American court hearing recordings and interviews - Season 3. Episode 4. March 3, 2023. In re Core Scientific, Inc., et al., chapter 11 bankruptcy case number 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: March 19, 2023

discussion of matters including terms, budget etc. for equity committee to be appointed in the chapter 11 proceedings

Time is 930 Central. Today is March the 3rd, 2023. This is the docket for Houston, Texas. First on the docket this morning, we have the jointly administered cases under case number 22-90341, Core Scientific. Folks, please don't forget to record your electronic appearance. That's a quick trip to my website, a couple of mouse clicks. You can do that at any time prior to the conclusion of the hearing, but that is how we record your appearance. First time that you speak, if you would, please take your name and who you represent that really does serve as a good point of reference for the court reporters in the event that a transcript request is made. We are recording this morning using court speak. We'll have the audio up on the docket available for

your download shortly after the conclusion of the hearing. There was some odd noise so I went ahead and activated the hand-raising feature. If you know you're going to be speaking, if you go ahead and give me a five-star, let me get you unmuted now. Obviously you can change or you can make that decision at any time. All right, Ms. Berkowitz, good morning to you. You want to start us off and give me an update as to where we are? Yes. Good morning, Your Honor.

Can you hear me? I'm clear. Thank you for asking. Okay. Are Remy? Great. Remyz Berkvich from Walthachel for the record. I understand, although they will confirm for themselves,

that both of the ad hoc group of equity holders and the ad hoc group of convertable note holders have agreed to the construct that the court has agreed to on Wednesday in relation to the appointment of an equity committee. We've all gone back and forth a few rounds on the proposed order and it made some progress. However, there is still not agreement on the proposed terms. Primarily, the disagreement is between the ad hoc equity group and the ad hoc convertible known holder group. And we did just get a revised version right before the hearing started that we're going through,

but I will, it makes sense to the court, I will turn it over to Mr. Meisler to advise the court on what the open place are. Certainly, thank you. Mr. Meisler, good morning to you. Mr. Meisler, do you perhaps have me muted from your side? I can see you talking, but we can't hear you. And had you hit five star, I guess I should have started there. And Your Honor, just for the record, Noel Reed is on as well for in the ad hoc equity group.

I don't seem to be able to get the video. It's just spinning on joining sessions for me, but I am on the audio. So I will tell you this, if you're seeing the spinning that tells you don't have a sufficient internet connection, that it will pass the video, what I have seen other folks do, and it tends to work, is that disconnect, try to reconnect. Sometimes that fixes it. Sometimes it doesn't. But it is an internet connection issue.

Got it, Your Honor. And just very quickly, I was prepared to at least start for the ad hoc equity group. This work has stated it correctly. I think we're in agreement on the concept. I think we're close on the order. And I think from our perspective, well, Mr. Meisler can talk through the details of the few remaining open items. You know, I think the parties are trying to affect your intent, and so it probably just makes sense for you to simply resolve what that intent is.

Certainly. First, let's see if we got Mr. Meisler unmuted. Mr. Meisler, you want to try that again? Just say something? Yes, sir. Loud and clear. Your Honor, can you hear me? Yes, sir. Thank you. Oh, perfect. Great. I did Balsgaden's tech course several times. So I'm glad this was working this morning. Your Honor, what Ms. Reed said is 100% correct. You should hear also from Mr. Hansen, but at its core, we're an agreement.

on the proposed resolution suggested by your honor. We did have a meeting with our client group yesterday, and we had overwhelming support by the group to move forward on the terms that you suggested. I think we just have some details on the margins where Mr. Hanson Knight haven't yet resolved the order, and I'm happy if Mr. Hansom-Nyftsons okay I'm happy to go through what I think are the areas of dispute but I don't want

to get ahead of mr. Hansen so if mr. Hansen wants to jump in he is very welcome to do so let me and again I'm certainly going to hear from mr. Hanson but let me propose a different way of proceeding it just generally tends to work is that you take today weekend if you wish if you can hammer it out between yourselves. If you can't, and I'll pick a deadline, if you can't get it done by 10 o'clock on Monday, upload competing forms of the order. Just understand that you may get form A, you may get form B.

More likely you get form C. Your Honor, that would be fine with us, although I would ask, and especially in light of previous comments that you've made, I would ask, please submit an order by close of business today. I'll find by me. All fine by me. I was just trying to recognize that you folks have other things to do other than work on this order. I was just trying to give folks flexibility. Mr. Hansen didn't mean to not give you an opportunity.

No, thank you. So can you hear me okay? Loud and clear. Thank you. Great. Chris Hanson was Paul Hatham's on behalf of the ad hoc, secured no holder committee. Your Honor, we're fine to try to upload either an agreed upon order or two forms of a voice. orders by the end of today, that's fine.

I do think it, I do think it would benefit up in the process of trying to get an agreed order if Mr. Miser and I can explain just a couple of the things that we're struggling with so that you can give us a little guidance on that. More than happy to do that. I was just trying to keep my finger off the scale, but happy to do that. Yeah. So I would defer to Mr. Milder, you know, I always want the mic and I'd like to go with when he started.

So from a corporate, core perspective, I'll let him. started his motion and the non-response. All right, Mr. Meisler. Thank you, Your Honor. I think there's really two areas of dispute. One is, Your Honor, we have put in the assumptions that were the factors that got us to

arrive at our $4.75 million budget. And to be sure, our original budget was higher than that, the debtor's good negotiating with us led to a lower budget, but those factors are what led to the budget. If we were to bust those assumptions, it doesn't give us automatic license to increase the budget, so we would want all parties to be aware that it's those assumptions that led to the budget. Why? If a party propounds needless discovery upon us, then, Your Honor, we're going to bust the budget.

Now, I think that goes into some of the factors that you were thinking about, that if someone launches discovery, it's really aimed at us, if we're launching tactics that are really meant to be, using my own words, extortionist tactics rather than value-acreded tactics, then we wouldn't get compensated. But I think that that litmus test in some way would also apply if the shoes on the other foot

and some other party in interest were to launch needless, value destructive discovery upon us. Discovery is labor-intensive, and it could lead us to bust the budget. So the factors are out there in a sense to educate all the parties and interests, how we arrive at the budget, but not meant to be a test for your honor on the question of whether the budget can be increased. I'll pause just for one moment in case your honor has any questions to that principle.

So obviously I haven't seen anything. And Mr. Hansen, what is your client's view? Well, you are. So our clients are still not happy with the appointment of an equity committee, but they appreciated the way that you described things of the hearing the other day. So we're going to, as Ms. Parkinvich noted, we're going to try to proceed to get an order settled. With respect to the assumptions, our only point was in the form of order that we've been working on,

the Mr. Miser had included a schedule, which had assumptions in it, and I don't think that, hey, I don't think that's a focus. and B, the point on the assumptions is that, you know, and this really translates to the bigger question, which is, is this a budget or is this a cap? And our view is, it's a fee cap. That cap is only subject to increase by the order of the court, and as the court noted at the hearing the other day,

the court might not even agree that they can go to the cap based upon due analysis later if people choose to reject. And so my point that I was debating with Mr. Mises was, you know, whatever basis upon which you agreed to cap yourself at $4.75 million for all the professionals for the Equity Committee fees, expenses, and expenses, the members, and so that's your business. We don't need to have an order that notes what the assumptions were that went into that because that would give some information that if those assumptions were no longer valid, for some reason there's a better reason to increase the cap.

That's something that you can consider at a later time. So this is really, this one's really easy for me, if it's helpful. is that the equity committee in the debtor agreed to a cap of 4.75 million, and that cap can't be exceeded absent further order from me, and I'm not going to be constrained by any consideration, because I don't know what I don't know. And so if there's a request that's filed to exceed the cap, I'll take it up based upon what I know at the time that the request is made. Hopefully that helps move that issue along. Yes. Mr. Ron Eisler, I'm a deep cap. Well, we understand that if we exceed the $4.75 million, we being the Equity Committee for advisor expenses, then we can't get paid by the estate unless you're on our orders otherwise.

The reason why, and maybe just semantics, the reason why we use the word but as opposed to cap is our concern is that it could. could limit the pool of advisors that are willing to be hired by the equity committee. Absolutely. We would, of course, making. Absolutely. Right. We would, we would, we could.

Exactly. We want to enable the best advisors to pitch and be retained by the equity committee, understanding that they will not get paid if the budget is exceeded and your honor doesn't order otherwise that they could get paid. But that semantic difference could be the reason why a senior management team of a law firm or a financial advisor may choose simply not to pitch. And again, our principal motivation here is we would like the best advisors to be able to represent this group understanding the risk.

Totally agree. And I can't imagine that you're going to talk to someone and ask them to make a pitch of a group that doesn't know me. and I would think that alone would give them a degree of comfort. If not, then they're just going to have to make a business decision. It's just easy for me. So what's next? Your Honor, I think that's it.

I don't have so clearly the word cap will be in that order, but I don't have clarity on the assumption that filled up that number, which we'd like because, again, it doesn't find the court in any way. So take the decision-making process out of it. It's an agreement between the ad hoc equity committee and the debtors. It's 4.75. I'm not going to look behind it. And again, if there's a request to increase it, I'm going to base it on what is important to me

and what I know at the time. Not today. Not going to consider anything on a list that exists today. Or I'm going to say I'm not going to be bound by anything on a list today. I'm going to hear what the arguments are at the time. So let's get rid of the list. Let's move on. Thank you, Your Honor.

Unless Mr. Hanson has something else, I think those are the principal areas of dispute. Okay. Mr. Hanson, anything else? Yeah, Your Honor, I had one other point on the order and then just the general comment before we part that I wanted to make. So with respect to the order,

I think where the parties are going to lay out is that we are going to rely on Your Honor's comment as the standard. by which the fees get analyzed, as opposed to trying to come up with language between us, which we may have a disagreement on, which we may have to ask you to resolve. Right. So, for example, instead of having a decreed paragraph that says, you know, the fees for the equity committee shall be viewed, you know, in hindsight based upon, you know, instead of getting really choppy with the words, I think you gave us a bunch of examples,

you went through at the hearing the other day. But we wanted to just make sure if we all live in that length that we have this discussion with you today, so that we have a little bit of a supplement to the record day and you know you are clear that you want to be able to have the discretion to view the fees that are generated by the equity community in hindsight and what we understand hindsight to mean is at whatever period you're looking back sure you're going to assess whether the fees are reasonable at the time they were incurred

but you're also going to assess them having the benefit of the result that was produced as a result of the act that was taken as well as the factors that are existing in the case at the the time that you were looking at them and you're not going to be constrained by saying you had to go back in time to look at it then. So we're in our mind while you didn't go all the way to say I'm going to look at it on substantial contribution type standard. Effectively what you're saying is you always have the discretion to look back across these feet, whenever it is based upon where you are and you're really guided by the fifth factor that you added to the pilgrim pride analysis, which is what difference did they make.

And so we wanted to just make sure that we were all clear there so that when we say we're relying on whatever you had told us we're going to be the standard, rather than try to describe your words ourselves, that we would clear on what that standard is. I think that's right. And I think if you look back, I've been entirely consistent when I added that additional requirement to Pilgrims. I think that's actually in another case and in another order, but that shouldn't be a mystery to any. I mean, look, guys, you're just going to have to accept a little bit of this on faith. I spent 20 plus years as a professional. I understand that you like to be paid for the services that you provide.

I am certainly not out to make a point with any professional. But we're in a unique situation here, and my focus is exactly, as I said, at the hearing. It's on the debtor, and the business. and the employees and whether or not there is a path forward here. And just to be entirely transparent, I'm simply reserving the right to exert leverage on everybody to move this forward. You know, everybody does their job. I can't imagine there's a problem.

People don't do their job. And, you know, for instance, if I ever have to revisit the snippiness issue that I raised at the prior hearing, okay, I mean, everybody, had fair warning at that point. But this is not, and I got you, this is not a, I want to make a point about rates. I'm not. I think I've said a thousand times, you know, rates are driven by the market. I'm a big believer in the market. Just do what you all, you do what you know you're supposed to be doing, and I can't imagine there's an issue. But I am reserving the right to come back and revisit this if, in fact, my assumptions about any or all of you turn out not to be

correct. I don't know how I could be any more transparent than that. And, Your Honor, this is Noelle. We thought you were perfectly transparent, and that was the basis on which we advised our client and secured their support, and we're very comfortable with the guidance that the court gave previously. Mr. Hanson, did I say something that was any different than what I said the other day or that I've previously said in other cases? No, Your Honor. I think we're, again, we're good with what you said the other day.

I'm trying to make sure that we were all clear, because, again, I think that's a better stand. I can suggest that we agree with it, that it's better to do that than it is to try to describe, you know, or a word. And to your point about moving this case forward, I want to touch on this, right? It's pretty good to give you an update today, you know,

they're now two months into the case. I made the point that perhaps we should wait to see what happens here until we have a business plan. Clearly, the exclusivity clock is ticking, and we currently have no progress towards the plan of reorganization at all. We had an RSA that's been torn up, right? And so one of the major standards here, we've highlighted in two times is we don't want to hang out in bankruptcy. We want to move this case as quickly as possible and get out, and moving fast, of course, keeps keys out. But it also helps us get an entity out of bankruptcy where it shouldn't be hiding.

And so we want to just point out to the court that clearly there may be an exclusivity extension coming, We hope to see significant progress on plan by that point in time, but we can't do that without the debtors having a business plan and the debtors getting around and trying to negotiate with everybody. We look forward to that happening, and we hope it happens soon. And I'd also just note for the record, Judge, to your point, about the fragleness of this business, price of the Bitcoin drops almost 5% overnight, last night.

For whatever reason, I now look at it every day. Welcome to the club. Your Honor, I agree with what Mr. Hansen said in terms of we, as I mentioned the other day, are finalizing our business plan, and then we intend to sit down with all of our major stakeholders, including Mr. Hampton's large flying group, and negotiate a plan of reorganization. And again, if it's hopeful, and I mean this sincerely, if anyone, you know, it doesn't take a lot to get a status conference, if there's an issue that you believe I can be helpful on. I want to be helpful to the process.

I'm here to resolve disputes, but I also want to be helpful to the process. And again, I want to get you all focused on the next part of this, which is why I've kind of been a little pushy with respect to this issue. You know, if it turns out that Isger can help, I, you know, I had to go eat the most god-awful cheeseburger in my life yesterday, so he now owes me another one. I'm more than happy to get him involved if that's helpful. If Judge Lopez can be helpful, I think he owes me a couple.

I'm happy to use all of those favors to help move this along. I really do want to, I'm looking at this a whole lot like I would a retail case. This really has to move quickly if it's going to have a chance of succeeding. So, again, I trust you all. I'm going to sit here and expect everyone to do what I know you, can do so well. But if it turns out that we need, you know, a nudge in one direction or another, all of you know how to ask is it's not going to bother me one bed. That is very helpful, Your Honor. Thank you.

All right. So ordered by the end of the day, somebody will shoot Mr. Alonzo an email once it's been uploaded and I'll turn it promptly around. If it turns out that there is a, if it turns out that there's just a logjam, number one, I'm going to be here all day. I mean, if folks think it would be helpful to jump back on. I'm happy to do it. Also, if you want to just submit, again, version A, version B, I'm happy for you to do that. Just always with the caveat that you could get order C.

Okay? Thank you, Your Honor. Thank you, Your Honor. Thank you, Your Honor. Trigg, everyone have a wonderful weekend. I don't know what the weather is like your way, but it's just beautiful here today. But have a wonderful weekend, and we'll see everybody soon.