case 13-42959 doc 558 filed 02/25/15 entered...
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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS
2 SHERMAN DIVISION
3
4 IN RE: ) BK. NO: 13-42959-BTR
5 )
6 COLOR STAR GROWERS OF )
7 COLORADO, INC. )
8 D E B T O R. )
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10
11 * * * * * * * * * *
12 TRANSCRIPT OF PROCEEDINGS
13 * * * * * * * * * *
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18
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20 BE IT REMEMBERED, that on the 22nd day of September,
21 2014, before the HONORABLE BRENDA T. RHOADES, United States
22 Bankruptcy Judge at Plano, Texas, the above styled and
23 numbered cause came on for hearing, and the following
24 constitutes the transcript of such proceedings as hereinafter
25 set forth:
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1 P R O C E E D I N G S
2 COURTROOM DEPUTY: Color Star Growers of
3 Colorado and Vast, Inc. Case 13-42959. Hearing to consider
4 final approval of debtors' disclosure statement and
5 confirmation of the debtors' proposed Chapter 11 plan; final
6 application for compensation filed by Gavin Solmonese, LLC;
7 final application for compensation and reimbursement of
8 expenses filed by Ray Urbanik; a final application for
9 compensation and reimbursement of expenses filed by Gardere,
10 Wynne, Sewell, LLP; application for compensation and
11 reimbursement of expenses for Simon, Ray, Winnikka, LLP,
12 special counsel.
13 THE COURT: Okay. Appearances.
14 MR. HELT: Good afternoon, Your Honor. Marcus
15 Helt on behalf of the debtors.
16 THE COURT: Okay.
17 MR. URBANIK: Good afternoon, Your Honor. Ray
18 Urbanik and Jay Ung for the Official Committee of Unsecured
19 Creditors.
20 THE COURT: Okay.
21 MR. KANE: Your Honor, John Kane and George
22 Barber on behalf of Regions Bank.
23 THE COURT: All right. Do we have some
24 telephonic appearances?
25 MR. DIEHL: Yes, Your Honor. Robert Diehl
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1 from Bodman on behalf of Comerica Bank.
2 THE COURT: Okay.
3 MR. FRIEDMAN: Good afternoon, Your Honor.
4 Daniel Friedman on behalf of MCG Capital Corporation.
5 THE COURT: Okay.
6 MR. WEITZ: Good afternoon, Your Honor. Wayne
7 Weitz with Gavin Solmonese.
8 THE COURT: Okay.
9 MR. SKILLMAN: Good afternoon, Your Honor.
10 Tim Skillman also with Gavin Solmonese.
11 MS. ARDEMAGNI: Good afternoon, Your Honor.
12 Leslie Ardemagni also with Comerica Bank.
13 THE COURT: Okay. Any other telephone
14 appearance?
15 All right. Let's take the rest of the appearances in
16 the courtroom.
17 MR. SIMON: Thank you, Your Honor. Craig
18 Simon on behalf of Simon, Ray & Winnikka.
19 THE COURT: Okay.
20 MS. ALEXANDER: Sherry Alexander with
21 Polsinelli on behalf of Bell, Nunnally, Martin & Gibson.
22 THE COURT: Okay. All right. Mr. Helt.
23 MR. HELT: Thank you, Your Honor. Today we're
24 here to approve four fee applications and the Chapter 11 plan
25 proposed by the debtors. The fee applications were filed by
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1 the Committee's professionals and the debtors' legal counsel.
2 One of the debtors' financial advisors, Schuler & Company,
3 had to pull its fee application and refile it for an October
4 14th hearing, because its fee application was not served on
5 creditors. The other financial advisor, Brad Walker, LLC,
6 will file its fee application tonight and also set it for a
7 hearing on October 14th. We've used both Schuler's final
8 numbers and Brad's final numbers for our presentation here
9 today. They're just not set for hearing.
10 THE COURT: Okay.
11 MR. HELT: There were no objections filed to
12 the fee applications. And there were two reservations of
13 rights filed in the plan. As I will explain later, one was
14 withdrawn. And the other, I believe, will be resolved or
15 mooted by what I think is pretty straightforward language in
16 the confirmation order.
17 As an intro for the Court. In the last nine months
18 this Court has seen and experienced a lot of how the sausage
19 was made in this case. And for that, many times I've
20 apologized to the Court. My goal always was to keep the case
21 clean for Your Honor, so you would not see the bickering and
22 the fighting between and among the five or six parties. But
23 you did. However, for today's hearings, I guess it may have
24 been a blessing in disguise. Because you've seen that,
25 you've now become familiar with the various parties and their
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1 agendas.
2 The familiarity allowed this Court to see how difficult
3 and contentious the case was, for the most part, throughout
4 the whole case. And as the Court knows, there were five to
5 six primary players in this case. One, the debtors; two,
6 Regions Bank; three, Comerica; four, MCG; five, the
7 Committee; and six is sort of a catchall of -- primarily made
8 up of all other state court parties, which mostly consist of
9 prior professionals and officers with the debtors. As best I
10 can tell, those six constituents, or six groups of
11 constituents represent every major constituency in this case.
12 Five of those six approve the plan. And the sixth represents
13 non-creditors of the estate. So they never even had the
14 opportunity to vote.
15 Before we talk specifics about the confirmation, I
16 wanted to give the Court, or remind the Court just a general
17 summary of the case. As the Court knows, the debtor entered
18 bankruptcy with ten nurseries and farms, approximately 600
19 employees, and approximately $57 million in secured debt and
20 $5 million of trade debt. From there, we -- the way we look
21 at the case, we kind of divide the case into three phases.
22 Phase one was getting into bankruptcy and selling the
23 tangible real and tangible personalty, which really consists
24 of the heavy equipment used in the operations. Phase two was
25 the wind down of the estates and businesses, addressing
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1 post-sale issues and collecting accounts receivable, and
2 trying to liquidate property and casualty insurance claims.
3 And then phase three was the investigation of the lenders and
4 others, the negotiation and consummation of the 9019
5 settlement, and the negotiation, solicitation, and
6 confirmation of the plan. All three phases were complex.
7 All three phases were contentious. And all three phases were
8 time consuming and expensive. Fortunately, we were able to
9 work through those challenges and provide a solution to exit
10 bankruptcy that has been overwhelmingly approved by all
11 constituents.
12 Let's talk generally about the plan. As the Court
13 knows, the plan is step two of a two-step process to exit
14 bankruptcy. Step one was the 9019 settlement approved by the
15 Court in July, and step two is the plan. Step one provides
16 the funding necessary to confirm the plan and fund the two
17 trusts that will investigate and prosecute the estate's other
18 causes of action for the benefit of all creditors. Under the
19 plan, all administrative expenses are either paid in full, or
20 reserved for -- paid at confirmation in full, or reserved for
21 alternative treatment, namely, the Committee's legal
22 professionals. They've agreed to defer approximately
23 $386,000. In addition, all causes of action of the debtors
24 are transferred to either a liquidation trust, or a
25 litigation trust. And the Liquidation Trustee will be
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1 Mr. Corky Sherman. And the Litigation Trustee will be
2 Mr. Jeff Mims.
3 As I said earlier, there were no objections filed to
4 the plan. There were two reservations of rights. One
5 reservation was filed by Barrier. And that reservation was
6 mooted by this Court's entry at docket number 499. And,
7 therefore, Barrier withdrew it with docket number 500. The
8 second reservation of rights was filed by Bell Nunnally to
9 address its concerns with the Litigation Trustee's counsel,
10 or proposed counsel, Lynn Tillotson. Litigation Trustee, as
11 the Court will know, will hold significant and potentially
12 valuable causes of action. And Lynn Tillotson doesn't want
13 to, or wants to preserve its rights to object to Lynn
14 Tillotson's investigation and/or prosecution of any causes of
15 action against Bell Nunnally.
16 So my proposed fix, Your Honor, is to put simple
17 language into a confirmation order that says, As counsel for
18 the Litigation Trustee, Lynn Tillotson will not investigate
19 or prosecute any cause of action of the Litigation Trust
20 against Bell Nunnally. I was shown other language, as I
21 stepped to the podium, that's similar in concept. And as I
22 read it, I didn't have a problem with it. The concept was
23 that Bell Nunnally wanted to preserve all of its rights to
24 object to seek disqualification of any counsel hired by the
25 Litigation Trustee to pursue causes of action against Bell
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1 Nunnally. So I think it makes sense to have Ms. Alexander
2 come up to the podium and read the language that she wants
3 and then we'll incorporate that into the confirmation order.
4 The purpose, Your Honor, is to make sure everybody in
5 the courtroom is okay with the language.
6 MS. ALEXANDER: Your Honor, just so you're
7 aware, Lynn Tillotson has specifically agreed, because of its
8 prior representation of Bell Nunnally, that it would not
9 evaluate, investigate, or pursue, or compromise claims
10 against Bell Nunnally, which would include its lawyers, and
11 specifically Nicki Gibson. So the language that we had
12 suggested, we provided two different versions. But one of
13 them is, Bell, Nunnally & Martin, LLP and Nicki Gibson,
14 collectively Bell, Nunnally & Martin, reserve the right --
15 reserve their rights as set out in Bell Nunnally & Martin,
16 LLP and Nicki Gibson's reservation of rights concerning first
17 amended joint Chapter 11 plan of liquidation and litigation
18 trust agreement, docket number 495.
19 And that's what we had proposed.
20 My understanding is Regions' counsel just wants to add
21 after, reserve their rights, and then add, if any. But there
22 doesn't seem to be any dispute. Because Lynn Tillotson has
23 already agreed they will not evaluate, or investigate, or
24 pursue, or compromise any claims against Bell Nunnally.
25 THE COURT: Okay. So we're clear, the -- to
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1 the extent any claims exist against Bell Nunnally, those
2 claims are going into the Litigation Trust. The Litigation
3 Trust can hire anybody other than Lynn Tillotson. And if
4 they hired somebody that you have an objection to and you
5 have a right to object, you can object wherever that
6 litigation happens to be pending. Correct?
7 MS. ALEXANDER: That's correct. And it
8 wouldn't be just Bell Nunnally. It's Nicki Gibson, as well.
9 But she's just one of the lawyers for Bell Nunnally.
10 THE COURT: Okay. All right.
11 MR. BARBER: Your Honor, if I may, it's George
12 Barber on behalf of Regions Bank.
13 We did not specifically agree to what Mr. Helt just
14 annunciated in the court, kind of wrapped into the Court's
15 understanding. We just simply agree to the reservation of
16 rights. If this issue ever becomes an issue to Bell Nunnally
17 or Ms. Gibson, they reserve the right to -- any rights they
18 have to challenge whatever counsel has employed, whether it's
19 Lynn Tillotson or anybody else. So we've not agreed we are
20 or are not going to hire whoever -- I say, we, the Litigation
21 Trust. So I would just ask that the Court permit the parties
22 to insert the language into the confirmation order that just
23 simply preserves their rights to later raise an issue, if it
24 becomes an issue.
25 THE COURT: Okay.
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1 MR. HELT: Your Honor, I thought that's what
2 we were agreeing to. That's why we read it into the record.
3 THE COURT: Thank you.
4 MR. HELT: All right. With that add, Your
5 Honor, I don't believe there are any remaining objections to
6 the plan.
7 Let's talk about the service of the plan. In an
8 attempt to expedite confirmation, this Court conditionally
9 approved the disclosure statement filed by the debtors and
10 the solicitation order. That order is on docket 434. In
11 that same order, the Court also approved what we call a
12 solicitation package, which contained the disclosure
13 statement with exhibits, including the plan, the
14 solicitations order, an approved ballot, a confirmation
15 hearing notice, and a pre-address return envelop for use in
16 completing the ballots.
17 The disclosure statement and plan were served on the
18 creditors on August 6th, 2014. And the solicitation package
19 was also served on the creditors on August 9th, 2014. That
20 services is represented by certificates of service 434 and
21 436. A solicitation letter with a ballot and certain plan
22 excerpts from the Committee was also served on creditors on
23 August 19th and 20th, 2014. And that service is represented
24 by certificates of service 446 and 457. That letter was
25 approved by this Court in docket number 505. The
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1 solicitation package, the Committee letter, and notice of the
2 confirmation hearing was served as requested on other
3 creditors who wanted more service. And that was done, you
4 can see that on certificates of service 458, 465, 468, and
5 484.
6 The debtors' first plan supplement was served on
7 September 8th. And that's certificate of service 487. And
8 the second plan supplement was served on September 19th,
9 which was Friday. The second plan supplement identified the
10 identity of the Litigation Trustee and the final Litigation
11 Trust agreement and the final Liquidation Trust agreement.
12 Let's talk about votes for the plan. The votes cast on
13 the plan were sent to Upshot, as approved by this Court.
14 Upshot tabulated the votes and filed a certificate of
15 tabulation with this Court. That's docket number 506.
16 Your Honor, would it be helpful if I told you the
17 exhibits in the binders, if you want to follow?
18 THE COURT: You may.
19 MR. HELT: That's Debtors' Exhibit 4.
20 THE COURT: Okay.
21 MR. HELT: And as a summary, there were eight
22 voting classes, eight potential --
23 THE COURT: Hold on. Debtors' Exhibit 4?
24 MR. HELT: COrrect, Your Honor.
25 THE COURT: Okay. Hold on. Exhibit 4 has a
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1 fee application cover sheet.
2 MR. HELT: Maybe that's the hearing binder.
3 I'm talking about the exhibit binder.
4 May I approach, Your Honor?
5 THE COURT: Sure. There's a hearing binder
6 and there's an exhibit binder?
7 Okay. This looks like the hearing binder.
8 MR. HELT: Yeah. That's probably the exhibit
9 binder right here.
10 THE COURT: Yeah. It's this one right here,
11 right?
12 MR. HELT: No, probably this one.
13 THE COURT: Well, that one starts with 13.
14 This one is 1 through 4.
15 Thank you. Okay. All right.
16 MR. HELT: Okay. As shown from the plan and
17 the tabulation summary, there were eight classes that can
18 vote. Six classes voted. Two classes did not. And that's
19 because we think -- we're not sure -- we didn't think there
20 were any creditors in those two classes. All six voting
21 classes voted to accept the plan. There were 111 votes cast
22 on the plan. Of those 111 votes, 106 were cast to accept the
23 plan, representing $104,332,439.06 in alleged voting claims.
24 There were five votes to reject the plan, representing
25 $89,131.89 of alleged voting claims. The voting results can
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1 be seen on the Court's docket at number 506 in the Debtors'
2 Exhibit 4.
3 In addition, Your Honor, as further evidence to support
4 confirmation, we filed the declaration this morning of Brad
5 Walker. And if the Court needs a copy, I have one.
6 THE COURT: I think I can -- is it filed of
7 record, you say?
8 MR. HELT: Yes. I can hand you one, Your
9 Honor.
10 THE COURT: That's okay. I have it here.
11 Hold on.
12 Affidavit filed by Color Star, document 414 -- 514 on
13 the docket?
14 MR. HELT: Yes, Your Honor, 514.
15 THE COURT: Okay. Is that one of your
16 exhibits here?
17 MR. HELT: It is not an exhibit. Mr. Walker
18 is in the courtroom and we brought ten copies.
19 THE COURT: Okay. Are you offering the
20 declaration?
21 MR. HELT: Yes, we will offer the declaration.
22 THE COURT: Okay. Any objection?
23 The declaration of Mr. Bradford C. Walker, which is
24 docket number 514 on the Court's docket, is admitted.
25 Okay.
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1 MR. HELT: As additional evidence to support
2 confirmation, I ask the Court to take judicial notice of the
3 case relying on her experience of how the sausage was made
4 and all other challenges --
5 THE COURT: You want me to take judicial
6 notice of how the sausage was made, or do you want me to take
7 as evidence all the other hearings --
8 MR. HELT: Maybe take as evidence all of the
9 other hearings, Your Honor.
10 THE COURT: Any objection?
11 So ordered.
12 MR. HELT: I would also order the Debtors'
13 Exhibits 1 through 23.
14 THE COURT: Okay. Any objections?
15 Okay. Exhibits 1 through 23, then, are admitted.
16 MR. HELT: So now let's talk about fee
17 applications set today. There were four applications; two
18 filed by the debtors' legal professionals and two filed by
19 the Committee professionals. Schuler and Brad Walker did not
20 file their applications in time to be set on today's docket.
21 They will have their hearings on October 14th. Debtors'
22 professionals who filed applications were the lawyers Gardere
23 Wynne and Simon, Ray & Winnikka as special counsel to the
24 debtor. Both of the Committee's professionals filed
25 applications. There were no objections filed to the fee
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1 applications. So for each fee application, I would suggest
2 that each professional present its application.
3 THE COURT: Okay.
4 MR. HELT: For the Gardere application, Your
5 Honor, I've prepared a chart of the fees and a proffer of my
6 testimony. I would propose to read my proffer and then
7 discuss the chart for Your Honor.
8 THE COURT: Okay. Where is the chart?
9 MR. HELT: May I approach?
10 THE COURT: You may.
11 Okay. This is just demonstrative; is that correct?
12 MR. HELT: Yes, Your Honor.
13 THE COURT: Okay. Let's mark this as Gardere
14 1, just so it's marked for identification.
15 Okay. You may proceed with your proffer.
16 MR. HELT: Thank you, Your Honor.
17 My name is Marcus Helt. I'm an attorney at the law
18 firm of Gardere, Wynne & Sewell. I am more than 21 years old
19 and have personal knowledge of the facts. I'm a partner at
20 Gardere, Wynne & Sewell. I joined Gardere, Wynne & Sewell in
21 2005. I've been a lawyer since 2000. I have experience in
22 bankruptcy cases of all shapes and sizes, as well as complex
23 litigation involving non-bankruptcy and bankruptcy issues.
24 As part of my bankruptcy practice, I have represented
25 Chapter 11 and Chapter 7 debtors, creditors, other parties in
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1 interest and Chapter 11 and Chapter 7 Trustees in all aspects
2 of their job. I'm generally familiar with the rates charged
3 by similarly experienced attorneys and law firms for
4 comparable cases and the tasks involved in the cases.
5 I've been involved in these cases since December 13.
6 And based on my involvement in the case, my personal
7 interaction with the Gardere lawyers, and my review of the
8 invoices, the Gardere invoices submitted with the attached
9 fee app, I'm aware of the things that have happened in these
10 cases and generally the time we've spent representing the
11 debtors in these cases, and who was spending the time.
12 Attached to the fee application is Exhibit A, copies of
13 the Gardere invoices. I've reviewed the invoices. They were
14 prepared under my supervision and control and reviewed by me
15 and other Gardere lawyers who were involved in these cases.
16 The invoices are accurate descriptions of the time Gardere
17 spent on these cases and the costs that Gardere, Wynne &
18 Sewell incurred. The invoices were prepared in the regular
19 course of business of Gardere by knowledgeable attorneys and
20 staff, as part of Gardere's regularly conducted business
21 activity. The invoices were prepared at or near the time of
22 the events or the conditions recorded. It's the regular
23 practice of Gardere to create to keep invoices like this
24 submitted as Exhibit A.
25 The fee application is a standard fee application. It
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1 contains a listing of every billing professional incurred
2 time on these cases during the application period. And in
3 connection with the fee application, I've considered the
4 factors set forth in the Johnson v. Georgia Highway Express.
5 Gardere spent 1,888 hours during the fee application period.
6 We incurred time after the fee application period to address
7 Barrier issues, discovery issues, and plan at confirmation
8 issues that came up. That time incurred after the
9 application period was about 98 hours, representing a total
10 of about $36,000. That $36,000 plus an additional $5,000
11 from pre-September time, represents $41,271 that will be a
12 voluntary reduction by Gardere from payment.
13 As I arrived at the courthouse today, Your Honor, I
14 understand that Mr. Urbanik wants to put on the record a
15 reservation of rights with respect to Gardere's receipt of
16 pre-bankruptcy transfers. And so I think, I guess in
17 conjunction with that, I want to put a reservation of rights
18 that I may come back later to seek allowance of the $41,000
19 as an offset.
20 Novelty and difficulty of issues. This case presented
21 some difficult issues in the light of these expedited sales
22 and the auction process at the beginning of the cases.
23 Negotiations of the forms of the bill of sale with three
24 purchasers; document preservation issues post-sale;
25 investigation of the debtors' pre-petition secured lenders of
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1 potential claims the estates may have; lengthy settlement
2 discussions that lasted over six weeks; state court
3 litigation related to these cases; confirmation of the plan;
4 and issues related to the debtors' former investment bankers.
5 The required skills of bankruptcy professionals -- but also
6 the case required the skills of bankruptcy professionals, but
7 also required financial and analytical skills beyond the
8 basic legal skills to resolve these issues and analyze a way
9 out of bankruptcy.
10 This employment did not preclude other employment, but
11 did require a significant amount of time. The fee charged
12 here was neither fixed nor contingent, other than the
13 contingency of allowance by the Court and the availability of
14 assets for payment. Gardere and the debtors had to move
15 quickly to secure the use of cash collateral for operations
16 and to sell the debtors' assets on an expedited basis.
17 Additionally, Gardere worked to to investigate claims
18 quickly, resolve those claims, and drive a global resolution
19 in these claims with our two-step process.
20 The exhibits attached to the application reflect the
21 services performed by Gardere's attorneys in connection with
22 all facets of the case. And the information contained in
23 these exhibits supports the reasonableness of the requested
24 fees in light of the results obtained?
25 Gardere's attorneys have regularly undertaken
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1 significant representations in all aspects of the bankruptcy
2 cases throughout the United States. These cases were not
3 undesirable, but they were difficult and had issues that
4 Gardere's attorneys are trained to address. Gardere's
5 relationship began in the middle of September, 2013. The
6 fees requested by Gardere are in line with fees awarded in
7 proceedings of similar scope for the services rendered.
8 In the aggregate, request for fees and expenses during
9 the application period can be seen on the chart that I
10 uploaded to -- that I handed to the Court. If Your Honor
11 wants to turn to the chart, we can kind of walk it through.
12 THE COURT: Okay.
13 MR. HELT: The 731,724 was the amount of fees
14 listed in the fee applications and then there was $10,000,
15 10,637.04 of expenses, for a total of 742,361.04. Of the
16 731, Your Honor, 10,000 was an estimate that we expected to
17 spend post-filing of the fee app. So we back that out to get
18 an actual fee number. That actual fee number was 721,724,
19 the expenses remained the same at 10,637.04 for a total of
20 732,361.04. We then added the fees that we've incurred since
21 filing the fee app. And those are 36,271. For a total fees
22 and expenses of 757,995 and expenses of 10,374. We deducted
23 out the payments that we've received pursuant ot the first
24 application, which were 271,542 for fees and 4,014.36 for
25 expenses, for a total received of 275,556.36. We then
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1 further reduced our voluntary reduction of 41,271 for a total
2 amount to be paid, upon approval from the Court, of 445,182
3 and expenses of 6,622.68, for a total of 451,804.68.
4 And as I said, as I came to the courtroom, I was told
5 that the Committee, or the Liquidating Trust wants to
6 preserve all rights to challenge Gardere's preference
7 exposure. As the Court may or may not eventually learn, we
8 don't think we have any preference exposure. But they want
9 to put a reservation of rights in there. We begrudgingly
10 said that they could. However, we wanted to reserve our
11 rights to seek further allowance of the $41,000 voluntary
12 reduction as a complete offset. And I understand from Mr.
13 Urbanik that that's fine.
14 MR. URBANIK: Your Honor, Mr. Helt stepped the
15 Court through kind of the situation here. The plan, as you
16 know, creates two trusts; the Liquidation Trust and the
17 Litigation Trust. The Liquidation Trust has a duty of claims
18 objections and avoidance actions. And both trusts have
19 boards of advisors. And the advisory boards are essentially
20 made up of the constituencies; Regions, Comerica, MCG, and
21 the Unsecured Creditors. But these parties having voting
22 power based on their pro rata share of the total claim pool,
23 which means that Regions and Comerica have essentially a
24 majority position on both boards.
25 About ten days ago, we were advised that Gardere may
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1 have received payments which could be subject to avoidance.
2 There was a concern that a final fee application could have a
3 preclusive effect of a possible -- you know, such claim in
4 the future. So about a week ago we began discussions with
5 Gardere about looking at payments pre-bankruptcy don't have
6 the review completed yet. And that's why we're here on this
7 reservation of rights. Nothing against Gardere. Fantastic
8 law firm. We've enjoyed working with Gardere very much in
9 the case. And Marcus and Evan have been a huge help in
10 driving a settlement. So we support the fee application. We
11 do request the reservation. And we're fine with letting them
12 use as a defense of any claim sort of a voluntary reduction
13 of fees. So I concur with what Mr. Helt is suggesting. And
14 that's a situation, Your Honor, regarding this matter.
15 It is sort of an awkward situation. We are not yet --
16 we don't have a plan confirmed yet. But our firm will be
17 counsel to the Liquidation Trust and the Trustee will be
18 Mr. Sherman. So we are making the statement today, sort of
19 during the interim period, I guess you would say, prior to
20 plan confirmation and the actual formation of the trusts.
21 If Mr. Barber wants to add anything, he can do so.
22 THE COURT: Does anyone else wish to be heard?
23 MR. BARBER: Your Honor, I would just say I
24 think that's a fine fix. I think there was just some
25 information that the parties needed to exchange so they could
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1 analyze things. And however it turns out, it turns out. But
2 I think this fix is a good idea.
3 THE COURT: Thank you.
4 Does anyone else wish to be heard with respect to the
5 fee application of Gardere?
6 All right. Let's move to the next one.
7 MR. HELT: Okay, Your Honor. Just for the
8 record, we -- the information that was requested was actually
9 contained in the statement of financial affairs that was
10 filed on January 28th. So I just wanted to throw that in.
11 We -- so in summary, Your Honor, it's my opinion that
12 Gardere's work related to the fees and expenses was
13 reasonable and necessary, under the circumstances. It's also
14 my opinion that Gardere's requested fees and expenses are
15 within the range of reasonableness for comparable attorneys
16 in comparable cases in the Eastern District of Texas and the
17 Northern District of Texas. It's also my opinion that the
18 services provided and the expenses incurred by Gardere's --
19 Gardere provided a direct, material, and tangible benefit to
20 the bankruptcy estates here.
21 So with that, that concludes my proffer.
22 THE COURT: Thank you. All right. Let's turn
23 to the next application.
24 MR. SIMON: Good afternoon, Your Honor. Craig
25 Simon with the law firm of Simon, Ray & Winnikka, special
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1 conflicts counsel for the debtors.
2 With the Court's permission, rather than going through
3 a lengthy proffer, I would ask the Court to accept the
4 statements made in our fee application as a proffer.
5 Is that acceptable to the Court?
6 THE COURT: Does anyone object to that?
7 All right. The Court will accept your -- the
8 statements in your application as your proffer.
9 MR. SIMON: Thank you, Your Honor. And I
10 would also note that our invoices in the case are attached as
11 an exhibit to our fee application. I would ask that the
12 Court accept those as evidence in connection with our fee
13 applications. They're Exhibit A to our final fee
14 application.
15 THE COURT: Okay.
16 MR. SIMON: Your Honor, I'll be very brief.
17 Our firm played a very small, but I think an important role
18 in this case. We were conflicts counsel for the debtor
19 engaged to represent the debtors in connection with
20 negotiating recoveries on their insurance policies with
21 Lexington Insurance Company. Through our efforts, we were
22 able to assist the debtors in achieving about a little over
23 $2 million in recoveries on their insurance policies. The
24 Court has approved two stipulations in connection with those
25 recoveries. One that was approved in April, on April 16th
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1 and the second on July 22nd. Each one was approximately $1.1
2 million of recoveries.
3 Our firm spent, in total, 56.35 hours and our fees and
4 expenses, we had $69 in expenses. Our fees and expenses
5 total $21,011.50. And we would respectfully ask for the
6 Court's approval. And I'd be happy to answer any questions
7 the Court might have.
8 THE COURT: I guess from a success perspective
9 or a results perspective, you've got the best percentage
10 going, right?
11 MR. SIMON: We like to think so, Your Honor.
12 THE COURT: Okay. Anyone else wish to be
13 heard with respect to the fee application of the Simon firm?
14 All right. I'm just going to approve that right now.
15 MR. SIMON: Thank you, Your Honor.
16 THE COURT: And if you want to be excused,
17 you're welcome to be excused.
18 MR. SIMON: Thanks very much.
19 THE COURT: Thank you, sir.
20 Will you -- is Mr. Helt going to submit the order, or
21 who is going to submit my order?
22 MR. HELT: I can do that, Your Honor.
23 THE COURT: Thank you, Mr. Helt.
24 All right.
25 MR. URBANIK: Good afternoon, Your Honor. Ray
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1 Urbanik for the Official Committee of Unsecured Creditors.
2 Your Honor, I apologize. I didn't do the exhibits on a disk.
3 I handed Ms. Rasco two paper -- two binders.
4 And in the binder, I'd like to first present the final
5 application of Gavin Solmonese, financial advisor for the
6 Official Committee of Unsecured Creditors. And in our
7 binder, that is Tab Number 4.
8 THE COURT: Okay.
9 MR. URBANIK: Your Honor, the firm of Gavin
10 Solmonese acted as financial advisor to the Committee and
11 played a key role in assisting the Committee achieve the
12 results that were obtained in this case. The firm of Gavin
13 Solmonese has extensive experience in being -- acting as a
14 financial advisor in bankruptcy cases throughout the United
15 States. This was a difficult -- Your Honor, no objections
16 have been filed to the Gavin Solmonese application.
17 The total fees incurred by the firm were $147,051.25.
18 The firm incurred expenses of $4,538.08 for a total of
19 151,589.33. There was a previous amount paid of
20 approximately 16,000. Your Honor, the firm has agreed
21 actually to take less than the 136 shown on the front page of
22 Exhibit 4. By way of an agreement that we reached at the
23 time of the settlement, Gavin Solmonese has accepted to take
24 a remaining payment of 114, 685, instead of the 136,019.33.
25 THE COURT: Okay.
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1 MR. URBANIK: So that's 114,685. Gavin
2 Solmonese will not defer any fees. They'll be paid out of
3 the funds from the settlement agreement.
4 Your Honor, for the financial advisors, this was a very
5 difficult engagement, as it was for us, as well. The
6 Committee got a very modest carve out for the nature of the
7 work that was needed for this case. The case had very time
8 intensive matters the Committee had to conduct. And
9 everything was either on an expedited and sometimes emergency
10 basis.
11 THE COURT: Welcome to our court. Apparently
12 everything is an emergency around here, lately.
13 MR. URBANIK: Sometimes that's good. And I
14 think here we had some good results, Your Honor.
15 The firm was a huge help, especially in connection with
16 our -- looking into claims and causes of action of the
17 estate. The firm agreed to take it this long without any
18 retainer. There was just, as with us, a large risk of
19 non-payment. Our firms essentially self-funded the work,
20 which is tough to do when you have, you know, a lot of
21 parties in the case and a lot of things to look at.
22 Your Honor, the Committee believes that the fees were
23 reasonable. And we would ask that they be approved.
24 THE COURT: Okay.
25 MR. URBANIK: And on the front of this,
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1 Mr. Weitz and Mr. Skillman, in case I missed anything, or
2 they would like to add anything, or if the Court has any
3 questions.
4 THE COURT: Does anyone wish to make any
5 statements or provide any evidence with respect to the Gavin
6 Solmonese application?
7 MR. SKILLMAN: Your Honor, Tim Skillman for
8 Gavin Solmonese. I don't have any comments. Thank you.
9 THE COURT: Thank you.
10 All right. I've reviewed the application of Gavin
11 Solmonese. And given that they're taking approximately a 14
12 percent cut, the Court finds that the fees and expenses are
13 reasonable and the Court will approve the fees as reduced on
14 the record today.
15 MR. URBANIK: Thank you, Judge.
16 MR. SKILLMAN: Thank you, Your Honor.
17 THE COURT: All right. Mr. Urbanik, you'll
18 submit the order?
19 MR. URBANIK: Yes.
20 THE COURT: Thank you.
21 MR. URBANIK: Your Honor, next I'd like to
22 present the fee application of my firm, Munsch Hardt.
23 THE COURT: Okay.
24 MR. URBANIK: It actually is part -- is in two
25 filings. In our exhibit book, Tab 2 is the second and final
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1 application. And then we did a supplement to the actual --
2 the second and final was docket 466 filed on August 29th and
3 the supplement was filed September 17th.
4 THE COURT: Okay.
5 MR. URBANIK: We did that because we wanted to
6 have our fees approved today and get paid as soon as
7 possible. And this was probably the only way, I guess, to
8 capture some time that's lost due to the notice periods.
9 The two filings collectively seek approval for Munsch
10 Hardt's fees in this engagement. And, Your Honor, it does
11 include the ad hoc period that began January 6th. The total
12 fees that we're requesting are $754,156.50 and expenses of
13 $11,901.37 for a total of 766,057.87. Of that amount we've
14 been paid $59,430. The balance remaining is $706,627.87. We
15 reduced our bills prior to putting them in -- attaching them
16 into the application by approximately $33,000. The total
17 hours were 1,847. The blended rate, based on my calculation,
18 is about $408 per hour.
19 The case was difficult, Your Honor, as I noted earlier.
20 And there was substantial risk of non-payment and a very,
21 very modest retainer. We worked hard. We worked with the
22 parties. It was a tough haul. But we think we achieved a
23 desirable result for creditors, and particularly the
24 unsecured creditors.
25 Because of the structure of the settlement, we're not
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1 being paid all these fees at this time. We're getting a
2 portion now, we're deferring a portion. The numbers are a
3 little bit in flux, because of some unexpected priority tax
4 claims and priority wage claims. So, essentially, Your
5 Honor, at this time Munsch Hardt will be paid 335,000 less --
6 335,317 less 13,770 which will be escrowed until the
7 resolution of two wage claims; the wage claims of David
8 Thomas and Tina Hartman. If those claims are allowed, that
9 amount will be added to the deferred portion. If those
10 claims are disallowed, Munsch Hardt can receive the payment
11 of the $13,770.
12 Under an agreement we reached with the Bank, some small
13 priority tax claims of roughly $1,300 will be paid
14 intermediately out of the Bank's refunded monies being held
15 by the debtor. Under the plan, all priority claims are
16 supposed to be either paid or reserved at confirmation. So
17 this resolves that issue. So the exact number of the tax
18 claims is 1,357.62. And, again, the two wage claims are a
19 total of $13,770.
20 Your Honor, we don't have any objection to the fees.
21 In my papers I, I think, you know, bluntly laid out the
22 challenges we had in this case. We have agreed to defer,
23 which is not always a desirable thing. And I have a lot of
24 pressure from people at my office on this deferral. But it
25 was the only way to get the plan settlement done. Our firm
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1 will be counsel to the Liquidation Trustee. And, hopefully
2 through work that's performed post-confirmation, we'll have
3 some recovery on the balance that's not paid at this time.
4 THE COURT: Okay. So tell me about how it
5 will get paid and when it will get paid.
6 MR. URBANIK: Well, it will be paid from
7 recoveries on avoidance actions. A portion of the funds will
8 come from the Litigation Trust. There's an ability to seek
9 more from the Litigation Trust if the Liquidation Trust is
10 not successful. And there's also another lawsuit, possibly,
11 against a third party involving the real estate transaction.
12 So the Liquidation Trust, Liquidation, Mr. Sherman's Trust,
13 has a, you know, an initial obligation of these funds to pay
14 to my firm.
15 THE COURT: From the Liquidation Trust?
16 MR. URBANIK: Liquidation, yes.
17 THE COURT: Okay. How much money is in the
18 Liquidation Trust to make payments to anybody?
19 MR. URBANIK: Well, it has an initial funding
20 for costs of the trust. For example, for Trustee's fees, for
21 my firm's fees to begin looking at the avoidance actions and
22 handling claims objections. But that claim, you know, it's
23 not a large amount. It's $75,000. And that will be, I'm
24 sure, eaten up in fees; both the Trustee, us, tax preparers.
25 So the amount we're deferring is probably all going to have
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1 to come from recoveries on litigation.
2 THE COURT: Okay. This is what I'm trying to
3 understand, because I'm a little bit confused about this.
4 The Liquidation Trust, not the Litigation Trust, the
5 Liquidation Trust is going to have the obligation to pay the
6 deferred fees, correct?
7 MR. URBANIK: Yes, Judge.
8 THE COURT: Okay. But it's going to get paid
9 out of collections from the litigation; if there is one?
10 MR. URBANIK: Avoidance actions, yes, Judge.
11 THE COURT: Okay. So avoidance actions are --
12 proceeds of the avoidance actions are going to go into the
13 Litigation Trust, isn't it? No?
14 MR. URBANIK: Avoidance actions are all
15 liquidation. Litigation Trust will be the Bell Nunnally, the
16 Denver accounting firm and Barrier --
17 THE COURT: Okay.
18 MR. URBANIK: Litigation is Mr. Mims. And
19 likely Lynn Tillotson is going to be counsel for some of the
20 defendants.
21 THE COURT: Okay. But the avoidance actions
22 are going into the Liquidation Trust, not into the Litigation
23 Trust; is that correct?
24 MR. URBANIK: Yes, Judge.
25 THE COURT: Okay. And so based on the funding
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1 of the Liquidation Trust at this time, there's still a risk
2 of non-payment to you --
3 MR. URBANIK: That's correct.
4 THE COURT: -- but your client -- your firm,
5 is prepared to take that risk; is that correct?
6 MR. URBANIK: That's how it is.
7 THE COURT: Thank you.
8 Mr. Barber.
9 MR. BARBER: Your Honor, just two points of
10 clarification for the record.
11 Both trusts actually get avoidance actions. The
12 Liquidation Trust gets all of the Chapter 5s, with the
13 exception of certain Chapter 5s as to certain defendants that
14 will be defendants in the Litigation Trust. So the
15 Litigation Trust will get all causes of action against
16 certain defendants.
17 THE COURT: Certain defendants being Bell
18 Nunnally and --
19 MR. BARBER: Exactly, Your Honor, Barrier and
20 the accounting firm.
21 THE COURT: Okay.
22 MR. BARBER: So there is a little bit of a
23 split of Chapters 5s, but most of them are in the Liquidation
24 Trust. Also, there's a limited spill over from the
25 Liquidation Trust to the Litigation Trust to pay
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1 Mr. Urbanik's fees. It's very limited and it's set forth in
2 the settlement documents. So the settlement documents do
3 actually speak to that issue. So there's not a full -- a
4 full pay over by the Litigation Trust.
5 THE COURT: All right. But there's still a --
6 MR. BARBER: Risk of non-payment.
7 THE COURT: -- significant risk of non-payment
8 at this time, right?
9 MR. BARBER: Yes, Your Honor.
10 THE COURT: All right.
11 MR. URBANIK: Your Honor, we wanted to get the
12 settlement done. And this was the only way to get it done.
13 And it's not the ideal situation. Other firms did not want
14 to defer. So we agreed to get this deal done, to make this
15 sacrifice. And it's not easy. But the work in the case was
16 enormous. It was difficult. It was challenging as they
17 come. And you saw it. You didn't see all of the behind the
18 scenes things, but it was a dozy. So, Your Honor, with that,
19 I'd like to -- numbers, I'll have to work with
20 Mr. Barber on the order. But we do have that sort of one
21 piece of it we have to handle regarding the employee wage
22 claims so they can at least be escrowed today for plan
23 confirmation. But we'll work all that out.
24 THE COURT: Okay. Who's escrowing?
25 MR. BARBER: Your Honor, if I may speak to
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1 that.
2 So there were some priority claims that were identified
3 very late that were not really dealt with in the settlement.
4 And so what we -- we reached agreement that a portion of
5 those priorities, the amount that Mr. Urbanik specified,
6 about $13,000, or so, will be escrowed out of the money that
7 the debtors have to pay professional fees. And they'll raise
8 whatever objections they have, depending on allowance of
9 those claims, any leftover of that will be paid to
10 Mr. Urbanik's firm as part of their recovery of their fees.
11 The $3,000, I think Mr. Urbanik totaled it up. I've not seen
12 all of the claims, but I'm told there is three small tax
13 claims, each of which is a few hundred bucks that total
14 13,000 -- I'm sorry, $1,357.62. We have agreed that that can
15 be paid out of what the lenders have set aside in the
16 settlement to pay admins on the way out the door, certain
17 admins. We've agreed to pay that amount out of the admin, so
18 that priority claim will be paid.
19 THE COURT: Okay. My question is, if it's
20 getting quote/unquote, escrowed, who is escrowing it? Where
21 is the money?
22 MR. BARBER: I think the debtors have the
23 money, Your Honor, until such time as --
24 THE COURT: So mechanically, is there going to
25 be a separate account set up with this 13,000 and change in
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1 it, or is it just simply going to be reserves, so on the
2 books it's going to be set aside?
3 MR. HELT: I'm okay if we want to escrow it at
4 Mr. Urbanik's firm, or Mr. Barber's firm, as well, if that
5 makes them feel better.
6 MR. BARBER: We don't need to be in the middle
7 of it, Your Honor. It can be escrowed at Mr. Urbanik's firm
8 in his trust account and he can provide a subsequent
9 accounting to the Court on behalf of the Liquidation Trust
10 whatever comes of that 13,000.
11 MR. HELT: I think the thought was the
12 Liquidation Trust would have to establish its own account.
13 There's some money that will spill over to it. And then when
14 they --
15 THE COURT: What I'm trying to understand,
16 guys, is the tax ramifications of the settlement funds.
17 There's tax reporting obligations and such, when you put
18 money into a separate account for -- where there's a disputed
19 ownership. And I'm kind of wondering, are you creating that
20 kind of issue, or are you just going to leave the money with
21 the debtor and then the debtor can pay it out, but the debtor
22 is supposed to hold the funds until it gets paid. Do you
23 understand the question I'm asking?
24 MR. BARBER: Your Honor, I think the issues
25 resides with the $13,000 that Mr. Urbanik's firm will get if
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1 and when that time comes. The $1,300 that we've committed to
2 will come out of money we've set aside, so it will be paid
3 like that. It's done.
4 THE COURT: Right. I understand that. It's
5 just the $13,000. Are we going to have kind of tax reporting
6 obligations? Are we creating some for Mr. Urbanik's firm, or
7 are you simply going to -- what are we doing? That's what I
8 want to understand.
9 MR. URBANIK: Your Honor, we haven't really
10 checked down. If the plan is confirmed, there is some
11 immediate funding of two trusts. Litigation Trust gets quite
12 a bit of funds for its experts. The Liquidation Trust also
13 gets some funding when the plan's confirmed. So the monies
14 will come from the debtor. We --
15 THE COURT: Go into the --
16 MR. URBANIK: The Liquidation Trust, along
17 with the other monies it's getting from the plan settlement.
18 THE COURT: Okay. And the money will just be
19 set aside, at least on the books and records of the
20 Liquidation Trust for the payments, whenever the claims are
21 ultimately allowed?
22 MR. HELT: That's right, Your Honor.
23 MR. BARBER: That's fine, Your Honor. They're
24 getting 75,000 --
25 THE COURT: Good. Good. Okay.
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1 MR. HELT: That's what I was explaining,
2 there's an initial funding requirement of the Liquidation
3 Trust. And so we would just add the 13,000 to the initial
4 requirements. So the Liquidation Trust will hold all of that
5 money.
6 THE COURT: Okay. That's just fine. I just
7 don't want to set up escrows where there's separate tax
8 reporting requirements, if we don't need to.
9 MR. URBANIK: So, Your Honor, what I'd like to
10 do is ask the Court to take into evidence these exhibits,
11 which are part of the Court's record.
12 THE COURT: This is Exhibits 1 through 4,
13 Committee's Exhibits 1 through 4?
14 MR. URBANIK: Yes.
15 THE COURT: Okay. Any objection?
16 Okay. Committee's Exhibits 1 through 4 are admitted.
17 MR. URBANIK: Your Honor, we'll upload an
18 order, if the fees are approved, to clarify some of the
19 things that the Court has brought up today.
20 THE COURT: All right. That's the last of the
21 fee applications, right?
22 MR. HELT: Yes, Your Honor.
23 THE COURT: Okay. Here we go.
24 The Court was concerned about the total amount of fees
25 in this case, given what happened in this case. I understand
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1 there's some investigations that need to be done and such.
2 But this was not, essentially, an operating 11. And so the
3 Court was concerned about the fees. But given that Gardere
4 has voluntarily taken about a 10 percent cut, based on the
5 Court's review, the Court will approve the fees as requested
6 with the reduction. Okay?
7 With respect to the Committee fees. I think the same
8 is true. The Court is concerned about the total amount of
9 fees, given where this debtor was. But given the voluntary
10 cut, about 4 or 5 percent, I guess, plus the total deferral
11 of pretty close to half of the fees, and the risks associated
12 with non-payment, it appears to the Court that the second
13 half of Munsch Hardt's fees is almost a contingency fee, in
14 the sense that they may not get paid all of the fees due,
15 unless they are successful in their recovery. And under
16 those circumstances, the Court will also approve the fees, as
17 requested, with the reductions discussed on the record today.
18 Mr. Urbanik, you'll submit the order on your firm, as
19 well as the Gavin Solmonese firm.
20 MR. URBANIK: Yes, Your Honor.
21 THE COURT: And, Mr. Helt, you'll submit the
22 other two orders.
23 MR. HELT: Yes, Your Honor.
24 THE COURT: Now, turning to confirmation.
25 Does anyone wish to be heard with respect to confirmation,
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1 other than where we already are?
2 Okay. Based on the evidence before the Court, and it
3 appearing that the requisite number of creditors that voted
4 in favor of the plan. And the plan appearing to meet the
5 requisites of 1129(a) of the Bankruptcy Code, the Court
6 will -- well, let me back up. With respect to the disclosure
7 statement, because we're here on final approval, there being
8 no objections and based on the Court's review, and appearing
9 that the disclosure statement meets the requisites of 1125
10 and contains adequate disclosures, the Court will approve the
11 disclosure statement on a final basis. And based on the
12 Court's findings with respect to 1129(a), the Court will
13 confirm the plan.
14 Mr. Helt, I understand that it's going to be an agreed
15 order, so you can submit it as a proposed order so I will
16 review the order, understanding that the parties have
17 negotiated language with respect to confirmation. So I'll
18 review that order when you submit it. As long as the order
19 is not inconsistent with the Court's ruling on the record
20 today, I'll allow you to submit an order that is broader or
21 different from the Court's ruling. I'll review the order
22 when you submit it. Okay?
23 Is there anything else we need to discuss for purposes
24 of today's hearing?
25 MR. HELT: Nothing, Your Honor.
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1 THE COURT: All right. Thank you. Parties
2 are excused and we're adjourned.
3 (End of Proceedings.)
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1 C E R T I F I C A T E
2 I, CINDY SUMNER, do hereby certify that the
3 foregoing constitutes a full, true, and complete
4 transcription of the proceedings as heretofore set forth in
5 the above-captioned and numbered cause in typewriting before
6 me.
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14 /s/Cindy Sumner
15 ______________________________
16 CINDY SUMNER, CSR #5832 Expires 12-31-15
17 National Court Reporters 16 Gettysburg Lane
18 Richardson, Texas 75080 214 651-8393
19 Firm #417
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