American court hearing recordings and interviews - Season 3. Episode 8. September 13, 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: September 16, 2023

official publicly available audio

Conference, muted. Good afternoon, everyone. This is Judge Jones. We're having a problem with the camera, so give us just a minute. I need to, we were having difficulty getting the lectern camera up, so we've reset. It should only take a minute or so. I will say I've activated the hand-raising feature. If you know you're going to be speaking, if you go ahead and give me a five-star,

and that way, once we get the camera up, we can get started right away. And Mr. Wolf, I saw you raise your hand. that tells me that you want to speak, but I got to get a five-star on your telephone. That will open up your line. We ran over a bit on class today. Today is Wednesday. I'm hard to shut up once I get going. There we go.

All right. Then officially good afternoon, everyone. This is Judge Jones. The time is 112 central today is September the 13th, 2020. This is the docket for Houston, Texas. on the 1 o'clock docket, we have the Jolie administered cases under case number 22-9-03441 Core Scientific, Inc. Folks, please don't forget to record your electronic appearance. It's a quick trip to the website.

A couple of mouse clicks, you can do that at any time prior to the conclusion of the hearing, but it is the way that we note your official appearance this afternoon. Since we do have folks both in the courtroom as well as on GoToMeeting, for those of you in the courtroom, if you do rise to speak, just please make sure you come to the lectern. and it's the only place we have a camera, and I want you to both be seen and be heard. For those of you who are on GoToMeeting, as I indicated earlier, I have activated the handraising feature. If you decide to speak and you haven't already done so, I need a five-star on your phone.

You only need to do that once. The hand-raising feature on Go-to-Meeting just lets me know that you would like to be heard. First time that you do speak, and I only need it once. If you would, please state your name and who you represent that serves as a good point of reference. for the court reporters in the event that a transcript request is made. And finally, we are recording this afternoon using court speak. We'll have the audio of the hearing up on the docket available for your download shortly after the conclusion of today's hearing.

All right. With that's, Ms. Harper, are you taking the lead this afternoon? Good afternoon, Your Honor. Ashley Harper, Hunt and Andrews Kerth. On the Appesphere 3D, I'm joined in the courtroom by my colleague, Brandon Bell, and on the line virtually is my co-counsel, Gregory Wolfe, will be taking the leave today. All right, thank you.

Thank you. Thank you for accommodating this today on an emergency basis. Absolutely. Thank you. Mr. Wolf, good afternoon. Good afternoon, Your Honor. So, maybe did or do you want to speak to my uprosterisk force? No, if you just give me a quick update with where we are,

for all of the issues in the motion still outstanding, Have we made any progress? I don't want to tread where resolution has been reached. Sure. So I would also know also on the line is Speer CEO, Patty Trompeter. So we made progress on many issues, but unfortunately not the issues that were raised in the motion. Okay. Then did you want to make any opening comments?

I'll give Mr. Secreti's the same opportunity, but I've read it. Quite frankly, I don't know who drafted it. I have a suspicion who drafted it. This was done in the way I like to see it. It's just straightforward. It's sequential. I didn't take me very long to get ready at all. So however you'd like to proceed, I'm open and ready to go.

Your Honor, I think we've set forth our positions in the most. I'm happy to give my speech, but I think would be very similar to what's in the motion. Okay. I guess I would ask, do you have any questions based upon what you read? Not at all. What I intend on doing after I give Mr. Secredes an opportunity to speak is I'm just going to march right through them sequentially. I'm going to hear from each of you and I'm going to make a ruling.

Okay. Okay. Theodore of Secredes for the debtors of Wagonacho. We also follow the cross motion. I don't know if you saw that, Your Honor? I did not see that. When was that filed? About an hour ago?

I was in, I have class in my courtroom every Wednesday at noon, so no, I have not seen that. We will, let's go through 1221, and then if we need to take a break, and I can, I will do that and read 1222, and then we can work through that one. Okay, and 1222, which is our motion, it's also the opposition. But I can argue with this as well from here. So do you want to give me any general comments, or shall we just move directly to the issues? Yeah, I don't have to. Sorry, go ahead.

No, please. That would correct you. That's all right. So then you can come back on. Yeah, we had another issue that we were able to resolve this morning that ended up not being in our cross-motion, so we didn't make some progress there. I mean, I know you haven't read it yet, but that was, I think, helpful.

And I think we had a lot of issues starting the day yesterday and got it down to these handful. So I think it's positive, but, you know, we still have some disagreements. All right. So fair enough. Then let's just do this. As I understand it, the first issue that was brought by Sphere was the request for admission number two. Everybody agreed that that's the first issue identified? That's true.

So let me tell you. This is very easy for me. I understand the potential for ambiguity in using the words sign-off. I do understand, and I really appreciate the inclusion of the exchange. Does anyone have any objection if we substitute the word approved for signed-off? No objection from spirit. Mr. Socrates, unless you want to make an argument that I can't conceive of, but I know you're that creative. To me, that's just really easy.

The question would then be, admit that you approved spheres press release date at October 13, 2021. And that's either a yes or no. Okay. We'll respond to that. So I agree with you, and we'll respond to that in the next couple of days. I'll know. But okay. Well, we'll talk about deadlines when we get to the end.

Mr. Carlson, and I don't mean to give you busy work, but this is important. Could I ask you just to take some notes so that there's a clear path forward? All right, thank you. All right. So the next one are the interrogatories, and I really want to understand. Mr. Wolf, what it is that you were looking for? Sure. So what I'm looking for is there's contention on what any offset would be.

And I don't think that can be answered through the production of documents, and I'll give you the inverse. If we had been asked what damages are you claiming, and I just said, well, look at my, we're just going to produce a bunch of documents, figure it out for yourself where our lost revenues are, my adversaries would be the ones in the courtroom today say they deserve to know what damages we're going to be claiming. We deserve to know what offset they're going to be claiming interfaces.

So first, let's start. Mr. Secretes, is there going to be the – is there going to be an assertion of an offset? Well, there is, Your Honor, and I think if you look at our responses, we did say the topic areas, and we have documents that we're going to produce that will show how much will spend. for XYZ building, but putting all that together and putting it in a number is going to be a difficult thing to do and to just put in a narrative.

But what we said we could do, when we put the documents together, we'll say, because I think one of their objections was they don't want to sift through things. They don't have to sift them. We will produce documents and we'll identify them because that's what Rule 33D provides. That says, okay, these 27 documents that showed we spent, you know, Gimel on a building

that was meant for you guys. It's responsive to interrogatory, four, nine, and ten. That's what we propose to do. All right. So I'm going to consolidate interrogatories four nine and ten, and you're going to state the basis and amount of each offset that you're going to assert. Okay. And you want to address timing at the end, Your Honor?

Yes. Right. The harder one for me was the interrogatory. number three. And I will tell you, Mr. Wolf, I just didn't understand it. So if you could tell me what it is you're really asking for, then we can have a conversation. Sure.

So what I'm asked of is a complete statement of what their, of what the requirements were. And what they say is here are six requirements among other six. And if they know what the requirements were, or there shouldn't be among other things. It should just be six requirements. And then I think it's fair game to get the basis. And the reason for that...

Do you have your pleading in front of you, or can you access it? Sure, which... Paragraph... Paragraph 16, yes, 1221. Paragraph 16, page 7. I'm not sure I have it in front of me, Your Honor. I can put it up. I just didn't know.

Sure. You're talking about their filing, Your Honor? Yes. Yes. Oh, my filing. Oh, I can, sorry. I thought you may have been far precinct. I can bring that out completely.

So should be on the screen. Yeah, I have it up. Okay. Okay. All right. So I read paragraph 16, and it says, Interrogatory Number 3 asks, what do you contend is the,

meaning of the phrase, quote, as long as sphere 3D corpse satisfies, insert the word cores requirements, prior to, state the basis for your interpretation. Sure. What is it? Because I read that and I could give you a whole lot of answers, none of which would be helpful, that would be defensible. So are you really looking for? is the actual requirements that they're going to rely on with respect to the action.

Sorry, go ahead. Yes, that's fair, right? That what's going to happen is they're going to say there are six requirements, and if someone testifies, you know, we met six requirements, and then there's not going to be another witness who says, wait, hold on, hold on, there was a seventh requirement. So that's what we're looking to avoid. All right.

So, Mr. Securities, again, the way that it was phrased, I understood the objection. Quite frankly, you could have answered something that was totally non-responsive and justified it with the way that that was asked. But I appreciate the way you did it. Here's what I'm happy to hear anything that you want to say, but here's what I'm going to want. If you're going to rely upon a, if you're going to rely upon anything that you say constitutes a requirement, I want you to identify it. If you don't identify it, you can't rely on it. Fair enough? Understood.

Okay. All right. Thank you, Your Honor. All right. And I think if we move to request for production number 13, Mr. Wolf, I'm going to need some help as to what you're really trying to get to. Sure. So what we're trying to get to is that Corps had a reason to try to come up with

protection reasons to not order the contract. And the reason in this case was there were rising electrical costs that they were not able to pass on to sphere under the agreement. and thus, Vincent's said, we're not going to honor the rate anymore. You have to exceed to a higher rate that basically encompass these charges that they were trying to pass on. Okay. And so what is it that you want, what is it that you're looking for in the request? I'm really looking for internal communications discussing this issue.

I think we're already getting communications to sphere. and to Griffin as well. And so really I'm looking for any communications talking about passing these costs on to sphere. I don't think this is going to be a heavy list. Right. We're only asking for documents sufficient. I'm not happy for all documents in the communications. No, got it.

I just, and again, I'm going to go back. You're going to find that I'm a relatively literal person. I want to understand exactly what it is because what you just asked, for is not how I read 13. So what I understand you're asking for is you're looking for internal, non-privileged internal communications that reference the passing along or the passing through of additional cost? I mean, that was a question mark.

Yes. Correct. And it would also be, you know, an attempt to do it. And so it didn't actually have to happen. It could be a discussion of you can have to be a cost-off or not. Okay. Mr. Securetis, you want to respond to that because it's more. I do. All right. I do.

Well, and also, and I appreciate Your Honor, hasn't had a chance to look at our opposition, but this is really coming down to power pass-through issues where you might have heard some of that before from some other counter parties. And that, we have a lot of issues in this case. that's not one of them. So the reason why we think this is irrelevant is, I mean, multi-fold. Number one, whether or not any of that happened, at the end of the day, they're claiming they had a contract order number two,

and we're saying they never did, and the parties were working on a whole new contract. So whatever we were asking for more money, they're going to get documents on this new contract. We've already agreed to that. We read this as a power pass-through issue and an attempt by them to try to sort of gin up what other people have done. And we think that's not relevant here because Griffin's never raised it.

We've never claimed nobody paid a power pass through. So the whole PPP, as we call the issue, is not relevant to this case. They're going to get other documents already that reflect the communications back and forth. And I would assume we have internal non-privileged documents to talk about what we're going to offer in a contract. But to the extent, and we read this as that PPP, issue, we think that's not relevant. Mr. Wolf? So I think it is relevant because the

PPP issue is that they wanted to pass these costs onto Griffin's field and they just found a different way of doing it, which was by demanding a higher rate or saying we're not going to honor the contract. All right. Based upon what

I've read and what I've heard, I'm going to sustain the objection to, was it to, response for our request for production number 13. All right? So. All right. And so you're telling me, Mr. Secredes, that what I now need to do is I need to take a break.

And I'm assuming Mr. Wolf, have you had the opportunity to read 1222? Very briefly, but I already, I had a preview of the issue yesterday. All right. Then Mr. Secreides, what I'd like to do is I'd like to take, again, just because I haven't read it, is to take a, let's say, a 15-minute break and let me read it and resume at 145 Central unless you have a more efficient way of dealing with it. No, I think it would be helpful for you to look at it, and it's really just the second part because the first part is the proposition said the motion we just finished.

Okay. So it's just a few pages. So you're telling me. Can we just stay up on the... Absolutely, and that would be great. And just for those folks who are watching and listening, you're telling me that it isn't going to take me 15 minutes because I don't need to read the first part.

And it might take you two. Right. And let's do this. It's 129 for those folks who are listening. If you want to stay on the line, that's great. You'll see me pop back on for those folks, but want to step off and come back. It'll be no sooner than 135 central time.

All right? Great. Thank you, Your Honor. All right. Thank you, folks. I'll be back again. No sooner than 135. All right, we are back on the record.

The time is 136 Central. Mr. Secredes, I've now read your pleading. I've also specifically read requests for production 15 and 20 as well as interrogatories 2 and 12. Any general comments you wanted to make, or shall we just go as we did with Mr. Walps? I'm happy to this walk through like we did. Right, thank you.

And I think if they don't mind, Your Honor, I think request for production 20 probably set the stage best for the other one. All four largely relate to this merger agreement communications that we look at work. Well, I will tell you this. I have fewer questions about 20 than I do about 15. So I'm more than happy to start with 20. Yeah, and I think, you know, as we, you know, we can talk about the team, and I think really what they're both designed to get it, and the issue, probably more importantly, the issue in dispute between us are these communications about the merge agreement's failure, why it didn't go through, and our view on that is, look, Griffin and Spear were supposed to merge. That much we knew that was out before we even did the agreement with Griffin. They didn't, and our view was, well, maybe you would have got to be.

gotten rights if that happened, but that never happened. And so what those two were talking about, you know, maybe Griffin said, well, wait, you guys don't have the wherever fault even get these miners that I'm supposed to deploy, you know, with core. And that would have been the merge agreement failed like January and February of 2022. That is a core, pardon the pun, but a core issue in the state. If they said that to each other, if Griffin said that to core or Spear said to core, look, These deals self-do.

I couldn't get the financing. The lenders wouldn't give me the money. We can't do the merger. That's relevant. I'm entitled to that information, and that's really largely what we're looking for. What was that back and forth? They've already agreed if Corps was mentioned in the negotiations

and we worked that out yesterday, they'll give us those documents. But I'm really looking for the back and forth between the two of them on the reason why the merger didn't happen. Now, they can, they'll produce documents maybe that the reason was nothing to do with anything about

an ability to raise money and ability to buy miners. But I'm entitled to approve that because that's one of the arguments will make, and that's one of our defenses in this case that these guys didn't have the where we're fault, even if Sphere had rights under the contract, they could not have performed. And that's

really the nub of what we're after. All right. Mr. Wolf? Sure. So, let me sit the table, Your Honor. There's no dispute in the merger did not occur. And, you know, there was the clause in the delegation agreement that Griffin's all, Griffin's rights were passed the fear if the merger had occurred. We're not that it occurred.

And I want to make clear we're not trying to use the merger as a shield. If Hore is mentioned in the context of merger discussions, it's getting produced. If an assignment issue is mentioned in the context of merger discussions, it's getting produced. What I object to is doing a search, just as a statement. related to the merger. And the only real grounds of relevance I'm hearing is that because the mergers didn't go through, maybe it will reveal that fear was in poor financial condition. I would dispute that that is really relevant.

I think what's more relevant is how the parties actually performs under the contract. But at best, it's borderline, and we're already producing documents that really go to the heart of those issues. We've agreed to produce, and I'm giving you some answers, Your Honor, some examples. We've agreed to produce documents reflecting how many minors here had at any given point. We've produced documents that are going to show its efforts to raise capital. We've agreed to produce documents showing its financial condition. And we've agreed to produce documents reflecting communications with folks who are selling it minors. So the notion that the field merger is going to,

to reveal better or more than those categories of production that fear didn't have the where the fault to perform within poor financial health, you're really going through a very bleak way and a very burdensome way. A merger has a lot of communications, that has a lot of privileged documents, that has a lot of lawyers involved. So we would submit that this is really not an appropriate area for discovery. And I would add one more thing, Your Honor. We, you know, I think you saw our request.

We tried to keep them targeted in line with what you instruct that. I think our adversaries have gone much broader than we have. In the event that you ordered this discovery, we really don't want to hear complaints from the other side about the scope of discovery going forward. All right. Based upon what I've heard, I'm going to sustain the objection to 15. I'm going to modify 20 and require the production. of all documents and communications relating to the reasons why the merger contemplated

by the merger agreement was not consummated and or did not close. I'm going to narrow it to that one topic as opposed to all documents and communications related to the merger. Right? Okay. And sorry, Your Honor, and the resolution on the interrogatories. Well, we haven't gotten to it yet. I have false. Right.

Okay. Mr. Segueritees, let me pull up exhibit C, so I have the interrogatories in front of me. All right. Mr. Segrides, you want to do the same thing with respect to 2 and 12 that you did with the request for production? I think so, but I think with two, you know, with the understanding that, you know, 2 and 12, 2 refers to identified people, right, and one of the topics is this topic. And 12 really is the interrogatory version of the document request, which talks about identifying detail the reasons why the merger, actually this is even exactly what you just said, Your Honor,

the reason why the merger didn't happen. So, you know, we think that they should have to respond to number 12, but we think Rule 33B, if they have documents that they could point to, would be fine, but if they don't, then they should, explained to us in a narrative form in response to number 12. But we'd be happy with 33D if the documents actually, you know, respond to that. Right. Mr. Wolf?

So based on the content of your ruling, I sort of see where the wind is blowing. What I would say is for the identification of people, it should be limited to the topic you've identified, which is the reasons for the merging, the merger of caliastic, and then 15 will, or 12, whatever it is, will answer. Well, all right. So, again, and I think that, let me work backwards. I think that 12 is an appropriate and errogatory and consistent with what I've done, so I'll overrule the objection to 12.

With respect to 2, I'm perfectly happy with that resolution. I will just tell you, I didn't know how in the world, to the way it's written could actually be complied with. And so if the issue is that we'll identify persons that have knowledge, documents or information concerning the reasons why the closing didn't occur, I'm perfectly comfortable with that outcome, Mr. Secreides, with just not asking you if you agree with it, But just given what I've done, do you think that would be consistent with what I think the appropriate scope is?

I do. And just so we're clear, as relates to number two, we're talking about with respect to the merger agreement piece. Because they obviously, they're not going to change their responses for the other stuff. We're just talking about the merger. Yeah, I think what you said is entirely appropriate given your ruling. And I think that's consistent with an approach. I mean, I think that's what we should do. All right.

Yeah, and I'm not sure the list of people identified is going to change much. Okay. I don't know what you've done or what you haven't done. So let me ask this. With the narrowing that has occurred, because I told you we'd come back around the timing, I just wanted to see where this was going to fall out. Look, I know you both. I trust you.

I know your reputations. You all want to, you want me to pick a date, Do you want to pick a date between the two of you? Do you want to step offline for a minute? Do you want to make argument and I pick a date? I'm happy on either path. I just want what makes sense. I mean, since we're probably the ones that I have to do more on the interrogatories,

on the one with the approved I can do like Friday. The ones with the damages, I would ask for a week, Your Honor. Mr. Wolf? A week is counsel appropriate. All right. And then with respect to any. supplementations, changes, or answers that you're going to do, you want to just so we don't get lost in the dates,

just make everything do in a week? That sounds like an appropriate resolution, Your Honor. Mr. Secretary, is you okay with that? That is fine, and I forgot about the requirements one, if I can have a week on that one, too. Just everything, everything gets done in a week. Okay. And that way...

Mr. Wolf, yes, sir. Sorry, so just to be clear, that will be the... So I'll get you the 20th. That would be a week in my book. I guess you could have a eight-day or a 10-day calendar, but no, using seven-day calendar 20th's the day. And let me just make sure. I want to make sure this is a serious issue.

I want to make sure I'm not stepping on top of any holidays. Not for me, at least. I can't speak for everyone on my team, but not for me. Got it. So my understanding is that Rosh Hashanah's like Friday or Saturday. I should have it marked on my calendar, and I just don't, and I apologize for that. If on either team, if I'm stepping on top of a holiday with a due date of the 20th, could you please text or scream at Mr. Socorides or Mr. Wolf, respectively?

Your Honor, if it turns out someone has a obligation, I'm sure to not work it out. out and expected a day as you. All right, fair enough. Yeah. Okay. Then, folks, what I intend on doing is just making a simple docket entry that the resolution of the competing motions is as announced on the record pursuant to 70-52. Is that sufficient for both of you just in case we need to go back and visit any of these again?

Yes. Right. Thank you. Anything else, folks? No, thank you for your time, Your Honor. Thank you all. Appreciate it. Have a great day.

We'll be adjourn. Bye.