American court hearing recordings and interviews - Season 3. Episode 9. October 2, 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: October 6, 2023

publicly available hearing audio

Good afternoon, everyone. This is Judge Jones. The time is 302 Central. Today is October the 2nd, 2023. This is the docket for Houston, Texas on the 3 o'clock docket. We have the jointly administered cases under case number 22-90341, Core Scientific Inc. books, please don't forget to record your electronic appearance. That's a quick trip to the website. You can do that at any time prior the conclusion of this afternoon's hearing. But it is the way that we note your official appearance at today's hearing. Since we have parties both in the courtroom, as well as on GoTo meeting, for those of you in the courtroom, if you do rise to speak, if you would, please come to the lectern so you can both be seen and be heard. For those of you who are on GoTo

meeting, I have activated the hand-raising feature. If you know you're going to be speaking, if you go ahead and give me a five-star, I'll get you unmuted. You can change your mind at any time. Either way, first time that you speak, if you would, please state your name and who you represent. It really does help the court reporters do their very difficult jobs. Finally, we are recording this afternoon using court speak. We'll have the audio up on the docket shortly after the conclusion of the hearing. And with that, who's taking lead this afternoon? Good afternoon, Your Honor.

Alfredo Perez. I'm sorry to disappoint you, but it looks like I'm taking the lead. Wow. Are you actually going to handle the hearing as well? I am actually, I decided that I was going to stick to the lawyering, so I'm going to handle the hearing. Wow. All right. Terrific.

But, Your Honor, before I get started, I really want to thank all my colleagues sitting at the table. Not so much, Mr. Carlson, but Mr. Shen, who will hopefully make the presenter. He's literally been working 24 hours to get me ready for this. And Ms. Lou and Ms. Bergeridge, who really are real estate lawyers, and I really couldn't muddle through this if it weren't for them. Thank you. Sean Shen, you just passed him. There he is right there.

Okay. All right. He should have control. Thank you. And except for Mr. Carlson, thank you, everyone, for your honor. So, your honor, first of all, thank you for agreeing to hear this on an emergency basis. I think we're a few days short. Don't put it up.

I think we're a few days short of the 21 days. so really do appreciate that. And Your Honor, just by way of housekeeping, the motion, the settlement motion, the 363, 365 motion is at docket 1236. We did file a witness and exhibit list at 1272. There were three additional documents that were filing the witness list at 1280. This morning we filed a couple of things, but we filed a revised, not a revised, has been updated form of order at 1281 with a black line and it really just shows.

I saw that. I very much appreciate your getting it done earlier. I've been, I've had ample opportunity to work my way through it. Perfect, Your Honor. And then finally, we did file a demonstrative earlier today at docket number 1282 just to kind of guide the court and the parties. So Your Honor, with your permission, if we could put the demonstrative up, I can take the the court through it quickly. Certainly. So go to the next page, please. So Your Honor, I'm going to try to do a couple of things. Obviously, the court is well aware of what the legal standard is, but this is unusual in that it really, we're doing three or four things at the same time.

And I think the company needs all the credit. They were able to get an agreement in principle before we ever went to Judge Isker to Media. then it took the lawyers, you know, two and a half months to document it. So it's really kind of on us as opposed to the company. But if you go to the next page, here's a little bit of the sense of urgency, and it did take a long time to document it because it is a complex deal. But the Celsius confirmation hearing started this afternoon,

and this, this, the hearing on the hearing on the, the Celsius settlement in their court is set for Thursday morning. And then the way that the document is written, we can close as early as three business days after the entry of the last order. And assuming that that order gets entered on sixth, it would be the 11th because Columbus Day is a federal holiday. So it would be that Tuesday. So that's part of it.

And I'm sorry, just so that I'm clear, you just need the two 1990 orders. You don't need a Celsius confirmation order. Correct. Okay. Just want to make sure. Yeah, just the two. Yes. That is absolutely correct.

So turn to the next page. And Your Honor, I'm really, I mean, the court's well aware of this. At the beginning of the case, Celsius took up a lot of time. There was a lot of back and forth. And the nice thing about the evidence for this case, it's mostly in front of you and in front of the Celsius court. really the back and forth between the parties as to the various items that were, you know, that the back part, it's clear that there was a lot of contention and there's voluminous

pleadings that have been filed in front of you and in front of Judge Glenn with respect to all of the various items. But there are significant charges. And then if you turn to the next page, Your Honor, this gives you a timeline of kind of the big things that happen. Celsius filed mid-July. The first item was the motion to enforce the automatic stay and the court heard quite a bit upon that at one of the hearings. Then obviously we filed bankruptcy on the 21st of December. They filed significant. We filed proofs of claim. They and then we filed the motion to reject their contract. That was the subject of some, you know, discussion.

time here, yes. And then they filed their proofs of claim in our case on April 14th. And then we moved for summary judgment. Ms. Calabrese wrote a beautiful summary judgment. And they responded. And then, and it was at that time, it was kind of mid-June. The court entered an order on June 16th, basically sending the party's to mediation. We never actually got to the mediation. The, the principals, began exchanging it and then there was basically an agreement at the end of June, the beginning of July, and then it took, you know, until September 15th or September 14th actually to document it. On September 14th, they filed their motion which was set for hearing on October 5th, and then we filed our motion on the 5th.

And if you turn to the next page, So, Your Honor, the agreement is really memorialized in the PSA, which is at docket-72-21. The nominal purchase price is $45 million. And if you go to the boxes, basically, there's a full and final release of everything except for Celsius holds about $45 million of convertible note claims, as part of totally separate class, those obviously are going to continue to ride through. We're getting a $14 million cash payment. And not insignificantly for the client, there's going to be a significant savings if we had to litigate this.

On the other hand, we're releasing the claims and we're selling the purchased assets. And I'll get to the evidence in a minute, but I think the evidence, will show that though this the Cedarville facility was not part of our business plan and based on the marketing that we have done pre-petitioned this is the best the best used for it so you turn to the next page your honor this sets forth the various proofs of claims that were filed so if you add up the under 425 and 497 which are the claims that are being released that adds up to about $312 million, not an insignificant amount. And while obviously we feel very strongly that we have very good defenses to those claims, it was, we needed to deal with this before we actually

were able to come out of bankruptcy because it's just too significant, too significant a claim. And we do have a disclosure statement hearing set for later this month. And so as a result, We really needed to do it. In terms of our proofs of claim, we did file one liquidated and one post-petition claim and then an unliquidated claim for approximately in excess of $30 million. But all of those are going to be washed out. So next slide. Just wanted to make sure the court knew where this was.

it's in Pecos County I think no in Warren County but near Pecos I've ever been there but I'm told it's beautiful that's where we differ I've actually tried litigation in Pecos County well I'm something I need to do before I retire in the next 90 days or maybe not and then your honor this is my favorite slide to the next one

This actually shows an aerial view of the facility. It's got two buildings and, you know, pads for three more. And so, Your Honor, we turn to the next part. I mean, I don't need to go through the next couple of slides. It really is the legal standard on 19, 363, 365. I'm not. And then if you just turned it to the next page, we have, you know, what the evidence will show.

And I believe that the evidence will establish that, you know, that the, that we meet the test under 2019, both the declaration of Mr. Sullivan, who was the principal person who negotiated the transaction. He said he became the CEO, he joined Corps in May and is one of the first things that that he negotiated and he is now currently the CEO and then the other declaration of Mr. Michael Brose who has been with the company about five years and is knowledgeable about the sales process. So with those two items, I think we meet that.

And then the next two slides, Your Honor, are the test under 363 and 365. There are only four contracts that are being assumed. So it's not like we have lots of, contracts and the this this facility we haven't been working on it for a long time so the contracts are for kind of things to be done in the future and fortunately there are no cure cost because we paid the upfront amounts and the other amounts will be paid whenever whenever it's actually goes forward so with that your honor

I am prepared to you know present our evidence and then and then make argument unless let me just make the circle anyone else wish to make what I'll just take as an opening statement or opening comments good afternoon your honor Jennifer Hardy of Wilkie Farm behalf of the official committee of unsecured creditors your honor the UCC advisors have discussed the settlement with the debtors advisors we've reviewed in detail and are familiar with the go forward business plan and the marketing process of the CERVL facility and I believe that the settlement is in the best interest of the estates and the unsecured creditors.

Perfect. Thank you. And let's see. Mr. Laton, is that you? Yes, good afternoon, Your Honor. Good afternoon. For the record, Dan Latona, Kirkland and Elias, on behalf of Seltie's Mining and Estillius. Your Honor, I'll keep my comments brief because, as Mr. Perez said,

we are in the middle of our own confirmation here that just began today, and we expect to have evidence heard over the next three days. our motion is up for hearing on October 5th. We did not receive any objections in our case. Our creditors community is fully on board. Our plan sponsor is fully on board. The mining business is going to be a central piece of our new co upon emergence. So we're very excited at this opportunity.

We think it resolves the very complex underlying issues behind the disputes, but it obvious the need for dueling hearings and dueling Chapter 11. So with that, Your Honor, we're very fully supported of this transaction and we look forward to closing as quickly as possible. Thank you, Mr. Lattano. Anyone else? Right. Mr. Perez. So, Your Honor, we had two declarations and both the declarants are online.

Let me first just do the documents that are not the two declarations. So, Your Honor, we filed exhibits three. through 27 on docket number 1272. And because some of these were quite lengthy, they are 1272-3 through 1272-3 through 1272-30. And then we filed the three subsequent exhibits, 28, 29, and 30 at 1280-1.

to 1280-3. All right. Thank you. So the offer is debtors exhibits one through, I'll break them up the same way you did, Mr. Perez, one through 27, which are referenced as 1272- dash, I'm sorry, I went one and two, three through 30, which are 1272-3 through 1272-30 as well as exhibits 28, 29, and 30, which are 1280-1 through 1280-3.

Any objections? Ms. Hardy, committee okay with all of those? Yes, Your Honor. All right. Thank you. Then they are admitted without objection. Then, Your Honor, we have two declarations, the declaration of Mr. Sullivan, which is at 1272-1, and both, and then the declaration of Mr. Brose, which is at 1272-2.

there both online and available for cross-examination. But I would, I guess if you want to do one at a time, we can. Actually, let's just do this. I've read them both in preparing for the hearing, and I don't think there's going to be any objection. Any objection to the admission of the declarations of Mr. Sullivan, Mr. Rose, found at 1272-1, 1272-2. All right. With that, I'll admit both declarations. Any party wish to cross-examine either witness? All right. Thank you, gentlemen. So with that, Your Honor, we would request that the court enter the form of order.

It is at 1280. 81. And then there's the – we just did the change pages since there were so minor changes. But, I mean, next time we won't have notes to the draft and what we file. All right. Any other closing argument? All right. Number one, I very much appreciate the hard work that went into this.

I know that this was not easy. With respect to the debtor's request, I do find that I have jurisdiction over the motion. Pursuant to 28 U.S.C. Section 1334, do find that the matter constitutes a court proceeding under 28 U.S.C. Section 157, I further find that I have the requisite of constitutional authority to enter a final order. As the motion was filed on an emergency basis,

the motion demonstrates the need as well as the statements by counsel regarding the relationship to the ongoing Celsius proceedings. I will find that service was good due process has been satisfied under the circumstances. With respect to the settlement itself, I will find that the uncontested evidence satisfies requirements put forth by the Fifth Circuit in cases such as Enrae Weiko, Jackson Brewing, Foster Mortgage, and their progeny.

As part of the settlement involves the transfer of certain assets from one estate or from this estate to the Celsius estate, I do find that this decision constitutes not only just reasonable business judgment. This is prudent business judgment at its finest. I compliment the management team on recognizing the situation, working. to not only a prudent but an efficient solution. I don't have any concerns at all. I will find that the requirements of 363F have been satisfied

and that the purchasers entitled to the requisite protections under 363M. Again, I've had the opportunity to review the proposed revised motion at 1281. There are additional findings and conclusions, which I've had the chance to review. I believe they're appropriate. I adopt them in their entirety to the extent, I'm going to run out by the end of the day, to the extent that I've put findings and conclusions

on the record that are not reflected in the order itself. They are incorporated by reference pursuant to bankruptcy rule 7052. With that, we pop up the order. So three days on the Celsius hearing, so I take it it's not uncontested. I take it that's probably correct, Your Honor. Yes, Mr. Latona, he popped back on. We have a few objections, Your Honor.

Keeps you busy. And, you know, Judge Glenn likes to solve problems. He's very good at that. Yes, he is. All right, the order has been signed is off the dockley and you can represent to Judge Glenn that this piece is done. Anything else we need to address? One detail, Your Honor.

One of the underlying M&M liens, we need to clear before the closing, and we filed a 1990, and the time has passed, there's a CNO at 1151. That's the Trilogy motion? Yes, Your Honor. My apologies, you should never let it go that long. It's taken care of because I don't know that it's there. Anything else I've missed? Your Honor, not of any significance. Is that a way of telling me that there are some things that I,

Well, we kept extending the time to file pleadings once we started to negotiate, you know, when we started to negotiate, and at that point, they're all moot, but there are several, there are a couple of stipulations just extending the briefing deadline with SELSK, but at this point, it's relevant. I'll go back and get those to so the record's clear. All right. Then I'm going to sit right here and do all those. Again, I appreciate all the hard work, and, you know, we have to throw Carlson a little bit.

I know he does work hard, so I don't want him to feel bad. Well, not a ring and endorsement, I got it. Well, then thank you everyone, and we'll be adjourned. And we'll be adjourned again. I'm going to sit right here.