts specifically say that even Cybergenics_II does not provide a definitive procedure as ___________ __ file:///A|/NATFOR62.TXT (75 of 82)9/5/2006 7:02:22 AM Page 75 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 to how a committee would seek derivative standing. THE COURT: No, it doesn't. Was Judge Bentz wrong in part when he concluded that a failure to grant nunc pro tunc approval would result in needless refilings?
MR. STEINER: I believe he was not. The reason I believe that is because Section 546 of the bankruptcy code is very clear, it's unambiguous. It says that a trustee has two 59 years from the date of the order of relief to bring avoidance actions under Section 544 of the bankruptcy code. THE COURT: When did the statute run?
MR. STEINER: The transaction that is the subject of the complaint occurred on April 13, 1999, to the best of our ability to ascertain a specific date. So, therefore, the statute would have run on April 13, 2003. And, however, I believe that by operation of Section 546, the statute would not have run until March 6th of 2004. Because the bankruptcy case was filed on March 6, 2002. The appellants tried to cite cases that talk about the interplay between Section 546 and the state statutes. The two cases they cite are completely factually file:///A|/NATFOR62.TXT (76 of 82)9/5/2006 7:02:22 AM Page 76 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 distinguishable from this case in that those courts address a nonclaim statute, which deals with a decedent's estate, which in history has always been under the purview of the state courts. And have said that 546 would not act to extend a nonclaims statute. Those cases do not say -18 THE COURT: I take your point on that. But here's my question to you. One of the reasons this needless refiling, administrative wheel spinning, that means why go through the rigmarole if they don't grant nunc pro tunc, they'll just re-file and the thing will just go on as though I had granted nunc pro tunc, right?
MR. STEINER: That's correct.
THE COURT: In your case, though, if they're right, 60 if the statute had really run, then that's a two-edge sword that also cuts against you, doesn't it, because the case is then over but for nunc pro tunc, and it would then proceed to the detriment possibly of the defendants in the face of an otherwise time-barred claim?
MR. STEINER: And that is a very confusing issue. file:///A|/NATFOR62.TXT (77 of 82)9/5/2006 7:02:22 AM Page 77 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 Because it is a double-edge sword. In one instance the appellants want to argue that there is an extraordinary circumstance, that time was not an issue, that we could have done all this whenever we wanted, we had plenty of time. In another instance they want to argue that the statute has run and, therefore, they've been prejudiced by the implication of the nunc pro tunc relief. But I think specifically, your Honor, it's important to note as well that with regards to the banks, if the judge would have granted relief as of November 26, 2003, effective as of November 26, 2003, I'm certain that the banks would have argued that it's time-barred. Because we did not bring it before January 31, 2003. As well, the other defendants would have argued that this is a statute, a statute of repose that had expired in April of 2003.
THE COURT: One last question, then I'm going to let you sit down. Would you be entitled to nunc pro tunc relief in the absence of the DIP orders?
MR. STEINER: I believe we would, your Honor.
Again -- 61 file:///A|/NATFOR62.TXT (78 of 82)9/5/2006 7:02:22 AM Page 78 of 82
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Document 26 Filed 09/06/2006 THE COURT: On what basis; in other words, if there were no stipulations out there upon which you claim you reached the reasonable conclusion that functionally court approval had already been obtained, then on what other equitable hook would you hang your nunc pro tunc hat?
MR. STEINER: If I had to make certain assumptions, I'd make this assumption. That if the DIP orders did not exist, the stipulations did not exist, it is likely that we would have filed a motion seeking the requisite authority before we filed the complaint.
THE COURT: And we would not have been here?
MR. STEINER: We would not be here today. But given the totality of the circumstances and those orders, we are here today.
THE COURT: All right, thank you. Anybody who wants to say anything has about three minutes. Anything from over here, anybody wants to say anything? Yes, sir.
MR. CAMPBELL: I just wanted to address the reference that was made of Section 546 and the suggestion that somehow extends the statute. Section 546, if you take a look at it, doesn't do that at all. It indicates that an action may not be commenced after two years from the commencement. It file:///A|/NATFOR62.TXT (79 of 82)9/5/2006 7:02:22 AM Page 79 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 sets an end date, it doesn't pull anything along. THE COURT: All right.
MR. WALKER: Just one thing I wanted to clarify real 62 quickly, your Honor. Mr. Steiner indicated on January 31st at the sale hearing the bank said no more extensions. That is not the case. In fact, the sale hearing wasn't even on January 31st, that was a closing on the sale. I don't know when we said -- we certainly didn't state it at that stage. They wouldn't have asked up until this date as well. THE COURT: All right.
MR. McGOWAN: Nothing further, your Honor.
MR. STEINER: On the issue of the interplay between Section 546 and the Uniform Fraudulent Transfer Act, I would direct the court's attention to the K-B_Building case that I ___ ________ cite in my brief, it gives a good explanation. THE COURT: Where is that out of -- is it in this circuit?
MR. STEINER: It's actually the Pennsylvania file:///A|/NATFOR62.TXT (80 of 82)9/5/2006 7:02:22 AM Page 80 of 82
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file:///A|/NATFOR62.TXT Case 1:04-cv-00022-SJM Document 26 Filed 09/06/2006 Superior Court addressing whether the Uniform Fraudulent Transfer Act -- is a repose or statute of limitations. THE COURT: All right. Thank you, counsel.
(Whereupon, at 12:05 p.m., the proceedings were concluded.)
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63
CERTIFICATE
I, Ronald J. Bench, certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled matter.
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Case 1:04-cv-00022-SJM
Document 26
__________________________________ Ronald J. Bench
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Filed 09/06/2006
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