IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: MERVYNS HOLDINGS, LLC, et al. Debtors.

Chapter 11 Case No. 08-11586 (KG)

Obj. Deadline: Oct. 22, 2012 at 4:00 p.m. Hearing Date: Oct. 29, 2012 at 2:00 p.m.

UNITED STATES TRUSTEE=S OBJECTION TO MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR ENTRY OF AN ORDER PURSUANT TO 11 U.S.C. 105(a) AND FED.R.BANKR.P. 9019(a) APPROVING THE COMPROMISE AND SETTLEMENT OF ESTATE ACTIONS AND THE PAYMENT OF CERTAIN ALLOWED ADMINISTRATIVE EXPENSE PRIORITY CLAIMS PURSUANT TO THE SETTLEMENT AGREEMENT In support of her Objection (the AObjection@) to Motion of the Official Committee of Unsecured Creditors For Entry of an Order Pursuant to 11 U.S.C. 105(a) and Fed. R.Bankr.P. 9019(A) Approving the Compromise and Settlement of Estate Actions and the Payment of Certain Allowed Administrative Expense Priority Claims Pursuant to the Settlement Agreement (the Motion), Roberta A. DeAngelis, the United States Trustee for Region 3, through her undersigned counsel, states as follows: 1. 2. This Court has jurisdiction to hear this Objection. Pursuant to 28 U.S.C. ' 586, the U.S. Trustee is charged with the administrative

oversight of cases commenced pursuant to chapter 11 of title 11 of the United States Code (the ABankruptcy Code@). This duty is part of the U.S. Trustee=s overarching responsibility to enforce the bankruptcy laws as written by Congress and interpreted by the courts. See United States Trustee v. Columbia Gas Sys., Inc. (In re Columbia Gas Sys., Inc.), 33 F.3d 294, 295-96 (3d Cir. 1994) (noting that U.S. Trustee has Apublic interest standing@ under 11 U.S.C. ' 307, which goes beyond mere pecuniary interest); Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500 (6th Cir. 1990) (describing the U.S. Trustee as a Awatchdog@).

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Pursuant to 11 U.S.C. ' 307, the U.S. Trustee has standing to be heard with

regard to this Objection. Background 4. On July 29, 2008, the Debtors 1 filed voluntary petitions for relief under

Chapter 11 of the Bankruptcy Code. 5. The U.S. Trustee appointed a statutory committee of unsecured creditors on

August 7, 2008 (the ACommittee@). 6. On October 5, 2012, the Committee filed the Motion, seeking approval of a

Settlement Agreement among Mervyns, the Committee and the Defendants that resolves certain Estate Actions. Argument 7. The U.S. Trustee objects to approval of the Settlement Agreement because the

Release provision of the Settlement Agreement is too broad. In particular, the Release appears to contain a release by individual creditors. 8. The last sentence of the Release (attached as Exhibit 15 to the Settlement

Agreement) states that: Provided that, this Defendant Release shall not constitute a release by individual creditors of the Debtors, including members of the Committee, of any claims or causes of action against the Defendant Released Parties except as to those claims or causes of action arising from or related to any facts, events, occurrences, circumstances or omissions asserted in the 2004 Transaction Litigation, the Sun Preference Litigation, MDS Tax Action, and the Debtors pending bankruptcy cases. (emphasis added).
1/

All capitalized terms not defined herein shall have the meaning ascribed to them in the Motion.

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The inclusion of this provision is inappropriate for several reasons. First, it

does not appear that all creditors have been provided notice of the Motion with the proposed release language. To the extent that the moving parties are attempting to reserve the ability to argue that creditors have consented to the third-party releases at a later date, such reservation is inappropriate and would be ineffective, especially where creditors have not been provided notice of the Motion. Any creditor release should be provided as part of an accepting plan vote, which is accompanied by the opportunity to opt-out of such release. WHEREFORE, the U.S. Trustee requests that this Court issue an order denying approval of the Motion as written and/or granting such other relief as this Court deems appropriate, fair and just. Respectfully submitted, ROBERTA A. DeANGELIS UNITED STATES TRUSTEE By: /s/ Jane M. Leamy Jane M. Leamy (#4113) Trial Attorney J. Caleb Boggs Federal Building 844 King Street, Suite 2207, Lockbox 35 Wilmington, DE 19801 (302) 573-6491 (302) 573-6497 (Fax)

Dated: October 22, 2012

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: MERVYNS HOLDINGS, LLC, et al. : : : : : : CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that on October 22, 2012, the United States Trustees Objection to the Motion of the Official Committee of Unsecured Creditors For Entry of an Order Pursuant to 11 U.S.C. 105(a) and Fed. R.Bankr.P. 9019(A) Approving the Compromise and Settlement of Estate Actions and the Payment of Certain Allowed Administrative Expense Priority Claims Pursuant to the Settlement Agreement, was caused to be served via electronic mail and first class mail, postage prepaid, to the following persons:
Daniel DeFranceschi Christopher Samis Richards Layton & Finger, P.A. One Rodney Square Wilmington, DE 19899 Jay R. Indyke Cathy Hershcopf Seth Van Aalten Cooley Goodward Kronish LLP 1114 Avenue of the Americas New York NY 10036-7798

Chapter 11 Case No. 08-11586 (KG)

Debtors.

Howard Beltzer Wendy Walker Morgan Lewis & Bockius LLP 101 Park Avenue New York, NY 10178-0060

William Bowden Amanda Winfree Karen Skomorucha Ashby & Geddes P.A. 500 Delaware Avenue, 8th Floor Wilmington, DE 19899

Ashley Stitzer Bayard PA 222 Delaware Avenue, Suite 900 Wilmington, DE 19899

/s/ Jane M. Leamy Jane M. Leamy, Esquire Trial Attorney