American court hearing recordings and interviews - Season 3. Episode 15. Jan. 16, '24 (1 of 2) In re Core Scientific, Inc et al chapter 11 bankruptcy case 22-90341, audio of hearing held in bankruptcy proceedings pending before the U.S. Bankruptcy Court for the Southern District of Texas #crypto

Episode Date: February 3, 2024

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Okay, good morning, everyone. This is Judge Lopez. Today is January 16th. I'm going to call the 10am case core scientific here on a couple of motions, including plan confirmation. So I'm going to, there's a little over about 120 people on the line. I'm going to ask parties to please hit five star. There's no one in the courtroom, so we're doing this entirely virtual today. I'm going to ask that you please hit five star. I'm just going to go in the order in which I see them. names but once I unmute your line I would ask that you please keep yourself uh monitor yourself I should say um here we go 512 number a 512 number good morning honor this is Jason Benford on behalf of to NASCAR power services company all righty good morning mr. Benfer is a 202 number good morning honor Jason Ruff for the United States trustee good morning two one another two one two two I should say I think that might have been me, Your Honor.

It's Ted Securities from WAL. Good morning. For the debtors. Good morning. This is a 646 number. Good morning, Your Honor. Bernice, from Wael. Good morning, Ms. Berkevich.

Here's a 713 number. Good morning, Mr. Carlson. Okay. Let's see where we go next. That's 646 number. Good morning, Your Honor. It's Chris Hansen with Paul Hastings on behalf of the ad hoc committee. Good morning.

917 number. Good morning, Your Honor. Ray Shrock, Wildax. on behalf of the daughter. Good morning. There's another 917 number. It looks like it's 911 699. Is that you? That's you? That's Leo Bluza, Your Honor.

Good morning. The 911-204 number. Philip Ken Rosen-Wall-Farne. Good morning, Mr. Kim. Okay. Takes us to an 832 number. Good morning. Our chair in the Academy of the Equity Committee.

Good morning. Okay, one more, a 202 number. Good morning. Good morning, Your Honor, Christine Calabrese, on behalf of the debtors from Wild Batchel. Okay, good morning. And one last one, is a 713 number. Good morning, Your Honor.

Brett Miller, Todd Gord, and Jennifer Hardy will be far on behalf of the official committee. Okay. All right, good morning. Let me just ask for those, to you who did not make an appearance, or even if you did, I still ask that you please log into the Southern District of Texas website and make an electronic appearance.

Find my homepage. With that, I will turn things over to the debtors. Yes, and I'm, Your Honor, and I hope you're staying warm on this frigid day in Houston for the record from Wiles on behalf of the debtors, for the Inc. and its billiards. With me from Wiles, my partner is Ray Cross. with Carlson and Ted Secherides,

Council Christine Caglis, and Associates Austin Crabtree, and Sean Scheng. We have a demonstrative that we just filed right before the hearing at Docket, 1740. Mr. Scheng and shared the demonstrative on the screen if your honor doesn't mind giving him access. All right, and here we go. I'll continue while we asked it up.

We also have CORE's CEO, Adam Sullivan, and our senior vice president of Capitol Marquisites. and acquisitions Michael Broz, in the virtual courtroom. It finds us to give a very brief introduction and then pass the virtual podium to the team to go through the agenda, evidence, and arguments. Your Honor, we are thrilled to be here today to take confirmation of our fourth amended chapter 11 plan. It is supported by all five of our two stakeholders, the ad hoc groups of convertible note holders, the Uncensored Creditors Committee, the official creditors, the official

committee of employee and payholders, our minor equipment vendors, and Deveri, which is both our dip Lender and our reluctant unsecured creditors. We also see overwhelming votes to accept the plan by the classes of claims and interest entitled to vote. And at this point, that could come to the surprise. In December 2020, we entered Chapter 11 with an RSA that gave unsecured creditors and shareholders almost nothing. nothing. We told the court then we would fight hard for more value for our stakeholders and try to get expensive and we were successful on both goals. Our plan pays all non-subordinated

creditors in full and gives a keyholder a significant recovery. They have only one limited objection to the plan relating to the consensual third party release provision. Importantly, no one is here before your honor saying that to disagree with the economic scale and the plan, and that is quite an accomplishment. We were able to get here to hard-fought negotiations with our major stakeholders, along with these superb mediation skills of Judge Isr. They are grateful for his efforts, along with the big faith and hard work of the numerous professionals

involved representing our stakeholders, many of whom I'm sure you'll hear from today. The plan has numerous benefits to the company that were laid out here, Um, we preserve the debtor's business as a go and concern along with over 240 jobs. We are significantly releveraging the debtor's balance. A plan exercises approximately 400 million in deferred and unsupered claims. And it's dealt in reduction in the annual debt service of approximately $6 million. We are receiving an excuse of $95 million in new money under the plan. for a combination of a $55 million equity rights offering,

which would over-subscribed, Your Honor, and 40 million in new money financing provided by certain convertible noholders. We're also assuming the vast majority of the third and Detroit contracts in the expired business. In Fons, state is a very good day for the debtors and stakeholders. With that, I'll turn it over to a new person to make additional introductions and start the agenda.

Thank you very much. Morning, Your Honor. Again, that's stuff Carlson as well on behalf of the debtors. So just to preview what we have on the agenda for today, so it's confirmation and the disclosure statement at Mr. Schenkins. And then we have three settlement motions as well on the agenda and that a motion seeking to establish maximum dispute of claim amounts under, you know, in connection with our plan.

one thing I think I'm missing here too as well as the ad hoc equity group they have a motion for a substantial contribution plan on file as well and I think as Ms. Berkovich mentioned so I believe everything is fully resolved except for one outstanding objection to our plan and that's an objection to the you know third party release provision in our plan by Mr. Hoffman the way we'd like to move forward with the hearing if it's okay with your honor is to give a short president on our affirmative case in support of confirmation and final approval disclosure statement. And then I think at that point understanding there's going to be argument, maybe some arguments on the one objection to confirmation, Mr. Secureti, that's for the company will be prepared to address that argument. But before we get into argument there, we do have one of the sound motions we would like to have presented first because of one of our witnesses, may be unavailable. So we would like to take that a little bit out of turn. So we would do our presentation,

a short presentation on the settlement agreement for sphere, and then we can come back to argument on the limited objection we have to confirmation. And then we keep rounded up that at the end, the remaining matters on the agenda, if that's okay with your honor. I've got no issues with that. Why don't we? Well, Mr. Closon, do you need, can we take the core sphere settlement first and then just kind of roll right into plan confirmation? Or do you need to kind of do the presentation first?

No, that's fine. Why don't we do that? Why don't we just get the sphere settlement out of, you know, presented on the list? Ms. Calabrese, Mark, I just presented. Yeah, well, if that's okay. That way, I know that the witness has no issues, and then the presentation will just flow straight through just for the purposes of the record. Thank you, Your Honor. So we can be brief on the core Gryphon's sphere settlement.

The debtors respectfully request that the court authorized and approve their entry into the settlement agreement as set forth in the emergency motion documented at 1663. And Your Honor, in support of the motion, the debtors have filed the declaration of Russell Cannes, which is documented on the exhibit list at 1737-1. I'd like to move the declaration of Mr. Ken into evidence, Your Honor. Any objection to the admission of the Ken declaration for purposes of this motion? Okay, it's admitted. Thank you.

So by way of brief background, in September and October of 2021, Cor and Griffin entered into hosting agreements, pursuant to which Corps was to host minors for Griffin. And as part of these hosting agreements, Griffin was to deliver over $70,000, minors to core for hosting and made approximately $35 million in free payment pursuant to those hosting agreements. Asserting claims under these hosting agreements, a third party, SIR, filed proofs of claim numbers 358 and 359, which are substantively identical claims for over $39 million. Fear claims that Griffin had assigned a hosting agreement to fear and that Corps failed to perform under the hosting agreement, asserting claims for approximately $3,000. $34 million in the turn of the contractual pay payment, $5 million for alternative hosting costs, and other asserted claims in unlicited amounts.

The debtor is objected to the fear COCs and also commenced an adversary proceeding against both fear and Griffin, seeking damages for, among other things, construction costs and profits arising from the hosting agreements in addition to other relief. Shortly thereafter, Your Honor, Griffin moved for leave to file elite proof of claim for contingent amount that's approximately $35 million, so $35 million plea payment in connection with a HACC agreement. It's in this posture that in December of 2023, the debtors and Sier and Griffin used the settlement agreement that resolved with fear POTE, the adversary proceeding, and also Griffin's motion for leave. Um, the terms of the core fear Griffin settlement are set forth in the term sheet, which is documented in two places, Your Honor, except the proposed order as exhibit one, which is at 16, uh, 6.3-1, and also as an exhibit to the declaration of Mr. Cam, which is at 1737-1. The settlement resolved the fear clues of claim the adversary proceeding and like I said, also Griffin's motion for leave, in exchange. for fear having a single allowed claim against core scientific ink, which is the

entity named in proof of claim 358, in the total amount of $10 million. The settlement also provides for mutual releases between the debtors on the one hand and spear and Griffin on the other. The debtors believe that's a fair or reasonable settlement that's in the best interest of the estate and among other things, results these open litigation issues that would be costly to continue litigating. I'm happy to take any questions, Your Honor, or also offer Mr. Cairnsby, explain you with any questions.

Let me just ask, does anyone wish to be heard in connection with this settlement agreement? Just going up and down the line here, making sure. Okay, let me just the note for the record before the court is request for approval of a settlement. between the debtors, Sphere 3D Corp, and Griffin Digital Mining, Inc., seeks emergency consideration of the motion based upon my review. I'm going to grant emergency consideration of the motion. I find that it's appropriate. The standard before the court is whether this settlement should be approved

under what we call bankruptcy rule in 2019, which provides that on a motion of parties. including the debtors. And after notice in a hearing, the court can approve a compromise or a settlement. And the basis upon which it can be approved is not defined in rural 1919. So we then turn to binding precedent upon this court. It looks at the Fifth Circuit case law, which provides that a court can approve a compromiser or a settlement as long as it's fair, reasonable, and in the best interest of the estate. Right?

That's the number of Fifth Circuit cases that provide that. It's within the discretion of the bankruptcy court to approve a 2019 settlement. So I consider whether a 1919 should be approved and whether it should be approved on an emergency basis. And I'm going to approve this motion. I'm going to approve the settlement. This court is no stranger to the litigation that was involving the debtors and a sphere. and the potential issues that were arising in connection with. There was originally a trial scheduled for earlier this year,

which was going to, and then later this month, which was going to be very contested based upon filings that the parties had, and then the court was going to have to consider whether to allow a late proof of claim by Griffin. So that was going to be a lot of work, a lot of complexity involved there and plenty of time and evidence required in legal issues. And it was no easy answer one way or the other from what the court could see. So settling this is certainly in the best interest of the estate. The court has considered the count declaration and finds that it provides the necessary

evidentiary support to establish that this is in the best interest of the estate and that the settlement is fair and reasonable. So I'm going to approve the settlement. really congratulate the parties. I know a lot of work must have gone into this and really quickly to kind of come to the point where there's a settlement agreement. And I believe that it's settling this now in connection with a potential plan confirmation makes the most sense. So I'm going to sign the order at 1663. Is that still the one that you want me to sign?

Yes, Your Honor. The proposed order at 1663 that has the term sheet of sentence. You got it. Okay. I have signed that and it is off to docket. Thank you. Thank you. All right.

Mr. Carlson, I'll turn it back over to you. Great. Thank you. We can go back to the slide. Your Honor, we filed our witness in exhibit list of document number 1737 in support of confirmation and the other motion. Just to preview what's in there, there's five declarations in support of confirmation. We have Mr. Brose. He's our 1129 declarants.

So his declaration is, you know, the plan settlement that we've reached with each of the key stakeholders and and background on the business plan, but all the then we have Mr. Goldman. He's the independent director for the board and also on our special committee overseeing the plan process throughout these chapter 11 cases. The third declaration is Mr. Singh said that at PJ Partners. That's our valuation declaration. Fourth, we have Mr. Blois from Alex Partners and that's in support of satisfaction, the best interest test. And then finally, John Song from Sredo is our declarant for, you know, plan voting and solicitation results. And so, Your Honor, moving to the next slide. We have a few other, you've already admitted Mr. Conn's declaration.

We have a few other exhibits and declarations here in support of the other motions. Mr. Brill is also in support of the Foundry and OG&E settlements, Mr. Creighton, in support of the to the claims motion. So, Your Honor, at this time, we would move to admit the remainder of the exhibit. I think we've already admitted Exhibit 1, so it would be Exhibits 2 through 40. The objection to the admission of exhibits 2 through 40, and that's at docket number 1737. So just so the record is clear, the court in connection with this hearing has admitted exhibits 1 through 40. It's document 1737. And the next slide, this is just our key documents.

We filed, we filed an updated confirmation order, so I think that that one is going to change, but otherwise we filed the amended plan in document number 1722, just closed the statement, and the solution, November 1439. Moving on to the next slide here is just the timeline of our cases. I think as Ms. Berkovich let off with, you know, from early on in these cases, the company really was committed to trying to get to as much consensus as possible and try to get to a local deal, particularly with our five major stakeholder groups. And so we've been part at work. You know, we file, we're about a year in, a little over a year in, this form we filed for bankruptcy in December of 2022. In July, right before we enter mediation with judges here, we've entered into a settlement with our minor equipment lenders,

then proceeded in mediation for several weeks and months, and resolved a number of really contested and difficult issues. And that settlement then occurred on September 17th and finally documented in November, that was our essay between the debtors, the ad hoc no over the group, and the Equity Committee, and that resolved disputes over enterprise value and treatment in the amount of claims held by the converts and then treatment for equity. So that was a big milestone in the cases. We then, you know, only had the unsecured creditors left at that point, and we went back in the mediation. And with judges ourselves, we were able to reach settlement with the unsecured creditors

and D. Riley, who's our largest unsubter predator that was in mid-December. And so then we were at the point where we were at a fully consensual deal and moved forward with the solicit, school setting our plan. So moving on to the next slide. So we are seeking approval of both final approval of the disclosure statement and confirmation. I think the declaration and support layout or provide the evidentiary basis that we need for each of the factors under 1129. We did overwhelmingly have accepting classes across the board with the exception of one debtor entity at Class 8A. And that entity has no asset.

But we in any event we do satisfy-trial-crans standards for that one entity. given this is a solvent debtor case. All creditors are getting 100% recovery. And as I mentioned, the only remaining objection is of Mr. Hoffman's issues with the third-party release as it relates to the security litigation that's pending. And we will address that as the appropriate time. So then flipping ahead, here are the voting results. as I know there all classes accepted with the one exception of the one debtor in Class 8A.

Moving ahead to quickly just give an overview of each of the settlements we reach. As I mentioned back in July, we reached our settlement with the equipment letters. There's a lot of words on the page here, but they hold in the aggregate $254 million in claims. We agreed to, you know, the claims are bifurcated. And so we agreed to allow claim amounts with each of the settling minor equipment lenders and essentially gave them three options for treatment. The first option is just the default treatment and what they're entitled to under the code, which is on account of their secured claim, they would get a take-back paper with the terms

lined out here in number one, and then the deficiency claim would be equitized. The second option was just to equitize their entire claim, both secured and the number one. secured and receive equity in a hundred cents recovery based on our $1.5 billion mediated plan value. And then the third option was a secure take-back instrument at 80 cents on the amount of their allowed claims. It would be secured by their existing collateral, each each of women lender, and then some additional collateral was provided up to $52.5 million of collateral of minors

that would be acquired post-emergence. And then finally, as it relates to the settling equipment letters, we'd meet to a pay fee to up to $4 million for, you know, in connection with negotiating a settlement with them. And by and large, most of the equipment letters, the vast majority, elected the equitization option, which is a great benefit for the company and provides us to the company with, you know,

about $200 million of extra de-leveraging and on the balance sheet going forward. So that was right before we entered into mediation, turning to the next slide. We then had a number of issues outstanding between the ad hoc note holder group and the equity group on plan value. We also had disputes regarding the claim amounts to the convertible note holders, in particular, whether they were entitled to this 2x provision, doubled the amount of their principal claims under the note instrument, and then treatment, the appropriate treatment for equity and the convert.

And finally, the terms of the exit capital. And after a few months in mediation and several sessions, and we got to a settlement with the debtors, the ad hoc note holder group, and the equity holders that result all those issues, and the parties agreed on, you know, at the lynch end of the settlement, at one point, $5 billion plan value. And so then what we piece that was left at that point was getting support from our secure creditors committee and B. Riley. And so then we continue to negotiate and with the help of Judge Isker again, we were

able to get to a global deal that resolved their outstanding issues with the plan and essentially provide them with incremental consideration of the plan in the form of, number one, creating a convenience class for holders of claims of $10,000 or less that comes out to about $130,000 in cash paid to those holders. And then an incremental $3.5 million in e-com and shares provided pro rata to all the holders of a lot of general-incere claims. And then it's part of for downside protection, an instrument we call the continued payment obligation that would give them up to $7.1 million, depending on the trading price of stock,

post-emergence, that's up to $7.1 million. And then finally, we settled a number of claim disputes with other holders of general claims as part of the settlement. So then moving on to just a quick summary of the treatment. So as part of that RSA settlement that we entered into, we agreed on a claim amount of $710 million for the, for the convertible, holders and that 710 million is basically this is this is the consideration they received in exchange for their claims 150 million in new secured notes

260 million in new secured convertible notes 260 million of equity in the reorganized company at the 1.5 billion dollar plan value then a portion of certain of the note holders agreed to provide an exit facility and so a portion of the Converbal Notable to Secured Claims 40 million rolls into our exit facility providing 40 million of new money as part of that and then finally it's part of the first and down from that protection contingent payment obligation instrument that's payable potentially payable at the end of the first second and third year up to 130 million dollars depending on the trading price of the stock and then

And finally, some incremental equity distribution. It's tied to the allowed amount of claims incurred by the, professional fees incurred by the Equity Committee and the substantial contribution claims filed by the equity group. So by and large, that was the settled treatment for the April and August of the criminal circuit plan. Moving on to the next slide, we covered the minor equipment letter settlement. They had their each of these three out.

options, so like, as I noted, most chose the acquittization options. Other secured claims in M&M are riding through. The M&M lien secured claims are now vacant because we, over the past few months we've been able to enter into a number of settlements, separate settlements, most of which have been approved by the court. I think there's one outstanding settlement with one of our general

contractors McCarthy, but expect that, assuming that's approved by the court effectively removes all the claims from that from that class. We do have to file a substantive objection to some of the other subcontractor claims that are outstanding that we intend to file in a few in a few days. And then finally, pure mortgage claims, we entered into agreements with the two holders of secure mortgage claims that give them the option of cash at 95% of face value or just amending their maturity date. Moving on to the next slide. The holders of general and secure claims, they are getting equity at 100% recovery and reorganized

poor each holder. In addition, they're getting the extra consideration that was negotiated as part of the mediated settlement. Moving on to existing equity in Section 510 claims, they're parried under our plan. Equity gets any of the residual equity value that remains after paying off all creditors all non-subordinated creditors in full. In addition, they're getting a package of warrants, just two tranches of warrants.

The first tranche is to acquire up for 30% of the new common shares at a $1.875 billion enterprise value. That's payable, that's cash exercise. The second tranche are penny warrants at a $2.5 billion of enterprise value strike price. And then they've also had the opportunity. to subscribe to our equity rights offering which as a first which noted was fully subscribed and generated back oversubscribed and generated 55 million dollars in

proceeds to the state and then you know the section 5 can be claimants get the same recovery of in lieu of the right to participate they got equity equity in that the value of the bill and it's as well as the warrants so that Then moving on to the next slide, this is just a summary of what the reorganized core's capital structure is going to look like post-emergence and the build up to what the plan equity value is. Then at the bottom of the page, what the approximate equity splits will be for the various stakeholders.

Moving on to the next slide here. So you're out of it. For the reasons we set out in our brief and for the evidence, we've set out in our brief and for the evidence that we had admitted we think you satisfy all of the standards to confirm the plan and to approve final finally the disclosure statement. I don't think anyone is challenging that we don't meet our standards to confirm the only open objection as I mentioned is Mr. Hoffman's objection to the third party release which we'll be prepared to look at the appropriate time but otherwise we have to support

confirm the plan and we'll be prepared to walk through any questions to be proposed confirmation order as well. Thank you. Let me just open it up at this point, see if anyone who supports plan confirmation wishes to be heard at this time. Yes, Your Honor. Can you hear me as Chris Hansen and Paul Haytons on behalf of the ad hocru? Yes, Mr. Hansen. Yeah, Your Honor. So we thank everybody for the hard work, especially Judge Isker, in helping us get to the mediated conclusion and then the parties for working hard to get to where we are now. The ad hoc committee has been a bit of an antagonist in the case back and forth with the debtors and other parties all the way through. We believe we've arrived at a fair result in the context of the plan and we support confirmation.

We do want to highlight for the court that there are conditions to effectiveness that we have consent rights with respect to, and that's really with regard to the definitive documentation, which we're all still working on. And it isn't finalized, and we'll obviously come back to your honor. We can't get there, but I have great confidence in the party's ability to be able to arrive at the successful negotiation with respect to the remaining issues in the definitive documents, and we wholeheartedly support confirmation. We also thank you, Your Honor, for taking over the case in the way that you did and for the time and attention that you've given to it. Thank you. Anyone else wish to be heard? Your Honor, Brett Miller, the last comment made by Mr. Hanson about Your Honor stepping in. the court of providing us with the wherewithal to close this case.

Thank you. Anyone else? Your Honor, Jason Benford. Mr. Binford. Go ahead. The Honor, thank you, Your Honor. Jason Benford on behalf of Tenaska Power Services Company. Just a quick comment.

Of course, Tanaska does support confirmation, but we're in a somewhat strange position. We were at, we were a party to certain agreements, and were added to the list. of schedule of rejected contracts, but then taking back off of it. And so I noticed that the fourth amended plan supplement was filed this morning. And as those plan supplements have said regarding cure costs, if the cure cost is not listed and the cure cost is assumed to be zero, it's not, we haven't addressed cure because up until fairly recently, we thought we were going to be, our agreements were going to be rejected.

So I just like to say on the record that our cure costs, we don't think it's an issue because we timely filed proofs of claim that essentially are the cure amount. But I would just like to advise that to the extent that the cure amount, and I don't believe that better has taken this position is zero for those amounts, we do believe it should be the timely filed proof of claim. And the only reason we're late to addressing this issue is because of the sort of rough and tumble of leading up to confirmation and being on the list and then being taken off. So it's really just a reservation of rights comment I'm making this morning, Your Honor.

Mr. Carlson, can you address that point? Yeah, no, Your Honor. I don't think we dispute the asserted current care amount. The parties are in ongoing discussions on what the terms of an amended assumed agreement would look like, and those are in the business folks. And so I think we're hopeful that we'll get resolution on what that amended agreement looks like, to the extent we can, of course, we'll come back to court. But don't just use the $200,000 claim.

Here, sir, claim, that's your claim. Okay, thank you. There was someone else who wished to speak, who supported plan confirmation. Yes, sir. Mr. Vakmoudi. Yes, Your Honor. Mr. McMuddy from this and Elkins on behalf of the Equity Committee.

I'll echo the comment from Mr. Hanson and others. Kind of the point I wanted to emphasize is that kind of the key piece of this $55 million rights offering was a $37.1 million backstop that was spearheaded in large part by the equity committee. These backstop commitments from the individuals were mostly equity holders. There were 31 individuals who agreed to participate.

And as you heard, the rights offering is extremely successful. So I want to thank the debtors, the other stakeholders for negotiating. Negotiations were complex and oftentimes contentious, but we're very happy with the result that we received here at the end of this case. I wanted to thank Judge Isker as well for his contribution in the time with mediator, also yourself for getting up to speed so quickly in these cases, as well as your staff, for helping schedule hearings and enter orders and promptly. And lastly, we wanted to thank the members of the Equity Committee as well.

They devoted a significant time and effort on a volunteer basis. And from the very first day of these cases, they advocated for the future of this company and their belief and persistent ultimately helped achieve a very good result for all equity holders. Thank you. Anyone else? Good morning, Your Honor. Very briefly, Jason, roughly the United States trustee, I just want to confirm that our office has no opposition to confirmation of the plan today. We did have some minor, I would call, technical comments to the plan early on

that were addressed a few iterations ago. And so from where we're sitting, Your Honor, we have no issues with the plan that's being proposed today. Thank you. Just before we, aside from the, the what I would call the Hoffman objection. Are there any other issues we need to take up before I turn to, I think would be Mr. Secretides, and we can take up the objection at this time.

Your Honor, this is Philip Kim for Lee Plaintiff, Morgan Hoffman. I mean, just as a technical matter, we do object to the disclosure statement to the extent it contained language relating to a third-party release, purporting to release our securities class action and related issues. But, you know, I guess just to make the record of that, I guess we can deal with, you know, the substance of that objection, you know, when we get to it. Do you object to the words or to the legal ramifications of it? Both insofar as to the extent that the third-party release, as currently drafted, would, as the defendant's claims, would sort of extinguish our securities class action. and also that it does not include adequate information relating to the purpose of that release

as it relates to our securities class action. Thank you. Okay. Well, at this time, why don't I just take up the objection? Mr. Kim, you filed the objection, so it probably makes sense for you to go first, and then I'll let the debtors end respond, and you can proceed as you see fit. Your Honor, could I just take that down? Okay, very good.

Yep. It's hard to see everything. We ready? Yes. All right. Thank you, Your Honor. I think our objection sort of lays out four independent bases to reject the third-party release here, to the extent that it's worded to release and extinguish the securities action that's pending

in the Western District of Texas. So we're not here trying to get rid of the third party release altogether. As we said in our limited objection, we are objecting to the language to the extent they're trying to release or extinguish these third party claims and the securities class action. So I think that's important, a point I like to make. And common to these four independent bases are sort of common points that I think apply for all of. So I'll go over them sort of at a high level at this point.

So, Mr. Kim, just an initial question. Who do you represent in this with respect here? Do you represent Jess Hoffman or are you claiming to speak on behalf of the putative class? Your Honor, we represent, we are here before Morgan Hoffman. And, you know, we believe, although the court, you know, had prior rulings, we believe that we have the authority under the PSLRA to speak for the putative class. as an agent. And how did Ms. Hoffman vote?

Did Ms. Hoffman, did she sign an opt-out or take the position? No, Mr. Hoffman did not opt-out and is presenting an objection. He did not vote. It did not sign the opt-out itself? No, Mr. Hoffman did not opt-out to maintain his standing to follow an objection. Okay. So, Your Honor, there are some key facts, I think, that are important.

Hold on a second. I'm a little confused now. So you purport to represent Hoffman and the other putative classes, but you think that if Hoffman wouldn't have, but Hoffman didn't sign the opt-out because they wanted to maintain the objection. So does that mean that if Hoffman goes away,

everybody else goes away too? I don't understand the object. In other words, if you believe you represented X number of people, and it's not just Hoffman, then why does Hoffman then why does Hoffman then dictate the terms of everyone's opt-out? Your Honor, we had previously made a motion.

So I guess going back to the question of since the court did not allow class treatment and with respect to or didn't rule on whether we could opt out on a class-wide basis, in order for us to make this objection, we did not opt out because otherwise if we opted out, we would not have standing to make the objection. So we did not opt out. We are here today to make an objection, which we have the authority to do so. Okay.

Okay. I'm a little confused by that. I'm a little confused by that because I think... I'm sorry, maybe I wasn't... Go ahead and proceed with your argument. I keep cutting you off. I apologize. I'm going to sit here and stay quiet.

All right. All right. So, Your Honor, I think there's some common fact that are important with respect to the four points that we've raised. And I think the key fact is that there's absolutely no consideration that's being provided to release the securities class action claims. There's no monetary contribution being made by any of the non-debted. defendant, the 12 individual defendants that are still in the case, no consideration is being provided by them. Now the defendant or the debtor has submitted the declaration of Mr.

Goldman purporting to set forth some consideration, but the consideration they say that's being provided with some assistance by unidentified individuals within management. Doesn't even identify with respect to the 12 current individual defendants that are subject to strict liability federal securities claims, right? Judge Ezra, as we noted in our supplemental objection, recently sustained the complaint as to the Section 14A Exchange Act claims and the Section 11 Securities Act claims. And the defendants in those claims are 12 individual defendants who are either former officers and directors of Corps or its predecessor. So there's actually no consideration that's set forth other than time spent, which is in every

case, in every reorganization case, you're going to have members of management who provide some assistance here and there. And certainly it's not monetary consideration that would be required, whether it was a consensual release or a non-consensual release. Also, there's been no indication that the release of the securities class action was integral to the plan, right? There's been no explanation provided in the disclosure statement. There was no explanation provided in the various hearings that you've seen me at where we've made objections and made our presence known. We've invited the debtor to say, hey, you know, what's up with this?

They've remained silent. And the only thing that we hear now is in Mr. Goldman's declaration saying that, well, it was a material inducement. Very conclusory does not meet the preponderance of the evidence standard that would be required to approve a third-party release like this, which is particularly important, Your Honor, because there's nothing in the code that specifically says third-party releases are allowed. It's, you know, under the general sort of powers of the court that the court could approve a third-party

release and that's important. The other aspect of it is, well, Mr. Goldman says, well, you know what, the special committee, you know, we looked at the third party release and we think it's okay. Well, obviously they would because two members, two of the

three members of the special committee are defendants in our case. They are two of 12 remaining descendants who were subject to strict liability securities claims. And of course, they would want these third-party releases.

And, of course, they'd want to provide these releases without providing any consideration whatsoever. And there isn't any. The other aspects of this, Your Honor, and I think I could now turn to sort of, you know, the four reasons that these facts are relevant to that require the court not to approve the third-party release, only to the extent that they purported. to release or extinguish our securities class action claim. First of all, there's the issue of subject matter jurisdiction.

And the Fifth Circuit in Zale said that the majority rule is that there is no related to jurisdiction on third party action. So you start with that premise, right? That the sort of presumption that third party actions aren't subject to related to jurisdiction. So you look at the factors. Does the securities class action impact the bankruptcy estate? No, right?

These are claims against, these are claims the class non-creditors versus non-debtors, right? You've got potentially D&O proceeds that are involved. Those proceeds are not assets to the estate. In fact, to the extent that they would have implicated assets to the estate, you would have perhaps seen the defendant's moved to stay the class action if that were the case. And the case law is pretty clear on insurance proceeds and how that's built. Mr. Kim, can I ask you a question? So it's not.

What evidence are you presenting to the court to just to explain that? I don't have any evidence that security's class action in connection with this case. And there's been no witness or exhibit list to support that. What evidence are you presenting to the court? About what? itself or what's going on or where things are going. What's the evidence that you want me to rely on the show that it has no bearing in connection with this case?

Your Honor, the burden is on the plan performance, the debtor. They have submitted undisputed evidence. Here's the point that I'm making. You're saying that Goldman's statement isn't, it's conclusory, but it's not enough, but no one challenged it. Maybe it was not, but you had an opportunity to cross Goldman. Goldman's sitting right there on the screen and no one challenged them. Right. So it's it's unrefuted document. It's unrefuted evidence. So what do I do with that? Your honor, that's, well, your honor, that's their evidence, right? They have, they have the burglings. And it's unrefuted, right?

It's unrefuted. Your honor, we, we are saying that it is too conclusory. But you, yeah, but that's that you know, now you're leaving it up to me, right? But you didn't challenged the evidence. You didn't challenge the witness. He was sitting right there. You could have asked some questions. Well, Your Honor, unrefuted does not mean sufficient, right? It could be unrefuted that Mr. Goldman says that it was a material inducement. But then it's a question of, well, is that sufficient level proof to satisfy the court that... If no one challenged it, if no one challenged it, and I've got six different parties saying we all came together after mediation and parties came together and parties came together and parties

worked together in mediation. We went back to mediation, and now we have this consensual plan, and we have overwhelming support, and this was a material inducement. And no one challenges that statement. What do I do with that? You can't just look at the sentence. You've got to look at the whole presentation that was given to me. I've got two rounds of mediation. I've got settlements with the largest unsecure creditor. I've got a creditors committee supporting it. I've got the United States trustee telling me that they reviewed it. have no objection. They don't really about it. I have an ad hoc committee.

I have an equity committee saying everybody's connected with this, right? So you have unsecured creditors, equity and ad hoc groups, secured lenders, everyone is coming together two rounds of mediation and a statement in an uncontested declaration saying that this was all a material inducement to getting the deal none, right? I agree with you if it was just one sentence, but it's not one sentence. It's one sentence built upon five different groups telling me that this is the best deal, and everybody agreed to this package. Your Honor, this doesn't affect any of those other parties.

This is just Mr. Goldman saying this. But no one challenged it. You're a litigator. You could have challenged it. You're a litigator. Why didn't you challenge the statement? Your Honor, they have the burden of establishing it. I am challenging it now through argument, Your Honor.

that, you know, these other parties, there's no evidence. There's nothing to disclosure statement to suggest that these other parties you mentioned, Your Honor, felt that this was required, that this was integral to the plan confirmation, which is the standard, right? And there's nothing in the record other than Mr. Goldman's statement that it was a material inducement. That's very conclusory. And you can't release our position agency. can't approve this release that releases our securities class action claims that a court has said.

Who is the hour? Who is the hour when you refer to the hour? Who is the hour there? The plaintiffs. Okay. Mr. Hoffman's claim. And as we plaintiff, the claims that he represent. Okay.

So, Your Honor, turning it to subject matter jurisdiction, as I was saying, that, you know, the class fashion claims are not related to the estate. You know, our case involves disclosures by the company, by these 12 defendants, who signed a false proxy statement and a registration statement more than a year before the filing of this bankruptcy case, December 7th of 2021. Now, the debtor argues that, well, you know, this is kind of related to the conduct. The conduct here changing the rate plans, the fixed rates, is a different issue. You know, any mismanagement related to the conduct decision to make that are derivative claims.

And, of course, those are claims that are owned by the debtor, and we're not in any position trying to say how those derivative claims should be dealt with. That's not what we're here for. So it's not related to. and the indemnity issue, you know, it's speculative, and so far it hasn't, it hasn't been determined yet, right? The defendants in our case, sorry, my phone was right, the defendants in the security's class action can still litigate, right? We survived the motion to dismiss. Obviously, now we're going to get into discovery, they're going to approve their claim, and we're you know, and to the extent that there would be any indemnity issue under Delaware law,

I mean, I think, you know, that's going to be present with any corporation, you know, any Delaware corporation, the stock indemnity provisions. And the indemnity itself is not enough to create subject matter jurisdiction or related to jurisdiction. So, you know, I think that's sort of the first point, that there is no subject matter jurisdiction. I understand the defendants don't like the Mar-Wau Bergen case because it's out of Virginia, but that decision, you know, is an extensive decision waiting through these issues that have identical facts in this case. So we believe that it's helpful in the court's analysis of these issues because they're complicated,

Your Honor. I mean, these aren't issues that are before bankruptcy courts frequently, and I don't profess to be an expert in bankruptcy law, but I understand these issues are very complicated and I think it's complicated for many individuals so the second point your honor is you know whether there's personal jurisdiction in this case and whether folks have consented to you know article one jurisdiction for the resolution of the claims so I think the first issue is you know as the personal jurisdiction we don't believe that the has personal jurisdiction over absent class members in our securities class action who have not

participated in this case whatsoever. I mean, I understand that defendants say that there's some folks who submitted claims in the prior hearing. There might have been less than 50 folks who submitted claims. And I understand that there might have been about similar number of folks who have opted out, but only six of them appear to be potentially class members in our case. But that being said, the other issue related to consent is whether there's been some sort of consent to Article 1 jurisdiction, which I think is important because in a jail case, of course, said that there needs to be some independent basis, you know, of authority or jurisdiction, not just the court's power to resolve third party claims. And here, if you look at the cases related to Article 1 adjudication, which this would essentially do. If these releases were allowed, according to the debtor, they would release the securities claims, which without the bankruptcy have exclusive jurisdiction in the federal district courts.

And courts look to the actions of the individual, not the inactions of the individuals. And I think the Supreme Court case in role and the wellness cases talk about you need to look at the actions of the plaintiffs or the folks that you're seeking to obtain consent from, not the inaction. So I think those line of cases, which also dealt with in the model law case, would support our point that there was no consent to have these securities laws claims adjudicated effectively in bank of security. Court, which would be another reason why the court could not approve the third-party release to the extent it seeks to distinguish the federal class action claim. Secondly, there's no implied consent, right? The defendants or the debtor suggests, well, this is just your one-of-the-mill sort of notice and opt-out procedure, but we think it's different here to the extent that it involves

our securities class action. So, you know, as we pointed out before, we pointed this out at the class treatment hearing that the notice program was inadequate because it did not include the entire class, right? The entire class here included folks who were shareholders, that's XPDI that became core and held through those shares on December 7th of 2021. And we pointed out that deficiency, and the debtor has done nothing to address that deficiency. We pointed out the deficiency that it also did not include folks who purchased warrants and options. And it's not clear to us whether that was remedied as well, because warrants would also be issued pursuant to registration statement, which we believe would have been prior to, which would have been consistent with the December 7th. registration statement.

But that being said, they haven't corrected that. And that's important, Your Honor, because in the security class action, Judge Ezra, although he dismissed a portion of our case, what he did leave were folks who held XPDI shares on December 7th and had their shares converted. The exact folks who never received any notice. So there can't be implied consent. The notice wasn't sufficient. Now, even if you were to assume, Your Honor, that notice was provided to the entire class, which it wasn't, right?

It's not the best notice practicable, right? The notice that's required for a bankruptcy case is a lot different than the notice that's required for a securities class action or a PSLRA case. And it's important because the notice that's required in a PSLR case, which this case is governed, right, you know, has a high level of notice. It has to be written in plain language. It needs to identify the case. It needs to identify the claims that are being released. It has to be, you know, there's a whole slew of requirements that we noted in our brief and also set out the Mawa case, among others, that are required for a security. claim to be released or otherwise settled, and which is different than what would be

required in a bankruptcy case. You know, what's clear is that the notice required for a bankruptcy case is less rigorous and can certainly be written, you know, less than plain language because folks that are involved in these types of bankruptcies are very complex parties, right? And it's curious class action. The lead plaintiffs are mom and pop investors, right? and the lead planet here is a mom and pop investor. And I think what's evidence of that, of the notice program being deficient,

is the fact that I think according to the debtor, only 49 opt-outs were received. And just looking at their chart, it only appeared that six of them may have been individual shareholders. I couldn't tell because it was just a table. And that supposedly, they were at four or five hundred, and the debtor can correct me wrong, opt-outs were received.

But according to them, they were improperly filled out or improperly submitted, which is, again, evidence that none of this was set forth in plain language to the few investors or class members that did receive this notice. And we cited the Think Finance case. We cited that case before in the proof of claim context where you had only a few thousand people submitted claims. on a class that was over a million folks that indicated that perhaps the notice program was not robust enough. Do you have any evidence of an individual who received, and that you are aware of who's a member of the class action that did not receive notice?

Do you have any evidence to present the court that that's the case? I don't have a particular document to file with the court to indicate that. I've heard, I mean, I could represent the court. I heard from folks that they haven't received any documentation related to. the bankruptcy. You have any affidavits or any documents that you can present to the court that I can consider as evidence today?

Not at this moment, Your Honor. Okay. So I think that information indicates that the notice here was not adequate. To the extent it relates to the release

of securities class action claims. And we cited Kayser in our brief, although they're not from Texas. There's a Southern District of New York case. I don't think they need to be, and I really want to emphasize that for you

or for anyone who thinks. I don't just rely on cases from the Southern District of Texas. I think, you know, or else you've got to read the reasoning in cases, and sometimes reasoning in cases from outside of the district make far more sense than reasoning.

Sometimes the cases within my district. If it's Fifth Circuit, I got to follow it. I don't ask any question. But outside in the district, you read cases and you understand the reasoning of the case. And so I don't follow cases blindly in the Southern District. I read every case. And so I think you citing cases outside of the district is entirely appropriate.

I appreciate that heads up, Your Honor. I think the Sun Edison case we cited held that, you know, non-voting release war is violent to the releases was, was not sufficient to create consent. The emergent district of Delaware case that failing to return a ballot or opt out may not be deemed to intentionally give a third party release and the Washington Mutual case is the same.

So there's those three cases we cited in our response and of course there's a Mawa case which I think the reasoning behind those cases on all these points that we make are substantial and should be followed given the factual similarities of any of the authorities that are before the court, Your Honor. So I think given that also the notice program, as we highlighted, was not sufficient for this security class action, it's not sufficient. And the other point, Your Honor, is that, you know, it doesn't, just theoretically doesn't

make any sense here that someone would have to, opt out in order to preserve their claim, given that there was already securities, a putative securities class action that's already been on file. And it's important in connection with notice. I think we mentioned this before at the class treatment hearing. In a PSRA case, once it is filed, and this case was filed pre-petition, that a PSRA early notice have to be issued, and an early notice was issued. And those early notices identified that a case had been filed,

and that case is representing investors, right? And if you wanted to be a lead plan, if you can come forward and be appointed lead planning. And those notices went out many times after the filing of the case, and we found those, you know, in connection with our class treatment motion. So that provides further,

information about notice, right? Initially, you have investors who think, okay, my rights are being represented in this security's class action. The notice was issued pursuant to statute. A lead plaintiff was appointed. And then there's a bankruptcy case that's filed, and that bankruptcy case now is purporting to, well, going to release my securities claims. When the regular investor, you know, sees notices that their claims are covered in the

security class action. It also turns, you know, rule 23 on its head. You know, our case of peters class action governed by rule 23 and, you know, the reason rule 23 is important is because the standard for rule 23 is a lot higher. Again, as I said, it's a lot higher standard for notice, it's a lot higher standards for counsel, and And it's a different standard that's being applied here, right? Let me ask you this, Mr. Kev. Yeah. So in middle of November, I signed an order approving, scheduling the combined hearing,

approving the adequate hearing, but then also approving the notice procedures for purposes of today. Are you, it seems like you're objecting to the form of notice that would have been, provided or the form of ballot that would have been provided but was the right time to take that up in connection with that motion where i was scheduled and approved a form of ballot in the notice procedures or is the time now to contest it in other words what do i do now with there's an order when no one really contested in november saying you can send out these ballots to these people and now you're coming in after that saying you know that in a form of notice you know that in a form of notice this that you approved, Your Honor, it done work?

Oh, Your Honor, we did object to this. We filed a preliminary objection and raised these issues. Did you appeal that order? We did not. It's a final order now, right? So what do I do now? We understand that. Well, Your Honor.

So what's the legal effect? What's the legal effect of that order now? Can I now go under the kind of change? the form of the order or grant relief or approve relief that people have relied on would be the appropriate notice for purposes of today, how do I then peer under the hood on that order and then start changing stuff? Or are you allowed to make arguments based on that? Well, Your Honor, the court doesn't need to change the order, right? Well, I kind of do. I kind of do if I say notice would be appropriate if you did it this way and then they do it this way.

And now you're saying that the notice doesn't really work for these people. Well, we made the argument, you know, our view was we made the argument, the court rejected it. And also, I mean, this is the case where everything was sort of preliminary. We had objected to the disclosure statement in those processes. And then, you know, this was sort of like, well, we're going to take this up all at the same time at plan confirmation. That's not what the order does, though. That's not what the order does, right? You can go back and read the order.

The order approves the language of the. the disclosure statement as conditionally approved. People can come back and object to the language, but the procedures like setting the dates and the objection deadlines and the form of ballot that can be used and the voting deadlines, that's set in stone. No one's going to come back and challenge those dates today, nor can they, right? So the debtors do run the risk on the conditional approval of the disclosure statement,

and that we've got to take a, up, and I'll hear Mr. Secreti's arguments on that. But in other words, we're not coming here arguing whether the objection deadline was set or the voting deadline was set. Those were set in stone on that day. Your Honor, if the defendants are seeking to apply the third-party release to the extent that it extinguishes our claim, right? That's not something that they're presumed under the code that they're allowed to do, right? That's something that they need to. But you're talking about no-ness.

If they felt, I know, Your Honor, but if they felt that the procedure is being utilized, right, they're smart people, they have dozens of attorneys looking at these issues, they read the case law. If they felt that the notice program that they proposed, right, would be sufficient to establish jurisdiction, personal jurisdiction or otherwise, right? They believe that that would be the case, and they rely on it. They can't now come back and say, well, Your Honor, the milk's already been spilt. It's too late. It was up to Mr. Hoffman. to do something. We didn't do something.

We objected. I think what they're going to say is, Lopez, you signed an order. A little different than milk spilled. It's more, there's an order saying you can do this. A little different than milk. It's kind of, I held a hearing on it, and you signed in order of proving the notice procedures.

It's a little different. I understand that, Your Honor. And to the extent that if the notice was not sufficient to reach the class and we had raised that issue. But how do we know that? But how do we know it didn't reach the class? I'm still a little hazy on that. Mr. Secretes, I've got questions for you, too. No one's going to get off easy on this.

But how do I know? What's the evidence to tell me, you know, what do I do? So now and every, what do I do with no evidence that people didn't receive the notice that they said they did? well, they didn't provide it, right? If you don't provide notice, like we're talking about, Your Honor, due process, right? Due process is that, you know, you have to give notice. And even the debtor has acknowledged in their filing, they say, well, you know, people who didn't receive notice of this, then they won't be bound by this, right?

Except they turn it around on their head and say, well, they have to prove they didn't receive notice. But that's not how it works, Your Honor. I mean, they do not give notice to the folks they're trying to release claims to. If there is someone, let me, and I'll ask Mr. Secretary is the same question. If there's someone who did not physically receive an opt-out notice, right? And what do we do then? That's the real question that you've got, right? I guess you're asking, you're saying that those folks who did receive an opt-out notice,

even for them it shouldn't apply. And now you're saying that there are some folks who did not receive notice. So I think Mr. Secretides can walk me through how he thinks what the third party release does for someone who received the notice and someone who didn't receive the notice. Do you want to do that now? No, no, I'm just kind of, I'm trying to parse the arguments. So it's kind of a due process argument. There's a standing argument. there's what I would call a court jurisdictional argument,

and then there's kind of a notice under the disclosure statement argument, and then there's... And I can parse through some of the stuff later, Your Honor, but I mean, to your particular question, I mean, the way I would sort of summarize it is like no notice, no problem for that person. Like, we're not... I think there are definitions in the plan that specifically say what a release party is, and if they didn't get notice, then they're not a releasing party.

So if someone's out there, and it was a similar argument I made last time, and we put this in the papers too, if somebody did not get noticed, they can come, you know, and this is going to play out presumably through the class action and then maybe back here, but somebody says, hey, look, what are you talking about? I never heard of this case, didn't get noticed, then they're not a release party and a releasing party. And then if we dispute that or a defendant dispute that, then either you will decide that or probably you will decide that.

But just to be clear, we are not looking to release people who did not get noticed. I mean, I think if they don't fall within the definition of a releasing party, i.e. they did not get notice, then we're not looking to release them. And our plan doesn't do that. Now, we happen to think that we did the right things to do that. But, you know, like I said last time, if we're wrong or somebody can demonstrate they didn't get it, then we'll deal with it. I mean, we're not in the PSLRA realm.

We're in the bankruptcy court, and notice provisions and notice processes are well-worn here, and we believe we follow them. But like I said before, I'm going to say it again. If we did not give notice to somebody, then they're not going to be bound by the release. And I got it, Mr. Kim, you may make different arguments. I just wanted to hear from the debtors, just so we had a clear record as to what their position was. Yeah, so your honor, I think your honor, hit upon sort of our related argument to that, I mean, even if anyone did receive notice, we don't believe that the notice was sufficient

because it does not, it's not the best notice practicable. Again, it's a very long and confusing document in the eyes of lay persons, which a securities class action that would be used to dispose of a claim would be required to be written in plain language, would have to, I mean, here, the release opt-down form doesn't even identify our case, doesn't even identify securities claims. class action counsel does not have basic sort of pedigree information that you would need on the claim that you're releasing so that someone can make an informed decision. So whether they've received the release or not, I think, you know, if they've received it, then we don't think it's sufficient

given the process that was used and the content of the release to opt-out form. And I think everyone's in agreement. If they didn't receive it, then they're not bound by it. So I think that sort of deals with that issue there. And then sort of my last point is, you know, even if this release is either consensual or non-consensual, I don't think it meets any of the factors. You know, we believe it's non-consensual, and I think, you know, there are five factors that the court would consider in whether to approve a non-consensual release, and we don't believe any of those factors, you know, would support it. I could run through those real quick. There's the identity of interest between the debtor and third party, which is the first and second element is contribution of assets.

We know there's just no assets being contributed whatsoever. And, you know, the identity interest really looks at the indemnity provisions. Again, this is standard indemnity that's required with all Delaware corporations. That can't be enough to create jurisdiction or reason to, allow a non-consensual third-party release. The other factor is the release is necessary to reorganization. The only evidence is that it's a, quote, material inducement. We don't know to whom it was.

Again, there are 12 defendants in this case. Many of those defendants were not even at core at the time of the petition. We're not even with Corps itself, but with the blank check company. So it's not clear who induced. what to whatever extent or whether it was necessary. The other factor is the majority affected creditors that robermanably accepted the plan. Well, none of the class members have accepted the plan. They haven't made any affirmative actions in accepting it.

They're not creditors. They're not parties to this bankruptcy. The other last factor is plan provides payment of all or substantial already affected classes. There's no payment to the securities class action plans. There's no payment whatsoever. There's no consideration. The only consideration is Mr. Goldman's statement, general statement that certain unidentified individuals extended some time.

And then, you know, if you look at the factors that defendant or the debtor says you look at to see if it's a consensual release, there are five factors that they've submitted. know whether it's consensual okay let's assume for the sake of argument it was consensual we don't agree that it is um is a specific language I mean I think specific language I mean in the in the in the release opt-off form we don't believe that it's that there's any specificity as to our particular case which we complain about was an interval interval to the plan again it's again the only evidence of that is material inducement was it a

condition of the settlement, not so clear. I mean, I don't think it's not a settlement. And then whether the fifth factor is given for consideration. Again, there's no consideration that's being provided. I think so for those reasons, Your Honor, we do not believe, and the court should not allow the third-party release to the extent it seeks to release any claims in the securities class action and our limited objection, we proposed a proposed solution, which would have been adding some language about how the releases do not act to eliminate any direct securities

class action claims in our action, or in the securities class action. And that would be the release that we would seek or in the alternative. the court could permit us to file an omnibus opt-out on behalf of not only Mr. Hoffman. Mr. Kim, let me, can I ask you a question? Do you think you could have filed a document saying, I don't believe these third-party releases should be granted as a matter of law? But if I'm wrong about that, I've opted out and only grant my opt-out to the extent that you find. You think I would have given you standing to talk today?

In other words, did the decision to you, did the decision, I think you're allowed to argue something as a matter of law? Now, if you opt out and then show up and then start arguing, but I think if you could have filed a pleading, it could have preserved your rights, right? Many people file proofs of claims all the time, and they say, like, I don't think I owe this amount, but I'm going to file it just to kind of make sure. It's just a thought, maybe not for today, but I do think there are ways to not opt out. Because I think, depending on what I do, you may now have to live with the decision of the non-opt-out form and the legal effect of that because the time for voting has now ended up.

The folks who are calling in for the 1130 hearing, why don't, Mr. Motion, Mary, I see you there. Maybe we can get notice out to people. start that hearing at noon. You can just get notice. Ms. Saladanya, if you get notice for anyone at the 1130 hearing, I'm going to start that hearing at noon. Thank you. Mr. Securides, let me hear from you.

Sure. A few things, Your Honor, Ted Securities from Walgazer for the debtors. Just some quick facts. Mr. Goldman is not a defendant, and he's the declarant here. So there was some comments before about how the special committee, they're all defendants, that's not true. But I do want to pick up a little bit where you left off. So I have the objection that Mr. Kim filed, and it's on behalf of Mr. Hoffman.

And again, you know, he's here from Mr. Hoffman and maybe two other people, Evan, Achi, and William Emanuel. And attached to that, attach to that objection is the opt-out form. So obviously, at least those three people had it or knew how to get it. And it does reference the securities litigation, maybe not by docket name, but it's in there. And that's on a form that was approved. It was a final order. There was a lot of things left for later.

That wasn't one of them. So this form is the form that was approved, but it does mention securities action. And it has an opt-out box. Now, Mr. Hoffman, Mr. Achi, Mr. Emanuel, they had the document, their lawyer had the document. They didn't check the box. They were acutely aware, acutely aware of the consequences of not checking that box. Yes, they didn't do it anyway. So we should really have no sympathy for anyone who got this form and didn't check off the box.

They obviously knew what the consequences were. And so I think that's an important point just foundationally. Going to the issues that relate to these releases, and I think you mentioned last time, Your Honor, you know, there's a lot of talk, consensual and non-consensual. So, you know, our view and we think consistent with the courts in the circuit, these are consensual because people have the opportunity to make a decision for themselves. And people did. People sent in opt-out forms, and they're not going to be subject to the releases.

And as I said earlier, when I cut in briefly, if we didn't send somebody notice, no problem. They're not bound by it. But there is absolutely subject matter jurisdiction here, absolutely. And we cited cases to that effect. And let me explain to you why it is. This isn't some case where some defendant ransomers over with their truck and we're trying to release the claim. These are claims based on events that occurred at court

by the directors and officers. And in particular, and we cited we put in the motion to dismiss decision by the judge, which we have a different reading, I think, for Mr. Kim. I'm not handling that case, but as I read it, only Mr. Leavitt is left as a defendant, but be that as may. The underlying facts, yeah, it's about disclosure. He's right about that, but about what?

It's about the power pass-through, which we haven't really gotten into it too much in this case, but that was part of the Celsius fight, which, by the way, they agreed we have the right to charge, and it's part of the gem fight going on in the bankruptcy court. It's absolutely related to, given the very, very low standard of showing some effect on the debtor. These are actions that were taken by board members or management in relation

to conduct at court. You can't get more related than that. And then the cherry on top are related to and this is in Mr. Goldman's declaration and we cited three documents that are in evidence. The proof of claim from Mr. Leavitt, the bylaws

and the certificate of incorporation, which all obligate Mr. Kim dismisses this as that happens all the time. Well, the indemnity is kind of a big deal. It's essentially a claim against the debtor in that respect or the real party in interest. If there's some finding in that case that Mr. Levitt and assume somebody else is still left over owes some money, core is responsible for that. And there's nothing specifically that says only to the extent of insurance or anything like that.

we had to pay some defense costs, insurance has provided some, but there's no guarantee that's going to be there. So the debtor is the real party in interest with respect to that claim because we have these obligations, not some new lawsuit, they're obligations under the enabling documents and the contracts that Mr. Levin and presumably others have. So there's absolutely related to jurisdiction, and the indemnity in and of itself is enough, as Judge Isker found in the huge, Houston Regional case. That was an indemnity issue for related party subject matter of jurisdiction. So the two cases are connected. And I think relatedly, the notion that they're strangers, I hear that pretty much in every filing for Mr. Hoffman, but how can that be? All of these people, all of them, by definition, at one point or another, held securities of the debtor, by

definition. Now, he says, again, without evidence that none of the class members are here, that's not true, demonstrably so, because we know existing shareholders, existing shareholders who are members of his class, because one of the class things is somebody who purchased between January 3rd and December 22nd or December 21st of 2022. We know they're out there, and they're class members, some filed proofs of claim, some opted out, some didn't. But people voted some 700 or so in that class. So they're not strangers. By definition, they're here, many of them.

We know Mr. Hoffman was here, although he chose, you gave him the opportunity. This is interesting, too. You gave him the opportunity when you denied the class proof of claim to file his own proof of claim. I think you struggle with that. You want to make sure that he had the right to do that. He gave him like three weeks. Did he file a proof of claim? I don't think so.

Not that I saw. So something's going on here beyond just like the worry about Mr. Hoffman. So he had an opportunity to do that. He didn't do it. He had an opportunity to opt out, attach the form to his pleading, and didn't do that either. They're not strangers. They know where we are. They almost act like court, never heard of them.

Of course they've heard of them. And of course the two are related. Look, I know court struggle with this issue. It's different all across the country. But I think when we're talking about these releases, in this case, for this debtor, for that action, we meet the criteria. Even if you wanted to think about Mawa, and I appreciate your view that, look, I don't care that it's not in the Fifth Circuit. But if you think about that, the court was really hung up, and that was a trustee appeal because the securities person didn't preserve their appellate rights. They were worried about the broad scope of the appeal.

here we're talking about a particular case, a securities action based on conduct of the debtors, officers, and directors that are being litigated in other claims in the bankruptcy court, the underlying facts. Of course they're related. Of course it's appropriate to say, look, I don't want the debtor now speaking. I don't want that case where my former chairman, CEO at the time, and CFO right now are in, to have to be hanging out there. So if I can get a release, it's important those people contributed, as Mr. Goldman states in this declaration. And if it turns out that someone didn't get noticed, their claim is not extinguished. And I think Mr. Kim purposely tries to weave back and forth between what may be going on in Purdue. This is not Purdue. This is not us trying to extinguish a claim that the person doesn't have a right to opt out.

They had the ability to do so, and they didn't. And again, I hate to keep a labor in this point, but the fact that that form was attached to the pleading and they didn't opt out, I couldn't believe it. So, you know, I think there's absolutely jurisdiction over the people and over the subject matter. And I think the indemnity obligation by the debtor to the defendants in that case, whether it's one or 12, that obligation exists. And that's sufficient for the hook for jurisdiction. And then in terms of the person not having, like silence does an equal consent, look, we could debate that. And, you know, and some people could disagree. In this circuit, at least courts within the circuit have said that's enough.

And so we've given people the opportunity. Many have taken advantage of it. And again, I'll stress, if somebody did not get notice, no problem, they're not going to be bound by the release. But the releases should be approved. I'm happy to address any particular questions you have, Your Honor. No, let me just see if anyone else wishes to be heard in connection with this issue. Your Honor, if I could have a brief rebuttal, that would be appreciated if there would be no one else. Absolutely.

Yes, Your Honor, this idea that, you know, Mr. Hoffman should have opted out. I mean, the reason why we did not opt out is because then we would lose standing to object. That was precisely to the issue in my law. I tend to disagree with you on that. I can just tell you that now. We've done research. Yeah. I mean, we had struggled with that.

They struggled of submitting a conditional opt-out. We read some case law that suggested that that wasn't sufficient. And in the Mawa decision itself, the security class action plaintiffs did object, but they had opted out. And the court said, you do not have standing to object to this. So they did object. It's not like they, and even as Deter said, they didn't preserve their rights. Well, because they opted out. And the court said that they could object.

So, you know, face with those authorities, that's why we... All of that cool stuff, I think we could have taught... I think we could have had a wonderful conversation about how that could have played out in connection with the notice procedures. Like, Judge, I still want to object the confirmation, but I may get stuck, and I don't want to get jammed. But before this notice and opt-out goes out, I want to make sure that we know that I'm going to object and I want to preserve my right to do so, and I don't want to get jammed. That is a fantastic conversation to have at the time around the middle of November. but then stuff goes out and then you have to start looking at case law to figure out what things mean and what they don't mean.

But it would have been, in my opinion, a really good conversation to have in the middle of November when we issued the notice. But go ahead, continue. Oh, I think so that's why I think the model law case, I know they focus on the fact that the trustee objected and that sort of distinguishes it, but I think the facts given that the securities class action plan is bit object and the court, systematically went through these issues that we're present here is highly persuasive in this discussion. Also, we wanted to preserve our right to object because we are, which differentiates this from sort of the standard third party, right, is, you know, we are the lead plaintiff and the council and have a fiduciary obligation of the statute. So we had to preserve our ability to

make the objection, and we made the objection. So I don't think, you know, it, it, it's, you know, it, that should be held against us that we did opt out and then try to make some sort of conditional objection. I think it's irrelevant for purposes of today, whether you opt out or did not. The legal effect of that may be different, but your ability to raise the objection today, you're not going to get knocked out, you know, on its face because of that issue. I think I'm considering the legal issue on its face. Appreciate that, Your Honor. And then sort of the idea whether sort of the conduct, again,

And, you know, those are derivative claims. I mean, they hired the special committee. You know, one part of the special committee was to investigate any potential claims they had against the B's and O's, and I guess they determined that they didn't want to proceed with those. So that was well within their right. But as to releasing the direct claims in our securities class action claims, they're not warranted here. And that's the situation you have with many securities class actions, right, where you have a derivative, we potentially have derivative claims and direct claims.

And the same conduct could support both, but they're distinct and different. So the fact that the conduct, which happened a year before the petition, you know, may have had overlap, you know, does not in and of itself create a sufficient nexus because we're, our cases about the disclosure, not the conduct. So I think, you know, unless the court has any other questions, you know, I'll rest at that point. Thank you very much. I just want to take a short five-minute break.

I need to print something out. I'm here running solo today, so I can't have just the courts were closed until 11 a.m. So when I print something out, I have to go get it myself. So if you just give me about five minutes, I will come back on, and I will issue a ruling on these matters. Thank you. Thank you, Your Honor.