Lehman 061610

Page 1
2 UNITED STATES BANKRUPTCY COURT
3 SOUTHERN DISTRICT OF NEW YORK
4 Main Case No. 08-13555(JMP), Adv. Case No. 08-01420(JMP)
5 - - - - - - - - - - - - - - - - - - - - -x
6 In the Matter of:
7 LEHMAN BROTHERS HOLDINGS, INC.,
8 Debtor.
9 - - - - - - - - - - - - - - - - - - - - -x
10 SECURITIES INVESTOR PROTECTION CORPORATION, ET AL.,
11 Plaintiff,
12 v.
13 LEHMAN BROTHERS, INC.
14 Defendant.
15 - - - - - - - - - - - - - - - - - - - - -x
16 United States Bankruptcy Court
17 One Bowling Green
18 New York, New York
19
20 June 16, 2010
21 10:02 AM
22
23 B E F O R E:
24 HON. JAMES M. PECK
25 U.S. BANKRUPTCY JUDGE
VERITEXT REPORTING COMPANY

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1 Motion of Lehman Brothers Holdings Inc. and Lehman
2 Commercial Paper Inc. for Authority to Transfer Funds
3 to Rosslyn LB Syndication Partner LLC
5 Examiner's Motion for Order Discharging Examiner and
6 Granting Related Relief
8 Notice of Presentment of Second Amended Order
9 Implementing Certain Notice and Case Management
10 Procedures
11
12 Motion of the Debtors for the Establishment of
13 Procedures to Dispose of Certain Real Estate Assets
14 and Modification of the Order Establishing Procedures
15
16 Motion of Lehman Brothers Holdings Inc. for Authority
17 to Make New Debt Investment in 237 Park Avenue Property
18
19 Motion of SunCal Debtors for Stay Pending Appeal
20
21 Motion of Debtors and Debtors in Possession for Entry
22 of an Order to Consolidate Certain Proceedings and
23 Establish Related Procedures
24
25 Transcribed by: Laurie Ann Sherby

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2 A P P E A R A N C E S :
3 WEIL, GOTSHAL & MANGES LLP
4 Attorneys for the Debtors
5 767 Fifth Avenue
6 New York, NY 10153
8 BY: HARVEY R. MILLER, ESQ.
9 SUNNY SINGH, ESQ.
10
11
12 WEIL, GOTSHAL & MANGES LLP
13 Attorneys for the Debtors
14 700 Louisiana, Suite 1600
15 Houston, TX 77002
16
17 BY: ALFREDO R. PEREZ, ESQ.
18
19
20 CADWALADER, WICKERSHAM & TAFT LLP
21 Attorneys for Lehman Re
22 One World Financial Center
24
25 BY: MICHELE C. MAMAN, ESQ.

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2 JENNER & BLOCK
3 Attorneys for the Examiner, Anton J. Valukas
4 330 North Wabash Avenue
5 Chicago, IL 60611
7 BY: ROBERT L. BYMAN, ESQ.
10 LOWENSTEIN SANDLER PC
11 Attorneys for Lead Plaintiffs
12 in the Consolidated Securities Litigation
13 65 Livingston Avenue
14 Roseland, NJ 07068
15
16 BY: MICHAEL S. ETKIN, ESQ.
17
18
19 MILBANK, TWEED, HADLEY & MCCLOY LLP
20 Attorneys for the Committee
21 One Chase Manhattan Plaza
23
24 BY: DENNIS C. O'DONNELL, ESQ.
25

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1 JONES DAY
2 Special Counsel to the Debtors
3 222 East 41st Street
6 BY: JAYANT W. TAMBE, ESQ.
9 WACHTELL, LIPTON, ROSEN & KATZ
10 Attorneys for JPMorgan Chase Bank, N.A.
11 51 West 52nd Street
13
14 BY: AMY R. WOLF, ESQ.
15
16
17 WINTHROP COUCHOT, P.C.
18 Attorneys for the SunCal Appellants
19 660 Newport Center Drive
20 Newport Beach, CA 92660
21
22 BY: SEAN A. O'KEEFE, ESQ.
23
24
25 WILLIAM F. KUNTZ III, Party Pro Se

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LEHMAN BROTHERS HOLDINGS, INC., ET AL.
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1 P R O C E E D I N G S
2 THE COURT: Be seated, please. Good morning.
3 MR. MILLER: Good morning, Your Honor.
4 THE COURT: Good morning, Mr. Miller.
5 MR. MILLER: Harvey Miller, at Weil, Gotshal & Manges,
6 on behalf of the debtors. With Your Honor's permission, Your
7 Honor, in deference to the examiner, may we go to item number
8 2, the examiner's motion for discharge?
9 THE COURT: That's fine.
10 MR. MILLER: Thank you, Your Honor.
11 MR. VALUKAS: Your Honor, I'll be represented by my
12 counsel, Mr. Byman, this morning.
13 MR. BYMAN: Good morning, Your Honor, Robert Byman on
14 behalf of the examiner. This, of course, is our motion for
15 discharge. We're only aware of one actual objection but,
16 frankly, we're not aware of the scope of it at this point.
17 I've had an opportunity to look at the class plaintiffs'
18 objections; it's clear that the document that was filed with
19 you was written at a period in time when we were still
20 negotiating things and some of the items to which they object
21 have been resolved. So, it might make more sense for us to
22 hear from Mr. Etkin to find out what is on his mind before we
23 tell you what our response is.
24 THE COURT: Okay, Mr. Etkin, you're in the front row,
25 so you're well positioned for coming forward.

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1 MR. ETKIN: Good morning, Your Honor. Michael Etkin,
2 Lowenstein Sandler, on behalf of the lead plaintiffs in the
3 consolidated securities litigation.
4 Your Honor, we did file an objection yesterday. The
5 timing of the filing may have crossed somewhat with Mr. Byman's
6 letter. I know that there was another draft of the proposed
7 order with changes from the original order that was submitted
8 with the motion which indeed, as Mr. Byman indicated, takes
9 care of some of our concerns that we raised.
10 THE COURT: So what's left?
11 MR. ETKIN: Well, Your Honor, I think it would be best
12 to just cut to the chase and if I may, I'll just go through the
13 order that's been submitted to you and indicate what's left.
14 THE COURT: Okay, although another way to do this
15 would be to have you and counsel for the examiner meet and
16 confer and see if you can narrow the scope of what's left
17 rather than make a list. I'm really not anxious, in front of a
18 packed courtroom, to negotiate the form of an order that may be
19 consensual.
20 MR. ETKIN: Your Honor, I agree a hundred percent and
21 may I add that the examiner made an attempt to do that;
22 circulated correspondence to those parties who had weighed in
23 on the issue. And asked for a meet and confer, I raised my
24 hand. I was a chorus of one, I guess. That never happened
25 prior to today. So I would be happy to meet and confer with

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1 whoever's interested. I don't think the balance of my
2 concerns -- certainly they don't -- the examiner doesn't have a
3 problem with them. So he's indicated that he is at worst,
4 agnostic with respect to them in his letter.
5 THE COURT: I think if I read his letter correctly,
6 and counsel for the examiner can speak to this issue, it
7 appeared to me that the principal issue between the parties
8 involved the demand by your plaintiff class to receive
9 essentially everything that has been turned over to
10 governmental authorities. Is that still one of the issues?
11 MR. ETKIN: We've stepped away from that, Your Honor.
12 We've stepped away from that.
13 THE COURT: Oh, that's good, because that would have
14 been a problem.
15 MR. ETKIN: I understand that. It also involved
16 dissemination to others, other than the government, but in the
17 interests of the examiner's concerns, we've stepped away from
18 that. That's no longer an issue.
19 THE COURT: But I'm seeing other people standing up,
20 so maybe there are some other issues.
21 MR. BYMAN: Your Honor, I just wanted to make sure one
22 thing was clear: that's our only issue. The other issues that
23 we understand Mr. Etkin has are between him and the debtors and
24 the committee and the SIPA trustee. We're ambivalent about
25 those; we don't care about them.

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1 THE COURT: Is ambivalent different than agnostic?
2 MR. BYMAN: Less of a religious overtone.
3 THE COURT: Okay, well, I think it probably has a
4 different meaning too.
5 MR. ETKIN: Your Honor, I would be happy to take you
6 up on your su --
7 THE COURT: I think you should all talk. I have
8 another view on this, and that is that there's no urgency that
9 this be decided today. But I understand the desire of the
10 examiner to obtain the benefit of an order discharging the
11 examiner and granting releases and all kinds of protections.
12 MR. ETKIN: And, of course, we've never had an issue
13 with that.
14 THE COURT: I understand. I think you should all talk
15 some more and the fact that this is the first item being called
16 on on a calendar and it's just after 10 a.m. doesn't mean that
17 you can't come back at 11:30, having this resolved. Or some
18 other day, having it resolved. So I think you should talk.
19 But let me -- there's someone else interested in being
20 heard.
21 MS. WOLF: Thank you, Your Honor. Amy Wolf, Wachtell,
22 Lipton, Rosen & Katz, on behalf of JPMorgan Chase Bank, N.A.
23 We had no problem with the examiner's motion, Your Honor, which
24 is why we did not file anything. We would -- to the extent the
25 order is going to be changed, however, in response to

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1 objections that were filed yesterday, we would like an
2 opportunity first to participate in the meet and confer and
3 then, if necessary, be heard. Although I would suspect we can
4 work things out. But that's the reason why you're seeing me
5 here and we did not file anything.
6 THE COURT: Okay. And as far as I'm concerned,
7 JPMorgan has obvious interests in the discovery aspects of this
8 order and I have every reason to encourage the parties to
9 invited you into the room.
10 MS. WOLF: Thank you, Your Honor.
11 THE COURT: So long as it's not an obstructionist will
12 on your part. I'm sure that it's simply designed to make sure
13 that the procedures are fair.
14 MS. WOLF: That's correct. Thank you.
15 THE COURT: My suggestion is that I hear further from
16 counsel for the examiner on one issue, which is timing. Is
17 there any urgency that this order be entered today?
18 MR. BYMAN: No, Your Honor.
19 THE COURT: I didn't think that there was. I think
20 that it makes some sense, particularly if the SIPA trustee, the
21 debtors, the committee, now JPMorgan Chase and counsel for the
22 class action plaintiffs, and I don't mean to leave anybody out
23 but that's a list that occurs to me as a relevant group, need
24 to talk about the final form of the order.
25 And if most of what we're concerned with here involves

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1 the provision of reasonable access to the discovery that has
2 been gathered by the examiner in the context of the thorough
3 examination that was performed, I think that it makes sense to
4 defer entry of this order until after there has been a further
5 attempt at reaching consensus as to the form of order.
6 Is that acceptable?
7 MR. BYMAN: We have no problem with that, Your Honor.
8 I suspect that trying to do it now will be difficult because
9 the people we would have to confer with will want to stay here
10 for other matters before you, but we can convene that call or
11 meeting as quickly as possible.
12 THE COURT: Fine. Here's how I would propose we deal
13 with this. If the parties reach consensus concerning the form
14 of order, it can simply be submitted on notice as to the form
15 of order, and I'll enter it and effect a consent order. To the
16 extent that there are open issues, we'll simply carry this as a
17 holding item to the next omnibus calendar and resolve it then.
18 MR. BYMAN: All right.
19 MR. ETKIN: Thank you, Your Honor.
20 THE COURT: Does that work for everybody?
21 IN UNISON: Thank you, Your Honor, that's fine. Yes,
22 Your Honor.
23 THE COURT: Okay. And, Mr. Valukas, if you would like
24 to be excused, you may be excused.
25 MR. VALUKAS: Just might. If it's continued, I'm

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1 excused; I'm going to leave with my lawyer.
2 THE COURT: But don't confuse being excused with being
3 discharged.
4 MR. VALUKAS: Understand the difference, Your Honor,
5 thank you.
6 MR. PEREZ: Good morning, Your Honor, Alfred Perez.
7 Your Honor, we have one uncontested matter regarding the
8 request by LCPI to transfer funds to Rosslyn. It's a
9 substantial matter and in connection with that, I'd like to put
10 in Mr. Fitts' proffer to justify our business judgment.
11 Although there wasn't any objection, we felt that it was
12 significant enough matter that we should put on a proffer.
13 THE COURT: I think that's fine. Please proceed.
14 MR. PEREZ: All right. Your Honor, Mr. Fitts is in
15 the courtroom -- right there. And if called to testify, it
16 would state that he is a managing director of Alvarez & Marsal,
17 that he is familiar with the motion -- styled motion of Lehman
18 Brothers Holdings, Inc. and Lehman Commercial Paper, Inc.
19 pursuant to 363 of the Bankruptcy Code to -- for authority to
20 transfer funds for Rosslyn LB Syndication Partners LLC.
21 With respect to Mr. Fitts' background, he would
22 testify that he has approximately nineteen years experience
23 assisting insolvent and troubled companies, focusing on
24 operational and financial restructuring. Prior to joining A&M,
25 Mr. Fitts was a managing director with GE Commercial Finance

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1 and led GE's distressed debt and alternative investment group;
2 with that managed complex distressed credits. Before joining
3 GE, Mr. Fitts was with the workout group of Citicorp where he
4 spent three years managing investment grade and middle market
5 corporate workouts.
6 Mr. Fitts began his career in 1990 as a workout
7 officer and later as an asset manager in Citicorp Real Estate
8 and has managed more than a billion dollars of office, retail
9 and industrial projects.
10 Mr. Fitts graduated with a bachelor's degree from the
11 University of Delaware in 1988. He would testify that he was
12 assigned to work on the Lehman matter in September of 2008. He
13 serves as co-head of the real estate group of certain Lehman
14 entities, including LBHI and LPCI.
15 Mr. Fitts' primary responsibility includes the day-to-
16 day management and oversight of the real estate group's real
17 estate portfolio, including management and oversight for real
18 estate, real estate finance and related activities that include
19 the subject of this motion.
20 Mr. Fitts would testify, as it relates to the Rosslyn
21 properties, that LBHI is, through an indirect nondebtor
22 subsidiary, LB -- I'm sorry, Rosslyn LB Syndication Partners
23 LLC, which we refer to as Rosslyn, owns, legally or
24 beneficially, an interest, 78.5 percent limited partnership
25 interest, in the joint venture Rosslyn Syndication Partners JV,

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1 which we'll refer to as the Rosslyn JV. The Rosslyn JV in turn
2 owns approximately three million square feet of real property
3 which includes ten buildings, office space that is
4 approximately ninety-eight percent leased. It's situated in the
5 heart of Rosslyn, Virginia, which is one of DC's -- Washington
6 DC's major submarkets. And this space represents approximately
7 thirty percent of all the office space in Rosslyn.
8 Mr. Fitts would testify that in April of 2010, an
9 independent third-party appraisal was completed on the
10 portfolio on behalf of the lenders, not on behalf of the Lehman
11 subsidiary, and that the appraise -- that the appraisal value
12 of the entire portfolio of the ten properties at approximately
13 1,355,000,000 dollars, inclusive of approximately 105 million
14 dollars of value that was attributed to an unimproved lot on
15 the property, the 1812 Project.
16 Mr. Fitts would testify that in the fiscal year ending
17 April of 2011, the appraisal calculated that the venture's NOI,
18 net operating income, would be approximately -- or was
19 approximately 71.5 million, excluding the unimproved property,
20 and that with respect to the so-called Class A properties,
21 which are the three buildings located on Wilson Avenue (ph.),
22 the NOI was 45.7 million and the Class B properties, which are
23 the other six properties that are encumbered by the existing
24 mortgages, it was about 25.8 million.
25 Mr. Fitts would testify that the venture has multiple

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1 tiers of debt and specifically that in connection with the
2 acquisition of the portfolio, the venture assumed approximately
3 251 million dollars of secure ties fixed rate mortgages that
4 currently encumber seven of the properties with a relatively
5 low coupon for debt. In February of 2010, the venture
6 completed a short sale of one of the assets whereby the
7 mortgage lender accepted the proceeds of the sale as a
8 discounted payoff of the outstanding mortgage property. As
9 such, the existing mortgages that encumber the six properties
10 are in the amount of approximately 239 million and that they
11 mature in July of 2010, next month.
12 Mr. Fitts would testify that in connection with the
13 acquisition of the portfolio, LBHI provided a 567 million
14 dollar ten-year loan that was cross-collateralized by the three
15 properties that are not encumbered by the existing mortgages,
16 that LBHI secured ties and syndicated those positions and that
17 those mortgages mature in May of 2017.
18 Would -- further testified that LCPI provided a 200
19 million dollar credit facility and secured by a pledge of the
20 equity of the operating partnership in each of the
21 subsidiaries. LCPI syndicated 191 million dollars of that
22 facility and retained approximately 9 million of the funded
23 balance. He would testify that because the existing mortgages
24 are maturing in July, they either must be refinanced or repaid
25 and that upon the real estate groups -- the debtors' real

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1 estate groups' and investment committee's recommendation, and
2 ultimately both the approval from Mr. Marsal and Lehman's
3 board, that they determined, in their business judgment, that
4 it would be a more prudent action to repay the existing
5 mortgages rather than take other steps.
6 Mr. Fitts would testify that there are significant
7 legal impediments that would prevent LBHI directly, as an
8 affiliate, from refinancing the loans with their own funds.
9 And as a result of the tight credit market, refinancing the
10 existing mortgages with third-party capital would be very
11 expensive to the venture.
12 As such, Mr. Fitts would testify that as a result of
13 its larger up-front capital outlay, repaying the existing
14 mortgages will enable the venture to retain the credit facility
15 which currently provides funding for the venture at terms much
16 more favorable than any refinanced property level mortgage that
17 would carry today's market conditions.
18 Mr. Fitts would testify that repaying the existing
19 mortgage will greatly increase the marketability of the
20 venture, thereby enabling the sale of the venture in a more
21 robust real estate market and enable the venture to
22 opportunistically refinance the six properties with mortgages
23 at more favorable terms when the capital markets improved.
24 And, Your Honor, that would conclude Mr. Fitts'
25 testimony.

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1 THE COURT: Is there any objection to my accepting
2 that proffer? It's accepted.
3 MR. PEREZ: Thank you, Your Honor. On that basis,
4 Your Honor, we would request that the Court approve the motion.
5 THE COURT: I'm prepared to approve the motion. It's
6 listed as uncontested. Is there anyone who wishes to be heard
7 in connection with this motion? I hear no response; the
8 motion's approved.
9 MR. PEREZ: Thank you, Your Honor. Your Honor, there
10 are -- the next two motions that follow are the motions with
11 respect to case management procedures and the real estate
12 protocol. Mr. Singh is going to be handling those two motions.
13 MR. SINGH: Good morning, Your Honor.
14 THE COURT: Good morning.
15 MR. SINGH: Sunny Singh on behalf of the debtors.
16 Your Honor, the next item on the agenda is the amendment to the
17 case management procedures. It was filed a docket number 9043.
18 Your Honor, I won't -- given the length of the agenda, I won't
19 go through all of the changes, but I'll just generally note
20 that we've made some changes to accommodate these cases and
21 made the administration more manageable for all parties and the
22 Court as well.
23 Your Honor, the only response we received to the
24 notice of presentment was an observation filed by Mr. Kuntz.
25 He's in the court today; I'm not sure if he has anything to say

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1 on this motion, but if so -- Your Honor, the only thing I'll
2 note is just that with respect to Mr. Kuntz's comments about
3 the debtors' service in these cases, it complies with the case
4 management order and service on all parties if the debtors
5 comply with the case management order. To the extent that his
6 observation can be construed as an objection, we would ask that
7 it be overruled and the Court enter the order.
8 THE COURT: Let me find out whether Mr. Kuntz wishes
9 to step forward and present anything further other than what is
10 in the record. I see him coming forward and so we'll hear what
11 he has to say.
12 MR. KUNTZ: Good morning, Your Honor.
14 MR. KUNTZ: Thank you. I was not very active in this
15 case when the original case management orders -- first-day
16 orders were put on. My observations are pretty fine-tuned to
17 the position of Weil Gotshal and sending out -- I mean, I have
18 forty -- thirty -- twenty overnight express mail envelopes that
19 come to me out of time of which this cost, you state, 600
20 dollars. Not much against half a billion dollars in fees, but
21 it's 600 dollars.
22 Further, the case management order requires that an
23 agenda be filed. Last night, the agenda didn't come on to the
24 Epiq system until 7 o'clock at night. Had I been in Boston, I
25 would probably not have been able to get here in time for

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1 today's court had I not seen the order to show cause on the
2 Park Avenue property.
3 I'm simply that they move the agenda twenty-four --
4 from the day before to forty-eight hours before. For instance,
5 that would have been 10 o'clock Monday morning; today is
6 Wednesday.
7 THE COURT: Mr. Kuntz, I appreciate your concerns
8 about this, but it's just not practical. And the --
9 MR. KUNTZ: I don't see how it's not practical, Your
10 Honor.
11 THE COURT: It's not practical because this is a very
12 dynamic and changing system in which things happen in the
13 forty-eight hours before the hearing date.
14 MR. KUNTZ: I understand, Your Honor. And every --
15 almost every case in that order's been amended.
16 THE COURT: Mr. Kuntz, I appreciate -- I appreciate
17 your interest but if that's the principal are of your concern,
18 you're going to get push back from me on that because I
19 recognize what's going on. I am the one who's most directly
20 affected by this. I'm the one who has to read and prepare for
21 every matter which is being heard. I'm the one who's affected
22 when matters are changed on the agenda at the last minute. If
23 I can tolerate it, you can.
24 MR. KUNTZ: Thank you, Your Honor.
25 MR. SINGH: Thank you, Your Honor. We'll submit the

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1 revised order at the end of the hearing.
2 THE COURT: Okay.
3 MR. SINGH: Your Honor, the next item on the agenda is
4 the debtors' motion for approval of certain real estate asset
5 disposition procedures. It was filed at docket number 9281.
6 As Your Honor is aware, the debtors' real estate positions --
7 the debtors had hundreds of billions of dollars invested in
8 real estate throughout the world on a prepetition basis. As
9 these cases have progressed and the debtors have identified
10 ways to maximize value, we've brought prior motions before Your
11 Honor to establish protocols in these cases that we believe
12 sufficient balance the need for transparency and efficiency in
13 these cases.
14 Your Honor, the procedures before the Court today
15 focus on efforts on selling the debtors' properties and
16 investments as a way to maximize value. Like the other
17 protocols that have been approved by the Court, this protocol
18 was heavily negotiated with the creditors' committee both
19 before and after the filing of the motion. Consistent with the
20 prior protocols, the procedures would allow the debtors to sell
21 certain de minimis assets. Without notice they would allow the
22 debtors to notify the committee and have an opportunity for
23 objection on assets valued between twenty-five and a hundred
24 million dollars. And anything above a hundred million dollars
25 of the debtors', Your Honor, we would come and seek an order of

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1 the Court by motion.
2 Your Honor, the motion was filed on May 26th and only
3 one response was received, again, by Mr. Kuntz. From what we
4 can tell, he would prefer that the debtors bring each and every
5 motion for disposition to the Court. As the parties in these
6 cases have recognized and as the Court has previously
7 recognized, that would be impractical and in the sound interest
8 of the administration of these cases to maximize value for
9 creditors, we would request that the Court approve the
10 procedures.
11 Your Honor, I have two changes that I just would like
12 to go over with Your Honor to the order. I can hand up a
13 blackline if that would be helpful.
14 THE COURT: Please do. Thank you.
15 MR. SINGH: Your Honor, after conferring with
16 committee, we made two -- one generic change and one specific
17 change. The general changes are just to clarify that these
18 procedures would apply to the debtors' direct and indirect
19 investments for notice to the committee and an opportunity to
20 object. And the other change, Your Honor, we added in
21 paragraph -- Your Honor in paragraph -- new paragraph 10 and 11
22 we added a sunset provision such that these procedures would no
23 longer continue to apply unless the debtors filed a notice
24 before December 16, 2010.
25 The purpose of this, Your Honor, is to allow the

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1 debtors, with the committee, to reassess, essentially, the
2 procedures. Also given -- with the plan on file, we wanted to
3 have an opportunity, within six months, to come back to the
4 Court, if necessary, or to see whether these procedures will
5 still be necessary or any modifications would be appropriate.
6 Unless Mr. Kuntz had something to say, I would request
7 that Your Honor enter the order.
8 THE COURT: Before doing that, I'd like to hear from
9 the committee.
10 MR. O'DONNELL: Your Honor, Dennis O'Donnell, Milbank
11 Tweed, Hadley & McCloy, on behalf of the committee. Mr. Singh
12 properly recounted that the committee has been heavily involved
13 in the negotiation of this most recent protocol. As the Court
14 knows well, there are a number of other protocols in effect and
15 this one mirrors those protocols, to a large extent. It's
16 somewhat different in terms of the thresholds and where
17 committee consent and Court approval kicks in but based on the
18 final version that was submitted to the Court yesterday, I
19 believe, we're content that it -- we've accorded the burden of
20 dealing with matters that can be dealt with between the
21 committee and the debtors while preserving the Court's ability
22 to deal with matters of a more significant nature.
23 THE COURT: All right. Thank you. Mr. Kuntz, do you
24 wish to be heard?
25 MR. KUNTZ: Thank you, Your Honor. Again, I don't

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1 think what was characterized as my position is correct.
2 The debtors here, under its business judgment rule, is
3 seeking to expand the circumference of its ability to sell,
4 deal with property, make investments without the Court's direct
5 involvement. I observed that in the New Century bankruptcy
6 case in Delaware -- it was my observation that parcel by
7 parcel, every parcel came before the court in Delaware. This
8 Court has had no problems going through reams and reams of
9 claims objections. The problem that I see is under the
10 business authority rule, Lehman Brothers is like a V8 engine
11 operating on six cylinders.
12 The stockholders have been pushed aside, hamstrung;
13 the US Trustee has rejected their request for an equity
14 committee even though out of 500 or 700 million dollars in fees
15 the equity committee might run up 500,000 or a million in fees.
16 So the normal controls that people see in the United States on
17 an American corporation are gone. The stockholders have no
18 say, the efforts of the stockholders to even have a meeting in
19 Delaware are being opposed which would, in essence, possibly
20 put some limitation or change or direction in this case,
21 including the order that bars stockholders from trading or
22 amassing a position in the name of protection some tax loss.
23 So --
24 THE COURT: Mr. Kuntz, what does that have to do with
25 what's before me, which is procedures for dealing with

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1 disposition of real estate?
2 MR. KUNTZ: It's the business -- it's their business
3 judgment that is handicapped.
4 THE COURT: Well, shareholders would never be involved
5 in that and what we have here is a mechanism in which the
6 creditors' committee, through its real estate disposition
7 subcommittee, is taking an active role in monitoring
8 transactions in a bankruptcy case such as this. That's a form
9 of governance that is quite appropriate, and to the extent that
10 transactions exceed a threshold or to the extent that there's
11 no consent, transactions will come here for approval.
12 So I hear what you're saying about the shareholders,
13 but I find that to be, with respect, not a relevant comment and
14 I'm prepared to overrule the objection.
15 MR. KUNTZ: Thank you, Your Honor.
16 MR. SINGH: Thank you, Your Honor, we'll submit an
17 order at the end of the hearing.
18 THE COURT: Fine.
19 MR. SINGH: The next matter is to be handled by Mr.
20 Perez.
21 MR. PEREZ: Your Honor, the next matter is the motion
22 of Lehman Brothers for authority to make a new debt investment
23 in -- I mean a new investment in the 237 -- the Park Avenue
24 property, docket number 9441. Your Honor, we did receive one
25 objection from Kuntz. I have Mr. Fitts here and I would like

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1 to proffer his testimony in connection with the debtors'
2 business judgment with respect to making of this investment.
3 Additionally, Your Honor, we did file, last night, an
4 amended order and I'll take the Court through the amended order
5 at the conclusion of my presentation. And there is one further
6 couple of word tweak to that, and the purpose of that order is
7 to make absolutely sure that we're maintaining the separateness
8 of the estates. And to the extent that LCPI is ultimately
9 determined to be the beneficial owner of these assets or of the
10 loans, that they're the ones that are making the investment, as
11 opposed to LBHI. And we have that issue -- it's a recurring
12 issue. This asset is in one of the structures called SASCO
13 (ph.), Rosslyn was in one of the structures called RACERS.
14 One day I hope to come and get rid of all those
15 structures. Unfortunately, that hasn't happened yet and so we
16 have to constantly amend the orders to make sure that we're
17 capturing the rights of all of the various debtor entities
18 separately, as opposed to talking about Lehman.
19 THE COURT: Okay.
20 MR. PEREZ: All right. So if called to testify -- and
21 I'll skip Mr. Fitts' background and position since I just did
22 that a minute ago.
23 Mr. Fitts would testify that 237 Park is a twenty-one
24 story 1,250,000 square foot high-rise building on Park Avenue
25 in New York. He would testify that at the closing of the

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1 acquisition, in May of 2007, LBHI originated loans totaling
2 1.23 billion dollars to finance the purchase by affiliates of
3 Broadway Partners, which is referred to as "the borrower". The
4 1.23 billion loans included at 900 million of senior debt and
5 330 million of junior mezzanine debt.
6 Mr. Fitts would testify that LBHI secured ties; the
7 initial -- the top 419 million of the senior loan and sold the
8 255.4 million dollar B note, which is the subject of this
9 motion, to PRII 237 Park LLC, which is referred to as the
10 seller here. The remaining 225 million dollars of senior debt
11 was restructured as a senior mezzanine loan and never
12 syndicated. Your Honor, that's the loan that's held in SASCO,
13 which is one of the structures.
14 Mr. Fitts would testify that the junior mezzanine loan
15 is structured in two tranches; one of which is approximately
16 212 million dollars that is currently held by LBHI and another
17 tranche of approximately 117 million dollars that is currently
18 owned by Lehman Re as a result of a repo transaction that was
19 completed prior to the commencement.
20 Counsel for Lehman Re contacted me yesterday; she's
21 here in the courtroom and I know has some statements to make in
22 connection with the motion.
23 Mr. Fitts would testify that the senior debt matures
24 in June of 20017 and that the junior mezz debt matures in May
25 of 2012. In addition, Mr. Fitts would testify that there is a

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1 current sixty million dollar future funding facility which was
2 established to provide additional financing and service debt
3 shortfalls, leasing costs and capital expenditures. This is an
4 executory commitment on behalf of the debtors and the debtors
5 have not yet determined whether they will assume or reject that
6 commitment.
7 Mr. Fitts would testify that a hundred percent of the
8 equity's held indirectly by the borrower. Beginning of July of
9 2009, the borrower requested 1,250,000 drawdown of the future
10 funding facility. Given what was perceived to be an impairment
11 of the underlying assets and the high basis, Mr. Fitts would
12 testify that the debtors determined that a larger restructuring
13 of the asset was necessary before any new capital would be
14 infused and began discussions with Broadway regarding a
15 potential restructuring.
16 Mr. Fitts would testify that in August of 2009, LBHI
17 believed that the borrower was going to default and that -- in
18 the B note and as a result, began discussions regarding -- with
19 the seller, the holder of the B note, regarding a potential
20 restructuring. He would testify that beginning in the second
21 quarter of 2010, the seller entered into discussions with
22 several candidates to determine whether there was a market for
23 the B note. And since that time the seller has engaged a
24 broker who has run a full marketing process and sale process
25 for the B note.

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1 Mr. Fitts would testify that the last date for the
2 current bids is June 18, 2010 and that LBHI expects that an
3 expedited sale process will follow for the sale of the note.
4 And he would further testify that he believes that there is
5 significant interest in acquiring the B note.
6 Mr. Fitts would testify that purchasing the B note
7 represents the best means of protecting LBHI's investment in
8 237 Park, including -- inclusive of any of the amounts that had
9 been either pledged or participated to SASCO. Mr. Fitts would
10 testify that the acquisition of the B note would enable LBHI to
11 influence a greater restructuring of the 237 Park capital
12 structure and would give LBHI multiple options to maximize
13 recovery.
14 Mr. Fitts would further testify that if LBHI succeeds
15 in acquiring the B note, that the estate anticipates, in
16 addition, that it will still collect scheduled principal
17 interest on the load and it's in a better position to protect
18 its other interests.
19 Your Honor, finally, Mr. Fitts would testify that this
20 has been the subject of extensive discussion with the
21 creditors' committee, with other creditors, including as late
22 as yesterday, and in addition, this was approved by the
23 internal investment committee, by Mr. Marsal as chief executive
24 and chief restructuring officer for Lehman.
25 That would conclude his testimony, Your Honor.

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1 THE COURT: Is there any objection to my accepting
2 that proffer?
3 (No audible response)
4 THE COURT: I accept the proffer.
5 MR. PEREZ: Your Honor, we have nothing further and
6 would request entry of the order.
7 THE COURT: I'd like to hear from the creditors'
8 committed on this transaction as well.
9 MR. O'DONNELL: Your Honor, Dennis O'Donnell, Milbank
10 Tweed, Hadley & McCloy on behalf of the committee, again. Your
11 Honor, this transaction, like any transaction of this
12 magnitude, has been the subject of extensive discussion and
13 evaluation by the committee and its professionals. We believe
14 that the transaction proposed to make sense economically for
15 all the reasons that Mr. Perez set forth on the record.
16 We do note that the authority sought here is authority
17 up to par -- to pay par in consultation with the committee.
18 It's our expectation that there will be an auction here and
19 there will be a bidding and perhaps negotiation process in that
20 we will be consulted as to what the final price will be and at
21 that time either say yes or no. We don't -- we have not signed
22 off on par at this point.
23 THE COURT: I'm not sure I understand that last
24 remark. Are you saying that the committee, notwithstanding
25 what this motion says and what the order presumably will say,

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1 unless it's been modified, reserves its right to withhold
2 consent to a transaction that is as pricey as a full par
3 purchase?
4 MR. O'DONNELL: I think the motions states that
5 they -- the debtors are seeking authority to pay up to par --
6 THE COURT: Yes?
7 MR. O'DONNELL: -- in consultation with the committee.
8 THE COURT: Yes?
9 MR. O'DONNELL: And --
10 THE COURT: And the committee is reserving its rights
11 not to consent to a par transaction. Is that right?
12 MR. O'DONNELL: Yes, Your Honor. We had not consented
13 to par at this point, but we will work with the debtors and
14 expect to be able to reach agreement on whatever the price
15 winds up being.
16 THE COURT: I understand what you've said.
17 MR. O'DONNELL: Okay.
18 THE COURT: Mr. Kuntz, you have -- it appears that
19 you've filed an objection, although I don't have the docket
20 reference.
21 MR. KUNTZ: Could we -- if Your Honor would hear from
22 Lehman Re, is there, like, the tail end of the financing
23 structure first? I'm not a -- I don't believe my papers were
24 received by the clerk so under the order to show cause, I'm
25 technic --

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1 THE COURT: Do you have anything you want to say on
2 this? I'll hear from Lehman Re in a minute --
3 MR. KUNTZ: Yes. Yes, I do. But I was --
4 THE COURT: You're here -- you're here so let me hear
5 from you.
6 MR. KUNTZ: In reading the papers, and I thought about
7 this and compared to the warehousing situation of the property
8 in Stamford, Connecticut. It's unclear to me if the senior
9 mezzanine loan that Lehman Brothers Holding holds is on equal
10 footing with the mortgage B note. And I went and I dug up some
11 material about the prior sale and if the purpose here is -- if
12 the Lehman position and the mortgage B note are on equal
13 footing, if there was a foreclosure, they would share
14 equally -- and I think the word is pari passu, which I looked
15 up, in any proceeds of the sale up to 600 million dollars or
16 so.
17 The thing that strikes me here is they're not getting
18 the deed, as in the property in Stamford, Connecticut; they're
19 simply putting themselves in a position to have to spend
20 another 400 plus million dollars to satisfy the first mortgage.
21 In other words, they're putting up 250 million to protect the
22 junior mezzanine which basically may already be out of the
23 money due to the valuation -- there is no valuation of this
24 building. It was purchased six, seven years ago by a company
25 for 400 million, it was sold to Lehman for a billion-one; it

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1 may be back down to 500 million.
2 If it's 500 million, Lehman's already out of the
3 money. So why would you spend 250 million to protect a junior
4 lien that's already out of the money except to make Prudential
5 Insurance Company happy. It seems fairly -- I mean, without
6 evaluation as to what the building is worth now, and if -- I
7 mean, it's a different -- if Broadway Partners were here saying
8 here's the deed, you get to own the building, I would think
9 that would be great for Lehman to own a Park Avenue property.
10 THE COURT: Well, I take it that your objection is to
11 the business judgment in authorizing Lehman to purchase the B
12 note in order to protect its position and improve its
13 negotiating position with respect to an overall restructuring
14 of the debt. Is that right?
15 MR. KUNTZ: Well, there's no value as to what the
16 building is now.
17 THE COURT: I just want to make sure that I've
18 understood your objection.
19 MR. KUNTZ: That's basically correct, Your Honor.
20 THE COURT: Okay, thank you. Is there anyone else who
21 wishes to be heard? Okay, Lehman Re.
22 MS. MAMAN: Yes. Good morning, Your Honor. Michele
23 Maman from Cadwalader, Wickersham & Taft appearing on behalf of
24 the joint provisional liquidators of Lehman Re.
25 Your Honor, I'll be very brief. Although we do not

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1 have any formal objections to the relief requested by LBHI in
2 their motion, we simply wanted to note for the Court that
3 Lehman Re is also a lender in the 237 Park capital structure,
4 and that recently, on June 4th, we commenced an adversary
5 proceeding against the guarantors of our loan. In brief, Your
6 Honor, the proceeding stems from allegations by the guarantors
7 that Lehman Re's guarantees were terminated pursuant to a
8 settlement between the guarantors and LBHI. Your Honor, I
9 understand that our issue is a matter for another day, and as I
10 said, we have no formal objections to LBHI's requested relief.
11 Simply wanted to note for the Court on the record that LBI --
12 sorry, that Lehman Re is concurrently pursuing its interests in
13 this property, and that will likely be before you on another
14 day soon in that regard. Thank you.
15 THE COURT: Okay.
16 I don't have a problem granting the approval that's
17 sought for the purchase of the B note and accept the
18 representations as supported by the proffered testimony that
19 this is a transaction that is viewed at the highest levels of
20 Lehman management, even at the level of Mr. Marsal's approval,
21 as being in the best interests of the estate. However, there
22 is embedded in this transaction as proposed an element of
23 uncertainty because as I understand it, all that I'm being
24 asked to approve is the ability to participate in the auction
25 for the purchase of the B note, is that right?

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1 MR. PEREZ: That's correct, Your Honor.
2 THE COURT: And that there's a reservation of rights
3 as publicly expressed by counsel for the committee concerning
4 pricing. One of my concerns, and I'll just state it, is that
5 we have a very public forum in which Lehman Brothers has stated
6 unequivocally that it wants the B piece. That's not the best
7 way to go into an auction where you're trying to get it for
8 less than par.
9 MR. PEREZ: The Court's correct.
10 THE COURT: So I observe that there is at least the
11 potential that the approval that I am being asked to give
12 today, coupled with the reservation of rights to the committee,
13 conceivably could lead to a further hearing if the committee
14 objects. I just want to be sure that that's a correct
15 conclusion on my part, that this is not necessarily the end of
16 the judicial process as it relates to the purchase of the B
17 piece for 237 Park.
18 MR. PEREZ: Your Honor, I believe the Court is
19 correct. I would say that all of these real estate investments
20 that involve lots of money, the committee is literally involved
21 at every step of the way. So regardless of whether the
22 committee had reserved its right or not reserved its right when
23 we're going on to make the decision. And obviously, the
24 Court -- our request was to bid up to par -- we would have
25 consulted with them regardless. So it's unfortunate that

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1 someone could argue that our bidding strategy has been
2 disclosed. But Your Honor, to the extent that we are the
3 successful bidder, the process will end and we will, in
4 essence, be able to purchase the B note.
5 THE COURT: All right, I assume that either the
6 committee will consent or the committee will not consent. If
7 the committee doesn't consent, we may be hearing more about
8 this on another hearing day.
9 MR. PEREZ: That's correct.
10 THE COURT: And I am prepared to approve this proposal
11 with one comment. And I know you're from Houston and not a New
12 Yorker. It is my understanding, if I'm correct, that 237 Park
13 Avenue is one of those curiosities. It's actually not on Park
14 Avenue. It has a Park Avenue address. How it ended up with a
15 Park Avenue address is a subject for another discussion. But
16 it's address is actually 237 Park but it fronts on Lexington
17 Avenue, and the principal entrance to the atrium is on a side
18 street.
19 MR. PEREZ: I didn't know that. Your Honor, I thought
20 I was dealing with a Park Avenue building.
21 THE COURT: That's what everybody thinks until they
22 get there.
23 MR. PEREZ: Your Honor, if I could just give the Court
24 a redline of the order?
25 THE COURT: Thank you.

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1 MR. PEREZ: And Your Honor, just for the sake of
2 completeness, we took out at the top of page 2 who the -- the
3 identity of the seller and just put seller. Additionally, Your
4 Honor, we inserted these two paragraphs which really deal with
5 the -- it's a reservation of rights as among the debtors,
6 whoever is ultimately determined to hold the note. I think
7 that's something that, as a result of these structures, is
8 going to be a recurring theme.
9 THE COURT: That's consistent with your earlier
10 remarks. That's fine.
11 MR. PEREZ: Yes, Your Honor.
12 THE COURT: Okay, this is approved.
13 MR. PEREZ: Okay.
14 Your Honor, I believe that all the rest of the matters
15 on the docket are SunCal matters. There was one other matter
16 that -- there was one other matter that was set for 2 o'clock,
17 Your Honor, and I understand that that matter has now been
18 passed so that there is no hearing in the LBHI-JPMorgan
19 adversary proceeding.
20 THE COURT: I was informed of that this morning,
21 myself. So there'll be no 2 o'clock calendar.
22 MR. PEREZ: Oh, I'm sorry, Your Honor, there is a
23 Nomura matter that's after the SunCal matter, but Mr. O'Keefe
24 is here.
25 THE COURT: It occurs to me, with no disrespect to

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1 SunCal's counsel, that the SunCal matter may be a longer matter
2 than the Nomura matter, and I would -- I think it would be
3 appropriate to skip to Nomura, which I think will be brief.
4 MR. TAMBE: Good morning, Your Honor, Jay Tambe for
5 Jones Day for the debtors. We were originally on the calendar
6 with respect to a motion to consolidate certain matters. Your
7 Honor may recall, what the debtors are seeking is to
8 consolidate two adversary proceedings as well as a claim
9 objection against Nomura International, Nomura Securities, and
10 Nomura GFP. With respect to Nomura International and Nomura
11 Securities, we're in agreement, and we presented to Your Honor
12 last month an order consolidating those matters for pretrial
13 purposes. We are in discussions for GFB, and for that reason,
14 we have moved that part of the motion over to next month.
15 THE COURT: Okay.
16 MR. TAMBE: What we have done with respect to
17 International and Securities is come up with a schedule for
18 conducting discovery. I have a copy of the schedule, if I may
19 approach.
20 THE COURT: Yes, you may.
21 Thank you. All right, this stipulated scheduling
22 order that relates to the adversaries against Nomura
23 International and Nomura Securities does not, unless something
24 more happens, relate to whatever's going to happen in respect
25 of Nomura Global Financial Products, is that right?

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1 MR. TAMBE: That's right, Your Honor.
2 THE COURT: And I'll hear more about that next month?
3 MR. TAMBE: That's correct, Your Honor.
4 THE COURT: Okay.
5 MR. TAMBE: Thank you, Your Honor.
6 THE COURT: Does anyone else wish to be heard with
7 respect to this? No? Okay.
8 MR. TAMBE: Thank you.
9 THE COURT: I'm glad I called you because it was
10 quick. I guess we can move on to SunCal now.
11 MR. O'KEEFE: Good morning, Your Honor.
13 MR. O'KEEFE: Sean O'Keefe from Winthrop Couchot
14 appearing on behalf of the SunCal appellants.
15 Your Honor, I note that you still have a substantially
16 packed court and we have spent a considerable amount of time on
17 the briefs that we filed with Your Honor. So what I'd like to
18 do is focus my comments and arguments on the issues from Your
19 Honor's perspective on the papers that we filed.
20 THE COURT: I'm sorry, what do you want to do?
21 MR. O'KEEFE: What I'd like to do is Your Honor has
22 received our motion, you've received or opposition, and we
23 filed a reply. What I'd like to do is focus my comments to the
24 extent that Your Honor wants to enunciate what you perceive to
25 be the issues are relative to our motion. If not, I'll just go

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1 directly into --
2 THE COURT: Well, I think what you need to do,
3 consistent with statements that were quoted back to me in the
4 debtors' papers from my Medavante (ph.) transcript, I think you
5 need to highlight, as movant who has the burden, how you
6 satisfy each of the four factors that must be satisfied in
7 order to obtain a stay pending appeal, and those factors are
8 the likelihood of success on the merits, whether the moving
9 party will suffer irreparable injury, whether other parties
10 will suffer substantial harm, and whether they will be harmed
11 in the public interest. I believe those are the recognized
12 factors that a moving party seeking a stay pending appeal must
13 satisfy in order to prevail. That's your burden.
14 MR. O'KEEFE: Very well, Your Honor. The only
15 clarification I would make is it's our interpretation of Second
16 Circuit law that an alternative to the likelihood of success is
17 serious questions going to the merits with the balance of the
18 harms --
19 THE COURT: I believe you mis-cite the Second Circuit
20 case that you heavily rely on in your reply papers, in
21 particular. I am not governed by a preliminary injunction
22 standard, and that's not the standard I'm applying.
23 MR. O'KEEFE: Very well, Your Honor. We did address
24 both standards in our papers.
25 Your Honor, the -- insofar as irreparable harm is

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1 concerned, the transaction upon closing will enjoin the debtors
2 from resolving eighty percent of the claims against their
3 estate. The resolution of those claims is critical to the
4 ongoing reorganization effort. That resolution process has
5 been going on for a year, and it would be very difficult, if
6 not impossible, for the debtor or any Chapter 11 case to
7 proceed when eighty percent of the claims are effectively
8 frozen.
9 THE COURT: Why is that so?
10 MR. O'KEEFE: Well, Your Honor --
11 THE COURT: The only thing that's affected is your
12 prosecution of equitable subordination litigation. Telephones
13 work, e-mails work, planes fly, people can meet, conversations
14 can occur, and I was very explicit on May 12 in saying that the
15 stay did not apply in negotiations. You can talk to the point
16 that you can actually reach a resolution or not, which is true
17 in every case. And the fact that litigation is pending doesn't
18 necessarily mean that anything happens other than the threat of
19 litigation. Settlements, which we talked about during the last
20 hearing, are what you're seeking. You're not seeking a trial;
21 you're simply seeking the sword of litigation.
22 MR. O'KEEFE: Respectfully, I would disagree, Your
23 Honor. First, I would point on the issue of settlement, Your
24 Honor, these cases were filed in 2008. The parties have
25 engaged in that process. They have met, they have discussed,

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1 they have negotiated. The reality is the settlement process is
2 at a point where the litigation must proceed. And the
3 resolution of these claims is critical to the reorganization
4 process. Those claims are disputed. How they are going to be
5 paid pursuant to the plan of reorganization and what they will
6 receive under that plan is the core of the plan.
7 THE COURT: Well, let me understand something because
8 you're obviously spending quite a lot of time and effort to try
9 to put as much pressure as you can on Lehman. The claims that
10 you talk about are secured claims, is that not right?
11 MR. O'KEEFE: They are secured in part.
12 THE COURT: But what you're trying to accomplish,
13 assuming the equitable subordination litigation were to
14 proceed, is effectively equitable subordination of secured
15 claims to free the collateral that secures those claims making
16 that available for the payment of other creditors. Is that not
17 correct?
18 MR. O'KEEFE: In some measure, yes, Your Honor.
19 THE COURT: Okay, so you're seeking very affirmative
20 relief against the property of Lehman Brothers estate.
21 MR. O'KEEFE: Respectfully, Your Honor, it is not the
22 property of Lehman Brothers estate. It is the transaction that
23 is before Your Honor that is making it their property. There
24 is an adjudicated finding, with all due respect, that is
25 binding on everybody in this room that it is not their

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1 property. So it is this transaction --
2 THE COURT: What is the finding that you're talking
3 that's binding everybody in this room.
4 MR. O'KEEFE: Your Honor, we have submitted in our
5 papers a finding which was derived from a contested matter, an
6 evidentiary matter in California pursuant to which that Court
7 determined that the loans, the seven loans at issue here, are
8 owned by Fenway Capital. So they are owned by Fenway Capital.
9 That is the reason why this transaction is before you, so they
10 can drag those loans back underneath the stay, which is what
11 they attempted to use to thwart the litigation in the first
12 place. And that's why this whole transaction was designed.
13 But for that Fenway would be forced to proceed. LCPI, Your
14 Honor, is not a defendant.
15 THE COURT: I know that's your argument, and this is,
16 in a sense, as Yogi Berra once said, deja vu all over again.
17 This is the same argument that you made on May 12th. But you
18 made this argument but you offered no proof, you've had no
19 witnesses, and you declined to cross-examine, even though you
20 were given the opportunity to do so, the witnesses that were
21 proffered by the debtors. So while your papers make these
22 allegations, and you repeat the allegations again in the
23 context of this argument, they're just arguments. There's no
24 proof. You haven't done anything to fulfill your burden of
25 proof. And you lost. Why should anybody believe this is true,

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1 particularly when the debtors submitted evidence demonstrating
2 there were a host of legitimate business reasons for unwinding
3 the Fenway structure?
4 MR. O'KEEFE: Your Honor, we're talking about two
5 different things, here, and I think it's critical to clarify
6 the record. We submitted findings of fact that were entered by
7 the California Bankruptcy Court on October 2, 2009. Finding of
8 fact 1.9 which was submitted in our papers states that the
9 seven loans were sold -- were sold -- to Fenway Capital.
10 THE COURT: That may be in error.
11 MR. O'KEEFE: That may be in error --
12 THE COURT: That may be in error because this is a
13 repo transaction. It wasn't a true sale. Linklaters wasn't
14 involved. This wasn't a deal with a true sale opinion.
15 MR. O'KEEFE: But Your Honor, this is a critical
16 issue, and it also bears directly upon our appellate record.
17 If the Court is stating that it is not bound by that finding,
18 it's not entitled to issue preclusion here. That fundamentally
19 changes the appellate record because it is our perception that
20 they filed the claim in that court; they raised the issue.
21 THE COURT: What went on in the bankruptcy court in
22 California may be absolutely critical to you and may bind you.
23 It may be a record that the bankruptcy appellate panel needed
24 to consider and that the Ninth Circuit now considering the
25 pending appeal needs to consider. But I'm certainly not bound

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1 by it.
2 MR. O'KEEFE: I would fundamentally disagree, and
3 that's why we cited Second Circuit authority that said if an
4 issue is decided in another court of jurisdiction -- and
5 certainly that court had jurisdiction of a claim that was filed
6 before it in the same way had we filed the claim before Your
7 Honor and Your Honor determined SunCal, I've looked at this
8 claim, and you don't own that property, and I'm making a
9 finding at after --
10 THE COURT: The facts are changing. The facts are
11 changing as a result of the unwinding of the repo transaction
12 and the reinvesting of the assets in the Lehman estate pursuant
13 to the transaction that was approved on May 12th. You were
14 here when that happened. I said, and you seemed to be pleased
15 by what I said at the time, that I was not making a
16 determination that would impact characterization of the
17 transaction in the California court. You took no action
18 whatsoever to make a record at the time of the 9019 approval of
19 the unwind of the Fenway transaction. Instead, you sat down.
20 You chose not to cross-examination. There is nothing in the
21 record before me from you that I consider competent evidence of
22 any of the allegations that you're now making in connection
23 with your request for a stay pending appeal. You simply made
24 argument. You're still simply making argument.
25 MR. O'KEEFE: Your Honor, let me, then, state the

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1 facts. Based on our understanding of issue preclusion, since
2 the transaction hasn't closed, it was an adjudicated finding
3 that title (ph.) is another party, a nondebtor. That nondebtor
4 is the primary defendant in our action. We can agree, and Your
5 Honor has stated, that after that transaction closes, title
6 will pass to the debtor. What we disputed in the 9019 hearing
7 was the effect of that. It was the effect, the injunctive
8 effect on another estate that deprived that estate of core
9 jurisdiction over assets as to which that court currently has
10 exclusive jurisdiction. So it is the transaction that Your
11 Honor approved that has that effect. So those are facts. The
12 issue here that you're talking about is we did not know Your
13 Honor's interpretation of that effect until the immediately
14 following hearing. We explained to Your Honor that to the
15 extent that transaction had the effect of enjoining the
16 determination of those claims and effectively enjoining
17 seventeen Chapter 11s, that effect would irreparably harm our
18 estate. What Your Honor said is I'm not determining that
19 effect now. The next hearing, two minutes later, Your Honor
20 said I am determining the effect. You are stayed. So that
21 transaction that Your Honor approved enjoins our cases,
22 deprives us of the ability to deal with eighty percent of the
23 claims of our estate. It is that transaction and that's the
24 effect of your order. All of those are facts, Your Honor. I'm
25 not making arguments. That's a fact. Your Honor just told me.

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1 They have represented in California that we are enjoined by
2 Your Honor's orders, so that is irreparable harm, Your Honor.
3 THE COURT: Why is that irreparable harm?
4 MR. O'KEEFE: Because we cannot determine the claims
5 against our estate. That's eighty percent of the claims
6 against our estate. Right now, Your Honor --
7 THE COURT: You're currently prosecuting an appeal to
8 the Ninth Circuit in which you're taking a legal position, as I
9 understand it, that the actions which you are seeking by virtue
10 of the equitable subordination litigation in the California
11 Bankruptcy Court are not, in fact, barred by the automatic stay
12 because it represents some kind of proper exercise of defensive
13 rights in California. Do I understand that to be correct? Is
14 that your argument? Is that your argument?
15 MR. O'KEEFE: Yes, Your Honor.
16 THE COURT: Okay.
17 MR. O'KEEFE: Yes, that is our argument.
18 THE COURT: So you're not irreparably harmed. You can
19 pursue those rights and remedies at the appellate level at the
20 Ninth Circuit. And indeed, last month, I was fairly clear in
21 saying that I didn't like being part of a cross-country gaming
22 of the bankruptcy system by you. You have your rights and
23 remedies in the Ninth Circuit. And I was quite clear in saying
24 that my rulings with respect to the stay were not prejudicial
25 to you and not preclusive in any way, and you could come back

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1 after fully pursuing your rights and remedies in the Ninth
2 Circuit. You picked your poison. You chose to litigate there.
3 MR. O'KEEFE: Your Honor, let me just back up to the
4 first point Your Honor made. Right now, pursuant to our
5 agreement with the Lehman debtors, there is no stay. And if
6 the Court has a different perspective on that, I would most
7 respectfully ask that you place that on the record because that
8 is material to our irreparable harm issue.
9 THE COURT: My understanding is that upon the closing
10 of the Fenway transaction which has been delayed by virtue of
11 your actions, notwithstanding the fact that last month you made
12 very clear statements on the record that you had no intention
13 to interfere in that transaction, that once that transaction
14 closes, the loans would be property of the debtors' estates and
15 that the stay will apply. Do you have a different
16 understanding?
17 MR. O'KEEFE: I absolutely do, Your Honor. I
18 absolutely do. At that hearing, what I stated was the
19 economics of the transaction, since we had not filed a claim
20 against this estate, were not our concern. The injunctive
21 effect of that transaction is our concern. And that was
22 relative to the exchange as to standing. As Your Honor just
23 stated, that transaction, that transaction, as soon as it close
24 (sic), will enjoin our ability to resolve those claims, which
25 are eighty percent of the claims against our estate.

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1 It had nothing to do with the Ninth Circuit. The
2 Ninth Circuit relates to something they filed. They initiated
3 it. In the Second Circuit, whoever starts the fight is the
4 assailant throughout. So they filed the motion for relief from
5 stay; they didn't like that finding. When they insisted that
6 that court make a determination with respect to their stay --
7 they filed that motion, Your Honor. We didn't do that. Then
8 when they didn't like that finding, they appealed it to the
9 BAP. And then they got the finding that they felt as though
10 fitted their case. Well, in the Second Circuit, we get the
11 right to appeal. They remain the appellant; they remain the
12 assailant. It starts from the beginning. So we didn't make
13 that choice; they did.
14 THE COURT: Am I correct that you appealed to the
15 Ninth Circuit the BAP determination in favor of the debtors?
16 MR. O'KEEFE: We did, Your Honor.
17 THE COURT: Okay, so you're the appellant in the Ninth
18 Circuit, correct?
19 MR. O'KEEFE: We are the appellant, but the analysis
20 begins with who filed the first motion.
21 THE COURT: The analysis for today is why are you
22 entitled to a stay given the four factors. We are spending too
23 much time rearguing matters that you lost last time in
24 connection with a record where you presented no evidence. Tell
25 me why you're entitled to a stay pending appeal.

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1 MR. O'KEEFE: Your Honor, as the Court just stated,
2 this transaction -- this transaction will create a circumstance
3 where before the transaction closes, we are not stayed; after
4 the transaction closes, we are stayed. That stay bars our
5 ability to resolve eighty percent of the claims against our
6 estate. That stay puts our Chapter 11 process in a potential
7 freeze because we can't resolve where those claims will be
8 paid, pursuant to the plan of reorganization.
9 THE COURT: Let me ask you this very basic and, I
10 think borderline naïve question. Assume you prevail today and
11 I were to grant you a stay pending appeal. What does that
12 mean? What does it mean to grant you a stay pending appeal?
13 Does that stay the closing of the Fenway transaction, or does
14 it stay anything in connection with my ruling that you are not
15 entitled to stay relief in connection with the Fenway
16 transaction, or both? What is it you are seeking?
17 MR. O'KEEFE: We are seeking, in the first instance, a
18 stay of the closing for the duration of the appeal.
19 Alternatively, we are asking Your Honor to give us that window
20 of time to seek a stay from the district court. Any aspect of
21 that transaction that would enjoin our ability to continue to
22 pursue the resolution of those claims in California. And I'd
23 like a minute to go through the likelihood of success, but Your
24 Honor, what I'm really asking you today -- I don't expect you
25 to agree with me, and it's very clear that Your Honor doesn't

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1 agree with me. But what we did in California is we stipulated
2 to a sixty-day stay, no matter what happens with this
3 transaction. So they're not affected by that litigation.
4 We're not doing --
5 THE COURT: I don't understand the words you just
6 used.
7 MR. O'KEEFE: Your Honor --
8 THE COURT: Because when you say "we stipulated to a
9 stay", we're using stay in a lot of different contexts, here.
10 What are you talking about?
11 MR. O'KEEFE: I'm talking about a litigation stay.
12 There was a status conference in California last Thursday.
13 They represented to Judge Smith that Your Honor's order would
14 stay that, and we stated they did and that we quoted that in
15 our reply.
16 THE COURT: I saw your papers. I just don't -- again,
17 try not to use pronouns. Use names so that I understand what
18 you're talking about.
19 MR. O'KEEFE: The Lehman entities represented that
20 Your Honor's orders would stay the equitable subordination
21 action. What we did was, we agreed with the Lehman entities
22 that for the next sixty days, that litigation would be, as
23 between the parties, stayed.
24 THE COURT: That means -- that means, if I'm
25 understanding you correctly, that by agreement, there can't be

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1 any irreparable harm today. You've already agreed to stay the
2 litigation.
3 MR. O'KEEFE: No, Your Honor, I respectfully disagree
4 it eliminates any possible irreparable harm or any harm on
5 their part. On our part, it's fundamentally different because
6 the reality is, once those loans are parked in Lehman
7 Commercial Paper, there is an indefinite stay -- there is an
8 indefinite stay of our case.
9 THE COURT: But you've agreed --
10 MR. O'KEEFE: This Court is not placing --
11 THE COURT: But you have agreed already, as of
12 Thursday of last week, and put it on the record in California
13 in front of Judge Smith that the litigation which you're
14 telling me is a source of irreparable harm to you is being
15 stayed.
16 MR. O'KEEFE: No, absolutely not, Your Honor.
17 THE COURT: Then I don't understand you.
18 MR. O'KEEFE: Okay, and I apologize for that. We are
19 irreparably harmed by the imposition of what we consider to be
20 a transaction injunction that will occur when this transaction
21 closes. That injunction is perpetual. It has no term. It
22 goes until it's lifted.
23 THE COURT: That's true of every automatic stay in
24 every bankruptcy case in the United States.
25 MR. O'KEEFE: I agree, Your Honor.

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1 THE COURT: It exists until it's lifted.
2 MR. O'KEEFE: We don't think it is the automatic stay,
3 Your Honor. We fundamentally disagree with the Court. And
4 we've laid that out in our papers.
5 THE COURT: So you can argue that here and you can
6 argue that in California. You're free to do that.
7 MR. O'KEEFE: But what I want to do, Your Honor, and
8 what I think the Court should be inclined to allow me to do is
9 to allow me, during that period of time, the next sixty days,
10 to seek a stay from the district court -- and we're doing that
11 now -- and immediately thereafter, assuming --
12 THE COURT: What do you mean you're doing that now?
13 MR. O'KEEFE: Your Honor, we are prepared to file our
14 appellate brief in the record in the Second Circuit tomorrow
15 morning.
16 THE COURT: In the Second Circuit?
17 MR. O'KEEFE: I'm sorry, in the Southern District, the
18 district court tomorrow morning. The only reason why we need
19 more time is because the process is they have to assign us a
20 number, and they haven't done that yet. So we are working with
21 the clerk there to get a number so we can immediately file for
22 a stay pending appeal in that court. So what I'd like the
23 Court to do is to just give us that opportunity to give that
24 court the opportunity to pass on the stay pending appeal. It's
25 entirely possible they'll say Your Honor's correct, in which

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1 case, we will immediately go to the Second Circuit. But I'm
2 asking the Court to give me that window of time to do that, and
3 since during that period of time they won't be affected because
4 we stipulated that we're not going to proceed in California,
5 there is no harm to them. To us, there is absolutely harm. If
6 that transaction closes, on the sixty-first day, we're stayed.
7 We can't go forward.
8 THE COURT: You can't go forward without relief from
9 stay or without some adjudication in the Ninth Circuit.
10 MR. O'KEEFE: That's exactly right, and that's an
11 indefinite --
12 THE COURT: That's not irreparable harm.
13 MR. O'KEEFE: Your Honor, that's --
14 THE COURT: That's the same harm that exists in every
15 bankruptcy court where there is litigation that is stayed by
16 virtue of a bankruptcy filing. And in virtually every
17 bankruptcy case that I'm familiar with and I suspect that you
18 are, as well, parties to pending litigation are unsuccessful in
19 their efforts to obtain relief from stay unless they have
20 consent from the debtor or the claims involved are fully
21 insured.
22 MR. O'KEEFE: Well, I agree, Your Honor, but we're
23 talking about a totally different equation, here.
24 THE COURT: No, we're not.
25 MR. O'KEEFE: Your Honor, the cases that we cited say

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1 irreparable harm in the context of a Chapter 11 is something
2 that impairs that progress, and we've cited all those cases,
3 and they're all cases in this district. And in the Calpine
4 decision they cite, it's to the same effect. It basically says
5 if they interfere with the case, that is a category of
6 irreparable harm. Well, here, it's more than interference.
7 They're doing exactly what they designed this to do, exactly
8 what they admit they designed it to do, which is to stay us.
9 We can't process eighty percent of the claims against the
10 estate, and that is an indefinite stay, Your Honor.
11 THE COURT: Well, actually, you can. You can
12 recognize and respect the security interests that were granted
13 in favor of the Lehman entities. What you're trying to do is
14 to take action detrimental to the interests of the Lehman
15 entities. This reference, this constant theme of, well, we
16 can't deal with eighty percent of our claims is, frankly,
17 completely false. It's simply an advocate's argument. You are
18 seeking to take action in California to the detriment of
19 Lehman.
20 MR. O'KEEFE: Well, let me just deal with that, Your
21 Honor. Let's assume tomorrow, because Your Honor has said an
22 equitable subordination action is stayed, but we can all agree
23 the case law in this circuit and California, recoupment is not
24 stayed. So the simple fact is what we need is a resolution
25 with respect to those claims. What if we're right, Your Honor.

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1 What -- and right now, they don't own those claims, so the
2 impact is going to be on Fenway. That's the owner; that's
3 where the impact is going to be. They're buying the claim;
4 they're buying into that litigation. They know it's there.
5 And we think 362(a)(1) does not apply. But they're buying into
6 that; they know that litigation is there. They know it's been
7 there for a year. They're volunteering to participate. And
8 what if we're right, Your Honor. What if, in fact, they should
9 be subordinated in the same way that Lehman might pursue an
10 equitable subordination claim against a JPMorgan lien? The
11 stay, in our mind, does not apply. We understand you disagree;
12 we know that, Your Honor. But all I'm asking Your Honor is a
13 brief period of time to seek relief in another court. And
14 during that period of time, they will not suffer any harm
15 whatsoever because we have agreed to stop during that period of
16 time.
17 And certainly -- let's assume Your Honor says, you
18 know what, I totally disagree with your case. Well, we've
19 cited a case from a court in the same district, the Meniam
20 (ph.) case, where an equitable subordination action was deemed
21 not in violation of the stay. And that's in the same district.
22 THE COURT: You have mis-cited that case, and it's
23 another example of your citing to cases in a misleading
24 fashion. I've read that case. It's not an equitable
25 subordination action at all. It's a claim objection.

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2 THE COURT: And it's a claim objection that relates to
3 an unsecured claim. It's not an equitable subordination
4 action; it's seeking to strip liens. You're completely wrong.
6 THE COURT: Don't cite to me cases that I have read,
7 and then tell me that they somehow support your position when
8 they plainly don't.
9 MR. O'KEEFE: Your Honor, the Court has made a
10 decision, and certainly the Court's perspective, until I obtain
11 review in another court, controls the day. All I'm asking you
12 is to give me the opportunity to see the next court.
13 THE COURT: What I'm asking you, and what you have not
14 done despite all the time you've spent in this argument, is to
15 provide me with authority for why you're entitled to a stay.
16 You've asked me for it, but you have yet to satisfy any of the
17 four prongs that must be satisfied to obtain a stay pending
18 appeal.
20 THE COURT: You have resorted to a generalized
21 reference to harm. Harm because you're not going to be able to
22 deal with eighty percent of your claims. But you haven't
23 proven that. You haven't demonstrated it, and you certainly
24 haven't shown that it's irreparable.
25 MR. O'KEEFE: Your Honor, the -- we've admitted into

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1 evidence their document which --
2 THE COURT: There's nothing in evidence.
3 MR. O'KEEFE: Your Honor, there was no objection to
4 our admission of their status report.
5 THE COURT: There's nothing in evidence in this record
6 except for the proffer in support of the motion filed by the
7 debtor to approve the unwind of the Fenway repo.
8 MR. O'KEEFE: Well, Your Honor, we --
9 THE COURT: There is nothing else in the record.
10 There is no other admitted evidence.
12 THE COURT: If you attach documents to a pleading,
13 they're not in evidence.
14 MR. O'KEEFE: Well, Your Honor, we moved those into
15 evidence.
16 THE COURT: You did not.
17 MR. O'KEEFE: Well, Your Honor --
18 THE COURT: If you can show me where in the record you
19 moved anything into evidence, I'll stand corrected. But I have
20 a pretty clear recollection that you moved nothing into
21 evidence in connection with the May 12 hearing.
22 MR. O'KEEFE: Your Honor, the simple fact is, they
23 stipulate in their papers to all the facts. They stipulate
24 that the stay will apply to that action. They stipulate that
25 these --

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1 THE COURT: Are you talking about the California
2 action or the action before me?
3 MR. O'KEEFE: The California action, Your Honor.
4 THE COURT: The only matter before me is the matter
5 that is the subject of your motion for a stay pending appeal.
6 MR. O'KEEFE: I agree with you --
7 THE COURT: And that matter is a matter as to which
8 you have no evidence in the record.
9 MR. O'KEEFE: Well, Your Honor, what I'm telling you
10 is that the evidence of harm, assuming Your Honor's
11 perspective, the evidence of harm in their papers, their reply
12 to our opposition to compromise motion is that we will be
13 stayed. The evidence of harm is Your Honor saying you are
14 stayed if this closes. The evidence of harm is that those are
15 our loans. They are liens against our estate, as in they're
16 claims against our estate, they're liens against our
17 properties. All of that's admitted. All of that is going to
18 be enjoined.
19 What I would ask the Court is we have addressed the
20 factors. I understand you don't agree with our position, but
21 what I would ask the Court is for a brief period of time to
22 have that reviewed by the district court so that the district
23 court can make a determination as to whether Your Honor is
24 correct. One of the cases we've cited in our papers is there
25 is the benefit to the appellate process which we're entitled to

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1 pursue. They shouldn't be allowed to interrupt and vitiate
2 that process when they are not impaired whatsoever during the
3 next sixty days.
4 And it's entirely possible that Your Honor is correct,
5 but it's equally true that Your Honor could be absolutely wrong
6 and you have done a grave injustice to my clients. We both
7 have an interest in having that resolved. I certainly believe
8 that if it goes up and Your Honor's reversed and Your Honor
9 looks at it and says, you know what, I made a mistake, I
10 believe that Your Honor's going to say, you know what, that was
11 the right result because the law has been clarified as to the
12 SunCal appellants. So we do have a common agreement, I think,
13 in that if it is in error, it should be set aside. I'm just
14 asking the opportunity to pursue our rights with the appellate
15 court.
16 THE COURT: I understand what you're requesting.
17 MR. PEREZ: Thank you, Your Honor. Alfredo Perez on
18 behalf of the debtors.
19 Your Honor, with respect -- movant is seeking to stay
20 both orders. With the order on the motion to lift stay, I
21 really haven't heard any argument on that. I'm not even sure
22 how, theoretically, staying a motion -- denial of a motion to
23 lift stay would work, so I'm not going to address that. I just
24 don't -- I think --
25 THE COURT: That was one of the reasons for my earlier

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1 question. I didn't understand how it would work logically.
2 MR. PEREZ: It didn't make any sense to us. So I'm
3 not going to address that, just rest on the papers.
4 Your Honor, let me go back to the four-part test, and
5 I'm going to focus on, I guess, the two principal ones,
6 likelihood of success on the merits and irreparable harm. Your
7 Honor, as it relates to likelihood of success on the merit,
8 what we have is a 9019. There was evidence presented as to the
9 debtors' business judgment. Counsel stated that they didn't
10 have standing, that they weren't questioning the business
11 judgment. The only allegation was that somehow, the
12 transaction was being done in bad faith. They refused -- they
13 declined, is probably a better to put it, to cross-examine Mr.
14 Fitts. Mr. Fitts testified that getting rid of the structures
15 has an economic benefit for them, that a large number of the
16 loans have absolutely nothing to do with SunCal, and that this
17 is something that they've been trying to do since before the
18 bankruptcy. So it's really hard to talk about them having met
19 their burden or even putting on any evidence as to their burden
20 when in fact there was an articulated business reason --
21 several. This is something that they had been -- the records
22 show that this is something that we had been trying to do since
23 before the bankruptcy. So it can't be that we did it before,
24 that we did it to spite them, if you will, or whatever that
25 application.

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1 Second, Your Honor, the thing that troubles me the
2 most about what Mr. O'Keefe said is that if there's a stay,
3 we're not impaired whatsoever. Well, that completely ignores
4 the fact that there are a bunch of other loans in Fenway that
5 Fenway has been wanting to get out from out in the middle of
6 this, that we have business reasons to do it. I mean, there
7 are a whole host of facts on the record which support that. So
8 assuming that they didn't really waive their argument because
9 frankly, when I reread the transcript and I reread it again, it
10 pretty much seemed to me that they basically withdrew their
11 objection at the time. But assuming they didn't, there's just
12 been no showing that there is going to be -- that there's any
13 likelihood on the merits on the question of did we meet our
14 business judgment on a 9019. There's just simply nothing, Your
15 Honor.
16 As it relates to irreparable harm, I guess the main
17 argument is that there is -- that somehow, the operation of the
18 automatic stay is irreparable harm. Your Honor, it's hard to
19 respond to that because, I mean, the automatic stay is the
20 automatic stay. That's the main tenet of our Chapter 11
21 process. That's what a lot of countries overseas don't have.
22 I don't understand how you can say the irreparable harm is the
23 operation of the principle tenet of why we're here. I just
24 don't understand how to respond to that.
25 So Your Honor, for those reasons, we would request --

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1 and they submitted -- I was surprised when I got their
2 appellate documents. I was surprised when I got their motion
3 for stay pending appeal. I called and said, let's put this on
4 a more normal schedule. We'll brief it; you'll brief it. It
5 was over Memorial Day. We agreed to it. We're now almost a
6 month -- or, not quite but almost a month after it. Ms.
7 Goldstein calls me everyday and says, come on, let's go, let's
8 go because Fenway wants to get out of it. So Your Honor, we
9 would request that the Court deny the motion.
10 THE COURT: If we're hearing further from you, I want
11 to know if the committee has anything to say on this.
12 MR. O'DONNELL: Your Honor, we filed a very brief
13 joinder in support of the debtors' position on this. We agree
14 entirely that both on the merits -- both on the -- on both
15 prongs that Mr. Perez addressed. In terms of likelihood of
16 success on the merits, there were definitely other business
17 reasons here to do this transaction; it was not bad faith. And
18 the committee spent months with this transaction looking at
19 those other business reasons and still think that they are good
20 reasons to get this transaction done. And we heard from Mr.
21 O'Keefe today nothing about the real irreparable harm could be
22 here, so we see no reason for the relief to be granted.
23 THE COURT: Okay. Mr. O'Keefe?
24 MR. O'KEEFE: Your Honor, very briefly, the effect --
25 that aspect of the relief from stay order where Your Honor says

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1 this is the effect of the transaction, we consider that a part
2 of the prior order. Our motion seeks to consolidate those
3 orders. We considered that Your Honor had to determine, when
4 you approved the 9019 order, as we've cited the standard, that
5 you had to consider the effect upon a third party who is being
6 enjoined, and Your Honor did not do that, because at that
7 particular point in time, Your Honor hadn't enunciated that
8 effect. So we think that they are one order insofar as that
9 respect is concerned.
10 As far as the operation of the stay, we quite frankly
11 find it inconceivable that the appellate court is going to say
12 that it's the same thing as when you file a case. If they file
13 a case, we understand the stay springs up on their filing.
14 This is not what is happening. Your Honor is approving a
15 transaction that is dragging postpetition nonestate assets
16 within the stay with an ulterior motive. And we're only
17 talking about --
18 THE COURT: You really can't say that. You keep
19 saying that, and I've admonished you before. You haven't
20 proven it. Stop saying it to me.
21 MR. O'KEEFE: Very well --
22 THE COURT: You have done nothing to prove an ulterior
23 motive. Don't reference it again, please.
24 MR. O'KEEFE: Very well, Your Honor. The contract
25 comes first, the stay comes second. It is the contract order

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1 that we're appealing. The effect of that contract is the
2 second order, and that is why we're appealing it, because we
3 believe it is interrelated with the first.
4 The economic impact, Your Honor, in the underlying
5 documentation, there was nothing that quantified what they
6 perceive to be the economic benefit relative to the SunCal
7 loans. They can certainly close the transaction as to all the
8 other loans; it's only the SunCal loans that are of relevance
9 to us and that we're seeking a stay on. So this reference to
10 other loans and instruments, they can do whatever they're going
11 to do. It's only those loans.
12 I would conclude, Your Honor, I understand Your Honor
13 fundamentally disagrees with us, and I understand Your Honor
14 fundamentally disagrees with our interpretation of the law.
15 But it is entirely possible that we are right. Certainly,
16 stranger things have happened. During the period of time that
17 we are seeking, the brief period of time that we are seeking
18 another court to review that, nobody will be harmed, and the
19 appellate process would be sustained. So I would simply ask
20 the Court to grant us a brief window of time to seek a stay
21 pending appeal from the district court. And we appreciate the
22 Court's time and consideration.
23 THE COURT: Okay. Is there anything more from
24 anybody?
25 All right, I'm denying the motion for a stay pending

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1 appeal. The record does not support a finding that SunCal is
2 likely to succeed on its appeal or that either the imposition
3 of the automatic stay or the continuation of the automatic stay
4 can be a source of meaningful hardship to the SunCal debtors.
5 One of the main reasons for reaching this conclusion is that
6 SunCal called no witnesses and offered no evidence on May 12
7 and declined the Court's repeated invitations to cross-examine
8 the one witness whose testimony was proffered by the debtors.
9 Thus, except for arguments about Lehman's allegedly improper
10 motives in seeking to unwind the master repurchasement
11 agreement and related structures with Fenway, SunCal has done
12 absolutely nothing to prove those allegations. Its present
13 motion for a stay pending appeal repeats those unsupported
14 arguments again, and Mr. O'Keefe has done so throughout this
15 argument today.
16 SunCal's standing to complain here is also doubtful.
17 During the hearing on May 12, SunCal confirmed through counsel
18 that it has no claims against any of the Lehman entities in
19 these bankruptcy cases, acknowledged that it has not filed any
20 proofs of claim, and asserted that it did not want to interfere
21 with the Fenway transactions that it has so vigorously opposed.
22 Despite these statements indicating lack of any intent to
23 interfere, SunCal has done everything in its power to do just
24 the opposite and has achieved a voluntary delay in closing of
25 the unwinding of the Fenway repo through today's hearing.

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1 The Court is also troubled to note that in advocating
2 its request for emergency relief, SunCal has referenced case
3 law in a misleading manner. There is no split between the
4 decisions of Judge Drain in Meniam, Inc. and Judge Gonzalez in
5 Enron. And even if there were such a split, that would not
6 impact my ruling. Judge Drain's case involved a motion to
7 dismiss in a context of a claim objection in which equitable
8 subordination was but one element of the objection, not an
9 adversary proceeding frontally challenging Lehman's rights as a
10 secured creditor.
11 SunCal claims to be hampered by application of the
12 automatic stay that the bankruptcy appellate panel in the Ninth
13 Circuit found to be applicable and has come to this Court to
14 obtain relief that is available from the Ninth Circuit in
15 connection with the pending appeal of the BAP decision. I
16 referenced with concern last month that SunCal seemed to be
17 gaming the system, and that still appears to be the case today.
18 The underlying equitable subordination litigation,
19 essentially, is lender liability litigation seeking to deprive
20 the holders of secured claims of their rights as secured
21 creditors in the SunCal bankruptcy. If successful, SunCal
22 would strip Lehman of its contractual and property rights. It
23 wants to pursue that litigation as a means to exert leverage
24 and, presumably, achieve a settlement in which Lehman, as
25 secured creditor, would make concessions for the benefit of

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1 junior creditors. The question of whether this litigation
2 activity is or is not subject to the automatic stay is at least
3 in part before the Ninth Circuit already. I have concluded
4 that the litigation is offensive, not defensive in nature, and
5 that it quite clearly is subject to the automatic stay.
6 Nonetheless, I have decided to defer to the Ninth Circuit and
7 permit the appeal to run its course rather than take action
8 here that might moot that appeal. Therefore, arguments made by
9 SunCal in its papers that I am somehow denying comity to the
10 California courts are entirely untrue and misplaced. At
11 bottom, SunCal seeks a stay pending appeal that is not
12 supported by the facts or the law, and that, even if granted,
13 would be largely meaningless. It seeks a stay of a decision
14 denying it relief from a stay; such stay of the denial of
15 SunCal's motion for stay relief would not amount to granting of
16 relief from stay, and I am certainly not inclined to stay the
17 closing of the Fenway transaction, a transaction that has been
18 amply supported by the record made on May 12.
19 In effect, this motion for a stay pending appeal seeks
20 to do through the back door what amounts to stay relief to
21 permit litigation whose very purpose is to take property from
22 the Lehman estates. This is really no different from a garden
23 variety motion for stay relief that might be sought in other
24 cases where litigation is pending against an estate or its
25 property. Such motions are rarely granted, and this case is no

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1 exception.
2 For the reasons noted, the likelihood of successfully
3 appealing this Court's approval of the unwinding of the Fenway
4 repo and the denial of SunCal's motion for relief from stay is
5 remote. I think it's highly remote. There's no appreciable
6 harm to SunCal in prosecuting the appeal already pending in the
7 Ninth Circuit and, indeed, SunCal's statement today that it has
8 voluntarily agreed to a sixty-day stay of the pending
9 litigation in California is further evidence that there is
10 simply no harm to SunCal in denying its present motion for a
11 stay pending appeal.
12 The motion is denied.
13 MR. O'KEEFE: Thank you, Your Honor. We appreciate
14 the Court's time and consideration.
15 MR. PEREZ: Your Honor, we'll submit a motion -- an
16 order.
17 THE COURT: Okay.
18 Is there anything more for today? The 2 o'clock
19 hearing is no longer necessary, and so I'll see you next time,
20 whenever that is.
21 MR. PEREZ: Thank you, Your Honor.
22 (Proceedings concluded at 11:40 AM)
23
24
25

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2 I N D E X
4 RULINGS
5 Page Line
6 Uncontested Motion 17 7
7 Authorizing Transfer of
8 Funds to Rosslyn LB
9 Syndication Partner
10 Approved
11
12 Order on the Presentment 20 2
13 Regarding the Revised Notice
14 and Case Management
15 Procedures will be
16 Submitted
17
18 Order will be Submitted 24 18
19 Approving Motion of
20 Debtors Regarding Real
21 Estate Assets
22
23 Park Avenue Investment 36 12
24 Motion Approved
25

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1 Motion for Stay Pending 64
2 Appeal Denied
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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2 C E R T I F I C A T I O N
4 I, Laurie Ann Sherby, certify that the foregoing transcript is
5 a true and accurate record of the proceedings.
6 Laurie Ann Digitally signed by Laurie Ann Sherby

DN: cn=Laurie Ann Sherby, o, ou,
Sherby
email=digital1@veritext.com, c=US
Date: 2010.06.17 16:00:27 -04'00'
7 ___________________________________
8 LAURIE ANN SHERBY
10 Veritext
11 200 Old Country Road
12 Suite 580
13 Mineola, NY 11501
14
15 Date: June 17, 2010
16
17
18
19
20
21
22
23
24
25

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Page 1

2 UNITED STATES BANKRUPTCY COURT

3 SOUTHERN DISTRICT OF NEW YORK

4 Main Case No. 08-13555(JMP), Adv. Case No. 08-01420(JMP)

6 In the Matter of:

7 LEHMAN BROTHERS HOLDINGS, INC.,

10 SECURITIES INVESTOR PROTECTION CORPORATION, ET AL.,

13 LEHMAN BROTHERS, INC.

16 United States Bankruptcy Court

17 One Bowling Green

18 New York, New York

20 June 16, 2010

24 HON. JAMES M. PECK

25 U.S. BANKRUPTCY JUDGE

VERITEXT REPORTING COMPANY

1 Motion of Lehman Brothers Holdings Inc. and Lehman

2 Commercial Paper Inc. for Authority to Transfer Funds

3 to Rosslyn LB Syndication Partner LLC

5 Examiner's Motion for Order Discharging Examiner and

6 Granting Related Relief

8 Notice of Presentment of Second Amended Order

9 Implementing Certain Notice and Case Management

12 Motion of the Debtors for the Establishment of

13 Procedures to Dispose of Certain Real Estate Assets

14 and Modification of the Order Establishing Procedures

16 Motion of Lehman Brothers Holdings Inc. for Authority

17 to Make New Debt Investment in 237 Park Avenue Property

19 Motion of SunCal Debtors for Stay Pending Appeal

21 Motion of Debtors and Debtors in Possession for Entry

22 of an Order to Consolidate Certain Proceedings and

23 Establish Related Procedures

25 Transcribed by: Laurie Ann Sherby

VERITEXT REPORTING COMPANY

3 WEIL, GOTSHAL & MANGES LLP

4 Attorneys for the Debtors

5 767 Fifth Avenue

6 New York, NY 10153

8 BY: HARVEY R. MILLER, ESQ.

9 SUNNY SINGH, ESQ.

12 WEIL, GOTSHAL & MANGES LLP

13 Attorneys for the Debtors

14 700 Louisiana, Suite 1600

17 BY: ALFREDO R. PEREZ, ESQ.

20 CADWALADER, WICKERSHAM & TAFT LLP

21 Attorneys for Lehman Re

22 One World Financial Center

23 New York, NY 10281

25 BY: MICHELE C. MAMAN, ESQ.

VERITEXT REPORTING COMPANY

2 JENNER & BLOCK

3 Attorneys for the Examiner, Anton J. Valukas

4 330 North Wabash Avenue

7 BY: ROBERT L. BYMAN, ESQ.

11 Attorneys for Lead Plaintiffs

12 in the Consolidated Securities Litigation

16 BY: MICHAEL S. ETKIN, ESQ.

19 MILBANK, TWEED, HADLEY & MCCLOY LLP

20 Attorneys for the Committee

21 One Chase Manhattan Plaza

22 New York, NY 10005

24 BY: DENNIS C. O'DONNELL, ESQ.

VERITEXT REPORTING COMPANY

2 Special Counsel to the Debtors