jan 20 2006 fmp hearing transcript

8/14/2019 Jan 20 2006 FMP Hearing Transcript

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1 UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW JERSEY

2

- - - - - - - - - - - - - - x

3 IN THE MATTER OF: :

: CASE NO: 01-10578(RTL)

4 FEDERAL MOGUL GLOBAL, INC., :

T&N LIMITED, ET AL : January 20, 2006

5 Debtor :

:

6 - - - - - - - - - - - - - - x

7 TRANSCRIPT OF MOTIONS

BEFORE THE HONORABLE RAYMOND T. LYONS

8 UNITED STATES BANKRUPTCY JUDGE

9 A P P E A R A N C E S:

10

For the Debtor: PACHULSKI STANG ZIEHL YOUNG

11 JONES & WEINTRAUB

BY: JAMES E. O'NEILL, ESQ.

12 919 N. Market Street

Wilmington, DE 19801

13

For the Debtor: SIDLEY AUSTIN BROWN & WOOD

14 BY: KEVIN LANTRY, ESQ.,

JEFFREY BJORK,ESQ.

15 Bank One Plaza

10 South Dearborn Street

16 Chicago, ILL 60603

17 Counsel for Official SONNENSCHEIN NATH & ROSENTHAL

Committee for Unsecured BY: TOM LABUDA, ESQ.

18 Creditors: 8000 Sears Tower

Chicago, Ill 60606

19

United States Trustee: RICHARD SCHEPACARTER, ESQ.

20 844 King Street


21

22

23 Operator: Betty Akin------------------------------------------------------

24 TERRY GRIBBEN'S TRANSCRIPTION SERVICE

27 BEACH ROAD, UNIT 4

25 MONMOUTH BEACH, NEW JERSEY 07750

(732) 263-0044 FAX (263) 263-0075


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1 ADDITIONAL APPEARANCES:

2

Claimant ROBERT CLEMENTS (Telephonically)

3

For Asbestos Creditors: CAPLIN & DRYSDALE

4 BY: PETER LOCKWOOD, ESQ.

399 Park Avenue

5 New York, NY 10022

6 Counsel for Futures YOUNG CONAWAY STARGATE & TAYLOR

Representatives: BY: JAMES PATTON, JR., ESQ.

7 1000 West Street 17th Floor

Brandywine Building

8 Wilmington, DE 19801

9 Counsel for asbestos SEITZ VAN OGTROP & GREEN

plaintiffs law firms: BY: ROBERT KARL HILL, ESQ.10 222 Deleware Avenue


11

For cancer claimants: SIMMONS COOPER, LLC

12 BY: ROBERT W. PHILLIPS, ESQ.

707 Berkshire Boulevard

13 East Alton, IL 62024

14 For cancer claimants: GEBHARDT & SMITH, LLP

BY: LOUIS EBERT, ESQ.

15 9 World Trade Center

New York, NY

16

For claimants: DAVID M. LIPMAN, P.A.

17 BY: JONATHAN RUCKDESCHOL, ESQ.

5901 S.W. 74th Street

18 Miami, FL 33131

19 For claimants: STANLEY LEVEY, ESQ.

20 For CNA Insurance: McDERMOTT WILL & EMERY

BY: DAVID CHRISTIAN, ESQ.

21 227 West Monroe

Chicago, IL 60606

22

23

24

25


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1 ADDITIONAL APPEARANCES:

2

For Pepsi Americas: MORGAN LEWIS & BOCKIUS

3 BY: HARVEY BARTLE, ESQ.

1111 Pennsylvania Avenue

4 Washington, DC 20004

5 For Grover Alexander: TIMOTHY HOGAN, ESQ.

6 For Cooper Industries: SWIDLER BERLIN

BY: ROGER FRANKEL, ESQ.

7 3000 K Street NW

Washington, DC 20007

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


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1 I N D E X

2

MOTION (statute of limitations) PAGE

3

4 BY MR. BJORK 10

5 BY MR. CLEMENTS 16

6 DECISION 19

7

MOTION (Sonnenschein)

8

BY MR. LABUDA 22

9

BY MR. SCHEPACARTER 3910

DECISION 47

11

12 MOTION (Prelminary Injunction)

13 BY MR. LANTRY 54

14 BY MR. LOCKWOOD 86

15 BY MR. PATTON 93

16 BY MR. HILL 96

17 BY MR. PHILLIPS 98

18 BY MR. EBERT 107

19 BY MR. RUCKDESCHOL 107

20 BY MR. LEVEY 116

21 BY MR. CHRISTIAN 119

22 BY MR. BARTLE 119

23 BY MR. HOGAN 120

24 BY MR. FRANKEL 120

25 DECISION 123


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Colloquy 5

1 THE CLERK: All rise, the United States Bankruptcy

2 Court, the Honorable Raymond C. Lyons presiding.

3 THE COURT: Good morning, thank you. Please be

4 seated. We don't have anybody appearing by phone this

5 morning, Mr. O'Neill?

6 MR. O'NEILL: Yes, there is. There are people

7 appearing by phone.

8 THE COURT: Okay. Just a moment.

9 MR. O'NEILL: Your Honor, we do have a couple of

10 people who are having train problems this morning as well.

11 So we're going to get started when the Court is ready, just

12 because we have a number of things to get to today. But we

13 might move things around based on people's availability and

14 their travel.

15 THE COURT: Mr. Clements?

16 MR. CLEMENTS: Yeah.

17 THE COURT: Good morning.

18 MR. CLEMENTS: Hello, is this Judge --

19 THE COURT: This is Judge Lyons speaking.

20 MR CLEMENTS: Nice to meet you.

21 THE COURT: Good morning. I guess other people

22 will be joining you on the telephone. We're in court here.

23 Mr. O'Neill, would you just enter your appearance, and we'll

24 see if Mr. Clements and the other people on the phone can

25 hear you.


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Colloquy 6

1 MR. O'NEILL: Certainly, Your Honor. This is

2 James O'Neill, Pachulski Stang Ziehl Young Jones and

3 Weintraub, appearing today on behalf of the debtors Federal

4 Mogul. With me in the courtroom are my co-counsel from the

5 firm of Sidley and Austin, Kevin Lantry and Jeffrey Bjork.

6 THE COURT: All right. Were you able to hear

7 that?

8 MR. CLEMENTS: Yeah, that was great. Thank you.

9 THE COURT: All right. Mr. O'Neill?

10 MR. O'NEILL: Your Honor, I just wanted to see if

11 there were other parties who are also on the telephone. I

12 expect that there should be a number of parties appearing

13 today.

14 THE COURT: Well, let's proceed. We don't need to

15 take appearances from everybody.

16 MR. O'NEILL: Okay. Your Honor, as I mentioned

17 briefly before we got started, the trains coming out of New

18 York have been delayed, so I expect that several counsel

19 will be coming into the courtroom as soon as their trains

20 get down here. One of the things on the agenda for today

21 are the fee applications which is the last part of the

22 agenda, starting on page 9. And I just wanted to check, is

23 Mr. Smith on the telephone?

24 MR. SMITH: Yes. Your Honor, this is Warren Smith

25 the fee auditor.


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Colloquy 7

1 THE COURT: Good morning, Mr. Smith.

2 MR. SMITH: Good morning, Your Honor.

3 MR. O'NEILL: Thank you, Mr. Smith. Your Honor,

4 on the fee applications, most of the fee applications are

5 uncontested. And it's my understanding, and the fee auditor

6 can confirm that the uncontested fee applications, the

7 applicants have all accepted the recommendation of the fee

8 auditor. There is one contested application today, and that

9 is the application filed by the Sonnenschein firm. The

10 Sonnenschein firm are part of the group that's delayed

11 coming in today.

12 But because I expect there are a number of parties

13 who are on the phone just for purposes of the fee hearing,

14 what I would propose to do, if it is acceptable to the

15 Court, is just ask whether the Court had any questions

16 regarding the uncontested fee applications, those

17 applications other than the Sonnenschein application, to see

18 whether we can deal with questions the Court may have on

19 those now. And then we could come back to the Sonnenschein

20 contested application when the parties are available.

21 THE COURT: That sounds like a good suggestion. I

22 don't have any questions. Mr. Smith, do you agree that all

23 of the applicants have accepted your recommendations?

24 MR. SMITH: Yes, Your Honor. We have recommended

25 a number of reductions in both fees and expenses. But the


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Colloquy 8

1 only response that has been filed is the only objection that

2 has been filed, is the response of Sonnenschein. And again,

3 Your Honor, that's pretty much a separate and discrete

4 issue.

5 THE COURT: Right. All right, we'll deal with

6 Sonnenschein later. But if no one has anything else to add

7 with regard to the other fee applications, I'll approve them

8 in the amounts recommended by Mr. Smith. All right?

9 MR. O'NEILL: Thank you, Your Honor.

10 THE COURT: So anyone who is either here in court

11 today or on the telephone, who is only interested in the fee

12 application, you're welcome to sign off now. And we'll just

13 pause for a few seconds to make sure that, in the process of

14 hanging up, we don't get interference.

15 MR. O'NEILL: Your Honor, I just ask that Mr.

16 Smith remain on the phone to address the Sonnenschein matter

17 when it does come up.

18 THE COURT: It's not necessary for Mr. Smith to do

19 that. That's a legal issue.

20 MR. O'NEILL: Very well.

21 MR. SMITH: Thank you, Your Honor. There is a

22 reference in the Sonnenschein response regarding what we had

23 to say about Sonnenschein. And Your Honor, I'll be

24 perfectly willing to hang up, and I will do so after this

25 short speech. But our recommendations to Sonnenschein had


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Colloquy 9

1 to do with what we saw as the scope of our authority, which

2 was go through and make recommendations regarding what are

3 reasonable and necessary. We did not intent to opine as to

4 the legal issue that the Court identified is the outstanding

5 issue.

6 THE COURT: Okay. Thank you very much, Mr. Smith.

7 MR. SMITH: And Your Honor, I may be excused now?

8 THE COURT: Yes, sir.

9 MR. SMITH: Thank you, Your Honor.

10 THE COURT: All right.

11 MR. O'NEILL: Your Honor, I just wanted to report

12 to the Court that the Sonnenschein firm is here. The trains

13 have gotten through. So if it's acceptable to the Court,

14 we'll go forward with that, the Sonnenschein matter now.

15 THE COURT: Well, let's see if we can perhaps take

16 care of some of those people who might be interested only in

17 the objection to claims dealing with the statute of

18 limitations and statute of repose.

19 MR. O'NEILL: Very well, Your Honor.

20 THE COURT: All right.

21 MR. O'NEILL: Mr. Bjork is going to be handling

22 the objection to claims.

23 THE COURT: Good morning.

24 MR. BJORK: Good morning, Your Honor. Jeff Bjork

25 from Sidley Austin on behalf of the debtors. The debtors


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Bjork/Argument 10

1 filed their seventeenth omnibus objection to claims. These

2 were asbestos property damage claims. In that objection the

3 debtors objected to 362 claims on the basis that those

4 claims were time barred by applicable statutes of repose or

5 limitation in various jurisdiction. In connection with the

6 objection we submitted the declaration of Clinton Fisher.

7 He is special asbestos property damage litigation counsel to

8 the debtors. And in his declaration he testifies that the

9 debtors terminated their involvement in the manufacturing of

10 asbestos containing products for use in North America in the

11 early 1970s at the latest.

12 We received three responses to the objection which

13 cover 47 claims that are otherwise subject to the objection.

14 I'll address each of those responses in turn, and I

15 understand that Mr. Clements, one of the responding parties,

16 is on the phone. In addition, Your Honor, we have reached a

17 stipulation with the Spites (phonetic) and Runyon firm that

18 go to 196 claims that were subject to the objection, and

19 I'll address the terms of that stipulation as well.

20 The first response was filed by Grover Nicholson

21 who purports to be a consultant on behalf of about holders

22 of 51 claims. Six of the claims which are covered in his

23 response are not subject to our objection, so we're not

24 seeking disallowance with respect to those claims.

25 THE COURT: Those are the Alabama claims?


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Bjork/Argument 11

1 MR. BJORK: Those are the Alabama claims. The

2 balance of claims --

3 THE COURT: Let me just see if Mr. Nicholson is

4 here. Mr. Nicholson? Not in court and not on the

5 telephone, I take it? All right.

6 MR. BJORK: Your Honor, the balance of the claims

7 were filed on behalf of claimants who reside in Mississippi.

8 As we indicated in our papers, Mississippi has a statute of

9 repose which has a six year time bar on these types of

10 claims. As Mr. Nicholson pointed out in his response, there

11 is a limited exception to the statute of repose for property

12 owners who are in actual possession and control of the

13 property at the time of the installation of the asbestos

14 containing product.

15 THE COURT: But does that exception apply to

16 property owners who are claimants or who are defendants?

17 MR. BJORK: Your Honor, we take the position it

18 applies to property owners who are claimants. This is the

19 context in which the claims are being filed.

20 THE COURT: No, that's not -- I don't think so.

21 But go ahead, continue with your presentation.

22 MR. BJORK: 26, Your Honor, of those claims, of

23 the claims that are, of the 45 that are subject to Mr.

24 Nicholson's response, admit on the face of the proof of

25 claim that their property was acquired after the debtor


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Bjork/Argument 12

1 ceased the manufacturing of asbestos containing products in

2 the early 1970s. Those claims on their face acknowledge and

3 admit that the properties were purchased between 1980 and

4 1999. And as such we assert that the claims are time barred

5 and not subject to the exception cited by Mr. Nicholson in

6 his response, on their face.

7 The balance of the claims, 19 of them, either

8 assert on the face of the claim that the property in

9 question was acquired in 1973 or before, or they don't give

10 an actual date of acquisition for the property. We are

11 proposing to continue the hearing with respect to these

12 claims, because they may be covered by the exception in the

13 Mississippi statute of repose.

14 THE COURT: How would they be covered by the

15 exception?

16 MR. BJORK: To the extent that they produce

17 evidence that the property was acquired and was in actual

18 possession and control at the time of the installation of

19 the product, we would submit that they are covered by the

20 exception, Your Honor.

21 THE COURT: I don't think so. If you read the

22 exception, and you read the Mississippi cases that interpret

23 it, the statute of repose is meant to protect builders,

24 architects and others from claims relating to improvements

25 to real property. And it sets forth a six year statute of


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Bjork/Argument 13

1 repose. And as the Mississippi courts have made clear, and

2 of course it's a common statute in other states as well, the

3 purpose of the statute is to protect people who have worked

4 on real estate and are no longer in control of it. And so

5 that after the period of repose, anyone who has a claim

6 relating to the improvements of the real property is barred.

7 The exception is for people who are in control of

8 the property at the time of the claim. That means that the

9 statute of repose doesn't protect an owner against a claim

10 by someone who is injured on the owner's property. So it's

11 not the claim by the owner that is excepted from the statute

12 of repose, it's a claim against the owner. The people that

13 you're talking about here are claimants who are owners.

14 They don't get an extended period of claim against suppliers

15 of material to their property just because they owned it 20

16 years ago, 30 years ago.

17 What would happen is, if for example a property

18 was constructed with a defective stairwell, the builder

19 would be off the hook six years after he finished

20 construction. Same with the architect, same with the people

21 who might have supplied defective materials for the

22 construction of the stairway. But if somebody came onto the

23 property yesterday and fell through the stairs, that person

24 could sue the owner. And the owner couldn't take advantage

25 of the statute and say, well my stairs were built 30 years


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Bjork/Argument 14

1 ago.

2 So, these people who are making claims are

3 claiming that they suffered damage because there's asbestos

4 shingles on their property that they have to pay to remove.

5 And if the shingles were installed more than six years ago,

6 their claims are barred, whether they were owners at the

7 time of the installation or not. All right, so --

8 MR. BJORK: Well, I like your interpretation

9 better.

10 THE COURT: -- I'm not ruling against you. What

11 I'm doing is I'm telling you that there's no reason to put

12 off the motion with regard to these other folks.

13 MR. BJORK: Your Honor, I will certainly take your

14 suggestion over that of our special counsel and others who

15 have reviewed this, and ask that the Court disallow all of

16 the claims that are subject to the Nicholson objection on

17 the basis that they are time barred.

18 THE COURT: All right. If you look at, there's a

19 couple of cases that talk about this, one is WEST END COURT

20 versus ROYALS, 450 South 2nd 420. It's from 1984 Supreme

21 Court of Mississippi. The Court explains the purpose of the

22 legislation and specifically says that the statute of repose

23 does apply in a suit by an owner against the builder, and

24 explains that the limitation applies to a suit by an injured

25 party against the owner. All right?


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Bjork/Argument 15

1 And there's another case FELL versus RIVER CITY

2 ROOFING, 912 South 2nd 448, it was decided just in August of

3 2005. So it's very current, and explains that the

4 legislative purpose is clear that the exception is meant so

5 that persons who are in control of their property and might

6 have an opportunity to repair it or correct any defects,

7 don't get the benefit of the statute of repose. It's only

8 those who are no longer in control; the builder, the

9 architect, the suppliers, et cetera. So I see no reason not

10 to grant the debtor's objection to the claims of people who

11 had improvements done to their property more than six years

12 ago, or whatever the time -- Is it six years under the

13 Mississippi law?

14 MR. BJORK: Six years under Mississippi, Your

15 Honor.

16 THE COURT: Six years? Okay. And the same goes

17 for the other states where there are statutes of repose. I

18 guess it's Florida only has a statute of limitations, but --

19 MR. BJORK: Georgia has a statute of limitations.

20 THE COURT: I'm sorry, Georgia has a statute of

21 limitations. But you claim that the discovery rule doesn't

22 apply to property damage, only to personal injury.

23 MR. BJORK: That is correct.

24 THE COURT: Okay. So I'm going to grant the

25 debtor's motion, objections to --


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Clements/Argument 16

1 MR. CLEMENTS: This is Robert Clements.

2 THE COURT: Mr. Clements?

3 MR. CLEMENTS: Yes.

4 THE COURT: I'm sorry, I didn't -- Let me hear

5 from you. Go ahead, Mr. Clements.

6 MR. CLEMENTS: Yes, they talk about this four year

7 rule, but there are many, there are several rules that were,

8 there were eight year rules, statute of repose. There were

9 a 1990 rule 9-3-30.1 action against people for asbestos.

10 That commenced in July 1990, so that was much later than the

11 four year rule. So the four year rule wasn't the only

12 thing.

13 THE COURT: Where do you live, Mr. Clements?

14 MR. CLEMENTS: I live in Athens, Georgia.

15 THE COURT: Georgia, okay. And what type of

16 asbestos product do you have on your home?

17 MR. CLEMENTS: It is approximately three

18 sixteenths of an inch thick and it's hard surfaced with a

19 pebbly finish, a white plastic finish over top of the

20 asbestos flooring. And it was put on in 1973. I put on

21 some of it myself. And I'm seeking $22,000 to glue

22 something on top of it to partially remediate the damage. I

23 suspect it's probably damaged -- my house $150,000.

24 THE COURT: And have you spent money to remedy the

25 situation?


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1 MR. CLEMENTS: I have not spent money to remedy

2 the situation. I didn't want to disturb it. I do not want

3 to disturb it. They say it's worse when it's disturbed.

4 THE COURT: When did you find out that you had

5 asbestos in your house?

6 MR. CLEMENTS: I guess I knew I was putting

7 asbestos on at the time. It was called some sort of

8 asbestos board. Apparently in one of these proceedings I

9 had always said it was an unknown manufacturer, but they

10 said that the proper debtor was T&N Incorporated. But I did

11 not know about the dangers of it, of course. And it was not

12 advertised as being dangerous. And this CENTER versus

13 PARZINI (phonetic) suit said that the manufacturer is

14 supposed to -- CENTER CHEMICAL versus, 233 Georgia 5783,

15 manufacturer of plastic. I think it was not merchantable or

16 reasonably suited to the use intended.

17 THE COURT: Okay. When did you find out that

18 having asbestos on your house affected its value?

19 MR. CLEMENTS: As I appealed for, I haven't tried

20 to sell the house, but when I would apply for tax relief

21 because of the diminished value. Not just the asbestos but

22 also the aluminum wiring in the house.

23 THE COURT: And when did you file tax appeals?

24 MR. CLEMENTS: Approximately the last maybe eight

25 years.


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1 THE COURT: Okay. All right, so you've known for

2 at least eight years that having asbestos on your house

3 affects its value.

4 MR. CLEMENTS: Yes.

5 THE COURT: All right. Mr. Bjork, do you want to

6 address the Georgia law?

7 MR. BJORK: Your Honor, Georgia law is clear that

8 there is a four year statute of limitations that applies.

9 It's also clear that there is no discovery rule that tolls

10 the statute of limitations with respect to property damage

11 claims. We cited two cases in our objection. Page 20, the

12 HANNAH versus WILLIAMS case as well as the CORPORATION OF

13 MERCER UNIVERSITY versus NATIONAL GYPSUM, which we think

14 goes directly to the issue of this notion of tolling until

15 the damage has been or should have been discovered. So we

16 would submit that the claim is time barred.

17 THE COURT: All right. And Mr. Clements, you

18 never sued Turner and Newall or any of the Federal Mogul

19 companies, did you?

20 MR. CLEMENTS: No.

21 THE COURT: No, okay.

22 MR. CLEMENTS: This is my first venture into this.

23 As I understand the discovery rules for Georgia for civil

24 practice are in OCCA Section 911-26-11. And they're to be

25 roughly in line with those of the federal courts.


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Decision 19

1 THE COURT: Okay. All right, well I'm satisfied,

2 having reviewed the moving papers, the objection filed by

3 Mr. Clements as well as the response by the debtors, that

4 Georgia law has a statute of limitations that would bar the

5 claim by Mr. Clements as a matter of state law as of the

6 date the debtors filed their petition in October of 2001.

7 The product was put onto Mr. Clements' home in 1973, as he

8 testified, some of it by himself. So the purchase and

9 installation of the product took place at that time. The

10 decisions of the Courts of Georgia have held that the cause

11 of action accrues at the time the product is installed, and

12 it would expire four years after the date of installation.

13 So, if the claim wasn't brought by 1977 it would

14 be barred. In any event, even if the discovery rule, which

15 is an exception to the statute of limitations crafted by

16 courts for personal injury cases where the harm isn't known

17 until it manifests itself in a personal injury, even if that

18 discovery rule applied here it's apparent that Mr. Clements

19 knew more than four years prior to 2001 that he had asbestos

20 on his home and that it affected the value of the home. And

21 in order to cure it he might have to spend money to, as he

22 says, install some covering over the top of it. So, I find

23 that Mr. Clements' claim is time barred and I'm going to

24 grant the motion of the debtors to disallow Mr. Clements'

25 claim.


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Colloquy 20

1 MR. BJORK: Thank you, Your Honor. There is a

2 stipulation with the Spites And Runyon firm. I just wanted

3 to describe the terms of it and how we're handling those

4 claims.

5 MR. CLEMENTS: So I guess I'll just hang up.

6 Okay?

7 THE COURT: Bye, Mr. Clements. Thank you.

8 MR. CLEMENTS: Thank you.

9 MR. BJORK: We have signed, the parties have

10 signed a stipulation with the Spites and Runyon firm. The

11 stipulation does a couple of things. It results in the

12 withdrawal with prejudice of 191 claims and it deems void

13 any votes cast, you know, on account of those claims in

14 respect of plan or amended plan. The debtors have agreed to

15 withdraw their objection without prejudice to raising

16 further objections with respect to five claims that were

17 filed on behalf of the Women's Club. Spites and Runyon has

18 agreed to file an amended 2019 statement with respect to all

19 claimants it purports to represent to the extent their

20 claims have not been previously withdrawn. And it has

21 agreed to file that statement by January 26, '06.

22 There is one factual issue that the parties are

23 still trying to sort out. That goes to the number of

24 holders of claims with respect to the 191 claims that have

25 been withdrawn. We have a number from Spites and Runyon


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Colloquy 21

1 which is 43 holders, but they have asked us to give them

2 seven to 10 days to finalize that number. And we have

3 agreed to hold off from filing the stipulation until they

4 give us their final number in that regard. So, we would

5 propose to submit the stipulation in the next seven to 10

6 days.

7 THE COURT: All right, fine. Otherwise the

8 objection is sustained.

9 MR. BJORK: Thank you, Your Honor.

10 THE COURT: Thank you. Mr. O'Neill?

11 MR. O'NEILL: And Your Honor, we'll submit a

12 revised form of order consistent with the Court's ruling on

13 the balance of the claims objections. Your Honor, would you

14 like to proceed with the Sonnenschein matter?

15 THE COURT: I guess we might as well do that.

16 Yes.

17 MR. O'NEILL: Okay, thank you.

18 THE COURT: Is someone here from the US Trustees

19 Office?

20 MR. SCHEPACARTER: I am, Your Honor.

21 THE COURT: Good morning. May I have your

22 appearance?

23 MR. SCHEPACARTER: Good morning, Your Honor. If

24 it may please the Court, Richard Schepacarter for the United

25 States Trustee.


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Labuda/Argument 22

1 THE COURT: And for Sonnenschein?

2 MR. LABUDA: Good morning, Your Honor. Tom Labuda

3 on behalf of Sonnenschein Nath and Rosenthal, official

4 counsel for the Official Committee of Unsecured Creditors.

5 THE COURT: All right. Mr. Labuda, it's your

6 application so I guess you should go first.

7 MR. LABUDA: Thank you, Your Honor. And I

8 apologize for the delay this morning. The normally reliable

9 trains had some problems this morning.

10 THE COURT: I heard on the radio as I was driving

11 in that New Jersey Transit had suspended service

12 temporarily.

13 MR. LABUDA: As I think was mentioned to the Court

14 as I was stepping in, we have agreed to the fee auditor's

15 recommendations, albeit they have a different focus. The

16 United States Trustee's objection to the FAIR Act related

17 work, notably does not question or address the necessity of

18 the work, the benefits if any, which we think were

19 substantial, and the estate for the work or the

20 reasonableness of the fees. Indeed all the plan proponents

21 agree that this work was absolutely necessary, as we set

22 forth in our brief, and I can go into detail today, and that

23 there have been substantial benefits conferred upon the

24 estate.

25 And as the fee auditor noted, there has been no


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Labuda/Argument 23

1 dispute as to the reasonableness of the fees except to the

2 extent the fee auditor has made recommended reductions to

3 which we've agreed. The sole objection really is a legal

4 issue. The United States Trustee in their objection argues

5 that lobbying work is work that is almost exclusively

6 performed outside of the case and is independent of the

7 bankruptcy proceedings, and thus not a permissible activity

8 for an official committee to engage in under 1103, the

9 Bankruptcy Code.

10 We think that's wrong in this case, both as a

11 matter of law and fact. First, we would submit that there

12 is no per se rule on this. In 1103 it mentions nothing

13 about this whatsoever. And we don't think that the case law

14 that is out there, and there's not much, establishes any per

15 se rule either. In the language of the DOW CORNING case,

16 which is the principle case relied upon by the UST, we think

17 they actually describe the permissible activities right, in

18 saying that when you look at 1103, what the committee is

19 supposed to be involved in are matters that really go to the

20 core of the reorganization process. And that really is the

21 appropriate test. And the issue would be whether or not the

22 work is somehow unrelated to that process, independent of

23 that process, or tied to that process.

24 Applying that test to our facts, Your Honor, we

25 don't think there really is much dispute that this work


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Labuda/Argument 24

1 relates to the core of the reorganization process, the very

2 reason why the debtors commenced these cases, and is

3 inextricably tied to the plan or reorganization that is on

4 file in this case. Indeed, their sole focus of this work

5 has been to protect the plan and to preserve the ability of

6 the plan proponents to confirm the plan.

7 By way of background, Congress began to seriously

8 debate and propose to move forward on the FAIR Act in April

9 2003. At that time the principle terms of the plan had

10 already been negotiated and indeed drafts of the plan had

11 been agreed to by the principle creditor constituencies

12 formed at that time. Indeed, one of the unique aspects of

13 this case which has been noted several times, is that the

14 commercial and asbestos creditors came to a very quick

15 realization in this case, perhaps as quick as six months

16 after the filing of the case, looking at all the difficult

17 and disputed issues regarding the disputes between the

18 parties that it was much better to try to reach a fast

19 compromise of those issues and then work together on the

20 remaining issues to get the company out of bankruptcy as

21 quickly as possible. It has taken longer than anyone

22 anticipated, of course, but we do think that makes this case

23 quite unique and avoided significant litigation that

24 otherwise would have occurred.

25 When the FAIR Act was announced in its form in


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Labuda/Argument 25

1 2003 all the plan proponents reached a fairly quick and

2 unanimous conclusion; the FAIR Act was very bad for these

3 debtors. It proposed a solution that simply didn't work,

4 and on top of that we already had a solution to the debtor's

5 asbestos problems and it was set forth in the plan. In our

6 brief we go through in detail the problems with the FAIR

7 Act, but I would only briefly raise them here unless the

8 Court wants to get deeper into that. First and foremost,

9 the FAIR Act makes Federal Mogul the largest payer of all

10 the asbestos defendants.

11 THE COURT: How do you know that?

12 MR. LABUDA: It was determined according to a

13 formula in the FAIR Act based upon revenues of the company

14 at a particular point in time as well as discussions with

15 the asbestos corporations that had really been formulating

16 this and going with Congress. So we had calculated --

17 THE COURT: I remember reading that congressmen,

18 senators were trying to find out who was going to have to

19 pay how much into this fund, and they couldn't find out.

20 But somehow you learned it.

21 MR. LABUDA: Well, we don't know everybody, but we

22 can tell by the formula and by the revenues that we were

23 indeed the largest. And indeed the corporations that were

24 the most intimately involved with the formulation of this,

25 including many debtors that are currently in bankruptcy that


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Labuda/Argument 26

1 came up with it, did it according to a formula that indeed

2 made us the largest payer. And our discussions with

3 appropriate congressman, including Judge Becker who was

4 leading mediation on this, agreed and noted with us that

5 indeed we were the larger. And we were able to actually

6 negotiate, as noted in here, a slight reduction in that.

7 But that was the first problem.

8 The second and more important problem was that the

9 FAIR Act really didn't address all of our problems. Because

10 of the cross border nature of these cases, a significant if

11 not a majority of the asbestos liabilities here arise as a

12 result of T&N and UK debtors. The FAIR Act would not do

13 anything to protect these debtors in the United Kingdom. We

14 would have to rely upon seeking comity be given to this,

15 which we had serious doubts would protect T&N and the UK.

16 On top of that, this came up at a time when we had no

17 agreement with the administrators, as Your Honor is aware.

18 And the administrators were threatening to liquidate the

19 debtors, the UK debtors.

20 In that event, we would have found ourselves

21 paying on account of Federal Mogul and T&N, on account of

22 their FAIR Act share, but not had the very companies that

23 gave rise to these obligations. And indeed, we would have

24 lost a substantial part of the assets that generated the

25 revenue that led to the total dollar amount. So we would


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Labuda/Argument 27

1 have found ourselves in a position of facing a financial

2 burden that perhaps would have been unsustainable, even if

3 the company as a whole stayed together. But particularly if

4 the UK administrators do not go through and did not have a

5 deal with us, we would have been paying on behalf of

6 companies we no longer owned.

7 On top of that it jeopardized various insurance

8 assets that we had. Because the FAIR Act as proposed was

9 proposing to as well take insurance assets into the fund to

10 satisfy these claims. Well, we would have been left with

11 the position again, facing these claims in the UK and around

12 the world, yet having lost insurance assets that may have

13 been available for those. The bottom line, all the plan

14 proponents agree that the plan was a far better solution to

15 the debtor's asbestos problems. The FAIR Act not only would

16 preclude confirmation of the plan, but would cause serious

17 problems over the formulation of another plan. At a minimum

18 it would have taken us back to the beginning of this case,

19 granted without some of the asbestos issues. We still would

20 have had the foreign asbestos claims, but we would have had

21 to go back to square-one on the financial issues in this

22 case, which hadn't been resolved.

23 So, it was the consensus of the plan proponents

24 that we needed to continue to push to confirm our plan and

25 do whatever was necessary to protect the party's ability to


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Labuda/Argument 28

1 confirm the plan. Following Judge Newsome's advice at

2 various hearings early in the case to coordinate efforts, we

3 did that from the very start. We worked together, closely

4 with the debtor, the other plan proponents. And it was

5 determined at a certain point in time that Sonnenschein had

6 the particular expertise, the best expertise to actually

7 handle this and take the lead on this. So we did do that.

8 Although, make no doubt, as the debtor notes in their

9 joinder, it was a process that was lockstep with the debtor

10 every step of the way, including joint press releases,

11 including joint meetings with Judge Becker, congressmen, et

12 cetera.

13 The specific strategy was really three-fold. One

14 was to seek an exemption in the FAIR Act for the plan. One

15 particular entity had already had an exemption, and our

16 first goal was to present to Senator Spector and Judge

17 Becker, our plan, present our case that this plan really

18 worked for us. This wasn't a case where the asbestos

19 creditors were trying to cram down the commercial creditors

20 or the commercial creditors were trying to cram down the

21 asbestos creditors. This was a joint effort where really

22 all of the economic constituents in the case decided on a

23 solution to this problem. And to also try to explain to

24 them the problems with the solution that they were trying to

25 force upon us.


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Labuda/Argument 29

1 The second step was if we could not get an

2 exemption, and to date we have not been able to do that, was

3 to delay, seek a delay from passage of the FAIR Act until we

4 could confirm the plan. And while we certainly don't take

5 credit for that, we do think that we have contributed and

6 provided a benefit to the estate by assisting the other

7 constituencies in this Country that have opposed it in

8 delaying it.

9 And then finally, to the extent it couldn't be

10 delayed, to try to obtain concessions and modifications to

11 the FAIR Act that would mitigate its harmful effect on the

12 debtors. And as set forth in the papers, we've done a

13 couple things there. One, we've been able to reduce the

14 contributions that would have been required by us by what's,

15 we believe, to be about $90 million. And furthermore, we

16 were able to negotiate and convince Senator Spector to put

17 into the FAIR Act, and this was put in, a right of

18 contribution that dealt specifically with our situation,

19 where to the extent the revenues reflected a revenue of both

20 a US entity and foreign subsidiaries.

21 And if for any reason the foreign subsidiaries

22 were taken away, we would have a right of contribution by

23 statute against the foreign entities to go to those

24 administration proceedings in the United Kingdom and say

25 that we're paying the FAIR Act this much, T&N's share is X.


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Labuda/Argument 30

1 And we would have a claim in those proceedings for that, to

2 try to mitigate that. Based on all these facts, we think

3 it's clear that this work was intimately involved in the

4 core of the reorganization process in the language of the

5 DOW CORNING case. And that everything we have done has been

6 tied to the plan process.

7 Again, we don't think there is any per se rule

8 here. We think what the Court needs to do is really examine

9 what was done and to determine whether or not this is

10 related to the reorganization process or whether it relates

11 to issues that are independent of these cases. And I think,

12 looking at the facts of the three principle cases that the

13 United States Trustee cites is instructive. In DOW CORNING

14 they wanted to lobby Congress on whether or not a moratorium

15 on the sale of breast implants should be lifted or not. The

16 DOW CORNING case, the DOW CORNING Court recognized that that

17 has nothing to do with these bankruptcy proceedings. That

18 is an issue, a dispute you have with the debtors that's

19 independent, that you would have whether or not this case

20 had ever been filed.

21 Furthermore, it is strictly in the parochial

22 interest of your constituency, and indeed the debtor was

23 opposing it. So in that case it had nothing to do with the

24 reorganization process. Similarly, JOHNS MANVILLE dealt

25 with a situation where there was a dispute over the holding


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Labuda/Argument 31

1 of a shareholder's meeting to determine whether or not new

2 officers perhaps, or directors should be elected that

3 perhaps could take control of the case. Again, it had

4 nothing to do with any plan of reorganization, or any of the

5 reorganization issues in the case at all.

6 And finally, EAGLE PITRY (phonetic) dealt with the

7 delisting of the debtor's stock. And the equity committee

8 wanted to participate in those proceedings outside of the

9 case. In each of those cases that work really was unrelated

10 to anything going on in the bankruptcy case, and it would

11 have occurred and there would have been issues that those

12 constituencies would have been interested in and focused on

13 had the bankruptcy never been commenced. That's different

14 from our case.

15 If you ask would we have engaged in this work if

16 the debtor hadn't filed, or more importantly if the plan

17 hadn't been filed, the answer is no. There would have been

18 no reason to seek an exemption for our plan if the plan had

19 never been filed. If we had never come up with the solution

20 that we all agreed was better than the FAIR Act, there would

21 have been no need to do this. Indeed, our particular

22 constituency's interests have nothing to do and is not

23 impacted directly by the FAIR Act at all. This was really

24 done on behalf of all the plan proponents, and on behalf of

25 the plan.


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Labuda/Argument 32

1 We also think, we recognize that this work

2 naturally does occur outside the physical presence in this

3 courtroom. There's papers, there's submissions, there's

4 arguments, there's work that's done outside this courtroom.

5 But that doesn't mean it's not related to the plan. We note

6 in our papers just one example, but an important one, the UK

7 proceedings. We have met and negotiated with foreign

8 officials, the administrators, even the UK pension

9 authorities on UK pension law. We've appeared in that

10 court, we've been represented through barristers. All the

11 plan proponents have done that.

12 All of that is taking place outside of this

13 courtroom, but it is still focused entirely on confirming

14 the plan that's been filed and that's been put before this

15 Court. We'd also add, assuming the Court agrees that

16 there's no per se test here, which we don't think there's

17 any support for, and the Court is looking at whether or not

18 this falls under the issue of the reorganization process or

19 not, there are a couple of other facts that we think do

20 warrant attention and support the allowance of these fees.

21 First and foremost, all the parties with economic

22 interests in this case have no objection to these fees. And

23 indeed, all the plan proponents wanted this work to be done

24 and support the allowance of the fees because it has been

25 beneficial. Two, we did talk to the debtor about what Judge


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Labuda/Argument 33

1 Newsome had said in the past and trying to coordinate

2 efforts and conserve estate resources and really be

3 streamlined. And we've done this in other instances, Your

4 Honor.

5 Your Honor has approved the Committee's financial

6 advisors, for instance, to handle certain asset sales on

7 behalf of the debtors. They've also been involved

8 intimately and led the process on the exit financing. The

9 latter particularly, much like the FAIR Act work, deals with

10 the confirmation of the plan. And even though the exit

11 financing work is something that was typically done by the

12 debtor and its investment bankers, the plan proponents have

13 worked together on this and used Jefferies, our financial

14 advisor, as the lead entity to handle this work.

15 Lastly, I do think it's worth noting on the

16 timeliness issue. United Trustee would correctly argue that

17 these were interim applications, objections can be raised at

18 the final fee app of course, and laches, as they would point

19 out, would not apply to them. That said, we would note that

20 these applications had been filed for two years, Your Honor.

21 We had discussed the FAIR Act when it came up, specifically

22 with Judge Newsome in in-chambers conferences, made very

23 clear that we were engaged in this work. There's a

24 discussion in the disclosure statement.

25 To raise it at this point we do believe is


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Labuda/Argument 34

1 prejudicial and unfair, especially if there is no per se

2 rule. If there is discretion here, and we think the facts

3 certainly support saying this falls under 1103, but if

4 there's any doubt about it we think those latter facts would

5 weigh heavily in allowing these fees.

6 THE COURT: All right. Let me ask you something.

7 Besides the argument that lobbying is beyond the scope of

8 the Committee's authority under 1103, what about the scope

9 of the order authorizing the Committee to retain counsel.

10 Isn't there an argument that lobbying exceeds the scope of

11 that order?

12 MR. LABUDA: You know, the order did not

13 specifically mention that, Your Honor. Because at the time

14 we started this case there was no discussion of the FAIR Act

15 and it was not on the table. When this came up, and the UST

16 has mentioned this to us separately, could we have filed a

17 separate motion? Yes, we could have. But Your Honor, we

18 did view this as work on the plan. The plan proponents all

19 viewed this as plan related work. And we really did not

20 think that there was any doubt, given that we did believe it

21 was related to the plan, that we did discuss it in chambers,

22 that there was any doubt that this was covered under the

23 original intension which clearly covered work with respect

24 to the plan, such as formulating the plan, negotiating the

25 plan, responding to objections to the plan.


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Labuda/Argument 35

1 And indeed, many of us view the FAIR Act as an

2 objection to the plan. It is an obstacle which needs to be

3 beaten and overcome. So, I would say that that probably

4 explains why there's not something specific in that order.

5 THE COURT: All right. What's the status of the

6 FAIR Act?

7 MR. LABUDA: The Congress, as you know, became

8 very busy in the fall and it was delayed until this January.

9 We have been, since July, continuing to do this work but we

10 have not passed it through in our bills from the date the

11 United States Trustee filed this. We have been recording

12 time and we have been able to do it on a very streamline

13 basis because Congress has put it on a burner which we

14 think, in the recent reports that we've gotten from our

15 people on this matter, is that it will be taken up probably

16 the first week in February. But as soon as the Supreme

17 Court nomination vote is taken.

18 So we do think it will come up again, and we do

19 think that there is some further work to do here. That

20 said, we think we are much closer to confirmation of this

21 plan than we were last summer. We've solved and reached a

22 settlement with UK administrators. As Your Honor will hear

23 a little bit further today, there's been an agreement with

24 Cooper Industries to go forward with that. And we believe

25 things are falling in place where we can confirm, hopefully


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Labuda/Argument 36

1 sooner rather than later. And with that said, while we do

2 think there's still additional work to be done, we think the

3 end is near for that work.

4 THE COURT: All right. Tell me something about

5 the composition of the Committee and where the

6 constituencies that are represented by the Committee would

7 end up if the plan similar to the one that was proposed gets

8 confirmed.

9 MR. LABUDA: The Committee currently is composed

10 of six members; three trade creditors and three

11 institutional note holders. As I said before, the FAIR Act

12 doesn't deal with their interests against the debtor

13 whatsoever, unlike the DOW CORNING case. They have, as I

14 said, trade and note holder claims against the debtor.

15 Under the current plan the note holders are to receive 50

16 percent of the equity in the debtors. So they would get

17 their pro rata share of them. The trade is proposed to get

18 35 cents on the dollar, subject to a cap that could alter

19 that amount.

20 If the FAIR Act were to pass, that plan obviously

21 would go off the table. We would then go back to

22 negotiations with the UK administrators, the foreign

23 asbestos claimants, the banks, the equity committee again,

24 all of that. And it's unclear what we would get. It's a

25 possibility that perhaps they would have to share the equity


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Labuda/Argument 37

1 with the banks. It's a possibility they would have to share

2 the equity with the trade. What is clear is that the debt

3 burden that would have been placed upon the debtors by the

4 FAIR Act would be a substantial obstacle for us to address.

5 And the plan proponents were all in unison that

6 that financial burden, 1) would be unfair, but 2) could

7 bring this case back to square-one and leave us seven more

8 years of sort of traditional financial bankruptcy

9 litigation.

10 THE COURT: All right. And the 50 percent equity

11 that's going to the note holders under the plan, is it just

12 for the note holders?

13 MR. LABUDA: It's just for the note holders, Your

14 Honor.

15 THE COURT: Don't those parties also have rights

16 to acquire the balance of the equity in the debtor that's

17 going to the asbestos trust?

18 MR. LABUDA: No, Your Honor. That is not

19 available to the note holders. There is one constituency,

20 the largest note holder who is not on the Committee, Mr.

21 Carl Icon (phonetic) that has been in separate negotiations

22 with the Asbestos Committee, and he did negotiate an option

23 to acquire those shares.

24 THE COURT: Outside the plan?

25 MR. LABUDA: Outside of the plan. Although, as


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Labuda/Argument 38

1 was reported to the Court at the last hearing, as a term and

2 condition of that we did require and negotiate with Mr. Icon

3 some minority shareholder protections. Because the note

4 holders, absent Mr. Icon, who were once going to share the

5 company with asbestos and Mr. Icon, found themselves

6 asbestos may be gone, and they would have different issues

7 facing where they would just be a minority shareholder, Mr.

8 Icon. But that's outside of the plan, not currently in the

9 plan, and indeed came up long after this work had been done.

10 Indeed that was all after the July stop of our services, at

11 least the billing of these services.

12 THE COURT: So my point, what I'm trying to get at

13 is that the people who hired your firm not only have an

14 interest in confirmation in a plan where, let's say in a

15 typical case trade creditors would be getting a percentage

16 on their dollar paid to them either at confirmation or over

17 time, but this plan calls for the constituents that you

18 represent to have a major stake in the equity of the company

19 post petition and possibly have a, because of some

20 negotiations not inside the plan, have a controlling

21 interest in the debtor, so that --

22 MR. LABUDA: That's actually right, Your Honor --

23 THE COURT: -- post confirmation, if it ever

24 happens, these people are looking down the road to what's

25 going to happen to their interest in this debtor, which is


39/138

Schepacarter/Argument 39

1 primarily a stock interest that depends on the future

2 viability of this company.

3 MR. LABUDA: That's right, Your Honor. And I

4 would add that we really have been treated, as has asbestos

5 by the debtors, as the future shareholders of this company

6 and we've worked together under that presumption in trying

7 to complete these cases.

8 THE COURT: Okay, thank you. Mr. Schepacarter?

9 MR. SCHEPACARTER: Good morning, Your Honor.

10 Richard Schepacarter for the United States Trustee. Your

11 Honor, what I would like to do, and hopefully the Court can

12 hear me, I'm not too close to this microphone. But what I

13 would like to do is answer some of Mr. Labuda's Sonnenschein

14 arguments that were made today, and then highlight some of

15 the other things that we had brought up in our objection and

16 that were brought up in their response. One of the things

17 that Mr. Labuda had indicated was that we had no issue with

18 respect to the reasonableness of the fees or the substantial

19 benefit that was conferred. And the reason that that

20 portion is not set forth in our objection is because that

21 there's sort of another gate that they had to get through

22 before they even get to the 3:30 analysis which is whether

23 the Committee has the authority to do these type of

24 services. And I think that's where our objections lies.

25 To a certain extent it is mainly a legal issue,


40/138


1 and I think that their response and their argument today

2 changes a little bit of the analysis with respect to the way

3 that they are proceeding as the way that, under the statute

4 as opposed to what the cases indicate. What they have

5 basically stated is that they're not seeking under 1103-C5,

6 which is sort of the catchall provision under the authority

7 that's granted to committees to do basically anything in the

8 context of the case. But they're sort of saying, wait a

9 minute, this is really sort of plan related. And some of

10 the things I want to highlight are with respect to that, and

11 then I'll get into some other things.

12 To a certain extent they have basically boiled

13 down three things that they have done with respect to what

14 they call the plan related issues. And two of them really

15 have little or nothing to do with the plan. What Mr. Labuda

16 had stated was Sonnenschein had sought an exemption in the

17 FAIR Act, and I'm not sure how that interrelates with

18 respect to the plan of reorganization. Also obtaining

19 concessions in the FAIR Act, again it's a statute that

20 hasn't been enacted yet. So we don't even know what the

21 final outcome will be of this statute, or the final outcome

22 of how it's going to play upon Federal Mogul or any of the

23 other asbestos debtors, or any of the other creditors who

24 they represent.

25 There are six members of the Committee, but you've


41/138


1 got to remember that the Committee represents all of the

2 creditor body. So there are, there may be other creditors

3 under that umbrella who may do better under the FAIR Act and

4 we don't know that because we don't, the FAIR Act has not

5 been enacted yet. The other thing that they did was to

6 delay passage of the FAIR Act.

7 THE COURT: Other -- Let me just, I'm trying to

8 digest that last statement. Other creditors may do better

9 if the FAIR Act is passed?

10 MR. SCHEPACARTER: I'm not sure. That's something

11 that I don't think anybody can -- Well, I don't know if

12 that's something that anybody can determine today. I don't

13 know if that analysis was done by Sonnenschein. It seems

14 like they've done quite a bit of work with respect to the

15 lobbying issue, or the FAIR Act analysis. But that's

16 something that I think has to be taken into consideration.

17 One of the other things that Mr. Labuda had

18 indicated was that, and there was a question that Your Honor

19 had brought up, which is that there is no specific court

20 approval or authority granted, either in an order or some

21 other document, that said that they could engage in the

22 lobbying services. The cases that they cited, and they put

23 them in sort of a compendium of unreported decisions, and

24 they really weren't unreported decisions. Basically it was

25 a compendium of pleadings in the NEXT WAVE (phonetic) case


42/138


1 that ended up as a Supreme Court opinion, but it really

2 didn't deal with the lobbying issue. And in those cases it

3 was obvious that there were motions that were filed with

4 respect to hiring a lobbyist or a firm to do the lobbying

5 work.

6 Our office objected. In their response they

7 indicated that our office's objection was overruled, but it

8 was never overruled on these grounds. It was overruled on

9 other grounds, namely some retention issues and some fee

10 issues with respect to retaining the fees. But in this case

11 there was never, if you look at the pleadings, the retention

12 papers that were filed, the subsequent affidavits that were

13 filed, there was never any express grant by the Court of any

14 authority to engage in the lobbying services.

15 To a certain extent, and it gets back to the same

16 thing with respect to the C3 issue that I'm dealing with, is

17 that C3 again deals with in the context of the bankruptcy

18 case of basically the Committee assisting the debtor or

19 coming up with its own plan of reorganization. And it

20 really deals with drafting a plan and formulating a plan.

21 For example, Mr. Labuda referred to the exit financing.

22 Exit financing is more plan related than probably anything

23 else that you could think of, because exit financing is, the

24 checkbook is the thing that allows for the plan to go

25 forward financially. So I could see that even though that


43/138


1 somebody could say, well the debtor should be doing the exit

2 financing, I think the Committee could do the exit financing

3 as well.

4 THE COURT: How does CYBERGENICS play into this?

5 MR. SCHEPACARTER: Well, I was just about to bring

6 that up. CYBERGENICS I think plays into this in this

7 context. The Third Circuit basically said there are certain

8 things that a committee can do in the context of a

9 bankruptcy case if the debtor is unwilling to do it. Mainly

10 avoidance actions.

11 THE COURT: Avoidance, yes.

12 MR. SCHEPACARTER: And I can see that with respect

13 to the financing as well. But those are things that are

14 done within the context of the bankruptcy case. An

15 avoidance action is something that's bankruptcy created, as

16 is a creditor's committee. It's bankruptcy created. If

17 Federal Mogul never filed a bankruptcy petition there would

18 never ever be a creditor's committee, despite whether we

19 appoint one or not.

20 THE COURT: Well, if Federal Mogul in bankruptcy

21 decided to hire a lobbyist, would they need court approval

22 to do that?

23 MR. SCHEPACARTER: With respect to the debtor

24 itself?

25 THE COURT: Yes.


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1 MR. SCHEPACARTER: It would probably be an

2 ordinary course.

3 THE COURT: So they wouldn't even have to come in

4 here.

5 MR. SCHEPACARTER: Probably wouldn't even have to

6 come in. And these cases are pretty much, a lot of things

7 are ordinary course with these cases because these are

8 financial companies that are still operating. They're not

9 in dire straits, except for with respect to the asbestos

10 liability. Most of these cases are growing concerns,

11 they're viable companies for the most part, and their stock

12 is trading and they're able to do ordinary course

13 transactions, come up in front of this Court and other

14 courts every day with respect to real estate transactions

15 and the like. So that's -- Those are things that are

16 basically, getting back to CYBERGENICS, they're the things

17 that are basically done within the context of the bankruptcy

18 case.

19 With respect to this issue, it's sort of, most of

20 it's done outside, not just outside the courtroom but

21 outside the whole purview of what goes on with respect to

22 the bankruptcy case. The meetings with senators, the things

23 that are done, whatever goes on at Capital Hill. I don't

24 know what goes on, I'm not -- I have no idea what lobbyists

25 do, nor should I.


45/138


1 With respect to the fairness issue, I just want to

2 address that briefly. We didn't put that in our response

3 and we can brief that. We've briefed it before in other

4 context in Third Circuit opinions and papers that we

5 submitted, basically that laches does not lie against the

6 government. I think that that's fairly well settled law.

7 Also with respect to the fee applications. In

8 this case there was an administrative order. Administrative

9 order which I had some part in drafting because I handled

10 the MARINER (phonetic) case which basically grew, and out of

11 that grew this administrative order. The administrative

12 order allows for fee applications to be interim until

13 they're basically final. And that the failure to object at

14 any point in time is not prejudicial to any party including

15 the United States Trustee.

16 That being said, these applications come up on a

17 fairly regular basis and it takes some time for them to come

18 before the Court. If you notice, our objection was filed in

19 July and it's now January '06, and this is the first time

20 we've had an opportunity of a hearing, and the hearing date

21 had never been adjourned. So there really shouldn't be an

22 unfairness issue from the standpoint that these fee

23 applications come before the Court. There are deadlines set

24 for objections. They are reviewed by the fee auditor, and

25 until they're final they're --


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1 THE COURT: The whole idea of prejudice or laches

2 doesn't apply in fee applications. You have, for example,

3 the ENGLE case where the Court approved the retention of

4 counsel in a criminal case. And then when they came back

5 for the fee application the Court said well, what did you do

6 for the estate, and found nothing. And it went up on appeal

7 and the Third Circuit upheld it. The fact that the

8 Bankruptcy Court had approved the retention of the criminal

9 defense firm didn't mean that anybody was precluded from

10 objecting.

11 And then you also have FIRST JERSEY where the

12 Bankruptcy Court overruled an objection to the retention of

13 counsel based upon an alleged preference. Counsel went

14 ahead and did work, relying on the Bankruptcy Court's

15 decision. And when it got up to the Third Circuit, the

16 Third Circuit said well, the Bankruptcy Court was wrong, so

17 they had to give back the money. So there's no, nobody can

18 rely on it. Even if I overruled your objection now, doesn't

19 mean that the Third Circuit wouldn't disagree if you decided

20 to appeal.

21 MR. SCHEPACARTER: Correct. And one of the other

22 things I wanted to --

23 THE COURT: Or the district court.

24 MR. SCHEPACARTER: I agree with Your Honor. One

25 of the other things I wanted to bring up was that this is an


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1 objection. This is a hearing solely on the Fourteenth

2 objection. I know that Sonnenschein's response was to the

3 Fourteenth and Fifteenth to another fee application which

4 we've objected to. But that is not set for hearing today.

5 The only hearing that's going forward today is on the

6 Fourteenth interim objection.

7 THE COURT: All right. Thank you very much.

8 MR. SCHEPACARTER: Thank you, Your Honor.

9 THE COURT: This is a fee application by counsel

10 to the Official Committee of Unsecured Creditors. There's

11 been an objection lodged by the United States Trustee that

12 part of the work done by the attorneys for the Committee is

13 beyond the scope of the authority of committees under 1103

14 of the Bankruptcy Code. And it's also beyond the scope of

15 the order that authorized the Committee to retain counsel.

16 The Third Circuit in the BUSY BEAVER case has made

17 it clear that the Bankruptcy Court has a duty to review all

18 professional fee applications in bankruptcy cases. And the

19 reason is that there's a public understanding that the

20 integrity of the process is important and that the public

21 needs to know that someone is looking out to make sure that

22 professionals don't run roughshod over debtors and creditors

23 and the fees that they charge. And there's also the code of

24 silence among professionals who are reluctant to object to

25 other professional fees and the prospect that creditors who


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1 are only going to get a percentage on their claims don't

2 have the economic incentive to spend the resources to object

3 to claims.

4 Those considerations don't apply in a case like

5 this. The parties who have the economic incentive coming

6 out of this case to hold down the fees are the ones who

7 hired counsel, and if the plan is confirmed, are the ones

8 that will end up with the equity, the major share of equity

9 in this case. And so it really is the people who have the

10 most financial stake who are in support of hiring these

11 professionals to do the work.

12 Not only that, the other constituents here, the

13 debtors whoever that is, we're not sure who the debtors are

14 particularly with regard to the UK debtors, or let's say the

15 management of the debtors, the committee of asbestos

16 personal injury claimants and the futures representative,

17 the equity committee, have all not only not objected to the

18 Sonnenschein fee application but have submitted responses in

19 which they say they support the work that was done by the

20 Sonnenschein firm and think that it was not only worthwhile

21 but good value.

22 So the premise underlying the BUSY BEAVER

23 assignment of duty to the Court to review fee applications,

24 I don't think really applies in full in this case.

25 Nevertheless, the Third Circuit has said we have a duty to


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1 do that, and I accept that. As far as the US Trustee goes,

2 the Third Circuit said that the Court could not defer to the

3 US Trustee, that the US Trustee has limited resources and

4 can decide where to allocate those resources. And if it

5 doesn't take a position in a case, it doesn't mean that the

6 Court can overlook fee applications.

7 What motivates the US Trustee to file an objection

8 in a case like this where all of the people with financial

9 interests support the expenditure of their funds is and

10 probably will remain a mystery to me. To me, if

11 sophisticated people want to spend their money to hire

12 professionals, their decision should be honored and

13 shouldn't be second-guessed by a court. And the courts rule

14 in all those cases where creditors are really unprotected by

15 professionals or where this code of silence prevents it

16 warrant monitoring by the Court. But this is far from a

17 case like that.

18 The second most important criteria, I think, is

19 what's the results of the professional's work? And we don't

20 know what the final result is here. The FAIR Act is still

21 pending before Congress, as Mr. Labuda indicated, and

22 they're likely to take it up next month. I guess it's

23 before the Senate Judiciary Committee and right now they're

24 kind of occupied with the Supreme Court nomination of Judge

25 Alito. But once they finish that, I guess this may pop up


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Decision 50

1 on their agenda.

2 So what I'm going to do, because the final result

3 isn't known, I'm going to postpone consideration of this

4 objection until the final fee application by the

5 Sonnenschein firm. In the interim I'm going to hold back

6 the 20 percent, which I take it has not been paid under the

7 administrative order. If I understand it, Mr. Labuda, your

8 firm has received 80 percent of the unobjectionable services

9 that you've provided.

10 MR. LABUDA: We've received 80 percent of the

11 total bill.

12 THE COURT: Right. And so your total bill is

13 about a million six?

14 MR. LABUDA: Yes.

15 THE COURT: So 20 percent would be about $320,000

16 that's held back. All right. I'm going to order that that

17 hold back stay in place until the final consideration of

18 your fee application. And I want to caution you because of

19 what happened in cases like FIRST JERSEY SECURITIES, it

20 really doesn't protect you if I agree with you and the issue

21 goes up to another court that doesn't agree with you, a

22 higher court.

23 So, I take it that since the US Trustee has

24 objected to this fee application, you've been circumspect in

25 the lobbying services that your firm has done. And I would


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Colloquy 51

1 suggest that you use caution. As I say, it may be at the

2 end of the day, if I agree with you and I overrule the

3 objection of the US Trustee, that nevertheless you might

4 have to give some money back. And you want to guard against

5 the prospect that even if I were to overrule the objection

6 today, that you're not home free. Okay? So, I'm going to

7 preserve the objection as an open objection to the final fee

8 application of your firm with regard to any lobbying

9 activities. All right? Mr. Lantry.

10 MR. LANTRY: Thank you, Your Honor. Your Honor,

11 Kevin Lantry on behalf of the debtors. Your ruling creates

12 a problem for the debtors. We do anticipate that the Senate

13 may get very active and that we the debtors may need

14 lobbying. We had been using our own lobbyists for some

15 time, found that Belacourt (phonetic) was doing so good on

16 behalf of all of us plan proponents that we terminated that.

17 It would be tempting of course for us to engage the

18 Sonnenschein firm on an ordinary course basis, but we know

19 that the US Trustee also has antipathy toward a 327

20 professional ever being an ordinary course professional at

21 the same time. So we are in a quandary in terms of an

22 efficient use of estate resources to capitalize on who we've

23 been using. And your ruling does create a problem for us.

24 THE COURT: Even if I overrule the objection you'd

25 be in the same quandary. Okay? Because the US Trustee, you


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1 have to assume that they'll appeal. All right? That's why

2 I say, if I overrule the objection it doesn't insulate

3 anybody from problems. So, you'll have to solve that --

4 MR. LABUDA: Your Honor, I would add though, I

5 think an overruling of the objection by Your Honor would

6 give us greater comfort that we could continue to do the

7 work that needed to be done. Because we are being asked to

8 continue this work. And with the objection still hanging

9 out there, there is great hesitancy to do it. Overruling

10 it, notwithstanding the subject of a final fee application

11 ruling or an appeal, would give us a greater comfort and put

12 us in a better position to actually continue to do this work

13 and take that risk.

14 THE COURT: I don't see why. I wouldn't take any

15 comfort from my own ruling. Okay? So, I'm going to

16 postpone the consideration of the objection.

17 MR. LANTRY: All right, thank you.

18 THE COURT: And the other thing is, you know, if

19 the case comes out and gets confirmed, the US Trustee may be

20 less inclined to appeal.

21 MR. LABUDA: That is yet another problem that if

22 we are successful we will confirm this plan before the FAIR

23 Act will be approved. And I'm not certain the Court will be

24 in any different position to judge. You know, what at least

25 the UST is talking about, is what was accomplished in the


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1 FAIR Act. Because the very point of this was to not be

2 subject to the FAIR Act. And I would just note, as a final

3 --

4 THE COURT: Whereas if the FAIR Act gets passed

5 before confirmation then we have a different result.

6 MR. LABUDA: We have a very different result. The

7 only thing --

8 THE COURT: And that will affect my decision on

9 the value of the services.

10 MR. LABUDA: Sure. The only last thing I would

11 add, and then I will sit down, Your Honor, is that we do

12 think this is very different, take for example, the UST case

13 where I know Judge Fitzgerald has been concerned at times

14 that the debtor has been engaged in FAIR Act related

15 activities because it is trying to find a solution to its

16 problems outside of the plan. It's completely different

17 from this case. We're involved in it because we do want to

18 solve the problems --

19 THE COURT: I understand.

20 MR. LABUDA: -- in the bankruptcy case.

21 THE COURT: And you may prevail.

22 MR. LABUDA: Thank you, Your Honor.

23 THE COURT: And hopefully -- Nothing further, Mr.

24 Schepacarter.

25 MR. SCHEPACARTER: I just had a question.


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1 THE COURT: I need to take up other matters. A

2 quick question?

3 MR. SCHEPACARTER: A quick question. It's

4 actually a very quick question. Since that concludes all of

5 my matters today, may I be excused?

6 THE COURT: Certainly.

7 MR. SCHEPACARTER: Thank you.

8 THE COURT: Mr. O'Neill?

9 MR. O'NEILL: Yes, Your Honor. Next we're going

10 to move to matter number nine on the agenda, which is the

11 plaintiff's motion for preliminary injunction. And Mr.

12 Lantry is going to make that presentation.

13 THE COURT: Mr. Lantry.

14 MR. LANTRY: Good morning, Your Honor. Kevin

15 Lantry of Sidley Austin on behalf of the debtors. Your

16 Honor, the Cooper Pneumo Abex deal is very very good news

17 for these Chapter 11 proceedings. This is the last

18 settlement that the plan proponents needed to reach before

19 we turn quickly to incorporating this and other settlements

20 such as the UK settlement into a revised plan and submitting

21 whatever disclosure document is necessary to reflect those

22 revisions for purposes of any further solicitation.

23 In short, the plan proponents believe that if you

24 approve the injunction requested today that we will be able

25 to have, on file by the end of March, a plan and disclosure


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1 document ready to run to the finish line. And as you know,

2 that's been awhile in coming.

3 THE COURT: Do you anticipate any further

4 objections to that?

5 MR. LANTRY: Your Honor, there are a few parties

6 hanging out. As you know, you've scheduled for March 15th a

7 bit of a determination with regard to insurers who threaten

8 to object. And we haven't yet gotten the property damage

9 committee to fully come into the fold, as you can anticipate

10 by some of the objections to the property damage committee.

11 Those two are the only entities that we know of that might

12 be objecting the confirmation of any significance.

13 THE COURT: And if you put in a 524(g) injunction

14 for the Pneumo protected parties, how about the people who

15 have personal injury claims against Pneumo?

16 MR. LANTRY: We certainly heard from some firms

17 that seem to be suggesting some confirmation objections that

18 we might anticipate. Again, I can't predict because we

19 haven't seen that contingency before in this case as many of

20 the other cases have seen.

21 THE COURT: Okay.

22 MR. LANTRY: Your Honor, a little bit of

23 background fact before we turn to the relief, I think could

24 be useful, because the Cooper Pneumo Abex deal has been a

25 full four years in coming. We have been working on this


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1 from the commencement of the case. What a debtor in

2 possession, or what a debtor contemplating Chapter 11 filing

3 of asbestos liability considers, among other things, is two

4 potential assets. One of them are the contributions that a

5 parent or former parent that won't be going into Chapter 11

6 might be willing to contribute that would be fair and

7 equitable and get 524(g) protection.

8 So you look at the prospective parent or former

9 parent companies, talk to them to see if they have a

10 willingness to make such a contribution. If they do, it's

11 typical in probably more than 50 percent of the Chapter 11

12 asbestos cases that are pending to seek an injunction on the

13 very first day because that parent or former parent that's

14 not filing is willing to deal. And you get the injunction

15 so that they can be motivated to work with asbestos and

16 futures rep to determine the amount of the fair and

17 equitable contribution.

18 Secondly, you look at the potential shared

19 insurance that might exist with that former or existing

20 parent company that's not going in, to see if the debtor's

21 rights to that shared insurance is going to be impacted by

22 the injunction or lack of injunction, vis-a-vis the parent

23 company. And obviously, if the parent or former parent

24 that's not going in is solvent, and there's a huge plethora

25 of insurance that's available, you may end up saying let's


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1 just let it be, because it will take care of the asbestos

2 liability on its own in the tort system. But if the parent

3 isn't that solvent, the ex-parent perhaps isn't that

4 solvent, or if there are problems in the insurance, you may

5 want to stay it so that the limited asset of the insurance,

6 the shared insurance isn't dissipated.

7 With those things in mind, Your Honor, we turn to

8 thinking about Pneumo and Cooper before the filing. And we

9 recognize that both of them were former parents that might

10 be interested in making a contribution. And we also

11 recognize that there was some shared insurance. What we

12 knew from our experience in the tort system defending

13 Pneumo's asbestos liability which Federal Mogul had

14 undertaken in 1998, was that there were gaps in the

15 insurance. And that in fact over those three years we spent

16 about 55 million out of insurance in defending the Federal

17 Mogul Products lines of asbestos liability, the two lines

18 that we described in our pleadings; the Pneumo line and the

19 Wagner line.

20 So we knew that it would cost Cooper, who had to

21 step into our shoes, some money in the tort system to have

22 to defend Pneumo Abex. We also knew that there was this

23 shared insurance that we might want to tap into. When we

24 acquired, when Federal Mogul acquired Wagner in '98 there

25 was about 1.2 billion in insurance available. We also knew


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1 something else, Your Honor. Cooper had been a rival in the

2 friction business with Federal Mogul before we acquired

3 Wagner. And we knew that that rivalry was significant. We

4 also knew that --

5 THE COURT: Can I just interrupt you?

6 MR. LANTRY: Certainly.

7 THE COURT: Can you point me to the pleading that

8 sets forth these facts you're talking about with regard to

9 insurance and the experience of Federal Mogul.

10 MR. LANTRY: Your Honor, the pleading that

11 describes it is probably best the memorandum of points and

12 authorities in support of the preliminary injunction. And

13 it describes the various history of the purchase agreement.

14 The actual recitation of the 55 million that we expended

15 comes from the SEC filings, and we did not put that fact in

16 those papers.

17 THE COURT: And the insurance coverage? The 1.2

18 billion and so forth, where is that?

19 MR. LANTRY: That's in our disclosure statement,

20 Your Honor. Let me just back up for a minute and describe a

21 little bit more of the facts. What occurred in terms of the

22 primary history of Federal Mogul Products, is it came from

23 the origins of Wagner brake business which was created in

24 the 1920s and put asbestos in brake linings. Wagner was

25 ultimately acquired by Federal Mogul Products in a stock

jan 20 2006 fmp hearing transcript

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