General Motors Bankruptcy 2595 - Transcript 6-25-09

Transcript

1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 09-50026 - - - - - - - - - - - - - - - - - - - - -x In the Matter of: GENERAL MOTORS CORPORATION, et al., Debtors. - - - - - - - - - - - - - - - - - - - - -x United States Bankruptcy Court One Bowling Green New York, New York June 25, 2009 9:03 AM B E F O R E: HON. ROBERT E. GERBER U.S. BANKRUPTCY JUDGE VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 HEARING re Motion of Debtors for Entry of Order Pursuant to 11 U.S.C. §§ 105(a) and 366 (i)Approving Debtors Proposed Form of Adequate Assurance of Payment; (ii)Establishing Procedures for Resolving Objections By Utility Companies; and (iii)Prohibiting Utilities from Altering, Refusing, or Discontinuing Service HEARING re Motion of Debtors for Entry of Order Pursuant to 11 U.S.C. Sections 105, 363, and 364 Authorizing Debtors to (i)Pay Pre-petition Claims of Certain Essential Suppliers, Vendors and Services Providers; (ii)Continue Troubled Supplier Assistance Program; and (iii)Continue Participation in the United States Treasury Auto Supplier Support Program HEARING re Motion of Debtors for Entry of an Order Pursuant to 11 U.S.C. §§ 361, 362, 363, and 364 (i) Authorizing the Debtors to Obtain Post-petition Financing, Including on an Immediate, Interim Basis; (ii) Granting Superpriority Claims and Liens; (iii) Authorizing the Debtors to Use Cash Collateral; (iv) Granting Adequate Protection to Certain Prepetition Secured Parties; (v) Authorizing the Debtors to Prepay Certain Secured Obligations in Full Within Forty-Five Days; and (vi) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 HEARING re Motion to Appoint Committee Motion of Ad Hoc Committee of Consumer Victims of General Motors for Appointment of Official Committee of Tort Claimants Pursuant to 11 U.S.C. §1102(a)(2) HEARING re Motion of the Debtors Pursuant to 11 U.S.C. § 363 for an Order Authorizing the Debtors to Employ and Retain AP Services, LLC As Crisis Managers and to Designate Albert A. Koch as Chief Restructuring Officer, Nunc Pro Tunc to the Petition Date HEARING re Application For An Order Pursuant To Sections 327(a) And 328(a) of the Bankruptcy Code and Bankruptcy Rule 2014(a) Authorizing the Employment and Retention of Evercore Group L.L.C. as Investment Banker and Financial Advisor for the Debtors Nunc Pro Tunc to the Petition Date HEARING re Motion of Debtors for Entry of Orders Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, and 507 (i)Authorizing Use of Cash Collateral; (ii)Granting Adequate Protection to the Revolver Secured Parties; (iii)Granting Adequate Protection to the Term Loan Secured Parties, and (iv) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 HEARING re Motion of the Debtors Pursuant to 11 U.S.C. Sections 105(a) and 362 for Entry of (i)Interim and Final Orders Establishing Notification Procedures Regarding Restrictions on Certain Transfers of Interests in the Debtors; and (ii)Orders Scheduling a Final Hearing HEARING re Motion of Debtors for Entry of Order Pursuant to 11 U.S.C. Sections 105(a) and 363(b) (i)Authorizing Debtors to Pay Prepetition Obligations to Foreign Creditors; and (ii)Authorizing and Directing Financial Institutions to Honor and Process Related Checks and Transfers HEARING re Application of the General Motors Retirees Association for Order to Appoint a Retiree Committee Pursuant to 11 U.S.C. Section 1114(d) HEARING re Motion to Appoint Committee Motion for an Order (i)Appointing a Legal Representative for Future Asbestos Personal Injury Claimants; and (ii)Directing the United States Trustee to Appoint an Official Committee of Asbestos Personal Injury Claimants 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 HEARING re Application of the Debtors Pursuant to 11 U.S.C. §§ 327(a) and 328(a) and Fed. R. Bankr. P. 2014(a) for Authority to Employ Weil, Gotshal & Manges LLP as Attorneys for the Debtors, Nunc Pro Tunc to the Commencement Date HEARING re of Debtors for Entry of Order Granting Additional Time to File Reports of Financial Information or to Seek Modification of Reporting Requirements Pursuant to Bankruptcy Rule 2015.3 HEARING re Debtors' Motion Pursuant to Section 363 of the Bankruptcy Code for Authority to Exercise Put Rights HEARING re Motion of Debtors for Entry of Order Pursuant to 11 U.S.C. Sections 105(a), 345(b), 363(b) and 363(c) and 364(a), and Fed. R. Bankr. P. 6003 and 6004 (A)Authorizing Debtors to (i)Continue Using Existing Cash Management System; (ii)Honor Certain Pre-petition Obligations Related to Use of Cash Management System; and (iii)Maintain Existing Bank Accounts and Business Forms; (B)Extending Time to Comply with 11 U.S.C. Section 345(b); and (C)Scheduling a Final Hearing 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Lisa Bar-Leib HEARING re Application Of Debtors for Entry of Order Pursuant to 28 U.S.C. § 156(c) Authorizing Retention and Employment of The Garden City Group, Inc. as Notice and Claims Agent Nunc Pro Tunc to the Commencement Date HEARING re Application Under 11 U.S.C. §§327(e) And 328(a) Authorizing Debtors to Employ and Retain Honigman Miller Schwartz And Cohn LLP as Special Counsel for the Debtors, Nunc Pro Tunc to the Petition Date HEARING re Application of the Debtors Pursuant to Section 327(e) of the Bankruptcy Code and Rules 2014(a) and 2016(b) of the Federal Rules of Bankruptcy Procedure for Authorization to Employ and Retain Jenner & Block LLP as Attorneys for the Debtors, Nunc Pro Tunc to the Commencement Date VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: PATRICK J. TROSTLE, ESQ. JENNER & BLOCK LLP Proposed Special Counsel for GM 919 Third Avenue 37th Floor New York, NY 10022 BY: HARVEY R. MILLER, ESQ. STEPHEN KAROTKIN, ESQ. JOSEPH H. SMOLINSKY, ESQ. A P P E A R A N C E S : WEIL, GOTSHAL & MANGES LLP Attorneys for Debtor General Motors Corporation 767 Fifth Avenue New York, NY 10153 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: LAUREN M. MACKSOUD, ESQ. THOMAS MOERS MATER, ESQ. AMY CATON, ESQ. KRAMER LEVIN NAFTALIS & FRANKEL LLP Attorneys for Official Committee of Unsecured Creditors 1177 Avenue of the Americas New York, NY 10036 BY: DANIEL MURRAY, ESQ. (TELEPHONICALLY) JENNER & BLOCK LLP Proposed Special Counsel for GM 330 North Wabash Avenue Chicago, IL 60611 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: ERIN H. MAUTNER, ESQ. JEFFREY S. SABIN, ESQ. BINGHAM MCCUTCHEN LLP Attorneys for Deutsche Bank AG 399 Park Avenue New York, NY 10022 BY: DAVID S. JONES, AUSA MATTHEW L. SCHWARTZ, AUSA UNITED STATES DEPARTMENT OF JUSTICE U.S. Attorney's Office 86 Chambers Street New York, NY 10007 BY: BRIAN S. MASUMOTO, ESQ. UNITED STATES DEPARTMENT OF JUSTICE Office of the United States Trustee 33 Whitehall Street 21st Floor New York, NY 10004 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: NEIL A. GOTEINER, ESQ. FARELLA BRAUN & MARTEL LLP Attorneys for Russ Building 235 Montgomery Street San Francisco, CA 94104 BY: DOULAS S. MINTZ, ESQ. CADWALADER, WICKERSHAM & TAFT LLP Attorneys for U.S. Treasury Auto Task Force 1201 F Street, N.W. Washington, DC 20004 BY: LESLIE W. CHERVOKAS, ESQ. CADWALADER, WICKERSHAM & TAFT LLP Attorneys for U.S. Treasury Auto Task Force One World Financial Center New York, NY 10281 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: SHAWN R. FOX, ESQ. MCGUIREWOODS LLP Attorneys for Dominion Retail, Inc. 1345 Avenue of the Americas Seventh Floor New York, NY 10105 BY: JENNIFER A. CHRISTIAN, ESQ. KELLEY DRYE & WARREN LLP Attorneys for Law Debenture; LBA Realty 101 Park Avenue New York, NY 10178 BY: ROBERT B. WEISS, ESQ. HONIGMAN MILLER SCHWARTZ AND COHN LLP Attorneys for Debtor/Defendant General Motors Corporation 2290 First National Building 660 Woodward Avenue Detroit, MI 48226 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: ROBERT W. PHILLIPS, ESQ. SIMMONSCOOPER LLC Attorneys for 707 Berkshire Blvd. East Alton, IL 62024 BY: ALYSSA D. ENGLUND, ESQ. ORRICK, HERRINGTON & SUTCLIFFE LLP Attorneys for Ad Hoc Dealer Committee 666 Fifth Avenue New York, NY 10103 BY: RICHARD S. TODER, ESQ. ANDREW GOTTFRIED, ESQ. MORGAN, LEWIS & BOCKIUS LLP Attorneys for JPMorgan Chase Bank 101 Park Avenue New York, NY 10178 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: MICHAEL L. SCHEIN, ESQ. VEDDER PRICE P.C. Attorneys for Export Development Canada 1633 Broadway 47th Floor New York, NY 10019 BY: SANDER L. ESSERMAN, ESQ.) STUTZMAN, BROMBERG, ESSERMAN & PLIFKA, P.C. Attorneys for Ad Hoc Committee of Unsecured Creditors 2323 Bryan Street Suite 2200 Dallas, TX 75201 BY: PETER V. PANTALEO, ESQ. ANNE L. KNIGHT, ESQ. SIMPSON THACHER & BARTLETT LLP Attorneys for Citicorp USA, Inc., as Agent 425 Lexington Avenue New York, NY 10017 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: KAREL S. KARPE, ESQ. WHITE AND WILLIAMS LLP Attorneys for Nicor Gas One Penn Plaza 250 West 34th Street Suite 4110 BY: DENIS F. CRONIN, ESQ. CRAIG KORNREICH, ESQ. VINSON & ELKINS LLP Attorneys for Mason Capital 666 Fifth Avenue 26th Floor New York, NY 10103 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: IVAN M. GOLD, ESQ. (TELEPHONICALLY) ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS LLP Attorneys for LBA Realty Fund III; PruSKS Brannan Associates Three Embarcadero Center 12th Floor San Francisco, CA 94111 BY: DEBORAH L. FISH, ESQ. (TELEPHONICALLY) ALLARD & FISH, P.C. Attorneys for Creditor Severstal North America, Inc. 535 Griswold Suite 2600 Detroit, MI 48226 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: KAROL K. DENNISTON, ESQ. (TELEPHONICALLY) DLA PIPER LLP U.S. Attorneys for Creditor Hewlett Packard 550 South Hope Street Suite 2300 Los Angeles, CA 90071 BY: BRIAN M. RESNICK, ESQ. (TELEPHONICALLY) DAVIS POLK & WARDWELL Attorneys for Interested Party Ford Motor Company 450 Lexington Avenue New York, NY 10017 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: MATTHEW A. HAMERMESH, ESQ. (TELEPHONICALLY) HANGLEY ARONCHICK SEGAL & PUDLIN Attorneys for NCR Corporation One Logan Square 18th & Cherry Streets 27th Floor Philadelphia, PA 19103 BY: ROBERT V. SARTIN, ESQ. (TELEPHONICALLY) FROST BROWN TODD LLC Lexington Financial Center 250 West Main Suite 2800 Lexington, KY 40507 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: KENNETH P. KANSA, ESQ. (TELEPHONICALLY) VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 SIDLEY AUSTIN LLP Attorneys for Multiple Lenders One South Dearborn Chicago, IL 60603 BY: JASON TORF, ESQ. (TELEPHONICALLY) SCHIFF HARDIN LLP Attorneys for Columbia Gas of Ohio; Columbia Gas of Virginia 233 South Wacker Drive Suite 6600 Chicago, IL 60606 BY: JEANETTE M. GILBERT, ESQ. (TELEPHONICALLY) MOTLEY RICE, LLC 28 Bridgeside Blvd. Mt. Pleasant, SC 29464 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 BY: JON D. COHEN, ESQ. (TELEPHONICALLY) STAHL COWDEN CROWLEY ADDIS LLC Attorneys for GM National Retiree Association 55 West Monroe Street Suite 1200 Chicago, IL 60603 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: ALL: P R O C E E D I N G S Good morning. Good morning, Your Honor. GM. Mr. Miller, good morning. You want THE COURT: to come on up and give me your recommendation as to how you believe we should proceed both with the DIP which we have on for 9:00 and also for the 9:45 calendar matters? MR. MILLER: Yes, Your Honor. Harvey Miller, Weil Gotshal & Manges for the debtors. Your Honor, there is one matter on the 9:00 calendar, as you pointed out, which is the motion for a final approval of the DIP financing. I believe, Your Honor, all issues with respect to that have been resolved. And Mr. Karotkin will explain that as we go on. As to the 9:45 calendar, Your Honor, there are listed nine uncontested matters and eight contested matters. As to those contested matters, Your Honor, essentially, most of them have been resolved with the exception, Your Honor, of the motion for the appointment of an ad hoc committee of asbestos claimants and the motion for the appointment of a retiree committee. Those two matters are still open, Your Honor, and would be heard at Your Honor's convenience after the 9:45 calendar call. The motion, Your Honor, with respect to the retention of Evercore Group LLC, we are requesting, Your Honor, that that matter be adjourned until the hearing scheduled for July 2, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 please? 2009. We're hopeful to resolve that matter, Your Honor. We have scheduled tentative meetings with the U.S. trustee's office in an effort to resolve that application. So, Your Honor, basically, there are two matters which will be submitted today for Your Honor's determination with respect to the additional creditors' committees, the request for the appointment of a future representative for future asbestos claimants and the motion for the appointment of a retirees' committee under Section 1114(b) of the Bankruptcy Code. THE COURT: Okay. Fair enough. Do we want to go straight then into DIP financing? MR. MILLER: THE COURT: Mr. Karotkin, on that? MR. MILLER: THE COURT: Good morning. MR. KAROTKIN: Good morning, Your Honor. Stephen As Mr. Miller I certainly want to, Your Honor. All right. Mr. Karotkin, come on up, Yes. You're going to hand off to your partner, Karotkin, Weil Gotshal & Manges for the debtors. indicated, Your Honor, we're pleased to report that in connection with the motion to approve the debtor-in-possession financing on a final basis, we have reached a consensus with all of the objecting parties as well as with the creditors' committee and the secured lenders. And that is embodied in a VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 revised order which I have a blackline copy of which I'm please to hand up to the Court. THE COURT: That would be very helpful. May I approach, sir? Thank you. MR. KAROTKIN: THE COURT: Yes, sir. Your Honor, the proposed order MR. KAROTKIN: resolves the four objections that were raised which are, basically, categorized in four categories. One was by various governmental entities with respect to liens they have as to personal property and real property. One is with respect to There was NCR as to their assertion of a constructive trust. another objection by Deutsche Bank with respect to the payment of hedging obligations under the outstanding revolving credit facility. And the final objection related to a landlord which wanted its lease hold interests -- the debtors' lease hold interests with respect to its property carved out of the collateral grant. in the order. THE COURT: All right. Do you want to pause and give And all of those issues have been addressed any counterparties to those objections a chance to confirm that they're satisfied with the way by which you resolved them? MR. KAROTKIN: THE COURT: Sure. Mr. Sabin, you coming up? Before Mr. Sabin speaks, in MR. KAROTKIN: anticipation of what he's going to say, hopefully to truncate VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 right. the hearing, Your Honor, we have agreed -- and I actually think the DIP order is clear that in connection with the payment of the pre-petition secured obligations to the JPMorgan group, the Citigroup group and with respect to the hedging obligations, the order provides they will be paid three business days after the approval of the DIP loan on a final basis. And we will confirm on the record that when we pay the Citibank group and the JPMorgan group, we will also pay the hedging obligations at the same time. THE COURT: MR. SABIN: Okay. Mr. Sabin, good morning. Jeff Sabin Good morning, Your Honor. from Bingham McCutchen on behalf of Deutsche Bank AG. Paragraph 19 of the revised proposed order that's in front of you reflects the agreement, resolves in full the obligations. My thank you to Mr. Karotkin and everyone else for bearing with us as we work through the resolution. And I think that if this Court were to enter it with those words in it, it resolves in full the objections. THE COURT: Okay. Fair enough. Anyone else? All Given that the objections have been resolved and given the showings that were made at the outset of the case, I'm not going to make extensive findings on the record now, Mr. Karotkin. I think they're set forth in your proposed order. MR. KAROTKIN: They are, Your Honor. And I would like to point out one of the proposed findings which is in VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 paragraph (f) on page 12 which has been requested by the United States Treasury. And they are here to address that if you have any questions with that. THE COURT: Okay. Also, I realize -- and I see Ms. I gather there was a And if Caton, you came up perhaps to speak. dialogue going on with the creditors' committee. there's anything that is desirable for the creditors' committee to put on the record, I certainly want to give it that opportunity. Ms. Caton, good morning. Thank you, Your Honor. Amy Caton from MS. CATON: Kramer Levin Naftalis & Frankel on behalf of the creditors' committee. As you noted, there were a number of modifications that were made with the order at the request of the creditors' committee. And I just want to highlight a couple of those. THE COURT: MS. CATON: Of course. The first one is that one of the creditors' committee's main concern here is what happens to be the state after the sale closes. And I think the parties' intent from the beginning is then that 950 millions or an amount up to -- well, potentially greater than but, likely, 950 million dollars, will be left behind to fund the wind down of these estates and pay administrative and priority claims. However, when we started the negotiation of the DIP order, I don't believe that these provisions were really made clear. And that's one of the things that we have done in the DIP VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 order. And that's highlighted in paragraph 21. I think that the new provisions in here will allow us to hopefully confirm a Chapter 11 plan of distribution and make sure that the new GM stock and warrants are distributed to unsecured creditors. The second point that I would like to make clear is that in paragraphs 5 and 6 of the DIP order that administrative and priority claims are now senior in right of payment of repayment to the DIP and that the DIP is non-recourse to the new GM stock and warrants because this is, as we believe, intended for distribution to unsecured creditors. We still think that we have a ways to go before we get to a final wind down to make this -- I guess, the budgets clear. We're still negotiating the wind down budget. We need to negotiate an amendment to the DIP credit facility to make it appropriate for a wind down. Right now, there are a number of covenants and events of default that are a little stricter than what we would like to see on a going forward basis. And it's our understanding that the parties intend to do this prior to closing of the sale. And paragraph 21 sets out specifically that the committee is to be included in the negotiations in this process. Lastly, we did make a few changes to the order vis-avis the committee's rights with respect to the pre-petition lenders. The highlight of these are that the committee's VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 me. investigation period of certain claims against the pre-petition lenders has been extended till July 31st. And secondly, any claims by the agent on a going forward basis after it's paid next week for reimbursement of the fees is now nonrecourse to the new GM stock and warrants.. And with those changes, Your Honor, the committee supports the entry of the DIP order. THE COURT: morning, Mr. Schein. MR. SCHEIN: Good morning, Your Honor. Michael Okay. Fair enough. Thank you. Good Schein, Vedder Price, on behalf of Export Development Canada. Just one clarification made by committee counsel, the carve-out in paragraph five with respect to the admin claims of the case and the DIP to priority claim come into effect after a closing of the 363 sales transaction, not prior to it. THE COURT: Okay. And you're merely helping me better understand what's in this document? MR. SCHEIN: THE COURT: Correct. Okay. Anybody else? All right. Forgive Mr. Schwartz, United States Attorney's Office. MR. SCHWARTZ: Good morning, Your Honor. Matthew Schwartz for the United States of America. As the debtors' papers amply demonstrate, the credit that's being extended by the government and other lenders in this case was the only credit that was available to the debtors and the deal was VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 negotiated at arm's length between experienced professionals. Nonetheless, the source of the DIP funds in this case is somewhat unusual and so we've asked for the finding that's in paragraph F of the redline order before you that speaks to the authority of the United States to expend TARP funds to make the DIP loan. I think that the language in the paragraph speaks for itself and the basis for the finding was set forth at length in the government's opening statement that was filed on the first day in these cases -THE COURT: Yes. I remember that. MR. SCHWARTZ: -- as well as the documents that were attached to it and the other document that we asked that the Court take judicial notice of yesterday. THE COURT: to include that. Okay. Fair enough. I see no reason not It'll be included. Thank you, Your Honor. Anyone? All right. Mr. MR. SCHWARTZ: THE COURT: Anything else? Karotkin, for the reasons set forth in the opening papers, as supplemented by the submission of the United States and revisions made to deal with other parties' needs and concerns, the final DIP financing is approved on the form of the order in which it's been presented to me and subject to the need to get other stuff done today, it will be entered sometime today. MR. KAROTKIN: THE COURT: Thank you, sir. Have a good day. Now -- Thank you. VERITEXT REPORTING COMPANY 516-608-2400 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KAROTKIN: THE COURT: Could I make a suggestion, Your Honor? Yes. I'm sorry to interrupt. The matter MR. KAROTKIN: number 1 on the agenda on page 4, which is -- it relates to two proposed orders for use of cash collateral and adequate protection, those are related to the DIP and those also have been resolved among the parties. The same issues were raised by the landlords, the state taxing authorities, with respect to those proposed orders. Again, they have been resolved on the same basis. The committee raised the same issues that Ms. Caton addressed as to their time to challenge the liens and claims of those parties in the same language -- virtually the same language including -- included in the final DIP order has been included in those proposed final cash collateral orders as well. And I do have marked copies from the interim orders which I can hand up to you, sir. THE COURT: You are reading my mind, Mr. Karotkin. So long as nobody is prejudiced by their not being here yet, I'd like to go right into those matters and the one you suggested is most logically connected. So far as you're aware, anybody who was going to be here at 9:45 is either here or told you they wouldn't be here? MR. KAROTKIN: That's my understanding, sir. We circulated copies to the taxing authority's lawyers, to the landlord last night and they were -- they were comfortable with VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this time? the language. In fact, they agreed to the language, so they are on board, sir. THE COURT: Okay. Fair enough. MR. KAROTKIN: THE COURT: May I approach? I just want In a half a second, you may. to be sure that the creditors' committee doesn't want to be heard in any way on this. MS. CATON: THE COURT: Ms. Caton? No, Your Honor. Okay. Yes, Mr. Karotkin -- well I'm going to actually, I'm going to ask for a variant of that. ask that you or one of your folks provide all the orders to my courtroom deputy at a convenient break. You can hand up the cash collateral to me now but the mechanics of entry will be separately handled. Am I right that this -- aside from the fact that of course it's a final -- principally papers the understandings with the folks who entered those limited objections? MR. KAROTKIN: THE COURT: Yes, sir. All right. It's approved and Okay. we're going to deal with this the same way we dealt with the final DIP. MR. KAROTKIN: THE COURT: MR. MILLER: Thank you, sir. Mr. Miller? Thank you. Your Honor, may I make a suggestion at VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 9:45. THE COURT: MR. MILLER: Yes, please. That we could take the uncontested matters that's on the 9:45 calendar. THE COURT: Yes. Certainly. And if you know that your counterparties or folks who want to be heard on further matters are already here, we can move into that as well. Do you want to handle the uncontested ones or put them on one of your folks? MR. MILLER: THE COURT: MR. MILLER: I'll handle them, Your Honor. Okay. They start at number 9 on the agenda for The first motion, Your Honor, is the motion to get a final order authorizing the debtors to pay for pre-petition obligations to foreign creditors and authorizing and directing financial institutions to honor and process related checks and transfers. This was heard, Your Honor, on June 1 and Your There are no objections to the Honor entered an interim order. entry of the final order. THE COURT: Okay. Given that and the provisions of my case management order, motion granted. MR. MILLER: Thank you, Your Honor. Number 10, Your Honor, is the motion for final orders establishing notification procedures regarding restrictions on certain transfers of interest in the debtor. THE COURT: This is the NOL motion, Your Honor. I remembered my dialogue with Mr. VERITEXT REPORTING COMPANY 516-608-2400 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Karotkin on this. MR. MILLER: Yeah. He refused to take the lectern this at this point, Your Honor. THE COURT: MR. MILLER: Understandably. Granted. Number 11 is the Thank you, Your Honor. order to -- a final order. Honor, on cash management. final proposed order. THE COURT: MR. MILLER: You entered an interim order, Your There are no objections to the Granted. Number 12, Your Honor, is the motion of This the debtors to -- for authority to exercise a put. relates, Your Honor, to the claims which Your Honor approved the rejection some time ago at a hearing. One the claims we have a twenty-five percent interest in and a right to put our interest to the other party. As a result of this put, Your Honor, the estate will recover approximately 350,000 dollars. THE COURT: MR. MILLER: Granted. Thank you. Number 13, Your Honor, is the motion to grant additional time to file reports of financial information or to seek modification of reporting requirements pursuant to Bankruptcy Rule 2015.3. objections to that Your Honor. THE COURT: MR. MILLER: Granted. Number 14, Your Honor, is the There are no application of the debtors to engage Weil Gotshal & Manges VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 under a general retainer as attorneys for the debtor nunc pro tunc to the commencement date. This order, that will be proposed, Your Honor, was negotiated with the Office of the United States Trustee. THE COURT: MR. MILLER: There are no objections to this matter. Granted. Number 15, Your Honor, is the application of the debtors to engage the law firm of Jenner & Block LLP as attorneys for the debtors, pursuant to Section 327(e). Jenner & Block, Your Honor, will be serving, Your Honor, as conflicts counsel and special corporate counsel. There is a supplemental declaration of Mr. Murray in connection with the application and there are no objections to this application, Your Honor. THE COURT: MR. MILLER: Granted. Number 16, Your Honor, is the application to engage under Section 327(e) the law firm of Honigman, Miller, Schwartz & Cohn, LLP as special counsel. Weiss appeared before you, Your Honor, in connection with a suppliant matter two weeks ago. this application, Your Honor. THE COURT: MR. MILLER: Granted. The last uncontested matter in this part There are no objections to Mr. of the calendar, Your Honor, is the application authorizing the retention and employment of the Garden City Group, Inc. as notice and claims agent nunc pro tunc to the commencement date. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. There are no objections to that, Your Honor. THE COURT: MR. MILLER: Granted. I would also note, Your Honor, that item on the contested calendar motion, item number -- let me get to it. I think it's item number 6, Your Honor, which was the motion of the consumer -- ad hoc consumer victims committee for the appointment of an additional committee of unsecured creditors to represent consumer victims was withdrawn without prejudice. THE COURT: MR. MILLER: Okay. We could do some other motions, Your I don't know if -THE COURT: MR. MILLER: It's all right. Subject to Your Honor's ruling that if somebody shows up at 9:45, we can always go back. THE COURT: Okay. Do you know whether anybody has indicated to you that they're going to wish to show up on the motion to pay essential suppliers and all that? MR. MILLER: THE COURT: Mr. Smolinsky, Your Honor. If you're in doubt, I think I need to wait till 9:45 but I would prefer to deal with the easier ones most quickly. MR. SMOLINSKY: Your Honor, everything is resolved. I did represent that I would put one thing on the record and as long as I do that, I think we're fine to go forward. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Sure. Go ahead, Mr. Smolinsky. MR. SMOLINSKY: Your Honor, we're here today seeking entry of a final order with respect to the debtors' essential supplier programs. There were two objections filed. One was filed by Panasonic Electric Works Corporation. Clements (ph.) Inc. The other by Both objections have been voluntarily withdrawn but I did agree to clarify on the record -- Your Honor, you may recall that we attached to our motion a trade agreement and it was the debtors' intent to require critical vendors to sign a trade agreement and return it. objections were related to that agreement. issues with it. I think they understand -They didn't want to give you everything These two They had some THE COURT: you were looking for, for the benefit of the estate? MR. SMOLINSKY: answer was easy. critical vendor. THE COURT: You anticipated the first question I That's right, Your Honor. But the You don't have to sign it and you're not a would be asking in the argument, if there had been one. MR. SMOLINSKY: But Your Honor, I think they wanted me to clarify that because they did not sign the trade agreement, they're not bound by any of the terms contained in that trade agreement. THE COURT: not bound by it? If they don't sign an agreement, they're VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 MR. SMOLINSKY: That's right, Your Honor. And with that, Your Honor, the objections are resolved. The creditors' committee did engage us in some dialogue about the form of the final order. We did add some clarifying language to make certain that we would provide the creditors' committee with the information that they need to be up to speed on how we implemented that order and I'm happy to report that I don't think there are any issues with respect to that. THE COURT: All right. Fair enough. I do want to give the creditors' committee a chance to comment if it wants to. Mr. Mater, good morning. MR. MATER: Good morning, Your Honor. Thomas Moers Mater for Kramer, Levin, Naftalis & Frankel representing the committee. We have no issues. We have certain supplier matters that are referenced in our limited objection to the general transaction but we're working those through and with respect to what Mr. Smolinsky put on the record, we have nothing further to add. THE COURT: Fair enough. Then with the clarifications and anything that you arranged for, Mr. Smolinsky, the motion's granted. MR. MILLER: Your Honor, I think we could proceed with the utilities motion which is item 2. THE COURT: Fair enough. Thank you, Your Honor. Your Honor MR. SMOLINSKY: VERITEXT REPORTING COMPANY 516-608-2400 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 entered a final order with respect to the utility motion on June 1st. The procedures provided that objections could be filed to the form of adequate assurances by the 15th of June. We received -- of the 261 utilities that were noticed in connection with the order, we received objections from 35 utilities. We have finally resolved all of the objections except for a very few, I believe two objections, and we believe that we have agreements in principle with respect to those two. What I'd like, Your Honor, and I could share it with chambers so that the docket accurately reflects the resolution of these matters is that two of the objections, it's docket number 764 and 915, will be adjourned until the 30th of June so that we can presumably deliver final resolutions of those matters. THE COURT: Pause, please, Mr. Smolinsky. On those adjournments, you have comfort that they're not going to turn off the lights on you between now and then? MR. SMOLINSKY: Yes, Your Honor, we're still within the thirty days so I don't think that that would be an issue. THE COURT: Okay. With respect to the remaining MR. SMOLINSKY: motions, they are resolved and I believe they can be marked off calendar and we could provide Your Honor with the docket numbers. THE COURT: be heard on this? Okay. Are there folks who are waiting to And, Would you come up please? VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 unfortunately, I don't know everybody. yourself on the record. MS. KARPE: Apologize, Your Honor. Karel Karpe, If you could identify White & Williams for Nicor Gas. Your Honor, I have spoken to But I Mr. Smolinsky and we do have an agreement in principle. noticed that there was a first supplemental list filed sometime very early this morning. And it looks like there's the Nicor But it does Gas accounts have been transferred to that notice. look like there may be an additional one. So just to preserve my client's rights, Your Honor, we filed an objection at docket number 1099 which I didn't hear referenced this morning. And all I want to do is just get some assurance on the record that the objection that we previously filed and any other accounts that Nicor and the debtor may have are all rolled over to that next one. We believe that we will have an agreement in the next day and so I don't think that this is going to prejudice either the debtor and we do not plan on turning off any utility. THE COURT: Okay. Mr. Smolinsky? MR. SMOLINSKY: Your Honor, just to clarify, an additional list was filed this morning, as we're entitled to do under the order. The purpose of the list was not to add any The purpose was to actually contracts or any utilities. eliminate certain utilities that had claims that their contracts were forward contracts and not utilities. And that VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 was the agreement by which certain of the objections were resolved. So I'll work with Nicor to make sure that they're comfortable, but we did not have any utility companies to that list. THE COURT: MS. KARPE: Okay. You okay with that, Ms. Karpe? The only difference Yeah, Your Honor. that I noted this morning is that there was a difference in the account numbers. I'm sure that Mr. Smolinsky and I can work our issues at and we should have a resolution, we hope, by tomorrow. THE COURT: MR. FOX: Very good. Thank you. Mr. Fox? Shawn Fox from With the Good morning, Your Honor. McGuireWoods on behalf of the Dominion Retail, Inc. debtors' representation that they're not seeking to treat Dominion Retail as a utility, our objection is resolved. THE COURT: Very good. Thank you. All right. There being no So we'll be Anybody else on 366 issues, utility issues? response, your mechanism is fine, Mr. Smolinsky. locked in for all of those that have been resolved and it'll be continued for the couple that haven't been? MR. SMOLINSKY: THE COURT: MR. MILLER: been resolved. That's right, Your Honor. Okay. Thank you. Very good. If Your Honor please, item number 3 has Mr. Karotkin -- that's the use of cash collateral and the explanation that Mr. Karotkin gave. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 Item 4, which is the Evercore Group LLC, as stated, Your Honor, we request that be adjourned to July 2nd. In connection with item number 5, Your Honor, which is the motion of the debtors to employ and retain AP Services LLC as crisis managers and to designate Albert A. Koch as chief restructuring officer nunc pro tunc to the commencement date, we have reached an agreement, Your Honor, with the Office of the United States Trustee and we have a statement to put on the record. (Pause) MR. MILLER: Your Honor, I am just informed by Mr. Karotkin that we have to meet with the Office of the U.S. Trustee during break. THE COURT: MR. MILLER: THE COURT: MR. MILLER: Okay. So we'll put that off. We'll defer that one, then. Item 6 is a report, Your Honor, has been And that leaves, Your Honor, withdrawn without prejudice. items 7 and 8, 7 being the motion of the ad hoc committee of asbestos personal injury claimants for an order appointing a legal representative, a future asbestos personal injury claimant and directing the United States trustee to appoint an official committee of asbestos personal injury claimants. THE COURT: Okay. Mr. Esserman here? MR. ESSERMAN: Yes, Your Honor. VERITEXT REPORTING COMPANY 516-608-2400 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: You want to come on up, please. Somebody give Mr. Esserman a place to sit at the counsel table? Although, Mr. Esserman, after my preliminary remarks I'm going to want you to speak first. main counsel lectern. Give me a moment, please. (Pause) THE COURT: All right. Folks, make your And when you do, you'll be at the presentations as you see fit but, Mr. Esserman, when it's your turn, I'm going to need you to address not just the matters that were set forth in the papers but the terrain as it now exists as a consequence of my ruling on Tuesday. We have, as I understand it, in your motion, the regular tort litigants motion having been withdrawn, double barreled issues and of course the future claims rep is a little different then me forming another official committee. But on the matter of the official committee, in addition to the things that you've briefed, I would appreciate it if by the time that you're done you help me understand how it would be, if it is in fact the case, that your request is different than the one for the bondholders that I addressed on Tuesday. On the future claims rep portion, the debtors told us that it's not looking for a channeling injunction and that we're going to have a liquidation here and that the debtor isn't going to be looking for a discharge. And I need your VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2019? MR. ESSERMAN: THE COURT: A 2019; sorry. you again. help in understanding why those aren't some pretty important facts. I also want you to address, before you're done, what seemingly is the case, I forgot which of the briefs I saw said that, which focus on the fact that this, unlike the other case in which you've been before me, is hardly an asbestos driven case and that asbestos claims, compared to the totality of the claims of all the other creditors in this case, are very, very small percentage. So, Mr. Esserman, come on up, please. Came in from Texas? MR. ESSERMAN: I did, Your Honor. Nice to see you. Good to see Sandy Esserman of Stutzman Bromberg Esserman & Plifka in Dallas, movant today, and I will address all the questions that Your Honor asked. First I'd like to say that on behalf of the ad hoc committee, and we have filed a 9019 -THE COURT: You said a 9019. Did you mean that or a I would have been delighted to hear it was a 9019 but I didn't think we were quite there yet. MR. ESSERMAN: future, hopefully. No. I guess I was anticipating the Anyway, Your Honor has raised the significant issues, I think, that I will address, each one of those issues. I'd like to address them in this context, in VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 light of the paper filed by the creditors' committee yesterday, which was, I thought, a very significant paper in which the creditors' committee filed what they called a limited objection to the sale but in fact was a statement by the creditors' committee and a full objection that provided that any sale that does occur in this case cannot bond future claimants and should not bond future claimants. In light of the position taken by that committee and in light of where we are, I no longer wish to proceed and would adjourn a portion of our motion with regard to seeking a separate committee at this time. We will continue to be active We are in the case; the ad hoc committee is not going away. not seeking official status. This case and the context it was filed, the motion was filed, coming off the Chrysler situation, gave us great pause, gave the ad hoc committee great pause. Just to give Your Honor a context of what I'm referring to, in the Chrysler case the committee was -- had a lot of creditors on it which wound up being assumed and paid in full after the sale was approved, which caused wholesale resignations from the creditors' committee. In fact, I think a majority of the creditors' committee in Chrysler had resigned after the sale was approved because they were paid in full. And that was a difficult situation for those creditors that were "left behind" in Chrysler. Hopefully that is not going to be the case in the GM case or the GM committee, which would, in great part, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 alleviate the necessity for a separate committee. I would like to distinguish or answer -nevertheless, I'd like to answer some of your questions very briefly. For instance, how is this any different from, say, a Dana which has been referenced in many of the papers, in which asbestos claims were a relatively small percentage of the population of claims versus the situation -- similar situation in Chrysler. In Dana, the asbestos claims -- and I moved for -- it was pointed out that I moved for a separate committee and I did and we were very active in that case. the asbestos claims through. But in Dana, they passed They passed them through as unimpaired and there was testimony in Dana that asbestos claims were not only passed through to the entity but any successor liability claims that anyone wanted to bring against New Dana could be brought. There was no concession that, in fact, they But that they were good claims or that they should succeed. could survive the reorganization. There was also extensive testimony that there was adequate assets and insurance to pay asbestos claims in full, in full. So there was a lot of testimony there that, one, asbestos claims were a very small piece of that puzzle; and two, they were passed through. Three, there was adequate And to the extent provision made for their compensation. people look to Dana as a model case of how to deal with this VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and how to dispose of not having a futures rep and a committee -- I'm not necessarily endorsing that. We still disagree with those decisions, but that example does stand. And as far as I know, post confirmation, has worked. In this case, if, in fact, those situations -situation is going to hold true and future claims, as the creditors' committee has pointed out in their paper filed yesterday, and I would urge Your Honor to read it at his convenience, are going to be able to be asserted against what will be called the New GM. And GM does not seek to channel or Perhaps a futures Perhaps a, what I'll call a restrict in any way those claims. representative may not be needed. future tort czar, future claims tort czar, not just for asbestos claims but in thinking about this last night you've got future damage claims, future rollover claims, future design defect claims, future gas tank explosion claims for GM cars out there in the public that have not yet occurred. And as long as those claims are not impaired in any sense and can be brought against the surviving entity, then I think we need to rethink this whole -- the direction that I was trying to push the pile, so to speak. On the other hand, if GM's position is no, Mr. Esserman, we are absolutely taking this issue on dead square and we are going to eliminate those claims and leave them behind with no compensation or no special pot or no trust or no VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 whatever, I think that's a different situation. And I think we need to then think about how we can protect the public and how we can protect the future claimants and the people that are going to be damaged in the future, be it asbestos, be it consumers, be it rollover victims, be it gas tank explosions, etcetera. So perhaps this is yet to play out. The way I read GM's papers, and hopefully I'm wrong, is they intend to constrict those claims. pass those claims through. They intend not to They intend to, through a 363 device, eliminate those claims for the "New GM" whether they gave good or bad publicity on that in the future. So, I think, to a certain extent, we sort of need to see where GM's going to take us on this ride. And see if, in fact, they're willing to accede to the issues raised by the creditors' committee and frankly raised first by me in our papers in the objection to the sale. pass those claims through the estate. I would note that one comment on appointing of an FCR that the debtor made was the ad hoc committee -- ad hoc asbestos claimants request to appoint an FCR at this early stage of these cases should be denied. Well, I know that if it And I think, And in fact, if you will, had been made later it would have been too late. in fact, you need to address this issue up front in a case and early. And if Your Honor decides to or GM is going to decide to severely restrict future consumer claims, future tort VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 claims, future asbestos claims, it needs to decide which direction to go. And if that's the case I think it'd be only prudent and a protection of the public to appoint somebody to protect those interests and make sure those interests are protected. If not, I think the Supreme Court, as recently as last week, in the Travelers vs. Bailey decision, which I was involved in from the trial court all the way to the Supreme Court; and lost, I might add, ultimately. But I think that it's sort of in the eye of the beholder whether the case is a loss or a win because you have to look at what the Court said. And the Court, sort of, said it wasn't -- it said you can't collaterally attack orders. say, a 1986 order in 2004. But on the other hand, it left open the question as to who's bound by those orders. Were my clients, in that case, You can't collaterally attack, Pearly Bailey -- Pearly Lee Bailey, a widow of a Mizo (ph.) victim, was she bound by that order? And the Court remanded it to the Second Circuit to decide whether or not, in fact, she was bound because she was not present before the Court, didn't have notice, etcetera. Those issues all remained open, which is why I say there's a lot of legs left in that case and a lot of legs left after that decision for me in the Second Circuit and in the bankruptcy court. But what we can learn from that case is, and what the VERITEXT REPORTING COMPANY 516-608-2400 47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Supreme Court I think was telling the public and telling the Court was, you need to protect your rights at the time. need to have your rights protected at the time. You And Congress, through 524(g) has in fact; set forth a mechanism to protect future unknown claims in an asbestos situation. And is specifically referenced that protection and it said -- the Court said we do not decide whether any particular respondent is bound by the 1986 orders. They assumed that everyone was I think it's bound and that relates very much to this case. almost dead-on this case. If GM is trying to bind everybody and all the futures, I think Congress has set forth in the asbestos context and the Supreme Court affirmed last week, how that's done. that's done through a 524(g) situation. And Or I could analogize to that and say that a future tort czar, to protect the futures. And if not, then due process provides that those And I'm willing to, frankly, live with people are not bound. either result. I'm willing, if GM says it wants to go the Dana route, I think that's a mistake but they can go the Dana route. If GM wants to proceed a different route, I'm fine with that. So in many respects, I punt this to GM. If GM is in fact going to try and cut everyone off at the knees for future claims, I think they need to take this podium and say that. And then I think they need to either live with the consequences of not having a future claims tort czar or future claims rep or VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Esserman? MR. ESSERMAN: MR. MILLER: without prejudice. Honor. THE COURT: All right. Gentlemen, one of the things We would prefer to adjourn it. We would prefer to have it withdrawn not. And also risk whether or not the order that they want Thank you. Thank you. Mr. Miller? gets entered by this Court. THE COURT: (Pause) MR. MILLER: All right. Harvey Miller for the debtors. Your Honor, I wish Mr. Esserman had called last evening, I might have gotten another hour of sleep. As I understand his presentation, the motion for the appointment of additional committee of asbestos claimants is withdrawn without prejudice. THE COURT: That's my understanding as well. Mr. We don't need it on the calendar, Your I would like to do is to get more money into the pockets of creditors. I don't want to make people file more pieces of I'm sure you paper then have already been filed in this case. got less sleep than I did, Mr. Miller, but the goal is the same. That portion can be continued but, frankly, I'm going to set it for a date pretty far out, Mr. Esserman, without prejudice for you to advance it on the calendar. We keep them on calendar so they don't fall between the outfielders but this VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is really a distinction without a difference, gentlemen. Continue, Mr. Miller. MR. MILLER: So that leaves, Your Honor, the question As Your Honor pointed out in of the future representative. your opening remarks, 524(g) is a section of the Bankruptcy Code which relates to a debtor proposing a plan of reorganization that incorporates a channeling order where asbestos claims are going to be channeled to a particular fund for satisfaction, which is derivative out of the Johns Mandel (ph.) case. As we have said in our papers, Your Honor, there is no intention on the part of GM to propose a channeling order. And since we are proposing to do a plan of liquidation there will be no discharge. In that context, Your Honor, there is no justification for the appointment of a future claimant representative. And I would direct Your Honor's attention to the case of Locks vs. U.S. Trustee at 157 B.R. 89, a decision of the United States District Court for the Western District of Pennsylvania which held that in a case of a liquidation, rather than a reorganization, there is no mandatory requirement for a future claimant representative. We are not proposing, in any way Your Honor, a channeling order. And as Mr. Esserman has pointed out, there are negotiations going on with the official creditors' committee as to the scope of the order which will be requested VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reply? in connection with the 363 transaction. Where those negotiations come out at this point, Your Honor, we're not prepared to say. There is active negotiation on all of the They will be before Your issues that Mr. Esserman referred to. Honor on the hearing on June 30th. In the context of where we are today, 524(g) is simply not applicable and there is no basis here, today, for the appointment of a future representative for future asbestos victims. Which, and also, as the Court pointed out in Locks vs. U.S. Trustee, there is an inherent conflict between the current asbestos claimants and the future claimants that may have to be considered at a future date. But in the circumstances where we find ourselves today, Your Honor, there is no basis for the appointment of a future representative. And I say that, Your Honor, without prejudice to a future application if that becomes appropriate. THE COURT: Okay. Thank you. Mr. Esserman, any Oh, forgive me. MR. MAYER: Mr. Mayer, come on up, please. Tom Mayer, again, Thank you, Your Honor. for the official committee. exactly what it states to be. And our limited objection is But Mr. Esserman is correct that certain of the issues that he raised we decided to raise ourselves. And it was no mean fete getting a fifteen-member We have on that committee to agree to take that position. committee; I think I can do this from memory, two indentured VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 trustees representing approximately twenty-seven billion dollars of debt. We have the PBGC whose contingent liability We have three unions who are We have three dealers who Two suppliers, one dwarfs that of the bonds. receiving quite disparate treatment. are receiving quite disparate treatment. advertising agency, two product liability claimants and an asbestos representative. I think I got to fifteen. And the issues that Mr. Esserman raised were debated at considerable length by what is not even so much a model United Nations and we took the position we took in our papers with respect to future claims. We agree with Mr. Miller that there is no call for a futures representative at this time. we can deal with it at a future time. If it becomes necessary, But it is our position, as set forth in the papers as Mr. Esserman noted, that we don't believe that an order entered by this Court can bond future claimants. We don't believe 524 is applicable here. We don't think 524 is mandatory and there was no conceivable stretch under which a 524(g) plan could possibly be confirmed in this case. It will never be a case where the asbestos claimants are getting a majority of an operating company and no discharge is being sought for it. So if at some point in the future it becomes necessary to deal with a futures claim issue, we can deal with it at this time. And at this point we see no basis for either VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 second. (Pause) THE COURT: Folks, the motion is denied without the appointment of a committee or the appointment of futures representatives. If you have questions, I'm happy to answer. No, I really don't. Thank you. THE COURT: MR. MAYER: THE COURT: Thank you, Your Honor. Okay. Mr. Esserman, I'll take any reply. MR. ESSERMAN: the estate unimpaired. Future claims are being passed through I see no reason for an appointment Thank you. Everybody sit in place for a either at this time, Your Honor. THE COURT: All right. prejudice to renewal if either the debtor proposes a channeling injunction in the future or decides to propose a standalone plan. Mr. Esserman, if you want to take this up on appeal, I'll give you full findings of fact and conclusions of law at the end of the day today, but I don't want so many people in the courtroom to have to await a recess for me to deliver those findings which would likely be as long as they were on Tuesday. MR. ESSERMAN: THE COURT: Unnecessary, Your Honor. Thank you. Is our next All right. matter the retirees committee? MR. MILLER: THE COURT: Yes, Your Honor. Do you folks want to go straight into it VERITEXT REPORTING COMPANY 516-608-2400 53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 break. or do you think anybody would want or need a five or ten minute break? MR. MILLER: I would ask Your Honor for a five minute I would like to have that opportunity to meet with the U.S. trustee. THE COURT: Certainly. Okay. We're in recess for -- until -- would an extra five minutes be prudent, Mr. Miller? MR. MILLER: THE COURT: Absolutely, Your Honor. Let's resume at 10:15. We're in recess. (Recess from 9:56 a.m. until 10:15 a.m.) THE COURT: MR. MILLER: Mr. Miller? Harvey Miller for the debtors. Your Honor, may we go back to the motion to engage AP Services? THE COURT: MR. MILLER: THE COURT: Certainly. Mr. Karotkin, please? Mr. Karotkin. Thank you, Your Honor. Stephen In MR. KAROTKIN: Karotkin, Weil Gotshal & Manges, for the debtors. connection with the application of the debtors to retain AP Services, Your Honor, there was only one substantive objection filed by the Office of the United States Trustee. I believe that the unsecured creditors' committee either filed a pleading or requested certain clarification in any proposed order, which were are more than willing to address. With respect to the objection raised by the Office of VERITEXT REPORTING COMPANY 516-608-2400 54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the United States Trustee, we have reached a resolution of that dispute which we propose to embody in a revised proposed order, which we will circulate with Ms. Adams as well as with the unsecured creditors' committee. But I would like to state on the record the resolution that's been agreed to, if I might? THE COURT: Yes. Go right ahead. I'm just going to go MR. KAROTKIN: Thank you, sir. to the substantive points. With respect to the success fee described and contained in their retention agreement, there would be no objection to payment of fifty percent of the success fee as provided in the retention agreement, on the closing of the sale transaction, subject to AP Services filing, prior to such payment, a supplemental affidavit with the Court summarizing the services rendered by AP Services with respect to the sale transaction. Second, both the payment of the balance of the success fee, which is proposed to be paid one year following the closing of the sale transaction, and any discretionary fee, as that term is defined in the application, both of those payments shall be subject to review under the reasonableness standards set forth in Sections 330 and 331 of the Bankruptcy Code, including the filing of an appropriate fee application by AP Services, including time records. And finally, Your Honor, no person from AP Services involved in the engagement, can bill at a rate higher than the VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 again. rate billed by Mr. Koch, as that rate may be adjusted from time to time, on notice to the Office of the United States Trustee. And I believe that, I hope, accurately sets forth the understanding. And if I have stated something -Mr. Matsumoto, forgive me. Could you THE COURT: pull a nearby microphone over unless you want to come to the main lectern? MR. MATSUMOTO: THE COURT: That's correct, Your Honor. Okay. He's accurately said it. MR. MATSUMOTO: THE COURT: Mr. Mater. That is correct, Your Honor. That MR. MOERS MATER: reflects the agreement with the committee. THE COURT: All right. Did everybody who weighed in Okay. As on this or wanted to, have a chance to be heard? modified by the understandings with the U.S. trustee and the creditors' committee, that retention is approved. And at your convenience, you or one of your colleagues can get me the revised order papering that understanding. MR. KAROTKIN: THE COURT: MR. MILLER: Thank you, sir. Thank you. If Your Honor pleases, Harvey Miller Your Honor, one housekeeping detail. THE COURT: MR. MILLER: Yes. The filing of a memorandum of law in VERITEXT REPORTING COMPANY 516-608-2400 56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 support of the proposed Section 363 transaction is due tonight. There are objections, Your Honor, that are still coming in. They've come in every day. They're still streaming in. What we would propose, Your Honor, is to file our memorandum of law. But we would like the extension, Your Honor, to amend that memorandum before the commencement of the hearing on June 30th, to take into account the additional objections that are coming in. THE COURT: I need a little help from you here, Mr. First, I thought the time for You're Miller, in a couple of ways. objections to what you're doing had come and gone. dealing with the practical problem that people, either because they disregarded the deadline or didn't get notice of the deadline, are still giving you stuff? MR. MILLER: I think one day, Your Honor, ECF was Some people claim they down and that delayed a lot of things. did not get notice. Your Honor. THE COURT: I hear you. And they're just continually streaming in, When were you thinking of -And this, I take it, would be you did file one brief already. like a reply brief to the objections? MR. MILLER: THE COURT: Yes, Your Honor. And what was your thought as to when I would get something I could work with? MR. MILLER: The hearing is on Tuesday, Your Honor. VERITEXT REPORTING COMPANY 516-608-2400 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Miller? MR. MILLER: THE COURT: Yes, sir. All right. I would like counsel for the Deal. Noon. THE COURT: I feel like I'm playing Let's Make a Monday, 5:00, 6:00. THE COURT: MR. MILLER: Umm -I'll make a concession, Your Honor. I'm not going to default you if you can't make noon, but I'd like you to try very hard to do that. MR. MILLER: THE COURT: Very good, Your Honor. Thank you. Mr. Schwartz? Mr. Miller said that Thank you. MR. SCHWARTZ: On that point. the deadline was this evening. that it was tomorrow. We were under the impression And we were intending to put in papers as well, if that's acceptable. THE COURT: Sure, you can do that. Thank you. Are we now up to retirees, Mr. MR. SCHWARTZ: THE COURT: Okay. retirees to come on up, but then, only to get a place at counsel table. Make room for him, folks. Somehow, make room Mr. for him, because I have some preliminary observations. Mater, you get a place at the -- okay, that's fine. Folks, make your presentations as you see fit, but by the time you're done, I want you to address the following VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 questions and concerns. It seems to me, subject to your rights to be heard, that 1114(d) has two prongs, one of which is mandatory, if it applies; the other which is discretionary. The mandatory part being "shall order, if the debtor seeks to modify or not pay the retiree benefits"; and the discretionary part being "or if the Court otherwise determines that it is appropriate." Now a "shall" proceeds the second also, but when you give me the ability to determine whether it's appropriate, it seems to me, that changes it into a discretionary determination. But it also seems to me, subject to your rights to be heard, that neither of those requirements applies unless 1114 applies at all. Now, on that, it appears to me that there are two principal legal issues which I'll get to in half a second. I also have a factual question for which I'd like your help, Mr. Miller, or from whoever on your team is going to be arguing it; which is, are the debtors' plans the same with respect to both its retiree pension plans and also its welfare plans, which I understand to be its health and life insurance plans? Or is there some distinction between them? That's more in the But nature of a factual predicate, just so I know what we're talking about, either changing or leaving subject to the possibility of a change. But then, when we get to the legal prongs, it seems to me that one of the issues I have to deal with is whether VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1114 applies at all. And on that -- and forgive me, on behalf of the retirees, I'm not sure if I got your name? MR. GOTEINER: THE COURT: I'm sorry, Your Honor. Neil Goteiner. Goteiner? Yes. Mr. Goteiner, it appeared to MR. GOTEINER: THE COURT: Thank you. me that in arguing the issue as to whether 1114 applied, you took kind of a national perspective. And I'm wondering, and I would find your help valuable, in telling me whether I should take a national perspective on the one hand, or whether I, as a judge sitting in the Second Circuit in the Southern District of New York, can appropriately consider a national perspective, or whether I have to give greater attention to a decision of the Second Circuit and of the case law in the Southern District of New York. Now, I think many people might believe that a bankruptcy judge in the Second Circuit is bound by a decision of the Second Circuit, and I've got the Chateaugay decision. It's also the case that I'm on record in four or five or six published decisions as saying that even though I'm not bound by the decisions of other bankruptcy judges in this district, that I believe that the interests of consistency for the financial community, for the bankruptcy community in this district, are very important, and therefore that I follow the decisions of other bankruptcy judges in the Southern District of New York, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in the absence of clear error. Now, I was a little surprised, Mr. Goteiner, that at least in your opening brief, unless I missed it, there was no attention to Judge Drain's decision in Delphi. Now, obviously, there was greater discussion of it by the debtors and the creditors' committee when they filed their next round of briefs. And while you mentioned it in your reply, you didn't really address, unless again I missed it, the substantive holdings that Judge Drain had with respect to whether 1114 applies or whether I should follow his decision or whether his decision was incorrect in any way. Some might regard his decision, albeit originally dictated, as one of the most comprehensive and extensive discussions of this area that anybody has ever written at any level in the federal system. So I want both sides to address Judge Drain's decision extensively, either up or down, whether it's right or wrong, and address whether I should follow it or not. Then we get to Sprague. As I read Sprague, and it's long and it's complicated, and I'm not claiming to be the only person who can read it or understand it, it appeared to me to be an 8-1-1-3 en banc decision. And it looked to me that when you looked at the plans, insofar as they affected the general retirees, as contrasted to the early retirees, it was a 10 to 3 decision, putting aside the class action issue, which isn't material to our concerns. And it also appears to me that for VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 either most or all of the GM community, their situation is more analogous to the general retiree situation rather than the early retiree situation, because the principal difference was the early retirees had separate deals that may have been explained to them when they were asked to take early retirement. Now, one thing that was a matter of some difficulty for me, from both sides, is that the contentions that Sprague was wrong came up only in the reply brief filed on behalf of the retiree committee, your folks, Mr. Goteiner. And that forced the debtor to deal with a whole new issue in a surreply, which the debtor did, but then you didn't have a chance to reply to that. Now, debtor has stated in its surreply that res judicata applies, binding on the retirees here, and also even that collateral estoppel applies. I'm wondering whether the more appropriate course is to analyze this, principally, on bases of stare decisis where you have the classic blue Buick. I don't want to foreclose you folks from other points that you want to make, but by the time you're done, please be sure to have covered at least those. Goteiner. MR. GOTEINER: Retirees' Association. Neil Goteiner, General Motors Your Honor, I think the questions you Okay. Your motion, Mr. asked obviously go to the core of issues, and so I'll address them up front. And basically I'll constrain my general VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 comments to dealing with your questions. THE COURT: You don't have to constrain them, just be sure you've covered them by the time you're done. MR. GOTEINER: Well, I'm constraining -- I'm saying I'm constraining them, because they're core. THE COURT: Okay. And I haven't thought about every Let me begin by MR. GOTEINER: point, but I think I can deal with them. saying this. If you look at the statute, 1114, and you look at the way it's structured, you don't have that much legislative history on tap. We have some, but very little. But if you look at it, what is it doing? It uses the word "any benefit". And this addresses part And it's a very, very modest proposal. of what Judge Drain did as well. What Judge Drain did and what the debtors are doing - what some courts are doing, I respectfully submit incorrectly, is that they're treating this exercise as a summary judgment motion. Judge Drain asked about abrogation of rights and that 1114 is not supposed to abrogate rights, and he's not familiar with other sections with the Bankruptcy Code that create rights. We're not creating rights here. All that 1114 did was to create a forum, a platform for discussion so that people, like the 122,000 members of this retiree group who are not represented, has a chance to deal with and talk with management about critical -- and this is not overly florid or VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 dramatic -- life-threatening decisions. And Congress understood that. So what happens is, And by the This is not there's a discussion, a conversation that occurs. way, Your Honor, it can occur very, very quickly. going to delay any decisions. There are lawyers on both sides who can handle these issues, and management can handle them. So you have the discussion. And usually these things work out fine, because this particular group, my clients, understands that there has to be cuts, that there has to be serious cuts. But the point is, to have those people whose lives are being affected making the decisions, and not having them be made by executives; not having them been made by other people who don't understand and really live these issues. So that needs to be stated. that discussion in the cases. motion. And I didn't really see This is not a summary judgment What happens is, if there's going to be a disagreement, and in the unlikely event that the committee -if it was selected and formed -- in the unlikely event that the committee disagreed with the debtor, then what happens? Then And it comes -- then and only then does it come to Your Honor. then you deal with some of the Sprague questions versus what we think should control, which is the Devlin case in the Second Circuit, which also addresses one of Your Honor's questions. The debtor suggests that it's Sprague all the way. That's not true. Your Honor, I have not read all Your Honor's VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 decisions on this, but the Second Circuit has pointed out in the Caesar case, I believe, as well as in other cases when they were dealing the factors versus the Pro Arcs (ph.) cases, that was around 1980. I can get the cites to you on that. That when you're dealing with federal questions, Your Honor should be looking at courts in the Second Circuit. It's national, it is national, but still, when you're looking at federal questions, it's perfectly appropriate, and some courts say you should look to the Second Circuit. Now, I know that -- and so that means the Court should also consider the Devlin -- and I'm saying we shouldn't even be getting into that now, but if you look at the Devlin burden analysis, in the Devlin burden analysis, you determined whether there's an ambiguity. Under the Sprague analysis, the burden is on the retirees there to show it was clear and unambiguous. That is not the law of the Second Circuit. Pause, please, Mr. Goteiner, because if I THE COURT: heard you right as you were getting into that, you mentioned Pro Arts. And sadly, I'm well aware of that case because in the Adelphia case, I had issued a decision where I expressed the view that the Third Circuit couldn't understand a matter of Pennsylvania law correctly, or at least a two-judge majority in a Third Circuit decision, and that they ignored a decision of the Pennsylvania Supreme Court. And while I wasn't reversed on the issue because there were satisfactory alternative grounds, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it was pointed out to me that I, as a bankruptcy judge, don't have the ability to tell a circuit court that it was wrong when it's construing a matter of state law within its home state district. And I think that's what Pro Arts stands for among -MR. GOTEINER: THE COURT: State law. State law. Correct. MR. GOTEINER: THE COURT: Now, it appeared to me that even -- when I was reading Sprague, that even though there isn't much discussion of Michigan law, when they're talking about contract formation as contrasted to what ERISA provides, that's got to be state law. MR. GOTEINER: discuss it. They didn't -- Your Honor, they didn't All right? And my -- I have the same question. And it seemed at that level and at the level that Your Honor is grappling with, it seems that the state issues are subsumed in federal issues. Sprague. And look, there are a lot of blanks in And there were a lot of disconnects and discontinuities between the majority decision and the dissent. The majority says most of the plans had the termination language. The dissents, in a robust and animated dissent, says But in any event, it was clear that it So that some of them did. was all over the lot, and most could be fifty-one percent. I'm aware of the point. I'm also aware of Factors, in fact, it I was representing the estate of was one of my first cases. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Elvis Presley and flew down to Graceland. very well. THE COURT: That is Pro Arts, isn't it? Yes, Factors, Pro Arts. So I'm aware I remember that case MR. GOTEINER: of that case, as well. So in dealing with these issues, I And all I'm saying, think 1114 trumps the analysis for today. 1114 is a very modest proposal. And where Judge Drain was wrong was he started talking about creation of rights and abrogation of rights. That's not what would happen today if And by the way, Judge Your Honor appointed an 1114 committee. Drain did appoint an 1114 committee after this long analysis. THE COURT: Albeit for a fairly limited purpose. Albeit for a fairly limited purpose, And it And MR. GOTEINER: but there was -- he left wedges in his decision. depends on what was going to come up in that analysis. things do come up. But the point is, the fair and equitable calculus that Congress imposes on the debtor, on the retirees who are not represented like the UAW -- I just want to make that clear; it's an obvious statement -- what Congress imposes is a very reasonable and quick approach. with Judge Drain's decision. And that was my major problem He -- and by the way, I'll tell you -- I'll take responsibility for part of that because we were involved in that, as Your Honor may or may not know. we were involved in the briefing, and we were co-counsel on And VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that point. But I got more involved in this matter, and as I started to look at the literature and I started to look at all the cases, it became clear to me that, with all due respect to these -- to very distinguished lawyers and judges, the fundamental aspect and driving purpose of 1114 has been missed in all this. And what's happening is -- and so what I'm looking for is an Occam's razor that gets down to the fundamentals and explains what 1114 is. And 1114 is as I stated, I won't repeat it, and I doubt many people would disagree with me on my right, but that's what it is. And then Judge Drain did more than that. Drain talked about his analysis of 1114(l). mean? Then Judge What does that Although I don't think you have to characterize this as a vested right, as I was just saying, because that's not what we're doing here. We're not aggregating rights. But what Congress did do in 1114 is to create at least a vested procedure outside of bankruptcy, for the 180 days preceding bankruptcy. To me, it's a dizzying non-sequitur -- and this is also why I disagree with Judge Drain -- for to say that exists in a pre-bankruptcy context that doesn't exist during bankruptcy. 1114(l) has meaning. And it only has meaning if you apply it logically and consistently, and I think Judge Drain missed that. 1114(l) means. And frankly, everyone did. And -But that's what VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 the -THE COURT: saying, you're saying? MR. GOTEINER: Right, well, I think the debtor -That's what the creditors' committee is THE COURT: Well, pause, please, Mr. Goteiner. Because -- and maybe the creditors' committee picked this point up in its opposition to you or in -- I don't remember where I got this from, to tell you the truth -- but there are different scenarios under which, prepetition, a debtor can adversely affect its retiree rights. It can do it by exercising the right that the debtor thinks it has to amend or terminate unilaterally because it contends that its plan documents provide it with that entitlement or that right. it because it says we simply can't afford it. changing it and maybe those guys can sue us. Or it can do And we're I think it's agreed that in the second -- or at least not very controversial -- that in the second category, adversely affected retirees can have had it and go after the debtor under 1114(l). But I think somebody said, again, I think it was the creditors' committee, that the jury may still be out -- or the legal equivalent to that -- as to whether 1114 applies when the debtor uses a right of amendment or termination that it otherwise has in its plan documents. understanding, as well? MR. GOTEINER: Well, that's what they're saying, but Is that your VERITEXT REPORTING COMPANY 516-608-2400 69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 well. THE COURT: your view on that. MR. GOTEINER: Well, I'm interested in their view, as Well, I guess what I'm interested in is But my point is that the wording of 1114 is so broad, so all-encompassing with any benefit, Congress was aware that there are amendable benefits, and with that kind of language. But when you combine that with the modest procedural rights that 1114 provides, again, that's the simplest explanation of what's happening here. It's premature to decide this now. And we do know, because of announcements that they've been transparent about this to a degree, that they're going to be cutting two-thirds of benefits. benefits. now. So it's happening now. You know, these are critical This process is happening And it also happened in the six months prior to June 1, which is an 1114(l) situation. So I just disagree with the -- there's a lot, as I say, of Talmudic analysis in all these decisions. And I mean, particularly, Judge Drain's was excellent, it's true. he covered the ground. But the fact that he had the excellent legal analysis doesn't say to me that he covered the fundamental point of what 1114(a) says. And on top -- and 1114(l), as well, where I think he's dead wrong. But on top of that, if we even want to get into this analysis, he says that bankruptcy law does not create rights. Well, that's not true. Preference rights, 1113 rights, 363 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 puts limits on a debtor's use of a third party lender's cash collateral during a Chapter 11 case providing substantive protections that don't exist outside bankruptcy. Section 363 gives assets buyers the right to buy assets free and clear of liens. Section 364 gives third party post-petition lenders the right, under limited circumstances, to get priming liens, granting them a lien on collateral ahead of existing lenders which cannot be done outside bankruptcy, so he's wrong on that as well. And, again, these points were not fully briefed. But as I read the decision, I started asking these questions, and they didn't make sense. So I could deal more with Judge Drain's decision, but I think with respect to those fundamental points, though, and I know it's the most comprehensive decision out there, today. Painfully so. But, it doesn't mean he's right. And so I respectfully suggest this is for Your Honor to wrestle with to determine whether he is correct or not correct on the fundamentals and also on this overarching point of whether we should decide this now. Is that what Congress had in mind? And I respectfully submit they didn't. So I think I have answered Your Honor's questions. Let me just look at my notes for one second, Your Honor. Ah, let's address Sprague just for a minute longer because Your Honor raised the res judicata possibility. Your Honor also said well, that was a class action; we don't need to involve VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ourselves with that. THE COURT: But we do. We have -- Your point being that they expressly denied class action status for both of the two major classes? MR. GOTEINER: Precisely. No -- class actions have significant meaning, obviously, and they have significant meeting, and as defendants, we sometimes stipulate to class certification because of what it means for final peace, global peace. But there is no class representative there. There is nothing close to the privity type issues in these virtual representation cases. THE COURT: Well, pause, please, Mr. Goteiner, because you're absolutely right on the significance of class action. But is it the case that if there had been certified a class action, the decision would be a no-brainer on res judicata. And the question really is, in the absence of a class action, what's left? MR. GOTEINER: Well, you said stare decisis, but again, Your Honor, that really has to do with, you know, there are all sorts of things that occur in a class action. do that kind of work, as well. decisions that are made. Okay, I And there are all sorts of You have to take a look at whether I don't know, I can't the subclasses were defined correctly. answer your question because I also -- there are lacunae in Sprague that don't make sense to me. And it just wasn't because you had an impassioned chief -- I think it was the VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 judge -THE COURT: Yes. -- at that point. chief judge saying it was wrong. THE COURT: It was Martin, if I recall. I'm sorry? Judge Martin was chief MR. GOTEINER: MR. GOTEINER: THE COURT: Yes. And it's not only the lacunae that MR. GOTEINER: exist there, but theoretically, to me, it doesn't make sense given the ambiguities that did exist. But the Sixth Circuit But said, all right, this is our view, we see no ambiguity. the Sixth Circuit went off on the Wise decision. And that was, as I recall it, that page, that was the first primary decision they cited was Wise from the Fifth Circuit. However, in Devlin, the Second Circuit said we can see how the district court could have been led by Wise into making the decision it did, but we don't go that direction in the Second Circuit. the core theoretical groundwork for Sprague finds itself rejected in Devlin. Now, I don't think Devlin cited -- I think But So Devlin maybe came down a month or two after, I'm not sure. there was no cross-referencing of the two. And I also note that in the debtors' brief, although I read it quickly, I didn't see a reference to Devlin. So, as I say, it's Sprague. So I don't see Sprague -- it's certainly not anything close to virtual VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 representation. There's not the privity, there's not the same motivation, it is not a one-on-one linkage that you found in Chase. It just isn't. It's an aborted class action. You cannot cherry-pick from Sprague and take one point, and then say it binds everyone, all the retirees. You just can't. It is limited and it is not what the Second Circuit would buy into as I read Devlin. And I must say, with all due respect, Judge Drain was wrong there, as well. Now, I do recall that there was briefing on this choice-of-law issue in the Delphi matter, and I'm not quite sure because this came in late last night so I haven't had time to check, I'm not sure because I think the judge in the -- Judge Drain, in the decision that he announced from the bench, said the parties hadn't briefed on him on the choice-oflaw issue. comment. Then there was briefing after that pursuant to his But I don't know what happened between -- and maybe counsel here does know -- I don't know what happened between that briefing and Judge Drain's decision. But clearly, he did not take into account Second Circuit law, and he should have because the Second Circuit controls Judge Drain in this issue. Or at least, that's what the Second Circuit in Caesar (ph.) said, and that's what is drawn from the analysis in Factors v. Pro Arts. So, let me just see if I -- I think -- Your Honor, does that cover your main points? I think it does. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: I think it does, too. So why don't I stop there and reserve MR. GOTEINER: any additional time after I hear the opposition. THE COURT: Sure. Thank you very much. MR. GOTEINER: THE COURT: MR. MATER: Mr. Miller? Your Honor, please, Harvey Miller on Your Honor the law is perfectly behalf of the debtors again. clear that Section 1111 -- I'm sorry, 1114 of the bankruptcy code, does not apply with respect to a retiree plan that is terminable or amendable or modifiable unilaterally by the plan sponsor. And while counsel may refer to Sprague as an aborted class action case, it's certainly beside that GM had an unqualified right to modify these retirement plans, and that was heavily litigated, and that's what the Sixth Circuit decided in the decision that you referred to. So if GM has the right to modify or terminate these retirement plans, then Section 1114 does not apply and there should be no retiree committee. Counsel claims that Sprague decision should not be binding on this Court. And he says that the -- there's no finding that the issues are exactly the same or there was an alignment. Well, what was Sprague about, Your Honor? It was a claim violation of ERISA that GM unilaterally modified and terminated rights that the retirees claim in violation of VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ERISA, because if it was a plan subject to ERISA, GM could not do that unilaterally. So this welfare plan, the Sixth Circuit held, is modifiable by GM and it went through the different plans and came to the conclusion that all of the plans reserved to GM the right to modify or terminate and that right continues, Your Honor. And those are GM plans. Now, counsel says, and the moving parties say, "Well, now we're in the Second Circuit and Sprague doesn't apply." argue, as we have in our brief, Your Honor, that there is virtual representation. And notwithstanding that the class We action certification was vacated, the claim's rights asserted -- the same rights that are being asserted in connection with this motion, Your Honor. Honor, to the Delphi case. Exactly the same thing. The argument was being made, by the plan beneficiaries, that Delphi did not have the right to modify or terminate these benefits unilaterally. was presented. That was the issue that So now we move, Your And what happened in Delphi? And the important factor in that, Your Honor, is that Delphi plans were GM plans because Delphi was a spinoff from GM, I think, in 1999, and those plans were all GM plans. And as Your Honor pointed out, Judge Drain, in a very comprehensive bench decision, came to the conclusion that Delphi had the unilateral right to terminate and modify the plans and therefore 1114 was not applicable, but he did appoint VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a committee. purpose. There was a contention made that certain of the beneficiaries had vested rights and if their rights were vested then Delphi could not unilaterally modify or terminate those rights. So he appointed a committee for a specifically limited And he appointed a committee for a very limited purpose to explore and file a report as to whether any of the rights were vested. THE COURT: Can you help me, if you know, as to why, especially if these were former GM people, they might have had vested rights? Like, could they have retired before the first of the plan descriptions were issued that reserved the right to modify or was it some different basis? MR. MILLER: date or a time. No, Your Honor. It wasn't because of a Within Delphi, there were other acquisitions that form part of Delphi; American Axle Company and some other companies. It may have been that those companies had plans And there may that were in existence when they were merged. have been the employees that came from those companies that have vested benefits. THE COURT: In other words, they became Delphi retirees but their retirement rights had been created back when they were employees for different companies? MR. MILLER: understand it. That's correct, Your Honor, as I VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 THE COURT: MR. MILLER: I'm with you now, okay. Now, subsequently to the bench opinion, Your Honor, which was issued on -- in the early part of 2009, Judge Drain again revisited the issues that were presented and in a transcript, which I was only able to get last night, Your Honor. THE COURT: Lexis also. MR. MILLER: It's March 11, 2009. He considered the And if I may, Your I think it's now on Westlaw also, maybe report that came back from this committee. Honor, I would hand up a copy of the transcript. THE COURT: MR. MILLER: THE COURT: I read it last night. And I would refer Your Honor to page -Finding it is a different question. For that, maybe you do have to hand it up. MR. MILLER: THE COURT: I have one if Your Honor would like it? Yes. Why don't you do that. Give me a second, please, Mr. Miller. (Pause) THE COURT: MR. MILLER: Go ahead, please. I would refer Your Honor to page 61. This is in consideration of the And if I may, I would read. report that the committee that he had appointed rendered. THE COURT: MR. MILLER: Wait. Did you say 61? 61, Your Honor. VERITEXT REPORTING COMPANY 516-608-2400 78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Oh, I see. The pagination on what I read Go ahead, yesterday is different than what you just gave me. please. MR. MILLER: Starting with the first full sentence, "With respect to the first point, as I noted, probably too much I lent during oral argument, I continue to believe that the Sixth Circuit Sprague decision is one in which the Sixth Circuit at length determined, en banc, that there was no ambiguity in the respect of GM's reservation of rights to modify, at will, it's welfare plans. period" -THE COURT: Forgive me, Mr. Miller. I'm having You said -Including for the trouble finding it in the one you gave me as well. this is with respect to Sprague, right? MR. MILLER: THE COURT: Yes, Your Honor. Go on, please. I'm not sure if I can find it here, but I'll just listen to what you've given to me. MR. MILLER: All right. "That there was no ambiguity in respect of GM's reservation of rights to modify, at will, it's welfare plans including for the period in question and that -- or I could conclude otherwise, I would not be doing so by applying a different standard than that which is applied in the Second Circuit under Bouboulis v. Transport Workers Union of American 442 F.3d 55 (2006), namely that the plan documents contain specific written language that is reasonably VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 susceptible to interpretation as a promise to vest benefits. Language quoted from Devlin v. Empire Blue Cross and Blue Shield 274 F.3d 7684 (2001). Instead, what I would be doing would be, in essence, reversing the majority's conclusion in the en banc Sprague opinion that there was no ambiguity in the relevant documents. And that, in fact, it was clearly understood that GM had reserved the right to modify. Based on the analysis of the record, which I believe is one that is clearly pointed out as such by the descent of Chief Judge Martin in that case, I don't believe there's any difference as far as how the Sprague Court and the Second Circuit would review the underlying documents. In any event, I believe that that portion of the report that went beyond my charge or my assignment to the committee, since it, in essence, sought to reargue my earlier ruling, and in addition sought to suggest that the assumption by Delphi pursuant to the master separation agreement, which appears at Exhibit 90 in the U.S. Employee Matter's Agreement, which was referred to there and appears in here most readily at supplemental Exhibit 4, provided for the transfer to Delphi and the assumption by Delphi of GM's legal responsibilities for OPEB claims. My conclusion was in February and is now that in assuming such legal responsibilities at the time, Delphi and GM were both fully aware of the Sprague decision, which predated VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 these agreements which found that GM has no legal responsibilities in respect to these claims. And in light of the clear evidence that all of Delphi's plans and all of GM's plans, at least since 1985, contained a clear unambiguous reservation of the right to terminate or plan documents contain such reservation that I cannot ignore the context of the Sprague decision as underlying the parameters of what Delphi adequately assumed and what GM transferred to it." I will submit to Your Honor, that on reconsideration, Judge Drain went even further then the bench opinion. And I submit to Your Honor that it's incontestable that GM had the right and has the right to modify, terminate, any of these welfare plans. And in that context, Your Honor, then GM is not subject to 1114 and there is no need for a retiree's committee. As to the -- Your Honor's question with respect to the salaried OPEB plan and the pension plans, the pension plans will be assumed by New GM and the salaried retiree plans, as modified, will be assumed by New GM. made, Your Honor. There are cuts being These are cuts, and as we pointed out in our papers, since 2002 we outlined the various changes that have been made by GM in these particular plans which increase the cost to the employees from something like twenty-four percent to forty-one percent over that decade. And these changes were made unilaterally, Your Honor, by GM and there's never been in that period in time an action by any salaried retiree VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 81 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 straight. contesting that that was a violation of vested benefits in any way, shape or form. THE COURT: Pause, please, Mr. Miller. Let me get it I take it, for the retirees that we're talking about They have here, they have rights of essentially three times. pensions, which if I heard you right, are being taken over if the 363 is approved by New GM and would remain unchanged. Then they have a number two, health, and number three, insurance, which would be taken over by the New GM by the modified form in which they were modified before the filing date? MR. MILLER: THE COURT: MR. MILLER: THE COURT: Yes, Your Honor. Okay. Now, the pension plan -And pause, please; a follow-up. Are there any changes contemplated beyond those that were announced -MR. MILLER: THE COURT: MR. MILLER: Not currently. -- prior to the filing date? Not currently. But I point out, Your The -- Honor, the pension plan is a defined benefits plan. which is a qualified plan. qualified. The welfare plans are not These are discretionary plans with GM. THE COURT: MR. MILLER: Okay. Continue, please. Also, Your Honor, in the March 11th oral decision, subsequent oral decision by Judge Drain, he likewise VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 82 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deals with 1114(l). And he says very specifically in there, Your Honor, that there is no indication whatsoever that Congress intended to change the applicability of 1114 when it adopted 1114(l). In fact, there was nothing in the There is no indication whatsoever that congressional record. Congress was changing the laws that existed prior to the adoption of 1114(l), and I think it was in 2005. So the law is, Your Honor, that if a welfare plan is subject to unilateral termination or modification, then 1114 doesn't apply. Now, in connection, Your Honor, with discussions with the company, there's nothing holding back counsel and his group from contacting GM. that. You don't need a retiree committee to do There can be discussions and there is actually, a, as I understand it, Your Honor, a salaried retirees' committee of some type that does periodically discuss these issues with GM. So we come back to the bottom line issue, Your Honor. Is 1114 applicable to these particular welfare plans? Judge Drain, in his very comprehensive bench opinion said, no. Subsequently, in his consideration of the report of that committee which was appointed for a specific purpose, he reiterated that. He also went further, Your Honor, and said that the Second Circuit, at least in his opinion, would not vary at all from the Sprague decision. And we would submit to Yes, it's Your Honor the Sprague decision should be binding. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 binding on the 114 plaintiffs in that action, but when you look at the issues that were litigated in that case, they are precisely the issues that would come up here: right to unilaterally terminate or modify? The Second Circuit en banc, as Your Honor pointed out, nature as majority, on certain issues, and 1011, on other issues, found that GM had that right. And all of the plans, And it's been did GM have the Your Honor, had the reservation of that right. consistent. And in that context, Your Honor, there should be no retiree committee in this case which would just simply add more cost. And as Your Honor pointed out in your decision last Tuesday, all that means is you're transferring more costs to the general creditors. And in that context, Your Honor, we submit there should be no committee. THE COURT: creditors' committee? MR. MAYER: Thank you, Your Honor. Tom Mayer for the We echo the All right. Thank you. Mr. Mayer, official committee of unsecured creditors. debtors' view that because the contract provides for modification at GM's will, I don't mean to minimize the hardship that a termination or modification at the debtors' option may impose on individuals but that's the agreement they have; that's the effect of the agreement. And with respect to the Sixth Circuit versus Second Circuit, if I may pick up on a comment Your Honor made, one of the unfortunate results of VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 going a different way here is to take a decision on these precise documents and say the Sixth Circuit got wrong looking at the documents before it. I think perhaps Your Honor was referring to a resonance to your earlier decision on the Third Circuit. Sixth Circuit, it's not just that it's interpreting And to seek a ERISA, it's interpreting these documents. different decision in this Court when the Sixth Circuit has looked at these documents, I think would be very unfortunate. But that being said, there's one other major point that is sort of the elephant in the room that is being overlooked and was critical in the Chrysler case where we were involved, who are the negotiations with, Your Honor? A statement has been made that "GM" is cutting its benefits by two-thirds. that's left? government. Who's going to pay the one-third The elephant in the room is the It's New GM. The government is the owner of New GM and any relief that this committee is seeking is going to have to be paid by New GM. That's the only entity that's going to have That's the only entity that's going any plans going forward. to be set up to pay retiree medical benefits going forward. Any discussion has to be with New GM. And if I may go back to an issue, Your Honor, at the very beginning of this hearing as a shout point at 1114 and there is a nay point at 1113. We are not in the shout section, no one has moved to terminate or modify retiree medical VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 benefits. Largely because no -- the debtor has nothing, the committee does not think that's necessary. If you're in the nay part of 1114, and this is where we start diverging from Delphi with respect to the need for any committee in the first play, the fact of the matter is these negotiations aren't with Old GM. They're with New GM. And I think the Court should take that into account just as Judge Gonzalez did in conjunction with the Chrysler decision where we had a very similar set of arguments, and Judge Gonzalez basically said, "Look, your discussion with new co." And 1114 is not set up to facilitate a third party's discussions with an acquirer. It is the acquirer who is going to make the That's the reality and I think that Your Honor decisions here. can take account of that in determining in whether you should exercise discretion to appoint a committee here. think that's the elephant in the room. We cited to the Chrysler transcript. We did not Because I include a copy of it in our pleading because we called chambers and was told that because that transcript had not been made an official record yet, it was not appropriate for us to provide copies to the world by attaching it to our pleadings. copies here if you want -TZIPPY2 14900 THE COURT: court reporters? This is what? For the protection of I have Because it's a public document. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 86 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MILLER: exactly what it is. them out. THE COURT: Well, I must say, the most important Well, yes, Your Honor. I have copies here. I think that's I'm happy to hand thing is to get one to Mr. Goteiner because I thought I was allowed to read that transcript and I read the Gonzalez transcript. MR. MILLER: I'm happy to provide it and I apologize for not having done so but we were given instructions. THE COURT: Mr. Goteiner. Well, I think we've got to get a copy to I mean, you cited that transcript in your brief, Didn't you, Mr. if I recall, at the end as your last point. Miller. MR. MILLER: Yes, Your Honor. I did so and as I said I apologize for not having attached it but we were told by chambers, because of the court reporter's rules, that we couldn't make copies available to everybody. THE COURT: Well, I'm sorry. I didn't know that chambers told you that. Mr. Goteiner should have been given it before now and I'm going to take a recess to allow him to comment on it, if he wants to, before we're all done. MR. MILLER: THE COURT: Certain. I'm sorry. Sometimes my chambers tells people things that I never know about and they don't have the same sensitivities that I do. There are rules to protect VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 87 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 court reporters and sometimes those rules just have to be trumped. Okay. MR. MILLER: THE COURT: I have nothing further. All right. Does anybody want to be heard No. Mr. before I give Mr. Goteiner a chance to reply? Goteiner, your option. Would you like me to take a recess now The Gonzalez decision? to give you a chance to read it? MR. GOTEINER: THE COURT: Well -- On the one hand it was referred to in Mr. Miller's brief or in his firm's brief, I forgot whether he was a signer, but on the other hand, the underlying transcript wasn't there. MR. GOTEINER: Your Honor, if I may, might I respond for a few minutes to arguments -THE COURT: Certainly. -- and then take a recess? MR. GOTEINER: THE COURT: Yes. Okay. Well, the one overarching MR. GOTEINER: argument that has not been dealt with is the 1114 process and that what's gone on in some of the decisions and what debtors and creditor committee wants to do is to turn this into a summary judgment determination. It's too premature for that. I And you know it's premature when they get back to Sprague. also just read Drain's -- Judge Drain's decision or transcript and he even points out that he's clear with respect to all the VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 plans, at least since 1985. before 1985? So what happens to the plans So, there's a large number of retirees who come Judge Drain starts talking about no And within that time period. ambiguity but it's not a factual issue only, Your Honor. this is -- unfortunately, we have to go back and take a look at the decisions but Devlin -- it's a legal issue. The question is, what would the Devlin court decide as to whether it was ambiguous. We respectfully submit that Devlin, again, not cited to except in Judge Drain's decision but with no analysis, makes it real clear that under Second Circuit analysis, Judge Martin was right; it was ambiguous. And the notion of making a decision at this point and totally sidestepping Congress' provision of an 1114 proceeding because debtor suggests it's going to be more money, I think absolutely flies in the face of what Congress intended particularly when you're talking about billions of dollars of benefits to people who truly -- this really is the archetypical situation where you have widows and orphans. it's grossly unfair. And it's just -- But putting aside fairness and equity, it That's precisely what Congress flies in the face of 1114. wanted to avoid; a quickly determined summary judgment determination without giving the retirees a chance to sit down and at least be the assistant captain of their fate. That is not what Congress had in mind and the notion of having an informal ad hoc committee without portfolio as opposed to an VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 89 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1114 committee, I suggest is absurd. face of what 1114 does. THE COURT: Pause please, Mr. Goteiner. I didn't And again, flies in the want to interrupt you when you made the point. You pointed out that Judge Drain's decision said, in substance, I don't remember the exact words, at least since 1985 retirees had been told that the company reserved the right to change the welfare plans. Do you know how many retirees there are who retired before 1985 and, if I'm allowed to ask a compound question, how many of them aren't sixty-five where they would get Medicare rights and therefore their medical needs would be greater than they would be if you got an entitlement to Medicare? MR. GOTEINER: know that number. I do not know that number. I do not And as -That's almost twenty-five years ago. Oh, I understand. I understand. I THE COURT: MR. GOTEINER: don't know that number but there are other rights as well. There's life insurance, health bene -- you know, health benefits might -- that would be an issue, I understand that but if there's life insurance issues. there's ambiguity there as well. So, all I'm saying is that And when you look at Judge Martin's decision, I'm not trying to hold close to my bosom the descending opinion for all purposes. But the point is, for purposes of Second Circuit analysis, it bears close reading. Judge Martin pointed out how some of the materials were VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 90 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deceptive. So, yes, the majority opinion decided it was That is not, I unambiguous under the Wise standard. respectfully submit, what the Second Circuit would do, not withstanding Judge Drain's view of it in this transcript. But again, that issue is so premature to what 1114 is all about but what is does underlie is how this would be singularly inappropriate, where you have that kind of ambiguity, that kind of dissension about what these plan documents mean and decide the issue now and say no 1114 committee because it's going to cost the debtor a few bucks compared to the billions that are at issue for these people. It doesn't make sense. And I respectfully submit is not consistent with what the Second Circuit does. And there may be vested benefits. I know the That's debtor's counsel's saying there's no vested benefits. another issue. It could well be, depending upon how the Second Circuit would rule on whether there was sufficient ambiguity, that they would find vested benefits. If the Second Circuit found or agreed with Judge Martin that there was, for instance, deception or at least unclarity, I think the Second Circuit would come out differently. And that's what, respectfully But again, that's submitted, Your Honor has to grapple with. for a different day. There's been enough of a showing today and in the papers and in everything that even Judge Drain said in hi supplement, to make it clear this is singularly VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 91 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1411(l). about it. pie. unappropriate for the kind of judgment that defendants want entered today, given what's at risk. So it all -- this is more than just mother and apple It really has to do with the practicalities of how these decisions should be made and they can be made very quickly. Your Honor could put a time period on it. And within a couple of days, the trustee can select a committee and the parties, within a few more days after that, can sit down and start to talk. The down side is so miniscule compared to what's at stake that I submit that cost benefit analysis mitigates very heavily in terms of appointing the committee. And I think that covers all issues except this The 1411(l) statute is real clear. And I see a lot of evasion -THE COURT: 1114(d) is? MR. GOTEINER: THE COURT: Well, Your Honor, okay -Well, isn't it just as ambiguous as There's no doubt I mean, neither one -- each of them could have said not withstanding any provision of contract that gives the company greater rights and then proceed into what it says. MR. GOTEINER: THE COURT: the opposite view. Your Honor -- Conversely, I suppose, it could've taken But one of the practical problems that guys in my position have is we're sworn to follow instructions from Congress and Congress sometimes doesn't do its job as well as VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it might. MR. GOTEINER: Your Honor, I agree with that obviously but then we have things to help judges and we have a series of cases from the early 80s from the U.S. Supreme Court. I think one of them was called Cannon in dealing -- at Touche Ross -- in dealing with how you interpret congressional statute when there is preexisting law. And the Congress is presumed to understand what the law was and yet they didn't put in that little fillip at the end of the statute, why? good enough. It said any benefit. Because it was Congress is presumed to And yes, I know there is such a thing as amendable benefits. read Judge Drain's point that there was even a proposal to deal with Doxell (ph.); I saw that. But that Congress rejects that when Congress has language like any benefit, when the costs are so minimal, I think speaks volumes. And that is -- that stubborn and irreducible fact and logic is something that the defendant -- that the debtors have not dealt with. THE COURT: When Congress wanted to overrule Lilly Ledbetter, it did so pretty clearly, didn't it? MR. GOTEINER: Sometimes they do. Sometimes they do. But when they don't, all you can do is go back to Sutherland, I think that's the treatise, and go back to the Supreme Court cases that talk about how you interpret statutory language when there is existing law and when there is law that may be inconsistent. And again, that discussion has not taken place VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 enough here. So, I think with -- that all the practicalities, all the legislative interpretations that we've been discussing, point to the appointment of an 1114 committee. cost benefit analysis says this very clearly. there, I'll take a -THE COURT: Goteiner -MR. GOTEINER: THE COURT: Okay. I don't want you quite to stop, Mr. And again, the And I'll stop -- because on the wholly discretionary point, I guess if 1114 doesn't apply at all, people can debate about whether I'm even supposed to take a discretionary analysis, but assume I do. Toward the end of its brief, the creditors committee pointed out that negotiation is with the wrong entity and that the negotiation would have to be with Treasury or new GM or somebody other than the debtor in possession. And that brings up Judge Gonzalez's holding and I'm at a mind that I should give you a chance to comment on that if you want it. And since I'm going to have to take at least a recess to do this anyway, just to go through what we have, I wonder if you would like to reserve the right to say something before I finally rule during a recess to take a look at Gonzalez's decision and tell me if you thought Arthur Gonzalez got it wrong. MR. GOTEINER: I'll do that, Your Honor, and you I just want to make one more know, again, I will do that. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 94 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 point. That -- which is subsumed in my prior points, it's really not necessary for this Court to say the Sixth Circuit got it wrong. Again, not today. It's just not. But the only thing I ask Your Honor to consider in making this decision, you know debtors speak with certainty that hasn't been seen since the twelfth century about what amendable benefits are and whether they exist here and that is just not true. And no matter how many times you say it, that it's clear, even if Judge Drain says he doesn't think there's ambiguity, that doesn't make it true. It is not certain here. And that is another point that's subsumed in Congress's wisdom about 1114 and I'll take a look at the transcript. THE COURT: Okay. Thank you. MR. GOTEINER: THE COURT: Thank you. Folks, I'd like you to take an early I can't guarantee you that I'll be lunch and be back by 12:30. ready by then but hopefully you can get something to eat between now and then. Give you enough time to both get a sandwich down and also read Judge Gonzalez's transcript, Mr. Goteiner. And then I'll try to give you a decision after that lunch break but not before giving Mr. Goteiner another chance to be heard if he wants to. Okay, we're in recess. (Recess from 11:30 a.m. until 1:37 p.m.) THE COURT: I apologize for keeping you all waiting. Before I come to a final decision, I want to give you, Mr. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Goteiner, an opportunity to comment on Judge Gonzalez's decision since it was noted by the creditors' committee and is at least arguably fairly relevant to this determination. MR. GOTEINER: Thank you, Your Honor. Neil Goteiner, Farella Braun + Martel, for the General Motors Retirees Association. I had a chance to take a look at the transcript. I would just note a couple of distinctions and then get back to a basic point. Of course, here we do know that GM has announced that there's going to be cuts in the order of magnitude of two-thirds. And we also know that there have been prepetition cuts as well in the six-month period. So were we to abandon at this point the 1114 process, you would be -- what would be happening is that the committee would be giving up whatever rights it has under 1114. It would lose leverage because, of course, New GM would not be a debtor. And -- but I did go beyond that, obviously. I took a look at the practicalities that Judge Gonzalez was addressing, and of course there are practicalities, but here it's not the same sequence and it's not the same -- or different personalities, completely different personalities, as in Chrysler. You will have committee speaking with people who are going to be involved to some degree in New GM. things can happen in these negotiations. And lots of Yes, it's possible that the representatives of GM who will be in the New GM will VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 happen. simply say okay, hats have changed, we reject what we agreed to with you. But it's quite possible that that won't happen and that there will be some agreements that are reached with the 1114 committee participating that, in the negotiation process and the relationships that develop during negotiations, will be passed on to some of the same people in the New GM and they will abide by what they agreed as they negotiated as part of the 1114 process. At least there's no reason to assume that will not And, indeed, I think the way even the creditors' committee phrased it is that this committee may not be the appropriate person -- the appropriate party to negotiate now. And anything is possible, but the atmospherics and the elements are quite different here than in Chrysler. And there's a stronger argument/brief of appointing an 1114 committee. And that's what 1114 says should happen in any event. So that's my submission. THE COURT: Just one question before I give anyone else a chance to comment, if they wish, because I like your idea of being realistic. Earlier in your remarks just a moment ago you said you were concerned about giving up leverage. Unrealistic to know that leverage tends to be something that people think about all the time in large bankruptcy cases, maybe smaller ones too. But to what extent, in your view, should I, as a judge who's supposed to call balls and strikes VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 97 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 the way he sees them, be guided by giving one party or another leverage against the party with the different perspective? MR. GOTEINER: Well, leverage is whatever is provided, and I use leverage -- I'm not backing away from the word "leverage", it's a reasonable word to use, but the whole panoply of dynamics that are embraced by 1114, because it has to be equitable and fair, that's the leverage I'm talking about. So, and that, by the way -- leverages goes both ways, Your Honor, because my clients, at the end of the day, have far less leverage than the debtor has. So it's far worse, from my clients' point of view, than a two-way street. THE COURT: Okay. So that is why, I respectfully submit, MR. GOTEINER: Your Honor should have not a moment's pause that there's any untoward leverage given to the 1114 committee. precisely what 1114 contemplated; no more. THE COURT: Okay. Thank you. I know we've been at This is this for a long time, but if either the debtors or the creditors' committee who brought up Judge Gonzalez's decision want to be heard before I take another brief recess, I'll permit that. Mr. Mayer? Yes, Your Honor, thank you. Unless you MR. MAYER: have questions, I don't think I have anything to add. THE COURT: Okay. Mr. Miller? VERITEXT REPORTING COMPANY 516-608-2400 98 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 MR. MILLER: And if Your Honor please, I would just point out, in order for -THE COURT: You're very tall, Mr. Miller. Can you either lift that microphone up or come to the main lectern? MR. MILLER: Thank you, Your Honor. I would just point out, in order for this committee to have any effect and to provide the leverage which counsel says they need, you would have to determine that GM does not have the right to modify or terminate any of these claims. And the record is, I think, crystal clear that GM has the right to terminate or modify any of these claims. And what we're talking about, Your Honor, is a situation which hopefully, in my view, is a few days. hearing is scheduled for Tuesday. next week. The sale Hopefully we will finish it It's important that this company emerges -- these assets emerge as part of a New GM that's going to have any chance of success. Counsel's talking about give the U.S. Trustee three or four days to appoint a committee, the committee's got to organize, it's going to have to hire professionals, probably a financial advisor, a statistician, and so on. By the time all of that happens, Your Honor, hopefully, if we're right, and Your Honor approves it, the transaction will have been consummated. So the leverage that is so important, and which is VERITEXT REPORTING COMPANY 516-608-2400 99 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 the only purpose for which this motion has been brought, will be of no avail because New GM will be off as a new OEM manufacturing cars and trucks without the stigma, if I can use that word, of bankruptcy, which is the objective for this transaction. So the negotiations, Your Honor, are going to be with the debtor which is going forward with the plan of liquidation. And in the context of the liquidation, even if 1114 applied, it's going to have to be rejected under 1114 because there's not going to be any ongoing company. So what we're down to, Your Honor, and Your Honor put your finger on it, is leverage, that if Your Honor would grant this motion and appoint a retirees' committee, the next thing that will happen is a request to defer the 363 transaction, which affects a lot of parties-in-interest and affects all of the creditors and affects the ability of this company to survive going forward. So there's a real downside, Your Honor, to this motion, notwithstanding what counsel says. THE COURT: All right. Thank you. All right, folks, I've made you wait a long time. I'm going to ask you now to sit in place and wait with me here in the courtroom for a minute. (Pause) THE COURT: Okay, folks once more I apologize for VERITEXT REPORTING COMPANY 516-608-2400 100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 keeping you all waiting. In this contested matter in a case under Chapter 11 of the Code, the General Motors Retiree Association, which I'll refer to as the "Retirees Association", moves for an order pursuant to Section 1114 of the Code, appointing an official 1114 committee. Its motion is opposed by the debtors and the creditors' committee. The motion is denied, though without prejudice to reconsideration at a later time under appropriate circumstances, largely in accordance with the ruling by my colleague Judge Drain in Delphi on March 10 of this year. The following are my findings of fact, conclusions of law and bases for the exercise of my discretion in connection with this determination. Turning first to my findings of fact, as facts I find that GM offers retiree benefits to salaried retirees who started work before 1993 under two plans: the GM Salaried Health Care Program, which I'll refer to as the "Health Care Program", which includes medical, prescription drug, dental and vision care; and the GM Life and Disability Benefits Program, which I'll call the "Life Insurance Program", which provides life insurance benefits. as the "Welfare Plans". The inference is compelling, and I so find, that the benefits offered under the Welfare Plans are quite important to many retirees, particularly those who are still under sixtyI refer to the two programs together VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 five and who are ineligible for Medicare. The salaried retirees are separate and apart from hourly retirees whose interests have been represented by the UAW or other unions. At this point, they have no officially designated representative, though, from everything I've seen so far, the Retirees Association has been a forceful and effective advocate on their behalf. And to the extent any retirees might have unsecured claims, their interests in that regard would be well-protected by the official creditors' committee. Retirees are required to reenroll in these plans at the beginning of each calendar year, prior to which GM provides enrollment forms accompanied by an enrollment brochure explaining changes in benefits for the upcoming year. debtors assert that these brochures have contained an unequivocal statement of GM's right to amend, modify or terminate the plans. But that was not always so. The Retirees The Association asserts that, at least between 1974 and 1987, salaried retirees were performing under unilateral contracts that guaranteed lifetime benefits upon retirement without having also received statements reserving the right to amend or terminate. And the Retirees Association points to specific language in benefit handbooks that it asserts could reasonably be interpreted as a promise to provide such benefits. these matters were a subject of litigation, extensive litigation, going all the way up to an en banc decision of the However, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Sixth Circuit Court of Appeals, which I'll describe more fully in my conclusions of law. GM effected changes in its retiree Welfare Plans from time to time. Prior to these Chapter 11 cases, three changes On July were made that are at least arguably significant. 2008, effective January 1, 2009, GM eliminated medical, dental, vision and extended care coverage for salaried retirees, their surviving spouses and their dependents age sixty-five or older. In September 2008, GM changed the plans to comply with a cap on salaried retiree health care; it was approved by the GM board of directors in 2007. And in February of this year, GM accelerated a planned reduction in salaried retiree life insurance, which had previously been announced in 2006 and was going to be effective in 2017, in respect to whose details are not material here, effective May 1, 2009. All but the third change, the one announced in February and effective May 1, were communicated to salaried retirees more than six months prior to the filing date, a time which is arguably significant to parties' rights. GM has not proposed any further changes in either of the plans, at least insofar as it would implement them. And under the proposed sale agreement, assuming, of course, that it is approved, and without prejudging that issue in any way, the purchaser knew GM will assume responsibility for them going forward but as modified prepetition in the manner I just VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 103 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 described to provide them in lesser amounts. Turning now to my conclusions of law and bases for the exercise of my discretion, as usual I start with the words of the statute. Section 1114 of the Code provides, in relevant part, in its subsection (d), "The Court, upon motion by any party-in-interest, and after notice and a hearing, shall order the appointment of a committee of retired employees if the debtor seeks to modify or not pay the retiree benefits or if the Court otherwise determines that it is appropriate to serve as the authorized representative, under this section, of those persons receiving any retiree benefits not covered by a collective bargaining agreement. shall appoint any such committee." Thus, under the statute, the Court must order the appointment of the committee if the debtor seeks to modify or not pay the retiree benefits. Alternatively, it may order the The United States Trustee appointment if the Court otherwise determines that it's appropriate to serve as a bargaining representative for retirees not covered by a collective bargaining agreement. The Retirees Association contends that Section 1114 of the Code applies to what the debtors did prepetition and would do post-petition here and that I thus should appoint a retirees' committee under each of the two separate regimes under which a retirees' committee should be appointed. I disagree with the Retirees Association with respect to the VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 104 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 first, and for the most part with respect to the second, although I think I should reserve room to have the ability going forward to make a discretionary limited appointment if circumstances not present now but in the future later warrant. Turning to the matter of mandatory appointment, the backdrop as to the mandatory appointment issue is the fact that, as discussed in my findings of fact above, at some point in time GM started to tell its employees, who were of course its prospective retirees, that their welfare plans could be amended, modified or terminated. GM and the creditors' committee contend that Section 1114 doesn't apply when a debtor simply exercises the rights to modify or terminate that it has outside of bankruptcy. But the Retirees Association, in contrast, contends that 1114 applies to any modification or termination of retiree rights under a welfare plan, whether such termination or modification is authorized under nonbankruptcy law or not. And thus, in substance, it argues that Section 1114 improves upon non-bankruptcy law rights. Though Sections 1114(d), (e) and (l) are, in my view, ambiguous, and the cases are somewhat split in this area, I must agree with GM and the creditors' committee. The Retirees Association says at page 9 of its motion that, quote, "A few courts have held, on a divided issue of law where other courts disagree, that this Section 1114 does not protect in bankruptcy benefits the Debtor retained the unfettered right to amend VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 105 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 outside of bankruptcy", quote. But I can't regard that as a fully accurate description of the state of the law, especially in this circuit and district. the opposite. The Retirees Association cites the Second Circuit's decision in LTV Steel Company v. United Mine Workers, In re Chateaugay Corporation, 945 F.2d 1205 (2nd Cir. 1991), as being one of the cases that holds against the retirement committee on this issue. And, of course, Chateaugay does. Chateaugay says, In fact, I think it's exactly in fact, "The Bankruptcy Protection Act", which was the statute by which 1114's predecessor came into being, and from which 1114 evolved, "requires that during reorganization the parties continue to provide benefits according to the plan in effect at the time of the declaration of bankruptcy. The Bankruptcy 945 Protection Act does not alter the terms of that plan." F.2d at 1209. in that case. And that's exactly why Judge Restani dissented But while acknowledging Chateaugay, the Retirees Association doesn't give enough recognition, in my view, to the fact that Chateaugay is a controlling decision of the Second Circuit, binding on me and the other judges in this circuit. Likewise, the Retirees Association cites decisions of a former visiting judge who sat in this district, and a district who affirmed him, in the case of Ames Department Stores, insufficient attention to the fact that those decisions were, VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 106 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with respect, strikingly lacking in consideration of the applicable case law. They can only be read as having been roundly criticized by this circuit in a subsequent decision in Ames (see 76 F.3d 66 at page 71), though not on direct appeal, and while the thoughts were expressed in dictum. The district court decision, which is available electronically but isn't published, expressed its conclusions in what some might say was an ipse dixit fashion, without parsing the words of the statute or relying upon any case law, which at that point in time included about nine cases, as observed by Judge Lifland in Ionosphere Clubs, 134 B.R. 515 at page 517 (1991). Unfortunately, the decision of the bankruptcy court was equally thin. In that later Ames decision, the circuit held, "We think that there's a substantial room for disagreement with the categorical holding in the district court's orders that the debtor was required to follow the requirements of Section 1114;" reading from page 71, 76 F.3d at 71. And while the circuit in that Ames decision merely held that it couldn't be said that the argument for the debtor's interpretation was frivolous, that being an appeal of a sanctions determination or a denial of fees for pursuing a frivolous argument, and while the circuit expressly stated that it wasn't examining the, quote, "present status of the pertinent law", quote, id at 71, it was hardly an endorsement of the lower court's views. In VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 107 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 fact, the circuit made a point to cite Chateaugay and Doskocil, Federated Department Stores, New Value, and Collier as examples of authorities that had gone the other way. And it went on to observe that Collier -- Collier on Bankruptcy, of course -provides that Section 1114 does not, however, protect retiree benefits beyond the contractual obligations of the debtor. And the circuit observed, with respect to the bankruptcy court and district court Ames decisions upon which the Retirees Association relies, not one of the foregoing authorities was discussed or even mentioned by either the bankruptcy court or the district court. More importantly, neither court cited any interpretative authority that conflicted with that above cited. Now, make no mistake, I don't read that decision as having ruled in favor of the principle for which the debtors and the creditors' committee argue here. In fact, it expressly But stated that it was not then ruling on the existing law. what I think it very effectively does, if not conclusively so, is say that I shouldn't be relying on those lower court Ames decisions. But perhaps most importantly, in its briefing on this motion the Retirees Association failed even to mention Judge Drain's decision in March of this year in Delphi, 2009 WL 637315 (Bankr. S.D.N.Y. Mar. 10, 2009), until the Retirees Association filed its reply. And even then the Retirees VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Association failed sufficiently, in my view, in that reply to acknowledge all of the things Judge Drain said and to discuss his substantive analysis before the retirees' committee properly commented on the relatively limited relief that Judge Drain had ultimately granted in Delphi. Of course, the Retirees Association made up for that in oral argument, but I think Judge Drain's decision in Delphi is of great importance. I've previously noted many times in writing my view as to the importance of consistency in the decisions in the bankruptcy court in this district and that I follow the decisions of the other bankruptcy judges in this district, in the absence of clear error. But when we're talking about the Delphi decision, I think that's feigned praise since, in my view, Judge Drain's analysis was plainly correct and, by far, the most comprehensive and well-reasoned of any of the decisions in the 1114 area. I note, by the way, that when I talk of Judge Drain's decision, although I'm principally speaking of his decision of March 10, there was a supplemental argument on or about March 11, as evidenced in a separate transcript to which I'll be referring in a moment or two, and that getting one's arms around Judge Drain's Delphi rulings is best achieved by consideration of both of the two decisions. Judge Drain also dealt with the argument that I also heard here, that Chateaugay was overruled by statute by the VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 109 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 inclusion of new Section 1114(l) in BAPCPA. disagreed, and so do I. Judge Drain As Judge Drain observed, Section 1114(l), however, does not specifically deal with the issue of plans modifiable as of right and could conceivably apply to pre-bankruptcy breaches by debtors in financial distress of vested rights. More importantly, even if it does apply to modifiable plans, I do not view Section 1114(l), which applies to a specific type of prepetition action, as overruling Doskocil and the line of cases that follow it which apply to post-petition actions. Nor does there appear to me to be any legislative history or other policy statements accompanying the 2005 amendment that would clearly set forth Congress's intention generally in Section 1114(l) to override, beyond its specific terms, the fundamental principle that bankruptcy does not give new rights to individual parties-in-interest or to cut back on the tenet set forth by the Supreme Court in Butner. Now, I have not discussed the underlying principles as thoroughly as Judge Drain did there. In this oral dictated But decision, I don't know if that's necessary or appropriate. I've carefully read Judge Drain's analysis and I concur in it in full, even putting aside the deference in respect to which I give the decisions of my colleague judges. And since Chateaugay and Delphi are in alignment, I'm ruling in accordance with each of them that Section 1114 doesn't apply to VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 110 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 employee benefit plans that are terminable or amendable unilaterally by the plan sponsor. Putting it another way, Section 1114 does not trump any agreement between a company and its employee that gives the company the right to amend or terminate a welfare plan. Thus, in terms of arguably persuasive authority, we're left only with the decision in Farmland Dairies. If one were to look solely at the words of the statute, which, as I've noted, is ambiguous, the Farmland Dairies view is not necessarily an unreasonable one. But Farmland can't be reasonable with the weight of authority in this area, only part of which I've noted above, and Farmland Dairies is inconsistent with the law in this circuit and district. Of course, when I speak of the weight of the authority I'm not counting noses; I'm looking at it qualitatively and at what level it was decided. That consideration is particularly relevant to And, as I've noted, I regard Delphi as Chateaugay and Delphi. by far the most thoughtful and comprehensive decision in this area. So for any retirees as to whom the debtor reserved the right to modify before they retired, they don't have rights under 1114. So then we get to Sprague. GM and the creditors' committee each cite the Sixth Circuit's en banc decision in Sprague v. General Motors Corp., 133 F.3d 388 (6th Cir. 1998), as having ruled that the health care programs explicitly permit VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 111 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 GM to unilaterally amend or terminate benefits under those programs. Sprague does hold that, although the Retirees Association is correct in noting that Sprague was a split decision and that it also isn't binding on me. And I agree with the Retirees Association, and perhaps the debtors agree with it as well -- I don't think they addressed it one way or the other -- that, on a question of federal law, Second Circuit law, and not Sixth Circuit law, controls in any area where the law of the two circuits is inconsistent. But Judge Drain ruled, and I concur, that, and I'm quoting Judge Drain, "I continue to believe that the Sixth Circuit Sprague decision is one in which the Sixth Circuit at length determined en banc that there was no ambiguity in respect of GM's reservation of rights to modify at will its welfare plans, and that, were I to conclude otherwise, I would not be doing so by applying a different standard than that which is applied in the Second Circuit under Bouboulis v. Transport Workers Union of America, 442 F.3d 55 (2nd Cir. 2006), namely, that the plan documents contained, quote, 'specific written language that is reasonably susceptible to interpretation as a promise to vest benefits', end quote." I'm quoting from the transcript of the Delphi hearing of March 11, 2009, which probably should be read as a supplemental and second Delphi decision. See also the comments Judge Drain made in the course of argument at page 11. VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 112 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212-267-6868 And I recognize that sometimes judges say things in oral argument that they don't mean or that they're throwing up just to be devil's advocates, but from the context I believe that Judge Drain meant it here. If you read the opinions, they They're basically really are applying the same standard. saying there was nothing ambiguous. Now, when I use the words above, quote, "specific written language that is reasonably susceptible to interpretation as a promise", quote, those words being the words that Judge Drain used, they in turn were a quotation from Bouboulis, 442 F.3d at page 61. And the Bouboulis words, in turn, were a quotation from the Second Circuit's decision in Devlin v. Blue Cross and Blue Shield, 274 F.3d at 84. So when I rely on Judge Drain's analysis in this area and I concur with it, it's very clear to me that he gave careful consideration to both Bouboulis and Devlin and made a knowing and accurate determination that there was no material difference between Second Circuit law and Sixth Circuit law in this regard. Thus, at the risk of a slight repetition, stating a similar thing a different way, I find insufficient basis to conclude that the standard that the Sixth Circuit applied in Sprague would be materially different than the standard that the Second Circuit would apply. Now, is the Sprague conclusion debatable under those VERITEXT REPORTING COMPANY 516-608-2400 113 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 standards? I think it plainly is. And if I were writing on a clean slate, I think I might well have agreed with the Boyce Martin dissent. But as to the issues upon which GM relies upon it, Sprague was an eight-to-five decision as to the early retirees, and a ten-to-three decision as to the general retirees. And the general retirees' analysis is the one that's more closely on point here. A ten-to-three split isn't close, but once more I'd agree that this isn't a counting game. Rather, I look at it qualitatively and see things as Judge Drain commented on in argument. Judge Drain observed, "You may agree with Judge Martin, and maybe if one were writing on a clean slate one might agree with Judge Martin, but the Sixth Circuit ruled, and I find it very hard for me, when there's no difference in the standard, to say oh, the Sixth Circuit was wrong;" reading from the March 11 transcript at page 11. Where the circuit court, with ten judges no less, having ruled as it did with respect to general retirees, addressing the same issues we have here, I think that as a matter of stare decisis I should respect its ruling and follow it. Folks, as is implied by what I just said, I note that I'm doing so as a matter of stare decisis. I am not so ruling on the applicability of res judicata one way or the other, and I'm not relying on the doctrine of res judicata. I have some VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 114 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reservations as to whether res judicata applies is not very similar to those Judge Drain had. that issue. But I don't need to reach In my view, Sprague and Delphi are so dramatically on point that they counsel the result I reach here on traditional bases of stare decisis. in law school as the "blue Buick". So now we get to the application of Section 1114(d). Turning first to its mandatory portion, GM hasn't moved for permission to change any retiree welfare plan benefits, which is hardly surprising in light of its position that it doesn't need court approval to do so and the case law that I described above, and I'm going to follow that it has the right to unilaterally amend or terminate such benefits. As at least the We have what we refer to first portion of 1114 doesn't apply at all, if not the entirety of 1114(d), or 1114 at all for that matter, there's no occasion to apply the mandatory portion of Section 1114. So I'm going to deny appointment insofar as it's premised on the contention that appointment is mandatory. Turning now to discretionary appointment, though appointment of a retiree committee isn't mandatory, I need also to consider discretionary appointment. As I noted, Section 1114(d) provides that the Court shall order the appointment of a committee of retired employees if the Court otherwise determines that it is appropriate. One can make an argument that if 1114 doesn't apply at all, there's no occasion to apply VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 115 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the provision in 1114 providing discretionary authority either. But I think the better view might be consistent with what Judge Drain concluded in Delphi: that bankruptcy judges should have the discretion to appoint a retirees' committee, especially if its budget can be kept under control, in any instances where it would really accomplish something. I don't reach that issue today because I here do not consider the appointment of a committee now to be necessary or appropriate for retirees for whom GM has the right to amend or terminate benefits, for, while I well understand the importance of these kinds of benefits to any retiree, believe me I do, I can't change retirees' non-bankruptcy rights. And there is no need to form a committee to argue or negotiate with respect to entitlements under Section 1114(l) as that can be done by the Retirees Association as an ad hoc committee with rights under Section 1109. See In re Anchor Glass Container Corp., 342 B.R. 878 at page 882, Middle District of Florida 2005 decision by Judge Alex Paskay. As Judge Paskay noted in that case, "Unlike Section 1114(e), which contemplates motions brought by, and the debtor negotiating with, an authorized representative, Section 1114(l), similar to Section 1114(d), depends upon a motion brought by a party-in-interest. Section 1114(l) does not require, nor does it contemplate, the appointment of a committee." VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 116 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I also made a similar point when I considered the application of the Ad Hoc Committee of Family and Dissident Bondholders a couple of days ago. In most, if not all, cases under the Code, an ad hoc committee can be heard perfectly satisfactorily under 1109 without being designated as a formal official committee. Similarly, I share concerns articulated by the creditors' committee as to unnecessary costs in this case. And I also agree with another creditors' committee point, which, in my view, is quite significant. Even assuming that New GM were to be making further modifications in the future, assuming, of course, that I approve the 363 sale, all salaried retiree benefits would be entirely New GM's responsibilities. Thus, any modifications to such benefits would have to be negotiated with New GM and/or the U.S. Treasury. As Judge Gonzalez noted in Chrysler, "A retiree committee should be appointed only if it's necessary to negotiate with the debtors, not with a purchaser of the debtors' assets." See the transcript of Judge Gonzalez's May 14 hearing in Chrysler at page 35. With all of that said, I can't rule out the possibility that appointing a retirees' committee might be desirable and thus appropriate to facilitate some kind of negotiations in the future or any kind of a settlement, including with respect to any appeal of the determination I'm VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 117 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 making today, or in connection with some other matters where it would bring something to the table beyond appearing and being heard in a fashion for which it could already do that under 1109. That might be helpful, by way of example, to bind absent parties or dissenters. That appears to be the rationale upon which Judge Drain allowed the formation of a committee, or one of them -the other isn't applicable here -- though with a limited 200,000 dollar budget. And if it turned out to be necessary or desirable to do that here, I might be of a mind to do the same thing if asked. be. But that isn't now necessary, if it ever will For instance, I don't need a supplemental report of the type that Judge Drain did, and which was an element of the limited appointment authority that he granted. I'll simply note now that this ruling is without prejudice to any such eventuality. Accordingly, the motion is denied without prejudice to reconsideration in the event of an eventuality of the type I just described. Mr. Miller, you or your folks are to settle an order in accordance with this ruling at your earliest reasonable convenience. MR. MILLER: THE COURT: business for today? Yes, sir. All right, folks. Do we have any further VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 MR. MILLER: THE COURT: No, Your Honor. All right, I want to thank you for waiting as long as you did on the matter that I had taken under advisement. We're adjourned for the day. Thank you, Your Honor. Have a good day. ALL: (Whereupon these proceedings were concluded at 2:25 p.m.) 119 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 DESCRIPTION Debtors' motion for final order authorizing debtors to pay pre-petition obligations to foreign creditors and authorizing and directing financial institutions to honor and process related checks and transfers granted Debtors' motion for final orders establishing notification procedures regarding restrictions on certain transfers of interest in the debtor granted Debtors' motion for final order on cash management granted Debtors' motion for authority to exercise a put Debtors' motion to grant additional time to file reports of financial information or to seek modification of reporting requirements granted Debtors' application to retain Weil Gotshal & Manges as attorneys nunc pro tunc to commencement date granted 32 5 31 31 17 23 31 9 31 4 R U L I N G S PAGE 30 LINE 20 I N D E X 120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 DESCRIPTION Debtors' application to retain Jenner & Block LLP pursuant to Section 327(e) as conflicts counsel and special corporate counsel granted Debtors' application to retain under Section 327(e) Honigman, Miller, Schwartz & Cohn, LLP as special counsel granted Debtors' application authorizing retention and employment of The Garden City Group, Inc. as notice and claims agent nunc pro tunc to commencement date granted Debtors' motion seeking entry of final order with respect to the debtors' essential supplier programs granted Motion of ad hoc committee of asbestos personal injury claimants for order appointing a future asbestos personal injury claimant denied without prejudice 52 12 35 21 33 2 32 21 R U L I N G S PAGE 32 LINE 14 I N D E X, cont'd 121 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 DESCRIPTION Debtors' motion to retain AP Services LLC as crisis managers and to designate Albert A. Koch as chief restructuring officer nunc pro tunc to commencement date Application of the General Motors Retirees Association for order to appoint retiree committee pursuant to 11 U.S.C. Section 1114(d) denied without prejudice to reconsideration 117 17 R U L I N G S PAGE 55 LINE 17 I N D E X, cont'd 122 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY 212-267-6868 516-608-2400 Date: June 26, 2009 Veritext LLC 200 Old Country Road Suite 580 Mineola, NY 11501 Also transcribed by: Tzippy Geralnik Pnina Eilberg Penina Wolicki Dena Page Ellen Kolman Clara Rubin I, Lisa Bar-Leib, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N Lisa Bar-Leib LISA BAR-LEIB ___________________________________ Digitally signed by Lisa Bar-Leib DN: cn=Lisa Bar-Leib, c=US Reason: I am the author of this document Date: 2009.06.26 11:13:03 -04'00' AAERT Certified Electronic Transcriber (CET**D-486)