American court hearing recordings and interviews - Listen to the 8/26 court hearing in the Searles Valley Minerals bankruptcy

Episode Date: September 1, 2026

For more information about the bankruptcy cases see https://cases.stretto.com/SVM/(Bankruptcy Case Numbers and Bankruptcy Debtor Names):26-10966Searles Valley Minerals Inc.26-10967Trona Railway Company LLC26-10968Searles Domestic Water Company LLC

All our eyes. Please be seated. Good afternoon. Counsel? Good afternoon, Your Honor. Good to see you. Good to see you. For the record, Jim Mazza from Scadden Arps,

representing Searle's Valley Minerals and its affiliated debtors. It's been a while since we've been before your court, Your Honor. It has. It has. It has. Back on June 16th, to be exact. Hope you've had a nice summer. I have.

We've been very busy since then, and we expect that we'll be, your court a bit more now that we're reaching really what is the culmination of these cases okay today I'm joined by my colleagues my partner Abby Davis and Jennifer Madden and some others I'd also mention that the president of the company Dennis Cruz is here today in the gallery along with Christian Temke managing director of Lazard the debtors investment banker and Phil Gunn of Ankara the debtors restructuring advisors your honor given

the, since we haven't been in court in a while, I'd like to provide a brief update of what we've been up to since the first day hearing. That would be great. Thanks, Your Honor. So as you know, this is a 363 sale case, and yesterday we completed a successful auction for the debtor's SOTAAS contracts.

After 10 hours that went by so quickly, Tata Chemicals, North America, won the auction with a winning bid of $21.5 million dollars. American soda was our backup bidder at 21.25 million. More on the details of that later when we seek approval of that transaction, Your Honor. We've also been diligently negotiating with bidders regarding the sale of the rest of the assets

of the debtors on a going concern basis. And while we have not yet reached a definitive agreement to present to the court, parties are keenly focused on getting a deal done. And if and when we get to a deal, any deal will most likely involve support from the parent here, KHA, which is ultimately owned by NERMA Limited back in India, which as you know has provided the junior dip financing, which along with the Tata liquidity advances funded these cases to where we are here today.

As we do approach the culmination of these cases with what we hope will be a going concern sale that will preserve the enterprise here, which is very important in the the town of Toronto, California. I'd say that the proverbial lines in the sand are being drawn now with objections starting to come in and folks taking out ground to the sale process. Last night, Mr. Ward's firm filed a limited objection to the sale, and I'm sure he'll have a few things to say about that. I have the committee objection. Very well, Your Honor. It raises typical committee-type issues around releases and asset allocations and the like.

So we're hopeful, though, that continued discussions and productive work that we've had with the committee throughout the case so far will lead to something that's going to be consensual. It's part of the reason why we haven't been in front of your honor until today. So we'll see how that goes. I'd also report to the court at the direction

of the independent director of Mr. DeBelle, Ms. Davis's firm, Bicholsky, has finished an investigation regarding a state claims regarding affiliates and those findings have been presented to both the professionals for the creditors committee and to the dip lender and then today which I think is probably going to be the main event as expected the California Air Resources Board has asserted that any sale here cannot be free and clear of the debtors obligations under the California cap and trade program they filed

both a motion and an objection to the sale. We believe that the former, the motion's improper. It's really an objection to the sale that's subject to all the provisions of section 363, 363F, and 363M in particular. My partner, Abby Davis, will accordingly address those issues when we get to them on the agenda. Unsurprisingly, as part of the sale process,

none of the going concerned bidders are willing to acquire the assets here with that liability following it. So it's an important issue to have addressed here in connection with the sale process. We did file prior to court today, a proposed order that addresses the carb issues, so that should be on the docket. And I don't have the docket number handy, but we did put that on file. We also, moving on from really the sale process, we did also negotiate with the sale process. the creditors committee and the dip lender the key employee incentive program and a current program that we filed on certification of counsel and I believe that order has just been entered I reviewed that earlier today fabulous thanks very much your honor appreciate everybody's hard work on that and as we work towards the the milestones to get hopefully some awards under the program with that your honor that's that's really the case update of where we are here today I guess that raises

And I very much appreciate the update because I have limited visibility into the process itself, and that's by design. So I have reviewed all the materials, even those materials that were filed late last night and I think even this morning. So I think I've reviewed the materials, but it was not immediately apparent to me what the current state of play is. And I guess I want a little bit of clarity from you. What I have, I understand the filing of the notice of the winning bidder with respect to Tata and a $21.5 million bid, which I assume, which I understand, I think, is to take certain contracts by assumption and assignment. They're paying to do that. Precisely. And there's a backup bidder.

I get that. And I'm being asked to approve that today. Is that all I'm being asked to approve today? Because you don't have a buyer for the balance of it, and I think you're telling me that that process remains on me. as a officially correct the only order having in front of your order to to get entered today would be the order on the 363 sale to approve the sale to SOTASH contracts to Tata the other issues regarding the going concern sale however have been put into issue because of the fact that none of the

going concern bidders will take with the the the carb liability and we think it's important on the case timeline for that issue to at least be presented to the court so that the arguments are heard and the parties positions are put out there so that we can have some clarity in that regard so that we can move forward with a potential going concern sale otherwise what frankly would be wasting our time if the issue comes out in a way that is not going to be satisfactory to bidders on that account a number of issues were raised by the creditors committee in their objection and I'm not trying to put words in

mr. Ward's mouth and I will hear from the committee and from any party that wishes to be heard at the appropriate time. But it would seem to be that a number of the issues that are raised by the committee with respect to the concept of third-party releases, concerns with respect to indefeasible payment, sale proceeds prior to expiry of the challenge period, et cetera, those issues would seem to go with the next transaction, whatever the – whoever – whoever – ultimately purchases the overall assets right the committee concerns and again mr. word can correct me if i'm mistaken but they don't see the sale that's in front of me today

is an asset sale the contracts are assets they're being sold to somebody and and i'll deal with any objections but to the extent that i have larger objections about where this case is going the card issues etc other than answering that card question the other issues i assume parties will keep their powder dry on those for to see who's going to win a sale process and what the terms of that proposed transaction would be. Do I have that correct? I don't want to speak for other parties, but that's my assumption as well. Parties are going to continue to have discussions around those issues and see if something can be worked out.

And if not, then we'll be back before your honor on potential litigation regarding those issues. So then I think I'd like to know to put a finer point. on it precisely what you're asking for from me today and I'd like to know what's contested so the CARB issues I get it and I view the either the objection or the motion as being two sides of the same coin or basically the same side of the same coin we can debate procedurally where we are but CARB has made it abundantly clear their concerns with respect to the proposed transaction or the consequences

of any transaction upon them and 363 at 5 and I've had an opportunity again to review their papers as well as yours so I think I understand that issue. Does the debtor expect that the proposed transaction with Tata is contested? We do not expect to be contested. I don't think Mr. Board has any issues with it. There's a certain language that we're still working out with distribution of pro season like, but we can provide that proposed order under certification. I will say that there are provisions in that order that make clear that a CARB liability would not follow that transaction,

which it doesn't make sense for it to follow the transaction because they're not buying a facility. So given the positions CARB is taken in the case, TATA is understandably wants clarity that there's no CARB liability there. But I don't think that puts into focus the issues that would come up in connection with the going concern sale. So I go ahead. So I think it's pretty clear what I'm trying to figure out what my dance card looks like. Right. And there's a proposed transaction of a significant sum. Obviously the 21.5 and you've got a backup bidder.

If that is contested, then I'm happy to deal with that. I will be advised by CARB about whether their concerns travel with that motion. I just don't know whether they do or don't, and I'll hear, I think it would make sense to hear from KART because, again, I got a lot of things moving here, and I've got the benefit of papers that were filed as recently as a couple hours ago, so I just want to make sure I'm on the right page. But intuitively to me, and again, I'm happy to be corrected, it would seem to me that the SOTA-S contract sale, if it is contested, if it's, not contested then we should dispose of that promptly because that's pretty easy and I'm always happy and not to interrupt but I think we should get through that first because I do think if there's any contest it's a small one on that one I don't actually think it's contested so can I hear from the committee with respect and I'm not asking for substance I'm just

trying to figure out what we're going to do here and I think if I if I understood for Mr. Mazah and if he's correct or this all works out in a way that makes sense we have a relatively straightforward hearing on the soda ash sale which is an assumption and assignment structure and then we would turn to the carb issues which I think the debtor says need to be addressed in order to be able to allow the debtor to move forward with a sale process that is currently frozen because of the overhang of whether this is subject to the carve obligations, which I think in the stipulation of facts, I think put a number

in the neighborhood about $76 million. Is that correct? Yeah, in that, I did see the stipulation. I appreciate getting that. All right, so Mr. Ward, what's my afternoon look like? Well, from our perspective, Your Honor, I think you hit the nail on the head that the Tata Sale is not contested. As Your Honor saw in our objection, we did raise issues regarding releases of

NERMA, which is being asked to fund the all-asset sale transaction, as Mr. Madison mentioned. And we also raised issues about allocation of sale proceeds among different assets, disbursement of proceeds at closing. But none of those really come into play with the TOT of sale because they're not buying, say, 10 different groups of assets that you need to allocate for. They're buying one asset. It's contracts. And we make clear that they're not buying cash. They're not buying inventory. It's just the contracts. And so the issue really becomes, do they have a properly perfected lien in that and if so they can get those dispersed upon closing technically our challenge period is not yet expired we did extend that two weeks to middle of

september so i would respect their honor to say that when the proceeds are dispersed to hsbc that is subject to our challenge i think they probably have a properly perfected lien in the contracts and so for that reason i'm not going to stand in the way of the disbursement going out the door um so for all of those reasons i think you're right um that our objection does largely pertain to be all last that sale now having said that I have a few things I would like to talk about the background since this is the first time that we've appeared before your honor to kind of give us how we see the lay of the land how we saw the lay of the land when we were first engaged in what we see is a path going forward so I can do that

now or I can do that at the I think I'd like to hear that in just a moment sounds good you and I will let you up or hear from you next in a moment but I'm I guess I think I'd like to hear from carb Okay, did I answer your question on the you did the APA thing? You did very much so and again I will I'm happy to take more context and guidance but I think if I start down that path I'm going to hear from a whole bunch of people the the question at the forefront for the court right now is with respect to the proposed sale that's here and whether or not we can deal with that or does it raise all of the same issues Mr. Mazza's comment and I get you know you're welcome to if you can

Shed some light, then well you're welcome to do so the issues with respect to disbursement of proceeds like I think I get and that seems like a Reservation of Rights concept the parties would negotiate. I really need to know if the CARB question needs to be answered in order to deal with the sale of the contracts. Yeah, and just to weigh in on that. I mean the committee is aligned with the debtor on that which is the only thing being sold here are contracts not plants not real estate not cash not inventory and so because it is simply an assumption that and assignment of contracts. From the committee's perspective, we don't see how that has any bearing on the CARB position.

We do agree that the CARB position needs to be decided promptly in order to proceed with the all-asset sale, but in order to sell and assign the contracts to TOTA, we don't see how that has a bearing on the... So we're aligned with the debtor on that view. I appreciate the committee's position.

Can I hear from CARB? Welcome. Thank you, Your Honor, Deputy Attorney General Michael Dorsey for the California and Resources Board and no, Carb does that... Welcome. Thank you very much for coming out today. Thank you for having us. No, the the Air Resources Board does not see any problem from its perspective with the sale of contracts. Our position is that the the liability under the Cap-Invest program, whatever form you're going to figure out it is, is not, doesn't ruin the contracts. It travels with the enterprise. It travels with the facility.

Right. Okay. Well, that's actually very helpful because again, I think I'd like to separate week from chat. And Mr. Maza, unless you feel otherwise, then it would seem that we should turn to the proposed ta-a-sale. And again, if there are substantive objections to that, I will hear any of them. But if we can get that one out, then I think the sense is that the concerns raised by card by the state of California are going to be the main event today. If everybody's in agreement, then I think we should proceed under that understanding. Mr. Gorsese, that makes sense to you?

That makes sense to me, Your Honor. Very good. I appreciate your comments. Mr. Mawza. Okay, great. And right here on my talking points, I propose that we get the soda ash sale out of the way first. Very well. All right, so there we are.

So as I mentioned at the outset, we had a lengthy but successful and spirited auction yesterday with Tata Chemicals North America coming out with the winning bid. We filed the sale order prior to court today at docker number 332. I have it. Thank you. Great. And with the related assignment and assumption agreements appended there too, and all the consultation parties have seen it. And again, we see this as an uncontested matter based on the colloquy before the court.

Again, we have some of this ancillary language around distribution of proceeds and like. we'll submit the order to your honor with any changes on that front under certification, assuming we get this done. So to summarize Tata Chemical's winning bid is composed of a $17 million piece of debt forgiveness, which is the current balance of the liquidity advance, which, as you may recall, Your Honor, was part of the supply and liquidity agreement that was approved at the outset of the cases. I recall.

And so with that number, we add to that 4.16 million of cash consideration. And as part of the liquidity agreement that was previously approved, there was a termination fee that was in there. And that was $340,000 based on the outstanding amount of liquidity advance at $17 million and 2% fee. So they were credited for that as part of the auction. So that's how we came up with the $21.5 million. number that was the winning bid at the auction. So, as I mentioned earlier, we have Mr. Tempke of Lazard here in the courtroom, and I propose to proffer his testimony to support the findings in the proposed sale order, so I can do so now.

You may proceed. Thanks, Your Honor. So if Mr. Temke were to testify, he'd say that he's a managing director at Lazard, which has been retained as the investment banker for the debtors in these cases. He's been employed at Lazard since 2007. He went to Northwestern University. He asked me to say, go cats, and holds series 24 and 79 licenses. Mr. Temke would further testify, as he did in his declaration and support of the debtors dip financing at docket number 15,

that Lazard has been working with the debtors since August of 2025 on a comprehensive sale process. Mr. Temke would say that since the petition date, has contacted over 125 parties during that time and executed over 55 NDAs and obtained confidential information about the debt of the business. This process led us to the auction that we had yesterday and that auction, that spirited auction that I mentioned, Mr. Temke would testify that we had three qualified bids going into that auction that were qualified under the bidding procedures previously approved by the court. He'd also testify that after a number of adjournments, the auction concluded

with Tata Chemicals submitting the final overbid at the $21.5 million number that I mentioned earlier, which consists, again, of forgiveness of debt under the supply liquidity agreement, estimated to be about $17 million, $4.16 million in cash, and credit for the 2% termination fee of $340,000. As far as adequate protection, Adequate assurance goes, Mr. Temke would further testify to the facts that Tata Chemicals has been performing under the Supplying Liquity Agreement since the outset of the cases, and that that has continued seamlessly during the cases, and that they have the financial wherewithal to continue to perform under those contracts.

I believe that the CEO of Tata Chemicals in North America, Mr. John Mulhall is also here today in case there are any questions around the adequate assurance issue, but there have not been any objections raised in that regard. Again, we want to thank American Soda, which was declared the backup bidder in connection with the process as well, and for the key auction that occurred. That would essentially cover what would be in Mr. Temke's proffer and the additional information around the sale process.

So I'll stop there and see if Your Honor has any questions. I do not have questions. I would ask if there's any party that wishes to question. examine mr. Tempke regarding the contents of the proffer very well I will accept the proper great your honor I think with that and the evidentiary record that is provided that we we'd ask that the court approved the sale of the so-to-ask contracts to Tata after the process was completed and again we'll submit an order with any additional clarifying changes on the point

that were raised earlier very good I would ask if anyone wishes to be heard with respect to the debtors requests for an order authorizing and approving the sale of the soda ash contracts to tauta on the terms that have been described on the record by council council good afternoon thank you Robert Schechter Poiseo Bromberg and Newman on behalf of Sotomayette LLC here my colleague Cheryl Santoneale our backup bidder yes and I'm not pro hoc Vichated in yet I'm happy to hear from that you're a bitter you are welcome appreciate you that brings cash in my courtroom is welcome to speak good activities yesterday

you're correct for the back of bidder just wanted to put on the record on we've been in communication with debtors counsel on a slight modification to at least the current proposed form of order it's paragraph six specifically I think we are in agreement already on revised language but I just want to put that on the record that your client is American soda right correct very good thank you thank you sir more agreement on that language very good thank you any other party wish to be heard welcome Good afternoon, Your Honor.

Jack Shrum, on behalf of Arndt Companies, Inc. I understand that the sale proposes to sell the contracts and not the facilities. I guess that raises two questions in my mind. Who is going to continue to operate the facilities while after these contracts have been? My client has, I'm sorry, I should have backed back up, has a mechanics with the remaining balance due of about $61,000 and change as I set forth in the paper. a relatively small amount but we do want to make sure that the estate is not trying to kind of backdoor and extinguishment of this mechanics thing by simply selling the

contracts and then freezing all of the other assets so that my clients not likely to be paid anytime in the near future but I'm happy to hear mr. Maza can you shed any light I'm not sure the mechanics liens have anything to do with this particular asset sale as we mentioned earlier we're working on the going concern asset sale so I would think that it is a legitimate mechanics lien that would be dealt with in that process I agree and I think those rights are actually reserved the debtor is not moving forward with an all asset sale a series of contracts are being proposed to be assumed and assigned intuitively to me I would not see

the mechanics lien would attach to those contractual rights I'm certainly no expert in California mechanics but generally I think that counsel is wisely standing up to ensure that their rights are acknowledged and recognized and respected but I don't think that they're implicated by the proposed transaction be for me today to the extent that the debtor proposes to move forward with a sale of substantially all assets then the rights of mechanics being holders and any party asserting an interest in assets would be implicated by that but I think that that's

an issue for another day okay mr. Rosner good afternoon welcome good to see you very nice to see you as well I have a follow of a question on mechanics leave this is sort of a that question taking into the next level my client process equipment ink doing business is process baron has a recorded mechanics lien on the trona property and I understand from the court that's not before the court today But my client also has a contract, and the contract is listed in several notices of potential assumption and assignment. Most recently, at docket image 313, an appendage that is Exhibit A, and at Exhibit A at number 85, my client's name appears, and there's a cure amount of about $2.5 million in change.

we previously filed a limited objection our cure amount is closer to 3.2 million so although I understand that our lien rights subject to correction our lien rights are preserved for a later date in connection with the going concern sale I just want to make sure that the contract is not somehow being assumed and assigned today because we would object to the cure amount

and if I could just get clarification on that I think Mr. Mazek can provide clarity that they know precisely the contracts that are being proposed to be assumed and assigned and it does not sound like your client would fall into that category. But I'm in your deed, Your Honor, there's an exhibit to the SOTASH assignment and assumption agreement that provides for the contracts that are part of the deal. I believe that counsel's client's contract is part of the deal. We can confirm that with them, but it doesn't sound like a SOTA's contract to me.

Okay. Again, we're dealing with a limited and specific universe of contracts to be assumed and assigned and I think that that's responsive to your concerns. All right. Mr. Miller. Welcome. Your Honor, nice to see you again. Good to see you. Curtis Miller from Morris Nichols

on behalf of Tata Chemicals in North America. I just wanted to confirm that we are not. Oh, you just want an add-a-boy for being the buyer. I'll always take that, Your Honor. I did just want to confirm for the record that we are not taking Mr. Rosner's client's contract as part of this. Very good.

Thank you, Mr. Miller. Your Honor, just with respect with the language and the say a Lord or so, as mentioned for the disbursement of HSBC proceeds, we're fine with that. We did provide language to say that it's subject to the ongoing challenge rights or without prejudice to those challenge rights.

We also provided language to make clear that the payment will be made in cash over and above the credit bid. Over the $17 million credit bid, their remainder will be paid in cash. That it doesn't include a sale of inventories, including any extracted minerals. And I believe that's it.

If I could just have one question with Mr. Mazur real quick. Your Honor, the issue I'm addressing with Mr. Mazza is, and I heard him during his presentation, that the bid is for $21.5 million, of which $17 million is the amount's outstanding on the advancement for the credit bidding. Four and a half million on top of that. But the cash payment that they're making to the estate

is $4.1 million in some change. they're not paying $340,000 because under their agreement, their advancement agreement with the debtor, they have a 2% early termination fee. So for example, if the debtor were to sell those assets to somebody else and have to terminate their agreement with Tata,

Tata's going to get a $340,000 fee from that, an early termination. But now I'm hearing that Tata is reducing the purchase price by the $340,000 for Tata being the purchaser. It's only terminated early because they are buying it, which I don't think is appropriate. My understanding was it was a $4.5 million cash payment. Why on earth would the estate pay Tata $340,000

or reduced the purchase price by $340,000 to allow Tata to take the asset for which they get an early termination fee on their contract? Can I ask a question? And again, this is the first time I'm hearing it. I don't have the dip documents in front of me. I'm kind of shooting from the hip. But if we were, if American soda ash were the prevailing party, would the 340 be part of the amount that the state would be obliged to pay?

Correct. Off to Tata. That's correct. Here's what I want to do. I want to take a break. a total about five minutes I'm just not this has been evolving very quickly and I'm not faulting anybody this is a dance we all agree same here that's the first and so I want parties to understand precisely what we're negotiating over precisely what the and

again the sort of classic primary consideration of a committee is how many dollars are actually coming in and if some of the dollars that I thought were coming in aren't actually dollars coming in I need to know and I want to know why rather than us sorting this out or you two sorting this out and figuring out the reality of it while I'm staring at you, I would like to give you a couple of minutes to make sure that everybody's on the same age. If we have an issue, then I will deal with that issue. But again, as a practical matter, the court sees the evidentiary record for the relief essentially closed. I don't think there's any debate about whether this thing should be sold or frankly whether it should be sold to Tata,

there's an issue about the consideration I'd like the parties to confer just to make sure everybody's on the same page if there's a dispute then we'll return in five minutes and you can explain it and the court will deal with that stand in recess five minutes thank your honor thank your honor thanks for the short break there I think after the parties discussions that the resolution is that we'll stick with where we came in on this and that Tata will have the credit for the $340,000 says that they're not giving it that cash actually to the state the way that the bidding procedures and the auction was run was that they were getting credit for that and

there wasn't a right there wasn't any expectation they paid money back to the state okay thank you can I ask if anyone else wishes to be heard with respect to the debtors request for an order authorizing and approving the sale by the assumption and assignment of the so that as contracts as described by council okay I'm gonna grant the application And so ruling I rely upon a proffered testimony of Mr. Temke, which I accept without contradiction and no cross-examination was requested. I note that these assets were offered for sale through a process commenced by the debtor

with the filing of motion papers and the entry of an order by the Court on July 7, appearing at docket number 140 that laid out bidding procedures to take us to this hearing. of the record and the declarations that have been filed and the multiplicity of pleadings that have been filed within the last few days reflect scrupulous compliance with the court's bidding procedures order and the record does reflect indeed that an auction was conducted pursuant to the bidding procedures at the conclusion of which Tata was identified as the winning bidder with a bid of 21.5 million with a breakdown that's been described of the consideration on the record. I note also that American

soda is the backup bidder and has agreed to serve in that capacity going forward. Case law in the Third Circuit teaches that, through the Abbott's Dairy's case in its progeny, that a debtor seeking to sell assets in a Chapter 11 case needs to demonstrate that the proposed transaction reflects the exercise of the debtor's best business judgment, and that it also proceeds in good faith. Based upon the declaration of Mr. Temke as well – or the – I'm sorry, the testimony of Mr. Temke and the record developed before the case, I have no reservations. and concluding that the proposed transaction here indeed reflects the exercise of the debtor's

best business judgment, and in so ruling, I place significant weight on the support articulated by the official committee on secure creditors for the proposed transaction. In connection with whether or not the proceeding is moving in good faith, again, case law teaches that the good faith standard requires that no insider be receiving any, inappropriate or unfair benefit in connection with proposed transaction. And I'm satisfied here that the record indeed supports a finding that the proposed purchaser Tata, as well as the backup purchaser, American Soda, are good faith purchasers within the meaning of bankruptcy code Section 363M. And to the extent that the transaction is closed, either of those purchasers would be entitled to all of the protections attendant there too.

Mr. Maza, I believe the debtor is also requested a waiver of the Rule 6,000 for two-week stay. And again, I'm prepared to grant that waiver, given the record that's been developed before me, the debtor's intention and expectation to close the transaction promptly, and my belief, I think, supported by the record that the debtor is dependent upon and expecting the proceeds from the transaction in order to move forward. So with that, I will be prepared to enter an order. approving and authorized the transaction. I note further that counselor for the committee has observed that there are perhaps some drafting or word-smithing issues with respect to that form of order.

I view them as at most business issues and at a minimum technical considerations that would not likely hold up the approval of the transaction. So I expect that the parties will be able to close the loop on the terms of the proposed order that they are working through. and that I would enter that promptly once it's submitted under certification. I would ask if there are any questions. Very well. That motion is granted. Thanks very much, Your Honor. We'll submit the order as soon as possible. Okay.

I think with that, that brings us to the CARB matters, and I'm going to see the podium to my partner and Ms. Davis. Very good. Ms. Davis? Welcome. Of course. Councilman. Welcome. Good afternoon, Your Honor. Abby Davis of Scaddonarps on behalf of the debtors. Your Honor, just a couple of housekeeping matters before we get into substance. The first is, as you saw, the parties here have been able to agree on a stipulation.

We filed it this morning at docket 333-2. I have. Thank you. That was to resolve a few fact issues that the CARB folks had with the debtor's first day declaration. So as a result of that stipulation, the debtors will be submitting that first day declaration. only for paragraphs 8 and 17 of the first day, and otherwise it will not be admitted for purposes of this argument. But as a result of those discussions,

there are no evidentiary issues, no evidentiary disputes in connection with these matters. In support of the debtor's omnibus response to CARPS filing, the debtor submitted Exhibit A to their brief, the declaration of Dennis Cruz and Exhibit A to that declaration, the first aid declaration, as I've described, And then the debtors have also submitted an exhibit binder that the court should have. I have extra fees if you'd like one.

But just for ease of reference, the debtors have put in publicly available copies of things that they've cited in their papers that we may want to refer to during argument today. No objection has been made to those exhibits. And so I would ask that those exhibits all be admitted in connection with this proceeding, Your Honor. Very good. Mr. Dorsey, again, welcome and welcome to counsel table. Can I ask, sir, Ms. Davis has observed that first the stipulation is agreed to, and the court would be prepared to approve that. I assume that's satisfactory to you.

Yes, Your Honor. Very good. And then with respect to the witness and exhibit list that's identified at, I think, docket 1407, and I received that binder, Ms. Davis advises that the various documents that are identified, which look pretty straightforward. but I would be guided by the parties that those documents are likewise agreed by all parties to be admitted and I'd be prepared to admit them unless there's any objection or any issue that you wish to identify they seem fine your honor I haven't looked through the binder yet so if I see that there's a page missing I'll let you know but I don't see any reason to object let's do this subject to

your reserve rights to raise any issues with respect to the documents if concerns arise just so that our record is clear the court will go ahead and those items appearing at in the debtors proposed exhibit list which identifies exhibits one through eight those items are admitted subject to the opportunity to revisit to the extent that there are issues which the court does not anticipate at this point okay miss Davis then I have I guess I have a procedural question again and I don't know that it makes a difference but I would want to make sure everybody's in agreement about precisely what we're doing here just

Mr. Mazza advised that as a practical matter that proposed sale process and auction really can't go forward without answering this question. This is a significant obligation, and if it's to be – if it's part of what would be acquired, then I understand, I think, with complete clarity that that would be an issue that a potential bidder would need an answer to before they move forward. So I get it. We have described in the colloquy with Mr. Mazza, the fact that I have the CARB motion, and if it's okay, I'll refer to your client as CARB, Mr. Dorsey.

That's what we call them. Okay, very good. Rather than the state of California, it's an arm, I assume, of the state of California. Yeah, California is a plural executive state, so it is technically a unique entity for legal purposes. Oh. I think that's more than I need to know. It means that my boss, the Attorney General, is not in the same chain of command. I am – you should think of the Attorney General's office as the lawyers, the law firm

for the states' agencies. MR. Mr. Dorsey, without getting political. MR. This is an interesting topic on the federal side today, too, and has been for a little while. But I will leave that where it is. MR.

We will refer to your client as CARB. I commented to Mr. Mazza that as a practical matter, the issues that are raised in the objection seem to me to be identical to the issues that were raised in the motion. And I don't fault CARB for teeing up the motion to ensure that its concerns were addressed one way or the other. And I guess I just want to make sure that we're dealing with this issue and whether it's the court considering the motion or considering the objection to the proposed sale process. process from my lights at six of one half dozen of the other. If I'm missing something,

then I would like to be apprised of that before we move forward. Ms. Davis, is that consistent with your understanding? It is, Your Honor. The one thing that I would note is that we've taken the position and we believe in this position that this is really just an objection. It's a copy-paced job of the objection that was filed. And the concern is if there is some form of relief that's granted that's different and separate from the sale order, the concern is that there's an and end run around 363M and the protections that that provides. So what we don't want is for CARB to be able to try to appeal and scuttle a sale

because of a styling issue in a motion versus an objection when all of these issues have to be dealt with in connection with the sale. And as you saw in the sale order this morning, there are several paragraphs that go to this very issue. So the court in our view should decide all these issues in connection with the sale motion in the sale order and treat this as an objection. Mr. Dorsey, procedurally, again, I think I've been clear about the question I'm asking. I'm prepared to deal with these issues, but I think I'd like guidance from you about your

thoughts about next steps and what the court is precisely dealing on. Sure. Our view is that you basically have it correct, that these are the objection in the motion of the same thing. Our view is that there should be sort of regardless of whether you agree with me or disagree with me, that there should be a stay pending appeal because this motion and this motion, objection present an issue that has never been decided in the direction. As far as we can tell, no bankruptcy court has ever treated compliance under an emissions trading program as a claim. And so if you are going to be the first, you should issue a state pending appeal. That answers the 363M question.

So – MR. No, I appreciate your point, and I think it also allows me at least to frame where I think this is headed. So, and again, I don't want to get ahead of myself. I understand, I think, the point that you're raising with the prospect of a state pending appeal. That obviously is dependent entirely upon what ruling the court would make. But I believe as a procedural matter, what is before the court is the debtor's motion is sell, and the position and the objection of CARB to the proposed potential terms of that sale.

For example, if the debtor had an offer that said, I'll take subject to all of those obligations, I expect that CARB's opposition would likely disappear. That's unlikely, but that's the fact. My point is not to be flip. it is that the issues raised by CARB are classic sale questions. What are the consequences of the sale? What is being sold and what remains? And Section 363F has been, again, I think,

capably and well briefed by each side in connection with this. The motion, I think, is – I don't want to say not properly before the court, but I don't think that it is necessary or for the court. frankly helpful to the court in addressing the issues that are before me. I have a sale motion. I have an objection by CARV that I am prepared to entertain and to give serious consideration to. If I were to rule in favor of the debtor, at that point then your request or the issue with respect to a state pending appeal would be ripe, and I would deal with that question at the appropriate time. But I don't think I'm really dealing with that.

motion arguably and again I'm not faulting anybody I think Carve's intention was to ensure that its concerns were dealt with one way or the other but I will just say it in passing that while I'm focusing on this as a sale motion and an objection I think having now carefully reviewed all of the papers in connection with this both the motion and the objection as well as the response I think that all of the issues are before the court in the context of the sale motion and the objection. I think that the sale, I'm sorry, that the motion itself would have potentially raised procedural

concerns in that I view it as potentially asking in the context of motion practice for a declaratory judgment. And I don't think that's actually what we're doing. The debtor is asking me whether they can sell under what term. that sale would occur and I think I have the ability to answer that and I think that we are procedurally in a good place to do that so I want to be clear with the parties I intend to move forward with this I think we're having precisely the same discussion in a few moments that we would under any analysis but I'm

dealing with the sale motion which is why Ms. Davis is at the podium first and I would entertain happily Carbs opposition and objection to that I would make one other comment again in terms of making sure that I understand what's coming forward all other objections to the proposed sale of substantially all assets I assume are fully reserved for further proceedings okay again I've said before I'm happy to hear from any party that wishes to be heard but it seems to me that the other objections on a sale transaction are not yet right and therefore we're dealing I think exclusively with the card issue and we're dealing with it

as I understand it by way exclusively of argument and I would commend and thank the parties for coordinating I think we've got declarations that have been submitted but I don't believe there's an expectation of calling live testimony am I correct in that respect that's right your honor okay again I appreciate the coordination between and among counsel in advance to kind of streamline this and I think we'll go from there is at Ms. Davis Does that make sense to you? It does, Your Honor. Thank you.

Very long. You may proceed. My colleague, Mr. Frank, had made a request to be able to use the courtroom technology and share his screen if we would be able to do that now, please. You'll give privileges, please. Thank you to the court reporter. Excellent. Thank you, Your Honor.

Your Honor, the issue before you today, but that you'll be deciding later on, is really a straightforward one. Do the debtor's obligations to pay carb compliance instruments in exchange for their facilities and, annual greenhouse gas emissions satisfy the requirements of Section 363F5 of the Bankruptcy Code. The answer to that question is unequivocally yes. As Your Honor well knows, Section 363F5 permits a sale free and clear if the holder of the interest debt issue could be compelled in a legal or equitable proceeding to accept a money satisfaction of that interest. CARB has tried here to muddy the waters by raising specters of preemption, police power exceptions,

environmental law policy, but those arguments and the cases raised by CARB don't actually answer or govern the question that's before you. The Third Circuit's decision in Inray Transworld Airlines, that's 322F3 283, is what governs that decision. I'll call that case TWA for short. There, the Third Circuit answered the question of whether travel vouchers given to TWA flight attendants to settle employment discrimination claims fell within 363F5. Because the vouchers were, quote, inextricably linked to TWA's investment in commercial aviation

and its employment of the flight attendants who received the vouchers, the circuit held that they were, quote, interests and property under 363F. The Third Circuit noted in particular that had TWA known, not invested in airline assets, which required the employment of the claimants, the success or liability claims would not have arisen. It's at page 290 of that order. In so holding, the court emphasized that interest is defined broadly in the Third Circuit and includes obligations that are connected to or arise from the property being sold. The court also rejected what I'd call the golden ticket argument that Carr makes here, that the vouchers fell outside of 360

because the flight attendants could not be compelled to accept cash for them. Rather than focusing on that hyper-technicality, the court looked to the reality of the situation and how the vouchers worked to determine whether they were subject to monetary valuation. And that's really the question. Are these obligations, are these compliance instruments able to be assigned a monetary value? because each voucher in TWA represented a seat on an airplane, the court held that each could be reduced to a specific monetary value and therefore fell within 363F5. Your Honor, the analysis is exactly the same here. The debtor's compliance obligations exist only because the facilities being sold emit greenhouse gas.

The obligations constitute interests in the facilities because they both arise from and relate to the operations of those facilities. When Mr. Dorsey first spoke to you today, he confirmed that those obligations, quote, travel with the facilities. And despite Carb's insistence that it cannot accept money in exchange for the compliance instruments, it assigns a monetary value to those compliance instruments regularly. At auction... So how do I deal with that? Is that something that's... I mean, it's an unusual feature.

It does assign value. you've identified and the parties don't disagree there's an active and lively market in it and that market is traded in dollars so I think I get it but 363 F5 requires that it be reducible to a monetary judgment is this in fact reducible to a monetary judgment does it fit in that category because instead what they're entitled to are again these credits it does your honor this is the same situation as in TWA where the court explains that if there were a Chapter 7 liquidation, what would happen is those claims, the voucher claims,

would be treated as unsecured claims, and they would be paid out in the ordinary course. That's exactly what would happen here if the debtors were forced to liquidate because they can't find a buyer for these assets. And so the question isn't, can you be compelled under the non-bankruptcy law to accept a judgment? The question is, could you be compelled, hypothetically, in a situation to accept a money satisfaction? In a Chapter 7th, situation, that's exactly what would happen to these CARB claims. Your Honor, CARB has confirmed in its own papers that these instruments are tradable, and they've even said at page 14 of the motion,

it is true that Searle Valley Minerals could purchase compliance instruments from markets, and that acquisition can be completed for a sum of money. And CARB has to acknowledge that reality. This is a market-based system. It's right in the title of the regulation. The fact that it creates a market is what made it appealing to the state of California. And when CARB sought to amend this regulation in the wake of the Paloma case that's discussed in the papers, CARB described exactly how that market-based system works.

If we could pull up the debtor's exhibit 12. This is the initial statement of reasons that was submitted by CARB when it was amending the regulation to add the success or liability language that's at issue. If we could go to page ES2. There, CARB acknowledged that allowances are issued by CARB and distributed by free allocation and by sale at auctions. Secondary markets exist where allowances and offset credits may be sold and traded among program participants.

Those participants may purchase allowances at auction and monies from the sale of state-owned allowances at auction are placed into the greenhouse gas reduction fund, which California then uses and appropriates. At page one of that same document, Karp noted that as one of the suite of measures developed to help the state achieve the 2020 limit, the cap and trade regulation is designed to cost-effectively reduce greenhouse gas emissions

by establishing a cap covering the state's major emission sources and applying a cost to those greenhouse gas emissions, therefore driving investment in cleaner and more efficient technologies. This is all about a place, a cost to the emissions, having someone pay for them, and yes, it's technically in the form of surrendering a compliance instrument, but those instruments have a real monetary value. If we could go to page six of the same document. Allowances issued by CARB aren't just focused on California.

There's actually a link between the market for these issuances for these compliance instruments and the markets in Quebec and Ontario. CARB has explained that in the same document and said that by virtue of being linked to the Quebec and in Ontario cap and trade systems, California entities can also use Quebec and Ontario issued allowances and offsets as all compliance instruments issued by all three jurisdictions are fully fungible. So it's currency, whether it comes from Quebec or it comes from California. That's exactly right, Your Honor.

And so these instruments trade, they're bought and sold, and they're bought and sold across different jurisdictions, which is something that I think was omitted from CARB's papers. go to page eight of that same document. One of the things that CARB has touted about this linkage is that it creates the efficiency and it improves the liquidity of the allowance market. This is a true commodities market. It's liquid. These things trade over exchanges, there are brokers involved. If my client wants to figure out how much it has to pay for a compliance instrument, it simply picks up the phone and they call their broker and they find out. And all of this description by CARB is consistent with how CARB has actually

has actually treated participants in the program. If we could pull up the debtors exhibit three, which is Exhibit A to the Cruz declaration that was filed at Docket 311-1. CARB has advised SVM in the past about purchasing and, quote, swapping allowances to meet its compliance obligations. This refers to V24 and V23. Those are sometimes called the vintages of those compliance instruments. But just as that regulation,

was talking about, these are all fully fungible. And so the notion that you can't allow a money judgment here because there's just a strict limit every year and that's it, that's not how this program actually works in practice. The facts belie that argument. In that same email chain at pages 8 to 9, Carbon SBM discussed the cost of SVM's compliance obligations. SVM estimates having to purchase just over 1 million metric tons of CO2 allowances at a cost of $33 million more, depending on the CO2 price for the November 1st compliance event.

What's CARB's response to that? It's not you can't value these. How can you get to $33 million? They simply say that they're prepared to discuss the compliance options and estimated obligations. And CARB has actually settled these same compliance obligations for a dollar amount, if we could pull up the debtor's exhibit one. In the terms of this settlement agreement between CARB and one of the

participants in this program, there was a stipulated penalty amount in the amount of just under $3 million. Carb arrived at that dollar amount by ascribing a value of $100 per compliance instrument. CARB even discounted the penalty amount because the company's financial condition was hindering its ability to perform in the program. And in the same settlement agreement in paragraph 10, CARB treated compliance instruments of any vintage as fungible. Beyond just this, how they act with the parties, the cap and trade program also has a cost containment reserve feature in which compliance instruments are designated set prices. If we

could pull up Exhibit 11. This is the cost containment information on CARB's website, and if we could look at Arabic numeral 4, the establishment of an allowance price containment reserve, which allows covered entities to access to allowances at set prices as a hedge against higher costs. That's what this is designed to do. And if we go down in that same document, there are actually tables that establish the prices over a number of years for these compliance instruments. This is the reserve sale price.

There are two tiers, and then if we go down even further, there's also a separate price ceiling chart because there are price ceiling sales as well. So it caps. Exactly, Your Honor. I understand. So the argument that these instruments

can't be assigned to monetary value because CARB doesn't take money for them is simply not credible. They're assigned monetary values all the time by the participants in the program and importantly by CARB in all of these different kinds of scenarios. And this is not a situation like the ones in Torweco, CMC Heartland, or Chattagay, where the debtors were required to clean up and remediate pollution. That's the opposite of what this regulation does. It charges people to pollute.

You're able to emit whatever, you need to, you just have to buy the compliance instruments and then surrender them in exchange for your emissions. And CARB statement of purpose in amending the regulation that we looked at earlier if we could pull up Exhibit 12 again confirms this if we look at page six. There are no individual or facility-specific emissions reduction requirements. Rather, each covered entity must acquire and surrender compliance instruments in an amount equal to its total greenhouse gas emissions during each compliance period. Because the program requires participants to pay for their emissions, it raises billions of dollars each

year for California's greenhouse gas reduction fund. If we could pull up Exhibit 5. This shows the proceeds quarterly of how much money is raised by Carb at auction, hundreds of millions of dollars each quarter. Now what happens with that money if we could pull up Exhibit 13 at page 6? It's then appropriated by the state of California, and it's used for things like addressing emissions, clean up, those types of things. But this is the critical distinction between the Torwego line of cases and what's at issue here. In Torwego, the court made clear that the state had no right to payment. That is exactly what the state has a right to here.

It gets paid. Now, it may get paid on the front end when it sells those compliance instruments at auction, but it gets paid for these compliance instruments. CARB's attempt to legislate around 363F can't insulate it from the bankruptcy codes directives either. Yeah, let's talk about the amendment to the regulation. Yes. So if CARB were correct,

and it could just add this success reliability language, and then it could avoid a free and clear sale under 363F5, anyone could do that. Anyone could write into their statute, I'm going to have joint and successor. I'm going to have a success reliability here, joint and several liability. The Fourth Circuit rejected that exact argument in Lucky Smokless Coal, which is a case we cite in our brief. It's 99 F3, 573. There, just as here, the Coal Act expressly

empoised joint and several liability on any successor in interest there for premium payments. The Fourth Circuit acknowledged similar policy arguments to the ones that Carb raises here, but held that it was the court's duty to enforce the statutory scheme that Congress, has erected in the bankruptcy code and affirmed the district court's decisions overruling objections to a free and clear sale. And Your Honor, if CARB's version were correct, not only would Lecky not exist, you would be able to completely eliminate 363 F5 because you'd only look to the language in the non-bankruptcy law, that's F-1. F-5 looks to the substantive reality of the situation. Other bankruptcy and appellate courts have come to similar conclusions when faced with the types of policy arguments that Carve is raising here.

In TWA, the court recognized that claims based on congressional enactments addressing employment discrimination were not to be extinguished absent a compelling justification. But the court pointed out that the claims, by their nature, were general unsecured claims and that allowing the claimants to assert successor liability claims against a purchaser, while limiting all the claimant, other creditors recourse to the proceeds of the asset sale would be inconsistent with the bankruptcy code's priority scheme. And in Chattagay, which the card relies on, that's 944 F-second 997, the second circuit specifically noted that if the code, fairly construed, creates limits on the extent of environmental cleanup efforts, the remedy is for Congress to make exceptions to the code to achieve other objections that Congress chooses to reach rather than for courts to restrict the meaning

of across the board legislation like a bankruptcy law in order to promote objectives evident and more focused statutes. Judge Walratt did something similar in In re or met which we cite in our papers. That's 2014 Westlaw 3542-133. And Judge Walratt there specifically warned about the danger of allowing policy arguments to trump the plain language of the code, especially in cases where you risk depressing bids.

That concern is expressly on point here, Your Honor. As you saw on the sailor that was filed this morning, the bidders are requiring not just the typical free and clear language, they want specific language addressing these carb liabilities. These assets are not going to be sold. We're not going to be able to find a bidder who will take them unless these carb liabilities are extinguished as they should be under F5.

And because we're talking about the amendment to the regulation in Paloma, which is cited throughout everyone's papers, Judge Sanchi actually squarely rejected Karp's argument that there's some type of environmental exception to 363F for environmental liability. Let me ask you a question. In at least two different places, Judge Sanchi observed that he made a specific finding that the regulation did not provide for success or liability. So is his decision based upon 363F1? That's exactly right, Your Honor. Okay. The parties didn't even brief F5 there.

We were curious about that ourselves. We look back at all of the briefing. It simply wasn't an issue that was before the court. That was an F1 issue. Finally, Your Honor, Carb has requested adequate protection if its claims are extinguished. Let's talk about that. So 363,000. F5 which you're relying upon says you can sell free and clear of an interest, right?

That's right, Your Honor. And your point would be that CARB has an interest, but that that interest can be treated by reduction to a money judgment. That's right, Your Honor. If they have an interest, your point is, well, it's not secure, there's no lien, right? right and the statute doesn't create a lien there are situations where statutory liens are created and we don't have that but what is the what is the treatment then what is the if i have to generally a party that has an interest in in an asset is entitled to adequate protection that's the statute the language of the statute

and that's what carver is saying they have an interest all right and you're trying to remove that interest self-free and clear all right well that means that we have an interest and what do we get for the sale free and clear that preserves our position and I think you're going to tell me that what they get is a general unsecured claim that's our position your honor yes am i not going to hear from them we already have that we already have that so how is that adequately protecting our interest You know, normally somebody, many, many times people stood at that podium and said, we want to use the dip lender's money.

I realize they have a lien on all assets. What we're going to give them is a lien on all the assets that are already their collateral. And the lender says, you're not giving me anything. Here, you're asking to use, right, property of theirs, the property they have an interest in. that interest would be reflected in a claim, and I guess is the argument that that's all they get, and there's no concept that – I guess the better question is, does adequate protection have any place in this analysis? I don't believe it does, Your Honor. Okay.

I think this is just an unsecured claim. Yes, I think that's exactly right. So adequate protection is meant to protect against diminution in value. I don't think there's any real risk of that here. The question is, you know, what is the treatment of this claim if you – you can extinguish it under F5, and I think it's the same as it was in TWA, where you just get a general unsecured claim. And in fact, in Paloma, CARB also asked for adequate protection there, and as Your Honor is well aware, that interest was extinguished pursuant to F5, and there was no

adequate protection that was granted. So it was the exact same claim, exact same argument, exact same obligations. Okay, I understand. So unless the court has any further questions, we'll largely rest on our papers, but as discussed, at length in those papers, a free and clear sale is the only way to preserve the going concerned business that employs hundreds of people and that delivers drinkable water to the town of Trona, California. So for all of those reasons, we would respectfully suggest that Carb's objection should be

overruled. Very good. Thank you, Ms. Davis. Hang on just a second, Mr. Joseph. Counsel, did you wish to be heard? Yeah. Good afternoon, Your Honor. Kenless Walk of Trout and Pepperlock representing Carnivody Holdings, Inc., the dip liner in these cases.

Yeah, my point would be here, Mr. Dorsey, I want to hear from anybody that is supportive of the debtor's request so that you're able to have the benefit of responding after you've heard from them. You may proceed, Counsel. Thank you, Your Honor. Your Honor, as you suggested, I rise to support the arguments just made by debtors counsel a moment ago, and to highlight the two fundamental flaws that KHAC sees in Carb's position here. First, CARB ignores directly on-point and binding Third Circuit precedent that adopts a broad view of interest and property, 363F. And secondly, Carb ignores the nature of the debtor's obligations under the cap-and-invest regulation and thus ignores the fact that they squarely fit within 363F5. Taking those in turn,

CARB attempts to impose in their papers an in-REM limitation to interest and property. But in TWA, the Third Circuit expressly rejected this limitation. An interest in property doesn't need to be a lien, an easement, or fit within Black's law dictionary definition. Instead, interests fall within in the meaning of 363F in the sense that they arise from the property being sold. Your Honor, this is a broad definition. In TWA, the debtors wanted to sell their assets free and clear of their obligations under a travel voucher program that was part of a settlement agreement with a class of plaintiffs, as well as 29 employment discrimination claims filed with the EEOC.

These are clearly not in rem interests. Regardless, the Third Circuit found that they were interests in property under 363F because in each case, it was the assets of the debtor that gave rise to those claims. The court reasoned, as Ms. Davis pointed out, that had TWA not invested in airline assets, which required the employment of that class of plaintiffs and the employment of those EEOC claimants, the claims never would have arisen. The link between the liability and the assets is what mattered for the analysis to the Third Circuit under 363F. And here, Your Honor, that link is even more clear than it was in TWA.

As you heard today, the obligations at issue travel with the facility. They are linked strictly to the ownership of those assets, and they're predicated upon the carbon emissions that those assets generate in their operation. The regulation itself paints a very similar picture. The term covered entity in that regulation is defined in relevant part and premised on an entity's ownership of one or more process or operation governed by the regulation. In some, the obligations under this regulation arise directly from ownership of the assets being sold here, in the same way that the EEOC claims and travel voucher liabilities arose from TWA's investment in the airline assets. Your Honor, it is far from novel for a court to hold that regulatory, statutory, or environmental obligations like the one today fall within the scope of 363F. Many courts, including this one, on more than one occasion, have held just that, and we cite to those in our papers.

These cases have found that obligations under the Coal Act, ERISA, the MPPAA, prior versions of this exact regulatory, among others are all interests in property under 363F. This result does not change even despite a compelling underlying policy concern that sits beneath the obligation. As Ms. Davis noted, Judge Walrath specifically acknowledged this point in Henry Ormit, and there she directly acknowledged the important policy underpinnings of ERISA, the MPPAA, when she found that obligations under those statutes were interests in property that could be sold of which the debtor's assets could be sold free and clear. She acknowledged the important policy considerations at play in TWA, which included employment discrimination, Title VII, and the ADA.

But she acknowledged and ruled that those policy considerations do not shrump the express provisions of the Bankruptcy Code, permitting the sale of the debtor's assets free and clear. The same is true here. The debtor's obligations under the cap and invest regulation are interests in property. Your Honor, the second flaw is that Carb ignores the nature of the debtor's obligations under the regulation, and therefore ignores the fact that those obligations can easily be reduced to monetary payment and satisfy Section 363F5. Again, TWA is highly instructive there. The Third Circuit rejected the appellant's position that they could not be compelled to accept money satisfaction on account of travel vouchers or EEOC claims.

And so ruling, the TWA court held that, quote, a travel voucher represents a seat on an airplane, a travel benefit that can be reduced to a specific monetary value. and with respect to the discrimination claims it held, quote, the discrimination claims are reducible to and can be satisfied by monetary awards, even if the relief sought is injunctive in nature. Because of those findings, the court ruled that both obligations fell under 363F5.

Here, as the debtors just demonstrated, the obligations are even more easily reduced to money satisfaction, and in fact, these obligations are often priced specifically by the state. At bottom, what we're looking at here is a, obligation to surrender compliance instruments. By design, they are fungible, traded on a robust and active market, and are easily priced. We just heard how the cap and invest program is built to support an open marketplace, even across jurisdictions, or participants in a program can freely

trade these instruments. Beyond that, CARB itself holds options where they set a floor price for each auction, and in fact, CARB maintains pricing data on its website, tracking auction prices for compliance instruments quarter to quarter from 2014 through Q3 through the auction. Q2 of 2026. Given all this, it is inconceivable that the debtors obligations under this regulation cannot be reduced to specific monetary value. Like the appellants in TWA, Carb argues that it is not permitted to accept cash consideration. But in making that argument, Carb simply cites to the regulation and points to the fact that there is no option to take cash consideration specifically in the reg. But that misses the point, Your Honor. The travel vouchers, the injunctive relief. Those weren't

cash obligations either, the question is whether it can be reduced to a cash obligation, and here it certainly can. What is more, we've heard, that CARB has actually accepted cash consideration on account of violation of these regulations. The settlement agreement that the debtor's reference to involved a penalty where they literally valued compliance obligations at $100 per obligation on surrendered. Card makes two other points to try to pull these obligations outside the scope of 363F and F5 and both fail.

Carb argues that the liabilities represent forward-looking remediation obligations, and that the sale motion would purport to absolve a would-be purchaser of compliance with California environmental law. That simply isn't the case. The surrender obligations at issue here are for 2024, 2025, and pre-closing amounts for 2026. This is fully retrospective. And to be clear, none of the obligations involve actual go-forward cleanup efforts or mediation. That's why the cases like Truiko are in a possible. First of all, those cases have nothing to do with 363F. But more importantly, all of those cases deal with go-forward remediation and cleanup obligations

for which a right to payment would not be adequate satisfaction. Here, we're looking at obligations that have literally been priced at, in prior examples, $100 per instrument. Secondly, Your Honor, Carr tries to raise the issue of preemption that because California revised this regulation in light of the La Paloma ruling to provide for success or liability that finding that those obligations under this regulation today would require you to preempt state law, that is simply not true. That ignores the disjunctive nature of 363F. The revisions to the regulations simply prevent a finding that the obligations would fall under F1. All of the other four subsections are still applying. Today, of course, we're arguing that F5 applies directly. If all that was necessary to evade all of 363F was to provide for successor liability,

That would render subsections 2 through 5 completely toothless. Again, TWA is instructive here. The Third Circuit notes in a footnote that it assumed for the sake of argument that the EEOC claims and the travel voucher program would have success or liability and that F1 was off the table. Nonetheless, they still found that it fits squarely in F5. And that's exactly what the case is here, Your Honor. Finally, just to note we agree with the arguments that Derrits have raised

raised and I believe what some of your honor has said about the procedural posture and urge you honored to resolve these issues all in a single sale order that would be governed by a 363 ad thank you so much for your time thank you and I hear from the committee board good afternoon your honor the committee didn't put in a paper on this but we thought that this was thoroughly briefed by the debtor we have seen many times within the third circuit even within this court and frankly in front of your honor where you have interpreted 363 very broadly in terms of what falls within it including specifically F1 and F5 I think I've been on the losing

argument of that in front of your honor at some point I can't remember the case but I don't have cited cases that other than what the debtor put in their brief but I do think that it should be sold free and fair otherwise we're going to jeopardize the sale process altogether and then nobody in the court room is gonna get anything so no thank you I would ask is there any other party that wishes to be heard in support of the debtors request on this particular issue All right, then here's what we'll do. We'll take just a two-minute break, and then Mr. Dorsey, I would be happy to hear your comments.

And Ms. Davis, I would give you the opportunity to respond if you wish to do so, all right? We'll just take a couple of minutes. Stay in a recess. Please be seated. Mr. Dorsey, ready to proceed? Yes, Your Honor. Emissions trading systems as part of environmental regulation date at least back to the implementation of the 1990 Clean Air Act amendments in the Acid Rain Program. There is not a single precedent that we are able to find, and we have had both the humans and the robots work on this,

where any court has found that the obligation to comply with an emissions trading program is a claim within the meaning of the bankruptcy code. How does Paloma swear with this? Yeah, so Paloma, this court decided, and we disagree, but we accept it for what it is, is it says that what we wanted to do was impose successor liability. And this court looked at our regulation and said, your regulation doesn't do that. And it was a matter of state law does not impose on the successor that duty. And as a result, Paloma is able to sell the facility free and clear. And that's the end of the inquiry in Paloma. Paloma's relevant.

I'll talk about Paloma as to interest in property in a moment. But I guess I should start with our motion and objection. focus on three issues. First, is it an interest in property? Second, does it fit within F5? And third, would there be adequate protection? I'm going to focus on does it fit within F5? Because I think that the outcome on that probably drives the other outcomes to some extent. And frankly, it's my best argument. So when you look at that, you need to kind of, and if you'll give me a little leeway here because we didn't fully understand their argument until we got their brief. That's fine. I'm happy to give you all the leeway you're on. So the key issue here,

and I think the, you nailed this down, is, is this a claim under 11 U.S.C. 101. 5B. And for Cyrils to prevail here, they need to prove that it is, right? Because they need one of the five exceptions, or one of the five listed things in 363F5. And they're only arguing about one of them, right? They're only arguing about F5. And so F5 needs another law as it's hooked for why the interest can be reduced to a payment. And again, they have only one argument.

Their one argument is that what CARB has here is an unsecured claim and therefore could be, you know, could be treated as an unsecured claim discharge. Right, so that is the ball game. Right, so they need that. And so you look at the cases that ask about this, right, whether there is a right to payment or whether there is something different like an injunctive obligation to remediate. And the three leading cases are Chattagay, CMC Heartland, and Torbaco. And you can correct my pronunciation, but I thought it was Torvico, not Torwico, but if anyone knows.

I wasn't there. I think the company's out of business. So, right, so CMC Heartland, the point is it's a government demand to take action, not a demand to pay. That's how CMC Heartland is distinguished from Ohio versus COVACs. Torboco has some useful analysis for how you look at this problem, right? And I'll quote from the case, it says on page 150 that the state can exercise its regulatory powers to force compliance with its laws, even if the debtor must expend by to comply. And it goes on to say, it is unlikely that state could effectively enforce its laws, virtually all enforcement actions impose some cost on the violator. So we know that the fact that

they would have to pay doesn't answer the question. The next question that seems to come up, and I think this was, I think your question earlier got to this, is the assignment of monetary value. And I want to unpack this because I think there's some confusion between the debtor's argument and the correct inquiry. You could understand the idea of assigning monetary value in two different ways. First, can we figure out what we think this thing is worth? And second is, the question, which I think is the question you asked,

is like, is this really a thing that can be reduced to monetary value, not I can guess really accurately at what it's worth, right? You can imagine a situation like Torwiko where you have to remediate an environmental site and you have a clean set of bids and you know exactly, how much it's going to cost to remediate this site. It doesn't change the outcome in a situation like Torvico, and so the fact that you can easily figure out a present value of a compliance instrument doesn't change that here.

But apply that proposition to the mechanics of the system that's in front of me right now, which is debtor is operating, debtor is generating greenhouse gases. We have an analytical framework that applies to that, and the debtor is obliged to identify and report. Over this period, we, the debtor enterprise, emitted a thousand tons of greenhouse gases. And unless I'm mistaken, this methodology requires that the debtor effectively pay for that, right?

The debtor has to surrender compliance instruments. We use that term compliance instrument because there are multiple types of them. Some of them are allocated free of. charge, others are auctioned, other ones are entered into the system by parties that do environmental remediation. So for example, a party does a forestry project that actually, you know, they make a joke about putting a vacuum cleaner up to the sky in their brief, but that's basically what

a forest is. Right. And so all of those things end up in the mix. They, in theory, could do their own forestry project. But at the end of the day, they have to turn over a compliance instrument to the resources board and that compliance instrument is permanently retired from the system nobody can ever emit based on nobody ever can surrender that same instrument right right and that's how we have vintages up in summer not used from prior years

and I get it okay but my point would be that the debtor emits a thousand tons in let's go back a year because my I would assume that there are probably audits that relate to this kind of thing so there might even be a dispute about what happened in 2023, something like that. I don't know whether there is, but I mean, whether we think of it, my question would be this. The debtor would say, we need to provide you with compliance instruments

on account of a thousand tons of greenhouse gases that we have produced, right? That's the process, yes? That's their description, yeah. I don't think. What's yours? the debtor has to retire instruments so that those emissions can never be released

on the entire present okay i mean i just i again i had this goofy image because i'm i'm trying to be careful not to simply say the debtor comes in and pays you right because i think that's a little simpler they would like it to be that way but that's not exactly what it is but these compliance instruments are not handcrafted they're not knitted together they're not crocheted or anything else they are either provided free of charge they are acquired i assume for money in an in a marketplace or they are acquired by paying the state so if for example this debtor emits a thousand tons they have a compliance instrument that would be responsive to say 500 tons

right, but they've admitted a thousand tons. So they need to do something, right? They owe you compliance instruments that would be responsive to 500 tons, right? I don't know if I'm using the terminology correctly, but again, debtors have these, and if they produce less than they have compliance instruments for, I assume that that's how we get vintages of them. I didn't use everything from 2024. You have a facility that emits fewer emissions,

fewer greenhouse gas emissions, than it was allocated, whether for free or purchase an option or whatever, then they have a surplus, they can sell those. If that's your question, that's the answer. Right. But I guess, again, I can't we fix what that number or amount is? I mean, Ms. Davis's argument was, was pretty strenuous, that we know precisely what the amounts are.

And again, let's look at it today. Let's assume for a moment – let's assume for a moment that we're not having this dispute and that you're correct. And that under any analysis, a buyer of this company is going to be responsible for the emissions by the pre-closing entity. And so we'd sit in an auction, right? We would sit in an auction room, and the debtor's investment banker would say,

here's our production. And also it's not an annual thing, right? I mean, this is due, this true's up in 2027, according to the people. Yeah, so it's 30% in year one. So of year one in a three-year cycle, 30% are surrendered on the first compliance deadline, year two in the cycle, another 30%, then year three, you have your 100% of year three, plus the other two 70% of one and two.

Okay. So this debtor would be obliged, or this debtor is in a reporting period that would end, I think in the papers, end of 2027. And again, if we're being rough with it, I just want to say, if this debtor was selling, and this was an obligation that had to be paid, right, that could not be sold free and clear. Everybody agreed. I would imagine, right, that the debtor's investment banker would tell every bidder, look, this is, we project that for the period is three-year period, so it's 24, 24, 25, 26, and 27. We've been operating gangbusters for 25.

We've been operating in 26, and we will operate through closing, which will be October or September 30th. So we'll know that we've got a year plus nine months that are our obligation going forward. You buy this thing. You own it from October 1 through the reporting period end of 2027. That investment banker would say that number is, with a high degree of confidence, X dollars. I mean, here, in the stipulation, the debtors estimate that as a petition date, their obligations would be $76.3 million. I'm not asking you to concede that, but that is a – that is a – a – a precise number

in our purposes. So I guess I want to make sure that I understand why the argument is this can't be reduced or fixed as a – as a – as a money number. So – first – MR. If I'm missing – if I'm missing some of the basis – premises please educate me so I'm trying sorry I reached over to grab this because I have a I have a printout of CMC Heartland but I can't find the exact

line I underlined other things apparently okay there's a line in CMC hardland that says you would then expect a buyer of a facility to bid less by whatever the expected cost is and that's just how it is when you have these ongoing environmental obligations so the question is not well there's a difference though because it's again the briefing touches on this there's is there a difference between a cap and trade program and a super fund site where however many years ago EPA came in and we've got CERCLA and Recre and we've all dealt with that and this is the site and the property needs to be repaired and there may be a monetary

judgment but there is also a direction that says this is a super fund site and you or whoever owns it is going to fix it and you cannot walk away from that in a bank I think the debtor's argument is that is a fundamentally and qualitatively different thing than what's happening here, which is a regulatory regime where debtors are permitted to pursue to pollute. It's a perverse way of saying. You're permitted to pollute, but you simply must pay. And so you create a market incentive that says we want you to either not pollute or encourage

people to plant farms and sell their or plant forests and and sell their their assets how do I deal with that so I think the way you've done it there is maybe the best version of the argument for them and I'd like you to give you the best version of the argument for us please but first I want to deal can we get exhibit one back up on the screen because I want to address something related to this that we haven't had the opportunity because it came in their opposition papers can we get up but without there like blowups and highlighting I'm not sure what. Well, we'll get it.

We'll get it. And it'll be fair. Go to the next page. So the position that was explained by Cerels here is that this was reduced to a penalty pointing to paragraph 9. In fact, if you read paragraph 10, can we undo, so read paragraph 10, what paragraph 10 is is a requirement for how they, how Lakeshore, we, we, collectively call the two entities Lake Shore, how Lake Shore is going to actually get compliance instruments and turn them over. And if they don't turn them over, they will also owe a penalty. The paying the penalty does not absolve them of having to turn over compliance instruments afterward. It is like a fine on top of that. You see that in all sorts of regulatory regimes,

right? We're talking about CERCLA, right? If you, if the statute, says, you know, Torrico, you have to clean up this site, it doesn't matter that you don't own it anymore, and Torbaco doesn't do it. One of the tools in the toolkit is to put a fine on Torbico and say, look, you have to pay this fine and you still have to remediate. So in that way, the structure looks a lot like the structure in Torbico and CMC Heartland. I think if you look also, sort of to California law more in its origin. In a point, you know, if you want to dig into this, it's in people, X-REL, Wix Water, Ricks, Washington, company, it's tongue twister, versus Elk River Mill and Lumber Company, 107, Cal 214, pages 217 to 18, decided in 1895 that there is no right to pollute in California.

You only get to pollute where permitted by law, and that pollution remains in the atmosphere causing harm. So if you look at the – I'm going to maybe pronounce it wrong, Kynet, the Congressional Research Service exhibit that they've attached on – page five in the text that is leading up to footnote 28 and then footnote 28 itself, it explains that it's not like carbon dioxide just goes up in the air and then falls right back down to the earth. It stays in the atmosphere for centuries continuing to do the, to cause the impact and

the harm that's resulting for that. In that way, it is like the polluted pit that is leaching material outward, continuing to have that harm, and the remediation obligation that California imposes. that you have to turn over a compliance instrument. I want to talk for a moment about preemption as well, and I think that this became more clear as we sort of looked at their response and response to the motion, response to the objection,

is that it's not just an issue of preemption, it's an issue of commandeering. And sort of the way you can think about this is there are sort of three structures by which you could regulate a facility like this. You could do a command and control system, which says your facility shall reduce its emissions by 5% per year, until we reach whatever our final target is. We've chosen not to do that. You could also do a carbon tax, right?

A state could say, thou shalt pay, you know, however much per ton, or you can do an emissions trading system. Now, your economics textbook will tell you that if you have perfect information, you can make the emissions trading system and the carbon tax interchangeable. And if you ask anyone who has ever worked in this field, they will tell you that information is not perfect and you cannot make these two policies interchangeable with each other. The result is if you read 11 U.S.C. 101.5B as saying that a compliance instrument can be reduced to a payment. You are telling California, at least for this entity, you have to switch your policy from a compliance instrument from a cap and trade system to a carbon tax and that entity then has to accept that and so our point would be not only is this a potential preemption issue and you know we've given you the cases about how preemption requires a clear statement unmistakably clear language but i think this is also commandeering the state

it's telling the state how its policy has to operate and that's not just you need a clear statement that's just the federal government through congress through statutes through agencies can't do that New York versus Prince, which is at 505 U.S. 144, says the federal government cannot compel a state to pass legislation, to take title of certain wastes. At Prince versus U.S. at 521 U.S. 898 says – But I don't know if you're trying to prove too much. I mean, the idea – we have a – we have a – a powerful but rosyak tool in the bankruptcy – Code section 363 F it is designed to do things in bankruptcy that you cannot do outside of bankruptcy one of the one of the basic propositions as a

bankruptcy lawyer and as a bankruptcy judges we often ask ourselves when the debtor stands up and says I get to do this is well what would happen outside of bankruptcy and outside of bankruptcy I think your point would be we wouldn't even be here outside of bankruptcy you've got a statute that has that specifically provides for for successful liability this debtor can cannot sell outside of bankruptcy and remove liability for its successor enterprise. I get that. So we ask ourselves, well, what would be different in bankruptcy?

The answer is that from the debtor's point of view, we have 363F, which authorizes us to sell free and clear. And it authorizes us under five different flavors, one of which is whether or not state law permits it, but they're disjunctive. So we have others. Is there a bona fide dispute? as to the obligation, or here at 5, which is whether or not this can be reduced

to a money judgment. I'm not certain, I guess I'm trying to follow the argument that this would somehow be preempting California law. If a debtor, again, or how it does, how it commends the, it turns a California statutory regime that requires someone to, And I'm going to use the word pay. You're going to debate with me because we have this term of the compliance instruments.

But the record shows that at least in some respect, those compliance instruments have a value attached to them in a marketplace. And it's designed to do that. It's an emissions trading system. And so the idea that the debtor is saying, fine, this is what it's going to cost. You want to admit this debtor has emitted X tons of greenhouse gas. It owes compliance instruments, and what are they worth? I mean, again, we can't knit them. We don't carve them.

We either receive them or we purchase them. So there's a money value attached to it. What am I missing? So they're not, I think you might think of them as having a money value when they pass between private parties. perhaps you could have a situation where someone was paying for their complaint. You could imagine a company bought their compliance instruments on installments, that you could have bankruptcy issues there.

But when they come to the state, the state is not accepting money. The state is accepting compliance with law for the maximum amount of emissions. And if I can answer something you said a moment earlier. You talked about the power of 363, and we take that. But I think the power of 363 here is only the power of 101. 15B because their only reason the only reason asserted why this can be reduced to an amount of money is that it is a it can be reduced in their view a equivalent to non-dischargeable claim so the outcome if I understand their argument correctly had they not wanted to do a sale had they

wanted to maintain ownership through the bankruptcy through their reorganization keep the facility and address secured debts unsecured debts discharge the answer would be the same right because it also turns on 101.5b is this a claim that can be reduced to an amount of money and our position is no it's a to the state it's worth an amount of emissions not an amount of money so let me ask you a question and I'm not sure and I think it may have been mr. Maza that touched on this but council at the podium i forget who a few moments ago raised the issue of what if we were in a chapter seven then the state of california has a i mean a chapter seven the trustee comes in the

enterprise is shut down but it certainly hasn't paid for delivered compliance instruments for um for the full period okay but we know right let's assume we have good record keeping We know that for the relevant period up until the shutdown of operations, the company has emitted X tons of greenhouse gases for which compliance instruments have not been submitted. If I'm mistaken that the state, would the state not have a claim against the debtor's estate? Yeah, I mean, again, the trustee might say, you know something I have, this enterprise actually has compliance instruments. in reserve, but it's only worth, those are only responsive to a fraction of what we've done. So again, if they continue to operate, they would need to present compliance instruments that they would get, again, presumably in a marketplace using cash.

So I think there's two questions baked in there. I'm going to try and answer this. The first question is sort of what happens in a Chapter 7. Yeah. And I forget if La Palomo was a Chapter 7 or if it was just that there was not going to. No one. But there just wasn't going to be much of a, I think La Paloma really, the business was a power plant and the business wasn't really going to be there afterward. So it sort of looks like a Chapter 7 in that way, at least from the state's interest.

And I think the answer was we were just out of luck. We did not have a claim, and because we didn't have successor liability, we were at luck. I think now we would have successor liability. So the new owner of the facility is responsible. Yeah, so similar to a circle of landowner liability. So I think, you know, obviously I reserve the right to change our position if we lose, but I think, yeah, I think we're, you know, we're probably out of luck. It's not the kind of thing where we can just accept money in lieu of that.

I don't, I guess the other piece is I don't know what law would give us the authority to deposit the check. The state's only allowed to do what it's allowed to do. We're not allowed to accept paint. You can't just show up to the state and say, hey, I'm sending, here's my check for my compliance instruments. It's not allowed. You have to get compliance instruments, take them off the market,

because the instruments are linked to an overall cap. And so the overall number of emissions, now it's true, you can bank, you can hold on to your emissions for future years, right? So it's not, there's some flexibility, year to year, right? So you have years like 2020 when emissions were low because there was a lot less economic activity, right? So people hold their allowances and send them in in future years. But there is this overall cap in the system. It's the same way the Asc Brain Program works. It's the same way that the Reggie program, the Delaware is a part of, works. And no court has

ever held that this compliance obligation is a dischargeable debt, despite these programs existing for more than 30 years. So let me weigh in for just a moment. Sure. I think you were being a little bit flippen deserving the right to change your mind, but I'm going to codify that, and this is something of a mitzvah. You asked, I asked a hypothetical, and you responded to it, and I appreciate your response. I want to be clear that the court and you were dealing with a hypothetical,

and certainly doesn't indicate the position of the state of California with it. respect to whatever its rights may be in Chapter 7 or otherwise, now that you or I want to deal with that. Okay, but I'll be clear. That is our position now on this motion, but obviously we have to respond to rulings as they have. Yeah, I mean, but again, the last thing I want is this transcript chasing somebody around. I asked a hypothetical, which is the sort of thing I do, and you've given me an answer, and I appreciate it. I want to wrap up on a couple related points. First, as to the interest in property our arguments that it's in we talk about adequate protection yeah so adequate protection is interesting in the brief the debtor says that kind of like

I think you know there's a little bit of confusion between the argument is if it's an unsecured claim you get nothing right you don't get adequate protection if it's a secured claim you get adequate protection but there's lots of things that aren't either a secured claim or an unsecured claim so a classic example this would be like an easement or a right of entry into a parcel of property. That's not a secured claim, right? It doesn't create a lien, but it's not unsecured claim either. It's just like I get to cross your land, right? In this, you know, common property structure in California is you often have a second lot that doesn't have

access to the road so you get the easement across the front lot. And you do get out of protection for that, right? It's not a, it's not a claim, right? It's something else. And you do get adequate protection for something else. And so we've been trying to sort of ponder what would be adequate protection here. And we've been thinking about this also in the context of ultimately what debtor's argument does is it takes a question that normally would be addressed in the plan. What is the nature of this interest that CARB has? Is it an unsecured claim? Is it a secured claim? Is it something else and moves it forward to the 363 hearing. And when you do that, that's when you get adequate protection. A similar, a comparable analogy would be you have an F4, a what's the phrase, the

bona fide dispute. Right? You can sell the property free and clear the bona fide dispute, and the bona fide dispute is probably going to be resolved some point later in the proceeding, whether it's plan confirmation or adversary proceeding or something like that. But you get adequate protection for it because the court is saying, you know, we're going to sell this as if the debtor wins the bona fide dispute. And the person with the interest might ultimately win. So our position would be the court should offer adequate protection because CARB might ultimately win. And what would that adequate protection be?

because again you've been adamant that money is not the currency we can deal with but this debtor is not going to get paid in anything but money so we've been kicking this around and we've come up with one potential solution okay the bankruptcy estate could hold the complete could acquire and hold compliance instruments equal and we are not allowed to say uh if their number is right or wrong because we're not allowed, Carb's not allowed to weigh in on that before it's done its verification per its own rules. So we can't say if their numbers right or wrong. But I guess what you could do is you could require the bankruptcy estate to hold compliance instruments equal to their assessment. And if at the end of the day, end of whatever run of disputes there is, whatever

court that is in, CARB wins, then those would be surrendered to CARB from the, bankruptcy estate rather than from the successor owner of the facility. And if CARB loses, then the bankruptcy estate can sell them. So I want to understand how that would work in practice. I have a stipulated fact or it's actually an odd fact because it's item number three. And rather than a stipulated fact, it is everybody agrees. The debtors estimate that complying with their obligation under the, that would cost $76.3 million.

I assume is that number what the debtors believe it would cost them to provide adequate compliance instruments? I think so. My understanding is that number is their emissions. So some of their emissions have been verified. Some of their emissions are reported. And I believe their third cycle is not even reported yet, but they would have that number, and we don't.

So it is their emissions. times market price. Through presumably, you know, today or whatever. I think it would be emissions through the date of their petition, but I'm not sure. Okay. Right? Because I think any emissions post-petition would not be covered.

So again, the thing I'm struggling with is to provide you with adequate protection, the debtor would have to acquire $76.3 million worth of compliance certificates. it would seem that this is readily reduced to a particular number I mean imagine that we had again imagine that we've got some sort of contractual regime that says that a contract needs to be paid in in ostrich feathers and you know under the code in a bankruptcy claims are allowed in dollars and and they're allowed in to address this particular issue about what in the format by which somebody's entitled the payment and it came into sharp relief in the FDX case about the fact that claims

were paid not in crypto but in dollars that's a whole separate discussion but I guess as we go through this exercise and you're telling me what your adequate protection vehicle would be the debtor I think mr. Mazza or miss Davis would stand up and say okay well if if you correct then we need to provide it we need to provide 76.3 million dollars worth of security escrow and whether we go and actually buy these compliance instruments or we just sock away $76.3 million is the you're telling me the state is not agnostic as to that their point

be that no we don't want 76.3 million dollars you need to go and buy these things so that the I think so that the estate gets the stack or the state I'm sorry gets the statutory benefit you're looking for which is the addressing of the greenhouse gases in the overall marketplace if you acquire these things that means that this many greenhouse gases have been removed or otherwise accounted for right I think if I understand you correctly and I have not been clear but I'm trying to make sure that I understand that the adequate protection question I think is is particularly thorny it could be thorny yes I think you know it is it is potentially thorny there but I you know the essential understanding here is that when you have a fixed quantity system like an emissions trading system someone just handing over money

sort of breaks the system, right? Is that now you have a certain set of emissions that have escaped from the system. And that violates state law. And we are entitled as a state under our police power to enforce state law. And these things, that is something different than a carbon tax.

And it's beyond the power, you know, whether it's through a sale or through a discharge, it's not needing to comply with state emissions law. is not what fits within section 101 5b. I would wrap, I guess when I prepped my notes, I thought this was a two-way request, but it may actually be a one-way request of whether there should be a state-pending appeal

because my view is this is a novel issue. I want to be clear about one thing. You've raised it, and I responded to it in the context of identifying the pleadings I'm dealing with, which are the debtor's motion and your objection. And those are the pleadings that I'm dealing with. I think I'm dealing substantively with all of the arguments that are made, and I believe that they apply with perfect precision here, just so that there's no uncertainty. I do not have a transaction in front of me today. I have not entered an order and I'm not being asked to enter an order on this transaction.

So the court is not answering any question today with respect to whether I would grant a state pending appeal. I will address this question today because I think it's necessary in order to allow the parties, including CARB, to move forward in the auction and understand what the terms of the assets to be sold. are but I don't think it would be appropriate for me to say you know card loses and I'm not staying on appeal I may never have a that's an advisory opinion I may never have a transaction and I hope the debtor has a buyer but I've certainly seen enough cases where there hasn't been a buyer so I don't want to necessarily foreclose or address that question because I don't think that's properly before me today whether or not if I rule in a

particular way and if mr. Mazza succeeds in an auction and if he comes back with an entity and if I overrule a committee objection and if I overrule other objections would I consider a state pending appeal I feel like I'm editorializing but that issue is certainly reserved and you have conveyed to the court the significance of the issue your point that that no court has ruled and that that your client takes this seriously enough is certainly helpful to me and presumably informative to the parties but I want to be clear I don't want to necessarily get into a debate over a state pending appeal because we are not at that point okay I

mistaken I guess that then that raises the question of what happens to the motion and I understand your point that everything is is properly raised on the objection but then what what is the disposition of the the motion then because I But my point is, if you want to rule for us, they would be able to seek an interlocutory appeal of the motion, seek to have that certified. You know something? We're starting to chase our tails. These questions – I haven't ruled yet.

Right. I certainly need the benefit of Ms. Davis's argument. And if I rule, then I would hear from the parties about what the next steps would be. But I don't think that right now we need to answer the question of who's got an interlocutory appeal or whether a stay of a particular order should be entered. I have your objection which identifies certain – your objection weighs directly on the assets that are being marketed. And I'm going to answer that question.

And if I rule that indeed these are – interests or rights that cannot be left, cannot be subject to a free and clear order, then the debtor will have their answer. And my guess would be I'd hear from Ms. Davis or Mr. Maza about how quickly they can get in an unlawfulory appeal because they're going to tell me that their cell process is dead in the water. So be it. On the flip side, I think I would get the contrary argument if I ruled the other way, and I would have you asking me a similar question.

But I think that that's a hypothetical discussion until such time as I rule. which I am intending to do it some time today but I would need the benefit of the argument and again some time to conclude but I don't I don't think we're at that argument yet I'm not rejecting it but I certainly don't want to spend a lot of time with Ms. Davis asking me what the interlocutory appeal process is in the District of Delaware okay so I'll try to wrap up sure it is not you know CARB has to admit that there is not a contested bankruptcy on point that it treats it our way, but it was the consented way that this was addressed in Pacific Gas and Electric in the Northern District of California.

That's case 19389, and it's in the plan and docket entry 8053-1, discussed at paragraph 1.64 on page 16, and paragraph 10.13, that's on page 89. just a quick bit of cleanup Ontario quit so the emissions are only tradable It's just Quebec. It's just Quebec in California But they are They are tradable across jurisdictions

Can I ask it just as in such a curiosity Are there other states that have Similar regimes? I mean I've read about this for many many many years This is often seen as the smart person's way To fix climate change The Atlantic Coast, including Delaware and New Jersey, are part of what's called the Regional Greenhouse Gas Initiative. It works similarly.

I cannot speak to how it works as to success or liability or anything like that. But the big difference is that that's for the power sector only. And California is... Industrial and power. Yeah. It deals with other industries in complicated ways. So, for example, a train, it's actually the diesel fuel person is responsible for the compliance instruments so that's why the railroad isn't doesn't have compliance

obligations here but yes so there's 10 states I believe it's every state that touches the Atlantic Ocean from Virginia to Maine okay plus Vermont and then Washington has its own system as well it's very new I don't know if it's operating I was just curious but thank you yeah and then the acid rain program looks roughly the same way and it's been around much longer so So we would ask that you not upset a settled form of policy and allow it to be treated the way that bankruptcy courts have treated the requirement to remediate polluted pits like in Torbago and CMC Heartland. The same economic analysis that the Seventh Circuit did in CMC Heartland is like, yes, there will be successor liability for the purchase of the property. And just because we can figure out how much that is worth does not mean it is a claim that can be reduced to an amount of damages when it comes to the governmental unit.

There is something different about the government enforcing its laws than there is about a private party figuring out how to do a transaction. Very good. Thank you, Mr. Dorson. Thank you. Ms. Davis? Thank you, Your Honor. I want to start by addressing a question that Your Honor raised. If we could please pull back up, Exhibit 3 of the debtors. You asked, what would happen if the debtor today had to go out and get enough compliance instruments to satisfy what's currently owed?

I think this email answers that question. We can zoom in on what's the plan to meet your compliance obligation and then the bullets below. This email lays out the plan. It's to purchase certain offset credits and then to have a broker execute a swap for certain allowances. So it's exactly what you were thinking, Your Honor. You'd go out and buy these things, you'd buy these instruments and then if you needed to swap some because you needed to meet a vintage.

requirement you would do that but the short story is the debtors would go out they would spend money they would purchase these things in order to surrender them so there's certainly an intermediate step between the payment of money and then the surrender of the compliance instrument but that's just TWA that's a flight attendant saying you can't just give me cash for this travel voucher this entitles me to get on that plane can I ask a dumb question and it relates to a chart that you showed earlier that that this is the money that comes into California,

and this is where it's spent. I saw that, we don't need to pull it up. But Carve has argued, it's not about the money, it's about the certificate. So you go buy the certificates from somebody and then you deliver them to us, so we're not getting, how does money get to the state of California through this process?

I apologize if it's a really dumb question, but some of the argument has suggested that the, the payment of money to the state is both not the purpose of this exercise. I get that, but that it doesn't even happen. Like, money wouldn't come. And so what am I missing? How does money get into the state to fund the salutatory activities that you've identified? So it happens in a number of ways, Your Honor.

The first is it auctions. There are auctions every quarter where carve auctions off these compliance instruments, and participants in the market can purchase them. Okay. There are floor ceiling sales, as I understand it. And then there can also be sales when there are people in the market who don't have enough compliance instruments to surrender. There can be a special sale in those circumstances, as my understanding. So there are a number of different ways that CARB quite literally sells these things and gets money for them.

So you're right that if, let's say, the debtors were to go out on the secondary market and pay someone else who participates in the program, that money in that exchange is not going directly to CARB, but CARB was paid at some point for that. For that. Okay. And Your Honor, I want to address one point that Mr. Dorsey raised. He said, look, we could have had a command and control restriction here. We could have said to these parties, you can't, you can't emit over a certain cap, or you need to take an affirmative action to clean up some type of pollution.

That's not what we did here. Those are the types of obligations. That's CERCLA, right? That's the injunctive part of CERCLA. You must go out affirmatively and clean up that site, clean up that pit. That is not what they did here. And so it may be the case that in this very specific situation where you have an asset sale pursuant to Section 363 of the code, that you get away from the joint and success reliability language that CARP has put into that statute,

it doesn't do away with the statutory language. All it means is that in this specific circumstance, the policies of the bankruptcy code, as they do in all of the cases that we cite in our briefing, override that one piece of the legislation that deals with the success or liability piece. There's nothing here that's telling the state what to do with its legislation. If it wants to change its legislation as a result of a ruling, it can do that. It has done that. But certainly by making a decision that upholds the purpose of the bankruptcy code,

that's not telling a state, here's how you can legislate, here's how you can write your statute. That's simply not what's at issue here, Your Honor. It's a simple, straightforward application of 363F5 in the debtor's view. Doesn't impact that legislation outside of an asset sale in a bankruptcy court. We were talking about the difference between a sale here and a sale outside where that success or liability would still attach. And the problem that Mr. Dorsey identifies about, well, what happens if we are forced to accept cash and there are compliance instruments that, you know, we wanted to have instead.

That's a function of how this regulation works. It creates a market. Instead, it could say, you can't trade on that market until you have done XYZ with your compliance instruments. That's not what happens. This is an open commodities market. Anyone who receives these compliance instruments, whether by allocation, at auction, or otherwise,

can then trade in them freely. There can be a restriction of California, wants it, that's not what's at issue here. That's not what happens. And so I think that really this is a form over substance argument, but when you look at what's governing here, TWA and that whole line of cases, we have to look at the substance of what's happening. And what's happening is there is a payment right. It's a payment right that is technically in the form of a compliance instrument, but it is not Torwicko, or Torweco, however we're going to pronounce it today. It is not a situation where a debtor is being told, you have an affirmative

obligation to clean up that pit. That's not what's at issue here. There's no question that the facilities that emit then look backwards and say, here's how much I emitted this year, and then CARB has someone verify that, and then says, okay, you owe X compliance instruments for your PITS emissions.

That's how the statute works. It's not a prospective cleaning up type legislation. So I don't think that any of those cases that are cited in CARB's briefing are on point. Unless Your Honor has any other questions, I'm happy to rest on the debtor's papers. Very good. All right.

Your Honor, if I could just address the adequate protection colloquy that you had earlier, just given that it's a little bit of bankruptcy-wankish-type issue, I think, when they're raising adequate protection just as kind of a last-ditch, hey, give me something if you're going to order this sale free and clear. And I will say unambiguously that any buyer that is looking at these assets, you sent there some kind of adequate protection that's crafted here is going to look at that as a major albatross on these assets. And I think the key with the way they have laid out this kind of, hey, if I lose, give me adequate protection is a way to put a damper on the sale process. And they can't really articulate what adequate protection would actually be because at the end of the day, as discussed in the colloquy, it is an unsecured claim.

And unsecured claims aren't entitled to adequate protection. If you go into some of the cases that go deep into what an interest might be and where there's special adequate protection, counsel, council raise an easement. This isn't an easement. You can go look at some cases under 365H, which very rarely comes up where you have a debtor is the lessor. Exactly. And adequate protection is granted to-

So that the tenant can stay in the property. Although I'm not certain that that's an issue of adequate protection. That's a statutory provision under 365. H and of course those rights. It is, but cases look at that from an adequate protection lens as to way as to whether 363F trumps that 365H right to stay in the property. That's where it comes up and courts try to craft some kind of protection in those instances. But here, just a general blanket request for adequate protection.

That would be very problematic. And I would, if your honor is going to rule in favor of the debtors here, to not look to any sort of compromise on giving them adequate protection that they can articulate. So, no. Thanks, Your Honor. I need a few minutes to review my notes, and I will return, and with that, we stand in recess. Thank you. Please be seated.

I will be working for my notes. I appreciate everyone's helpful argument today, but I would ask that you bear with me as I address the arguments and rule today. The matter before the court is the debtor's request for an order authorizing the sale of substantially all assets. The court has now dealt with that motion and granted that motion in part by relief considered at the outset of the case relating to certain contracts. The record reflects that the balance of the relief sought under the motion remains in play, and the debtor is seeking still to identify and engage with potential bidders for substantially all of the remaining assets not covered by those assets that have been authorized to be sold by the court by assumption and assignments. So the motion before me is the motion to sell certain assets.

I have before me also the objection of the California Air Resources Board or CARB, objecting to the debtor's request for an order that would authorize and approve the sale of substantially all their assets, free and clear of liens under Bankruptcy Code Section 363F5. Specifically, CARB posits that its interests and its rights under California law and applicable regulations cannot be sold, and that those regulations also specifically provide for success reliability in the event of a transaction. I appreciate the argument and the submissions by the parties on an issue that is not often the subject of extensive discussion between the court. But based upon the record before me, I will overrule the objection of the California Air Resources Board. And I would permit the debtor to move forward with a transaction that contemplates the sale free and clear of the rights of CARB to the extent that those rights exist. under Bankruptcy Code Section 363F5.

I start with a threshold proposition that 363F provides substantial powers to a debtor or to a trustee to sell assets and dispose of assets in the context of a bankruptcy court proceeding. And I note further consistent with the colloquy I had with Mr. Maza, that those powers often exceed or are designed to exceed the powers that a company or a private entity entity outside of bankruptcy would have. It is undisputed that outside of bankruptcy, this company, Searle, would not be able to sell to a – in a private transaction and have that transaction be free and clear of the obligations owed to CARB. But we are in a bankruptcy proceeding, and Section 363F5 has been specifically designed by Congress to provide extensive power in order to –

facilitate and afford a broad ability of debtors to sell assets under Chapter 11 or Chapter 7 of the Bankruptcy Code. And as I noted, this is in fact a Chapter 7 case. I believe that the party's briefing, which again was excellent, has identified the appropriate cases for the Court to look to. And we start with the TWA decision, which I believe is both on point and frankly controlling here. And in the TWA case, the Court was obliged to consider whether or not a sale under Section 363 could be free and clear of certain rights that were accorded to former employees and current employees as a result of a class action settlement that resulted in travel vouchers.

The issue before the court, initially before Judge Walson, ultimately before the Third Circuit, was whether or not those travel vouchers represented an interest that could be essentially removed and sold and assets and the business be sold free and clear. of any rights associated with those travel vouchers. The court found that they were in fact reducible to a right to payment, and based upon that analysis concluded that bankruptcy code Section 363F indeed applied and permitted and authorized the sale. I would note in TWA that the court had to go through some significant exercise in order to

determine that they were susceptible to reduction to a money value. It was a right to performance. But the Court found as a practical matter that it was, again, readily susceptible to reduction to a monetary amount that would fall within the scope of Section 363F. And I find the same thing occurs here, and as a practical matter, the compliance instruments that have been the subject of our colloquy today, I think are more readily defined as rights susceptible to a right to payment than indeed even the vouchers that were before the Court in the TWA case.

And in so ruling, I find that it is undisputed that there is a robust dollar-based marketplace for these assets and that to the extent that this debtor were operating outside of bankruptcy, they could identify with particularity the actual monetary obligation or the value of its obligations to CARB under the regulatory regime.

CARB notes that it is not entitled to or looking for payment here, and I understand and respect that as part of the regulatory structure that they have identified, but that does not dispose of the question for purposes of Section 363F. Here, again, were the debtor obliged, where the company obliged to provide sufficient compliance

instruments to support its release or emission of greenhouse gases, it would go to a marketplace, and that marketplace would provide, with particularity, the price that they would need to pay in order to accomplish that. So the fact that the regulatory regime contemplates that that what the regulator CARB is looking for is are these compliance instruments rather than dollars does not change the analysis or the applicability of Section 363 F5, which provides with particularity that the trustee can sell property free and clear of any interest in such property if such entity could be compelled in a legal or equitable proceeding to accept a money judgment of such property. interest and again I find here that the entitlement to the compliance instruments under the regulatory structure that we have indeed provides to

carve in the state of California a right to payment which is reducible to a monetary judgment or monetary satisfaction and I note that the this court's prior decision in or this district's prior decision in the La Paloma case requires essentially the same result it is true that La Paloma was focused on section 3 363F1 and I took a moment to actually go back and review Judge Sanche's opinion, which was uncharacteristically brief. But it was clearly under Section 363F1 and the court notes that some of the, that Judge Sanche observed twice in the opinion that there were no successor liability provisions

in the regulation and therefore he found that state law did not preclude a sale free and clear. The record reflects that California then returned to the legislature and amended its statute to provide for success for liability. And that is, again, well within the authority and responsibility of the legislature of California. That again does not dispose of the issue before the court. Section 363F, as the parties have identified, is phrased in the disjunctive. There are five separate flavors or tools by which a debtor may seek to sell free and clear. And they are tools that are intended by Congress to facilitate.

and permit sales of assets that otherwise might be restricted outside of bankruptcy. And what is important about the La Paloma case, while it looked at a separate section under 363F1, the fact is that the analysis commenced by Judge Sanchi by determining that in fact the obligations under the regulatory regime were in fact a right, or I'm sorry, an interest,

that was subject to section 363F1. The regulatory regime has, state has changed so that F1 no longer would be available to a party and the debt are acknowledges that if they were trying to operate under F1 they would fail but F5 is in fact available and was not touched by the court but the court's threshold observation in La Paloma is that this is indeed an interest that is subject to section 363 F so I do find that the that the rights or the interests of cards are indeed subject to section 363 F and that the debtor is able under section 363 F5 to move

forward with a proposed sale free and clear of the interests of CARB as set forth within its regulatory structure I note finally that there has been a colloquy with respect to adequate protection and I will deny the request for adequate protection and I will give you my reasons as a threshold matter again I return to the TWA case, which specifically found that these were, that the voucher rights there were an interest, but that court did not provide for and did not permit any adequate protection there. Likewise, I believe in the Lopaloma case, the court found that adequate protection was not required or available. And I think the same result accrues here, to the extent

that there is an interest that is being sold free and clear, that interest will be represented by an unsecured claim in favor of the creditor. And it is a bedrock proposition that unsecured claims are not entitled to adequate protection. And while that's perhaps a complicated analysis when we consider that we are dealing with a right and we are removing that right,

or we are selling free and clear of that right, but not providing adequate protection. I think that the result is buttressed or reinforced by the observation that as a practical matter, there is no adequate protection that could be structured here that would make sense or be responsive to the interest that is being provided by or being asserted by CARB in this instance. So I'm not satisfied that adequate protection is required. CARB is a creditor, its claim, while denominated under its regulatory scheme in terms of compliance interest, is readily determinable as – in monetary terms, more readily, as I said, than the vouchers

that were at issue in TWA. And I don't believe that it is incumbent upon the debtor to otherwise provide adequate protection. We have had again a colloquy with respect to stays pending appeal. I do not have a sale as we noted in front of me at the moment. I understand that the auction process I assume is open or is proceeding. But again as I mentioned to Mr. Dorsey the court would certainly consider issues or questions of a stay pending appeal in the context of a proposed sale but I don't believe that I have an order that I would otherwise be seeking to stay today, so I don't believe that that is a today

issue. The Court has provided its ruling, and I would ask if there are any questions at this point. If I can offer just one clarification, you stated that it was the legislature that changed the rule, and it was in fact the agency by notice and comment rulemaking it for the record can so reflect. So noted, and thank you for the clarification. I appreciate it, Mr. Dorsey. All right. Mr. Mazza, I guess I have some questions about where we go for now. The Court has provided its ruling, which again I certainly understand how it informs the process. Where do we go from here?

MR. Thanks, Your Honor. Very clear ruling and appreciate that, Mr. Dorsey. MR. Your Honor, I'm cutting it quite close on a flight. Can I have my colleague who's on Zoom take over for me? MR. Of course, and safe travels.

MR. Thank you, Your Honor. MR. All right. Thank you, Mr. Mawazzo. again, Your Honor. A very clear ruling. I think, you know, one of the things that has come up in connection with negotiating APA in a satisfactory order with buyers is having language that

actually does cover what the CARB claims and interests are, as there is potentially ambiguity down the road to say that if CARB shows up two years from now and tries to enforce against the successor, something with respect to the debtor's prior conduct, that that is going to be cut off by the sale order. And so we did file with the court this morning a proposed order. I know that you did. I don't want to cut you off, but I'm certainly not going to word smith an order

or bless provisions of an order. I appreciate the desire to get as much clarity as possible. But my experience has been that your investment banker is probably capable and highly compensated. And as a threshold matter, this is his problem, not mine. That's it. Understood, Your Honor? Understood.

And I think it may be a little bit of the lawyer's problem too as we negotiate the documentation. But I'm profoundly reluctant to do that in the abstract. I understand, Your Honor. And I think for the purposes of just letting the court know in full disclosure as to what we're trying to get done and how important this issue is, we very much appreciate the ruling and it's a very clear ruling in my view. So I think folks can get quite a bit of comfort to the extent they need some out of that ruling and appreciate that. I think that when we do present a bid that would be a final documented bid, it will include language that we will seek to have this court approve in connection with the ruling and consistent with the ruling.

Well, and parties from CARV to the committee to other parties all should have an opportunity to review that. And again, I appreciate you attempting to get ahead of the curve a little bit, but I'm reluctant to insert myself into that process. Understood, Your Honor. And I think there is a, I'll leave with these words. There's some that would view that having a one-page sale order that says free and clear is good enough. And there's others, but we put a lot more words in it. So we'll get to the right spot, I think.

Let me ask you, I believe we have set aside time tomorrow afternoon. We have, Your Honor. So from a scheduling standpoint, I do not believe we're going to need that time, Your Honor, given where we are at the moment in negotiations and the like. So if we can take that off the calendar, that would be fine. And then I assume then you would get in touch with Chambers as you go through the process to essentially reconvene a sale hearing? That would be the plan, Your Honor. I think time remains of the essence, so I don't know if there's dates that you might be able to.

Well, okay, a couple things. Sure. So I'm traveling starting Tuesday for the balance of that week, of next week. Understood. If it's before that, it would be very difficult to fit you in. I have a Lugano matter. Are you guys in Lugano? Yeah.

Monday. Yeah. Yeah. And my understanding is that that is a significant exercise. So what I would encourage you to do is circle up with the parties and figure out what your timing is. And I will do what I can. And if I need to, I would be reluctant, I will tell you, I would be reluctant to try to ask a duty judge to handle this, because my expectation would be that we would have some of these issues, particularly, and again,

you've wisely put a focus on it, at least for the parties, and I have not taken the date. but it would be difficult, I think, for a duty judge to step in and try to deal with this and parse through because at least a chunk of the dispute that they'd be asked to navigate would be the language. And the question is whether or not it's convinced. I agree, Your Honor. Yeah, I think that's... So, anyway, what I've shared with you is at least my schedule. Sure.

So why don't you confer with the parties and get a sense of what they're... When they expect to be able to close the loop and when you would think that you would need to be back? we'll do everything we can to accommodate your timing. I'm certainly sensitive to the issue with respect to keeping a sale moving forward. Thanks very much, Your Honor. So I think schedule-wise, it sounds like, while I'm an optimist by nature, I'm not sure we're going to be potentially back before you by the end of this week. Sounds like next week is really off the table and we'd be potentially in.

I can hear it right after Labor Day. Right after Labor Day. Okay. That's very helpful, Your Honor. and again my chambers will talk to you about specifics but yeah that that would be the concern that I have okay no yes much appreciate your honor thanks again any other matters we need to address before we adjourn all right well I appreciate everyone's time and with that we are adjourned thank you council thanks again