American court hearing recordings and interviews - WeWork Inc. bankruptcy hearing February 5, 2024 (New Jersey US bankruptcy court case 23-19865)

Episode Date: February 10, 2024

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All right, welcome back. We're on the record in the WeWork case. We can all make appearances as we go. Thank you. Sir. Good morning. Take us away. For the record, Stephen Sir Gedini of Kirkland and Ellis. I'm joining court today by my colleagues, Kira Foster, Oliver Paray, and Bill Arnold. We have a couple items on the agenda today, Your Honor, but I'd like to start actually with a brief overview and then transition into the second item on the agenda, which is the landlord status conference. conference was it generally go together. So again, Your Honor, as we've talked about the first day and we've talked about since, we have a lot of work to do in these cases. We started with an RSA, but it was by no means the end game. And there's been a lot of things that have happened in the cases that we want to update,

Your Honor. First, one major area are various investigations. First and foremost, Your Honor, that's been led by the special committee that began that investigation before we filed, they took a deep look at various estate causes of action, including those against insiders. They've been joined in those efforts since the formation of the creditors committee by the creditors committee as well. And while we're not aligned with the creditors committee on everything, as you'll hear

a little bit about today, this is one area where the collaboration has been very high. I was told that we have cleared the $3 million page mark in pages produced, and we're approaching for. And the creditors committee has been sitting in with counsel to the special committee on various interviews, and they're going to continue to do that as we go forward and complete the investigations. I'm comfortable saying the result of these collective efforts, no stone will be left unturned, and everything that could be examined will be examined in these cases. We've also started discussions, Your Honor, and it's going to be a recurring theme today because of our liquidity situation, which we hoped would be sufficient to take us through

the cases on cash collateral. That was a hope. What's played out over time is that it has not been sufficient, and we intend to start discussions around a debtor and possession financing. But overall and all in all, and a large part of this remains to be seen, in particular, in terms of the business plan that we're working on as well, that will be a finalization of the business plan we began these cases with. But these efforts have been sufficient that we're comfortable filing a Chapter 11 plan. Now, that plan is consistent in form and substance with the term sheets attached to our restructuring support agreement.

It has a couple additional features. As I mentioned, a debtor and possession loan is now contemplated by the plan as an option, and also the concept of a rights offering, which, among other things, can be used to repay that loan. But, again, I said it before and I'll say it again, everything in these cases is secondary to our landlord negotiations. That is the ballgame. And our ability to reach lease terms is what we're focused on.

We need a certain footprint to fix our business and make it work, and we need it on economically rational terms. Unfortunately, that's one area where the bankruptcy code itself doesn't give us the ability to change those terms. As I mentioned, Your Honor, our liquidity is precious and limited. Any capital that gets funded into these cases going forward will be equity capital. And folks do not fund equity capital without knowing what the business. business plan looks like on the back end so time is short and we need to move quickly to finalize our lease negotiations to get to a business plan so we can emerge from these cases we started the cases with a call to action all those

landlords to get us to that point and many took those words to heart and began a discussion a large minority did not these parties your honor were happy to sit on large rent advances and letters of credit and continue to collect their above market rents that was more in their interest than coming to the table and engaging with the debtors. So after the first 60 days, we could see the trajectory and it was very, very clear, a certain failure. So, Your Honor, we took steps to force the issues and held January rent payments for the free riders. And the message was clear. You're either with us or you're against us. Now the strategy has been a massive success, unmitigated in our minds, and we've seen a dramatic turnaround.

A large number of the situations where there was absolutely no engagement have now moved to active discussions. Just to give your honor a sense of the numbers, before January, our pace of deals was somewhere around the mid-single digits per week. Now we're over 10, and we can see the trends increasing. and we expect the pace to accelerate. And based on these discussions, we have line of sight to what we believe are deals on roughly 70% of the portfolio. And we want to thank the landlords who have heard our message and begun to buy into our vision of a sustainable future for Weaver. We've also received, and that's the subject of today's hearing, Your Honor, certain motions to compel. These motions have actually been a very useful forcing function for us, and apologies for Your Honor's docket, but they've been helpful.

They let us know where the parties stand. One of the unfortunate things in these discussions is often the landlords, the business people, have a different message in their attorneys whose focus may stand many matters and these issues more broadly. There's a little bit of a principal agent split. So by getting them on the record, you know where they stand now. And so they know where we stand, Your Honor, we're going to be very clear. If your focus is on one month's rent instead of saving this company, you're on the wrong side, and your lease will be rejected.

On the other hand, if you continue to work constructively, there's going to be a different path. And that path is going to be consistent, payment consistent with the terms of the new deals. There's also an even greater reward, Your Honor. And this is what it's really about. There's $7.5 billion in rental obligations in the future for this company that we want to pay.

To reiterate, Your Honor, $7.5 billion. So in our mind, this case is not about one month's rent. It's about $7.5 billion in rent. And the only way we can get to that point is through shared sacrifices. Is $7.5 billion the goal? It's the goal, Your Honor, in the right format. So again, Your Honor, the fact remains is we stand here today. We're still not there.

This company is not financeable. We're actually at a crossroads. One path leads to that goal that I just mentioned, a de-levered and thriving rework, and the other leads to liquidation. And the only way we get to that point is to realize on our plan to become profitable and sustainable. And the only way to make that plan a reality is for the vast majority of our landlords to work with us. The motions to compel, Your Honor, three of which are the subject of today's hearing are an attack on this path. They seek to mandate payment at a time when liquidity, the grains

of sand and the hourglass are few, and when we're finally starting to see a light at the end of the tunnel in these cases. So let me turn to how we plan to address those motions in the weeks ahead because they have been filed and they need to be addressed. I want to emphasize, Your Honor, the motions are actually highly fact-sensitive and raise a variety of legal issues. Among other things, the illegal issues that are going to be before the court are the debtor's payment obligations under each of the specific leases. The landlord's access to alternative forms of funding,

which, as I mentioned, could include letters of credit and other forms of rent prepayments that they can seek to access for their rent. the scope of 365 D3 of the bankruptcy code and our obligations under it, and the appropriate remedies if those obligations are not met, which are again a subject of debate among the case law. Those questions of law, Your Honor, are layered on top of fact questions that relate to each specifically. Say those again. I understand the letters of credit, the alternate forms of crime. What was the first thing you said?

So the first one, Your Honor, was our payment obligations under the leases. In certain instances, they're an area for dispute. So, for example, Your Honor, leases could have a variety of charges associated that the landlord may assert are required to be paid under the lease that aren't necessarily rent, for example. All right, but that's probably a small portion of the obligation, right? In some cases, Your Honor, yep. Okay. But the rest is probably not in dispute. I'd say in the majority of the case is the actual amount of the fixed rent. It's not a dispute.

Correct. And then the second point was on the alternate payment sources like letters of credit? Correct. So you're saying if a landlord has a letter of credit and you didn't pay January rent, they should look to that. Exactly. So it's like looking to the security deposit for payment in lieu of the debtor's cash. Exactly. Because, Your Honor, those are also...

says you can do that? Your Honor, we believe it does. All right. We think it's, as I mentioned, Your Honor, some of these areas are novel areas. They haven't been tested, and we intend to demonstrate Your Honor that we think that that's the appropriate path. All right, and what is the third one? Third one, Your Honor, was the scope of Section 365D3 and our obligations under 365D3 relates in part to the first issue. And the last are the remedies, Your Honor. And there's a variety of cases that stand for the principle that the remedy can vary. In certain cases, the remedy is on secured claim. In other cases, the remedy may be an administrative claim,

and a variety of the cases look to, in cases where debtors, for example, rejected a lease, look to the debtor's overall financial condition to decide the timing of that payment. And that goes in part, Your Honor, to the questions of fact that need to be established, which include the debtor's ability to pay rent, which is limited, and the relative priorities of administrative claims and which should be paid and which should wait. And whether the location, for example, if we're in a scenario where there's a mass rejection event, right,

mass extinction event, there could be, in many instances, certain administrative claims do not get paid. And so, again, what the cases would look to is if that fact is not clear that there could be a question as to when the timing of those administrative claims would be paid in the case of rejected leases, for example. All right.

Separately, Your Honor. You have to pay administrative claims in full to confirm. To confirm, absolutely. What is the plan said and read the plan? The plan provides for payment of an administrative claims, Your Honor. That's what we're working toward. But as I said, Your Honor, we're at a crossroads and whether we get to that path remains uncertain. Again, Your Honor, I think there's a question of whether the location provides any value

to the estate for the purposes of determining the extent of administrative claim. with respect to each lease, the types of rent support or the types of rent prepayments or letters of credit that may be available to satisfy the leases. And in certain cases, Your Honor, the debtors may, in fact, even have counterclaims, and there could be a question as to how those should be treated. Your Honor, these legal issues and the open questions of fact, these motions need to be fully briefed so we can establish all the facts. And to the extent that there are any factual questions that remain on February 20th,

That hearing could also include an evidentiary proportion. And then we expect, Your Honor, with respect to certain of these issues, to the extent Your Honor deems it appropriate may require written opinions in order to establish the specific facts and disputes in each particular instance. Good news for today is none of that is up for today, Your Honor, but there's going to be a lot to do between now and February 20th. And our proposed approach includes both a joint stipulation of facts. That's what we're going to work on with each of the parties. as well as any questions of discovery being fleshed out in advance of that hearing. In terms of schedules, Your Honor, appreciates how we propose to proceed from here to there. We want all discovery.

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Let us make your bad day better. Find an agent at CINFIN.com. We request serve before February 7th, so within the next couple days. And we've communicated these dates to the parties, Your Honor. We want responses or objections to written discovery served by February 12th. We're requesting that production of documents be complete by February 15th. And that the parties will be able to depose any witness that a party intends to call live, we're asking parties to disclose witnesses by February 6th, other than rebuttal witnesses, of course.

What are you filing your papers? Your Honor, I believe we'll file those 13th. How can they take discovery if they don't know what your position is? Your Honor, we're happy to communicate it to them directly in any instance. All right, so give me those dates again. February 7th was what? February 7th is our all discovery requests, formal discovery requests. That would include requests for production, requests for admission, interrogatories.

All right. And the 12th response, your responses? Responses to written document requests, or discovery requests, rather, Your Honor. And those will be by you? Correct. Or by them. But you're going to serve discovery too? Yes.

And the 15th was? completion of discovery. We're asking parties to provide... And your papers do February 17th? 13th. February 13th. Okay. And we're asking parties to provide witness list by February 6th so that depositions can be prepared. Yeah, I'm just having trouble figuring out what kind of factual discovery is really necessary here. The leases say what they say. Yep.

And the rent is what it is. And whether it's paid or not is not controversial. Mm-hmm. So what are the factual issues? Your Honor. And listen, if there are discrete disputes with landlords over, I don't know, maybe they didn't provide utilities or access to the building or Internet service, obviously, you know, that's important. But what else could it be?

I mean, if you're there and you're just not paying, what's the factual issue? Your Honor, there could be factual issues related to. for example, the status of particular letters of credit or deposits. Letters of credit, they're either drawn or they're not drawn. Well, whether they're drawn is separate apart from whether they've been applied in the status of them. Where they sit, who holds them? Well, how do we not know that? How is that controversial?

It may not be, Your Honor. Let me take a step back. Our goal is to get to a stipulation of facts with every single party as to the material facts. So that's where we're going to start. To the extent there's disputes, then parties are within their rights to request discovery is what we're suggesting. All right. Well, that's a lot of work to do before February 20th. We're going to do everything we can to meet that timeline, Your Honor, for when they've scheduled these motions.

All right. I mean, I just think if there's an administrative claim that's disputed, but 90% of it is uncontested, then we can save the 10% for down the road, and let's just deal with the legal issue of whether you have to pay. Sure. Yeah, Your Honor, none of this is to suggest that we're not going to be commercial about making this all work. We're going to do our best to make it all work. I just want to – we wanted to create some process to this so that there were no surprises at the 11th hour,

and if there were issues, we would be before, Your Honor, to resolve them early rather than later. I would think if I'm a landlord, I'm going to say, here's what the lease says the rent is. You haven't paid. I don't need any discovery. And if you come back and say, well, the rent is not this, it's this minus 10%. Then the landlord might fight you on that or just say, okay, just pay me the 90% and we'll fight about the 10% later.

That would those types, under those particular facts, Your Honor, that sounds like a very reasonable solution. All right. Okay. So hold on, and then the 15th completion and then the hearing on February 20th. What day, is that a Wednesday? Tuesday? What time is that?

Do we give them 10 o'clock? Two? All right. Well, we can probably do the following Wednesday if need be, can we? Everybody's going to get a chance. Yeah. So, Your Honor, again, to reiterate, we know. We expect all the parties –

We expect all the parties to use good faith, Your Honor, to resolve any of these issues and minimize the need for discovery. And no parties are going to be precluded from seeking to admit evidence at the hearing or objecting to admissibility where the parties have not reached an agreement. And then, as Your Honor said, we contend to use the February 20th hearing. We're hoping the factual record will be clear, as Your Honor suggested, and we're hoping to use the February 20th hearing to make it more efficient to focus. on legal issues.

All right. So, Your Honor, to conclude all the debtor's actions here are in pursuit of the same goal that Chapter 11 seeks to promote, rehabilitation of business, enterprises for the benefit of society, preservation of jobs, and maximization of all parties. We believe anyone who stands against us in these goals is for something else, and we're confident that with the cooperation of our landlord partners, we work, will achieve our ideals. Thank you, Your Honor.

Before you step back, let me just make sure I have the numbers correct. Like there's two motions set by TC 501, Boylson Street, TC 33, Arch Street. That's 1213, and then there's on 126, docket 1216, there's seven moving landlords. And it looks like of those nine that are on the calendar today, the, It's a little over $4 million for January, but then I saw a paper saying that there was about 29 million more, about 33 million of unpaid rent for January. Is that right? Is that generally right? Those numbers directionally sound right, Your Honor. The vast majority of the landlords for whom we have held rent, we've worked out deals with or haven't filed motions. All right, so of the 29 million that's not the moving landlords today, that number might be reduced because he'd made some deals?

Exactly. And even of the moving landlords, Your Honor, I believe we're actually of the nine down to three. Really? Yes. So that goes to my point. So that the nine landlords is now three landlords? Yeah. And of the other 29 million that was unpaid for January, how many landlords was that? I want to say roughly 100. And is that 100 still 100, or have you made some deals there?

We've made tons of deals out of that 100. It's a much lower number. Good. Okay. So that was my point around at the outset, which is it has – it's a forcing function for us. We either know if you're in or you're out. And if you're out, you're out, if you're in, we're making deals, you're getting paid your round. All right.

Thank you. Thank you, Your Honor. The 20, that's the 28th? No, not the 28th, the 21st. Welcome. Say your name for the record, please. Good morning, Your Honor. I've in gold of Alan Mackins.

With my co-counsel, Mr. Bahain, I represent the seven moving landlords. Is it still seven? Six. It's not three, and I'll tell you the story about the seven. Your Honor, I guess I have to start by saying, I think I disagree with just about everything Mr. Sarajevo, just said, legally, factually, procedurally. We asked for a preliminary hearing to figure out what's really in dispute here.

In practical terms, the majority of my moving parties are on the West Coast. and my really flying property managers to Newark to come to this court to testify that January and or February rent wasn't paid in the same amount that was paid by the debtor in December. So everything you heard about things being in dispute and these things around the edges, they paid rent in December. In some cases...

I don't think they're going to ask you to fly in a witness for that. Your Honor? I don't think they will. I heard depositions, inerogatories. I heard a procedural bludgeon to contest everything. That's what I heard. We also heard stipulation of facts, so you can sit and talk with debtors' counsel and say, hey, here's the rent. It wasn't paid.

We were working on that, Your Honor. All last week, we had literally daily conversations trying to get to that point. and when I was looking for that, I didn't get that from the debtor. I got a stipulation regarding discovery. None of the dates that Mr. Saragini sent to you this morning were discussed with me, contrary at his representation. Everything was new. The idea that we would work on a stipulation for facts when I have to give you an

witness list tomorrow is not something I would have agreed to. Because that's his proposal. The sixth is tomorrow. So how do I know who my witnesses are until, I know what my stipulated facts are. How do I know what my exhibits are until I know what's in dispute? Is this a legal argument? Is this a factual argument? And apparently it's anything and everything to slow down the natural operation of 365D3. I'm not here to argue the motion. Just give you the highlights what we're talking about. But our view is simple. Shall mean shall.

It's not discretionary. It's not subject to the debtor's business judgment. It's not when the ends justify the means. Or to quote from the Wall Street Journal, it's not when it's in the best interest of our entire ecosystem. Debtor's narrative does not fit the facts. Many of the landlords who have withheld rent on my motion were perplexed as to why rent wasn't being paid because they were in discussions with the debtor. We have one location, 655 New York Avenue in Washington, D.C., where the debtor earns a six-figure profit every month from a subtenant and is withholding the payment of rent.

The narrative does not fit the facts. So are we really going to turn our back on the plain language of the code? Apparently, yes. Are we going to turn our back on 40 years of jurisprudence? under the 84 amendments, which created D3. Are we going to litigate what was characterized as a, quote, novel issue by debtor's counsel, but was exhaustively analyzed with multiple citations in Judge Munn's opinion in leather factory regarding whether a letter of credit or security deposit can be used for D3 rent?

Calling it novel is not true. It has been litigated. It's been litigated in math. Massachusetts, the SDNY, the Central District of California, there's nothing novel about it. This is the debtor's liquidity play. So that gets another question for the preliminary hearing today. Are we going to be litigating the debtor's administrative solvency? We heard about liquidity.

I'm old enough to remember a hearing in front of you on December 11th, Your Honor, where we approved a cash collateral budget that had $78 million. a month for post-petition rent. But the debtor chose not to pay $33 million of that in January. If we get the same or even a smaller number in February, we're talking about in excess of $50 million. And I'm not even counting stubborn. And where's that coming from?

Is the debtor going to tell us that the budget was wrong? their projections were wrong. The MORs are distorted because they have too much cash and they're hiding problems on the operational side. Is that going to be the justification? Are we going to have to budget time for that for the hearing for an evidentiary presentation to the debtor? In face of something that says shall,

in face of your honor approving a budget for $78 million, are we going down those rabbit holes? that's why we're here today. What is the amount of room that the debtor will be able to do? Because this stands in stark contrast. When we look at, I'll call it 50 million in just rough terms. At the height of COVID, when we saw rent deferral motions, under the one part of D3 that is an exception to shall,

the forecaused deferral for the first 60 days of the case. We can all look at a calendar. We're outside the first 60 days of the case. So D3, the exception to D3 is not available to the debtor. But at least in a case like JCPenney, or a case like 24-hour fitness, where we had $20, $30 million in deferred rent under D3, at least in those cases, the debtor filed a motion, they proffered a showing of cause. and the court decided.

That's not what's happening here. The debtor has decided to self-help their way to rent deferral. They have unilaterally declared their own rent-deferral program outside the boundaries of this, the bankruptcy code. So that's the question is, what do you want to hear? What do you need to hear to decide this? Right now, Your Honor, on your calendar on the 20th, just the regular omnidate.

We've got normal administrative things that hopefully will move the case forward. But you have over a dozen other motions to compel. We're not doing that in three hours, Your Honor. There's no way. It's just legal argument? Yes, we can. If we're going to hear minutia about whether or not the debtors contesting security or utility, charges that they have paid post-petition thus far, we're not going to make it.

If I have to... I don't think we'll do that. I don't think we'll do minutia on the 20th. I don't know what the minutia is. I don't either. So it's hard for me to say that. I don't either. I'm not disposed to do that.

I think we should get to the legal merits on the 20th. So, Your Honor... And you know what? Maybe there'll be some settlements in the universe of dispute. of claims will be smaller. Well, let me give you the state of play, because counsel represented to you that there were only three, and let me tell you where we are, at least with respect to my motion.

So we started with seven. After the motion was filed, after the motion was filed, really on the 31st and into the morning of the first, three landlords were paid January rent. They have not yet received February rent. three landlords did not get January rent and have not received February rent. So three got January, but not yet February.

Three got... Excuse me. Three got January... Three got nothing. That's easy. Three got nothing. Of the remaining, there are three more that got January. Two of them have no February. one of them, inexplicably, without any explanation, got a partial payment of February of less than half.

Okay? And one got resolved entirely? One has accepted partial payments in anticipation of a deal with the reservation of rights rolling into the 20th. Okay? So that's the state of play. Now, in terms of the debtor's narrative, Your Honor, I want to pick on one lease. 655 New York Avenue, Washington, D.C. That's the one where the debtor has a subtenant, not a member, what they call an enterprise tenant, but a subtenant.

The debtor's making $200,000 plus a month at that location in terms of the differential between what it pays to the landlord and what it receives from the I recognize the debtor provide services that dilutes that. But there is no question that debtor is making money at this location. Obviously, this landlord got... Is the subtenant occupy the entire space or just part of it? Yes. So they basically just sub-lease the whole thing? Yes.

And how long is the sub-lease, do you know? Several more years. Several more years? Yes. They got paid in November. Didn't pay rent. I got paid in January, didn't pay rent until the 31st. Got paid in February, haven't paid rent yet.

You're with us or against us? How does that fit with that narrative? And how does that narrative fit with the code? The debtor has a range of tools available to it under 365, the most powerful of which is rejection. The debtor's not rejecting the New York Avenue lease. Go ahead. Go ahead.

They say they want to, then go ahead. Because withholding rent, or to quote a few of my clients, taking hostages to leverage negotiations is not constructive. That may be the debtor's view, but it's not necessarily the landlord's view. Are we going to, Your Honor, on the 20th or whatever date you set, or we're going to litigate the reasonableness of the party's settlement positions? Are we going to throw 408 under the bus with 365D3? I don't know because the debtor has not told me. I only have the outline of the four topics that Mr. Sarajeediini outlined.

One was the payment obligations. We've discussed that. How legitimate are those disputes? Access to other fundings saw that one coming. We've already briefed it initially. Love to hear what the debtor has to say on that. I love to see authority contrary to the stuff we've cited. Haven't seen it.

Haven't heard of it informally. The scope of 365D3, that's a new one describing it that way. I think, again, the case law is pretty clear. And as I like to say, if you paid it in August and you paid it in December, what are we talking about in January and February? You know the scope of your obligations. I don't see exceptions, footnotes, asterisk, or parentheticals in D3 that the debtor apparently wants to talk about. And then we talk about remedies.

What's the remedy? Well, some... They're not... Are any landlords in these motions? Are they seeking remedies or just the landlords... At this point, an order of compelling payment. All right. But then if that doesn't happen, then the remedy...

is stay relief or rejection of the lease or conversion or dismissal something like that yes okay why I mean if a landlord seeks that remedy then I only seek motion to come no it's the debtors advocating other remedies I'm the only remedy I asked for in the motion we won't be talking about remedies on the 20th all the landlords are seeking is in order saying you have to pay the rent and you're not for I'll sign that order and I don't even know if I need to sign that order if you're right about the law. I think the law and the committee has submitted a short brief on it. The law is pretty clear and if the payments aren't made then we have administrative claims piling up and then the debtor has to

deal with the issue of how can I confirm this case, how can I stay in Chapter 11 if I can't pay accrued valid administrative claims. So I guess what I'm saying is to me the law is not terribly difficult here, and this is more of a business discussion. The leases can be assumed, they can be rejected, or they can be renegotiated, and they want to renegotiate a lot of them, if not all of them. But, you know, that renegotiate, that either happens or it doesn't, and if it happens, I'm all for it, and if it doesn't, then the landlords who are not, who have not renegotiated have a decision to make. Do they want to continue negotiations, or do they want to get their space back? Your Honor, I actually think it's the debtor who has the decision, too, because I don't think, very frequently debtors counsel refers to the bankruptcy toolbox.

And is this a tool in the toolbox, the withholding of rent? And at what point do we hit tilt? Because we also heard from the debtor that they want to litigate the value of the premises. Rent has accrued. We're in the third circuit. They didn't say they wanted to litigate the value of the premise. I absolutely heard that from Mr. Sarah Gideenie if they reject these

leases now that they're going to object to the claims based on the value of the premises. We're going to take out the notwithstanding 503B1 part. Well, they can litigate whatever they want. I mean, if they have a good faith argument to make, I'll hear it. And if it's a bad argument,

I'll agree with you. The question before the court today at a pro-minare hearing is. And I think Your Honor, seized on it in your colloquy with debtors' counsel. If there's stuff around the edges, if there are legitimate disputes, 10% of the rent, we can save that.

Just like we do when we confirm a plan with cure payments, we can reserve it and deal with it later. How about the core? Debtor is certainly not contending that they don't have to pay base rent. They paid it in December. they know the amounts. If the amount changed in January because it's a CAM change, good. We can set that aside. Let's not let the little get in the way of the big. So in light of that, why do we need all this discovery? Why do we need all these deadlines? Why do we need all this expense for what is essentially a legal argument? What is the point of what witnesses are we deposing? And about what? And why am I being forced to give a witness list tomorrow before I even know what issues the debtor's contesting? Why am I serving written discovery Wednesday when I have no idea what the debtor's position is legally or factually? I think

I know it legally. I think I probably know about 75% of it. of it. Factually, I have no clue as we sit here today because this wasn't preceded by any dispute, wasn't preceded by any warning. They just didn't pay. And remember, I represent more people than these seven. Other landlords got paid. Interestingly, there's new landlords who aren't paid, don't have February rent yet. I have a landlord who wasn't a movement, got a partial payment on Friday. So what are the facts that require that discovery be completed in 12 days? That's why we're here. That's why I asked for this, is what are the facts in dispute?

And shouldn't we know what the debtor's legal position and identification of the facts they believe are in dispute, before we take discovery. Why should we commence a process blindfolded and only incur administrative expenses for stuff that may be completely unnecessary? Why not give us a week to stipulate the facts and then we'll do something else? Why are we stipulating the facts

after I had to do a witness list? Why, after I had to deserve discovery? I agree with you. I agree with you on that. Maybe I'll hear from the debtor again. maybe I missed the reasoning. It's hard to serve discovery when you don't know what the factual issues might be. Right, that's exactly my position. Is the debtor on the 20th or whatever date you pick, Your Honor,

going to come before you and say, you know, we budget a $78 million, but we can't pay it? We have liquidity issues. Are they going to, on an evidentiary basis, acknowledge what their, the representative did in the email we attached to the motion that we have cash flow constraints. Is the debt are going to present evidence of that defensively? Well, he said it. We have a liquidity issue and we might not be able to afford to pay all of our post-petition rent obligations. So then you'll hear the legal argument from me, of course.

He says it's coming from equity and equity doesn't sure it wants to commit unless it knows what the final product? I think that's an exit question, not a January or February question. I don't believe SoftBank is controlling the January or February purse strings, but if they are, we would certainly love to hear it. But I understood

Debtors Council to say that that's the dip that has not been finalized and proposed to the court yet, and obviously something that's going to be necessary to get us through the plan process and maybe exit financing and beyond. But I've heard nothing and I've seen no evidence.

Now, if it exists, and that's going to be part of the presentation, that this is constraint imposed by the lenders. That would be new news. But again, I don't know. That's why we're here. I thought this was like an issue conference, like a pre-trial conference, where we decide how we're going to go forward, what's truly in dispute. because, again, these are supposed to be relatively summary matters.

We believe it's a straightforward, factual issue, particularly, I mean, the three, for example, the debt are paid in January. What could be different in February? They just paid. What's the dispute? I don't have a reservation of rights letter that accompanied the three wire transfers on the 31st. So what's in dispute? So that's why we came, that's why we asked to see you today, was to flush this out. Is everything up in the air, or we actually focused on what the real question at hand is?

Can the debtor afford this? Do they contend they can't? Do they contend that negotiating leverage is a legitimate withhold of rent under D3, a legal issue? do they contend that we can go to collaterals were required, not whether we may, but that your honor or the debtor can compel a landlord, contrary to the terms of a lease, to resort to credit instruments or credit enhancements for admin rent. Those things I get, but I don't get some of the other things, and I don't see how it fits in with the schedule, and I don't see how the debtor schedule, which seems to me to be the reverse of what needs to be done. We need a brief,

and we need stipulated facts, and then we can decide. Now, I'm not saying you should decide this in March. Did you submit a declaration? I'm looking at your motion. No, and that's a question. That's one of the questions for your honor, is would you like direct by declaration? If stipulated facts don't do it, that's a classic question for a preliminary hearing. I normally take direct by declaration if the party's consent. I don't know whether the debtor's consent. And I know somebody asked if they can appear by Zoom on the 20th and the debtor consented and

that was okay with me. Yeah. And will you take testimony by Zoom on the 20th? If the debtor consents. Okay. I don't know because we haven't gotten to that question because I don't know what they're disputing so I know who the witnesses are. And I guess other parties too. I mean, generally I think if the debt are consented, so would we

the lender group and the committee, but that's what you guys have to talk about. I do agree, though, that it's hard for them to propound discovery tomorrow, unless each individual landlord knows what your factual issue is with them. Let me hear from debtors' counsel on that point. And that, you're not, you have more. time if you want okay well I just mr. Lane is here too for his clients I would just remind him I'm not I'm gonna hear from him next and certainly if you want more time I'll get to you thank you your honor for for in circumstances where

council is saying that there's no factual disputes I heard a lot of things that I think are in dispute and so I completely appreciate the point your honor is making we're trying to work backwards from a hearing date for a motion that they've scheduled we are happy to work on a different timeline And, well, in fact, my suggestion would be that rather than hash it out before Your Honor, we sent them, and again, nowwithstanding the fact, there's a factual dispute on this issue as well, nowwithstanding what Mr. Gold said, we sent them a schedule with all of these dates in it on February 1st. And so what we'd suggest is that we engage with them and figure out a reasonable timeline to manage all these issues in the way Your Honor suggested where the debtors can put their briefing out there, the debtors can propose stipulated sets of facts. the only challenge, Your Honor, will be is if there's a dispute as to those facts and we're forced to conduct the discovery. I don't know how do we do that by the 20th.

And so that's... Well, we can get started on the 20th, and I can make some decisions and maybe reserve others later. So you're on then... I'm just waiting to see what the factual issues, the significant factual issues are before I... I think you should try to stipulate facts. You should file your response, and then if someone says, I need discovery because this is... factual or you need discovery because something's factual. We can either deal with that before the 20th and do some expedited discovery or we can just

deal with part of the problems on the 20th and come back a week later or a day later. I have the following day open. Okay, Your Honor. So we will handle it in the way Your Honor suggests that we will serve up our proposed stipulations. In certain instances, Your Honor, we may need the facts in order to serve up the stipulations because they may be predicates, again, in the case of status of a particular set of funds or a case of a tenant allowance that may be offset against rent or capital improvements that may affect... So there's just, there's variables here, and in certain instances, we may need facts from the landlord.

But we'll do our best to kind of lay out what we're looking for with respect to each dispute and seek from the landlord the information that we need. and to the extent we have, we're failing to get the information we need by the time we need it. We'll be back in front of your honor. All right. And I won't respond to all the comments, Mr. Golden, made your honor, you know, the dispute about three versus six.

One of those locations have been paid the rent. They've got to do that as resolved if he doesn't. We'll find out. Well, it sounds like you're still engaged with them, and as a result, you've made a payment or a partial payment. Exactly. It's a very fluid situation, Your Honor, and that's, again, our point is that now we're standing Mr. Gold's comments.

We cut two deals in December, signed two deals in the entire month. And over the course of this month, the rate has just been massively improved, and that's been great. Or rather last month, the rate was massively improved, and that's been great. And we expect that to continue not just with Mr. Gold in terms of litigation and the like, but as well with the business people and the clients talking and figuring these things out, which is actually what's been happening in a lot of these instances. Good morning, Your Honor.

Robert Lee Hain, Kelly, Drian Warren, on behalf of two of the landlords at issue today, that is TC 501 Boylston Street LLC and TC Arch Street LLC, both of them in a motions-compel payment at 1213. And, Your Honor, I don't want to belabor at the issues, Mr. Gold, obviously laid them out at length. I would like to update you with respect to discussions with respect to the impact of the motions to compel at our two locations. They're both in Boston. The rent at both locations was approximately $55,000. The 501-Boyleston Street location, the debtor paid the rent after the motions were filed for both January and February.

The debtor has told us they believe they paid the rent at 33 Arch Street in a modified amount. We have yet to be able to approve that, Your Honor. So parties were in discussion about what that amount should be. So there's been some payment, and at one location, both January and February in full. Briefly, with respect to the merits of the motion, the preliminary argument, Your Honor, of course there's been tremendous movement. The debtor has enormous tools under the bankruptcy code, right, the most powerful being the right to reject a lease, and it's decided not to use that, and ignore the one very clear protection that landlords have, is that while the debtor is making its decisions to assume or reject, it shall. timely perform all of its obligations under the leases. So it's obviously we understand what the debtor is doing.

We knew this was going to be a very difficult case. We've been willing to engage and negotiate since the outset. Nouveen, the parent company to the landlord, as a member of the creditors committee. We're working very hard. We understand it's a difficult case. But we don't think that the debtor should take an opportunity to completely ignore the absolutely clear provisions of the code, right? And only make use of those provisions of the code that protect the estate. By the way, after the debtor failure to pay the rent in January, the client sent them a typical default notice saying you failed to pay the rent, and they quickly fired off letters informing us that we're in violation of the automatic stay under 362.

So, right, again, here's the code. It should still apply here in New Jersey, right? And we think it would be much more effective if the debtor made use of its rights under 365 to reject leases. That's an incredibly powerful tool, and they can use that to try to engage in a lease negotiation process. But in the interim, they should be paying rent in not imposing additional administrative costs and expenses on the landlords by completely ignoring the provisions of the code. Look forward to seeing what the debtor's response is legally. Obviously, we don't think there's any dispute as the facts. As Mr. Gold laid out, they paid the rent December.

They know exactly what the rent should be. If they're very minor, and we can handle them the same way we do in the ordinary course in all of our other cases. When we get a short pay, we let them know, and the business people work that out. So we'd like to see what their legal argument is and happy to answer any questions and work on a stipulated facts. But under the circumstances... So one of your landlords got paid January and February? Correct. And the other one got paid January.

The debtors have told us they paid some of January. We haven't been able to confirm that yet. We're working to do that. All right. Well, I mean, listen, I think they're just trying to play hardball to get you guys to be capable. Well said, you argue. Look, we understand, Your Honor. understand the strategy, but there's really no dispute about the facts.

They've made it clear. They've chosen. The risk they take is that these admin claims are just going to pile up and if they can't afford them. I mean, if they're piling up to a point that's not affordable by February 20th, then they're going to have a problem. Right, and it could potentially point to much larger case issues. Which could result in rejection of the lease. Absolutely, understand.

So look, we would like to work through a reasonable schedule. We'd like to see what their written response is, but don't believe there's any necessary for fact discovery with respect to what the rent amounts are, and that we should be able to stipulate, too, and look forward to working through these issues with counsel. Thank you. Your Honor, may I be heard? Yes, of course. Say your name for the record, please.

Thank you, Your Honor. Samuel Cohn of Dorsey and Whitney on behalf of 729 Washington Properties owner LLC and Esplanade Owner LLC. Your Honor, we're one of the motions that are up on February 20th. We originally, we were one of the first, and we originally calendared it for February 6th for today. but your chambers, of course, picked it to the 20th, and that's fine. But we wanted to understand why, and I appreciate Your Honor, moving and scheduling everything for the February 20th, but like Mr. Gold said, I doubt that three hours are sufficient, particularly because the debtors' counsel has now instituted a procedure for facts in our

our case, we filed declarations and we filed statements attached to the declarations. So we can't fathom what would be in a factual dispute other than, as your honor said, the 10% lighting fee or interest or something like that, which we believe is definitely within the 365 D3. There's nowhere in 365B3 there's a say the word. rent, but rather obligations. So anyway, my real question is twofold. I don't understand why there needs to be a hearing at all. At all, 365B3 doesn't give Your Honor any discretion to extend the payment beyond the 60 days at all. I mean, Your Honor should issue an order today saying, pay the rent. I am bound by

3603, the debtor is bound by 360. If they're not bound by one section of the code, then why would they, why would we be bound by 362? Let's file a motion and kick them out. We don't even have to file a motion to kick them out. Why do we have to be bound by 362 and file a motion for automatic state to kick them out if they're not bound by 365D3? We should be doing the same thing. If they're not bound by the bankruptcy code, the land board should not be bound by the bankruptcy code. And your honor should issue an order today. The budget was clear. There's uncontroverted evidence that they have money to pay the rent. They did not publish a new budget. They did not file an affidavit saying they have liquidity issues. This is not an administrative expense

issue that ought to be decided by the plan confirmation. This is a 365D3 issue, which is a higher level than an administrative expense because there's nothing about administrative expense in 365D3. They must abide by 365D3. That is the reason why this section was promulgated acquainted according to the case law. And so we don't understand why we need a second hearing. We definitely don't understand why there's an issue. If I have a declaration and I have statements, what facts are in controversy? And if they're going to make me do some more, then I should get attorney's fees.

Because they should not have caused me to file the motion to begin with. And they caused our client's attorney's fees for nothing. Because we know that Your Honor is going to do the right thing in order them to pay it. Anyway. That might be true. but I understood that everybody consented to the movement of these motions to February 20th and we're just going to talk about process. So I'm not going to – there's going to be a hearing on February 20th,

and I will look at the debtor's response. And maybe after looking at the debtor's response, Mr. Cohn, I will agree with you. But I have to see the response first. I appreciate your honor. I just want to say one more thing about what debtors counsel said. Debtors counsel said that those people that they were negotiating with, that people that were not negotiating with, they withheld payment. And that's false.

the debtors council, the debtors, real estate advisor, Hilko, was talking to our clients and then with helping during the negotiations. So it's not that we didn't come to the table. That's false. Thank you, Your Honor. Okay. I see counsel for the committee might want to say something. Welcome. And if you are on the phone and want to speak after Mr. Hanson is done, just jump in, I think. I didn't, did I say the phone? I meant Zoom. For the record, Your Honor, Chris Hansom and Paul Hastings on behalf of the official committee. Your Honor, we had requested a status conference today away from these specific motions,

more to talk about the general status of the case, which Mrs. Soveragini started with. So I want to just take a little bit of a step back from the weeds that we were just in. The committee requested the status conference because it's really concerned with the lack of progress in the cases. The continued incurrence of the significant administrative expenses that we've all talked about, what appears to be the estate's seeming inability to pay those administrative expenses, and the debtor's strong arctics with respect to its land boards, which the committee believes is compounding all of those, mentioned issues. At the outset of the cases that debtors came before the court,

they talked about their structuring support and we heard Mr. Survegini talk about that again today, and everybody looked at that as the rapid way to exit the Chapter 11, but it was premised on an outdated business plan because that business plan, of course, didn't have the vision into what the lease negotiations would look like, and that's what this whole process is premised on. We're now months into these cases, and nobody has a revised business plan. So the debtors did file their plan and disclosure statement, but those track the RSA. They were really filed in our view to make sure that they met the milestones, and they contain an awful lot of brackets relating to various forms of financing that are candidly dependent

on the revised business plan. So the committee believes that there have been painfully little progress here on the debtor's side. I heard Mr. Sertagini say that they've made a lot of progress in the month of January. The last time we checked, we knew the debtors were part of the debtors. of 521 leases they rejected 70 on the petition date they have rejected 24 more since and they had only assumed seven so there may be new statistics that the committee doesn't have our advisors check with the debtors pretty regularly so give me though so they

assume seven they rejected a hundred ninety ninety four so 70 on the petition date 24 since then and an assumption of seven 94 rejected all right so they're still working with about landlord's I assume probably if you're I mean does anyone know what the target number of locations is the range or you don't want to talk about that I don't think that I don't think we should discuss that your honor that's obviously but that's part of what the committee's

issue is with the case we all want to see the case move forward and the problem is there is no business plan on which to be able to advance the case we talk We've heard Mr. Sergiini talk about the potential for post-petition financing, whether that's debt or is debt that's going to be converted to equity that all remains to be seen. But the reality is we're pretty confident that parties who are going to lend money to the company also want to understand what the end game is. And so from the committee's perspective, you know, our view is these cases have to advance because if you've heard everyone said it repeatedly while we've been in here today, administrative expenses aren't increasing. The cost of these cases is not inexpensive at any level. And obviously the non-payment of rent creates an additional – it's an administrative burden whether you pay a current or you don't pay it, but because it's not being paid, of course, it's ballooning and adding to the other accrued administrative expenses. So we're sitting here looking at a difficult situation from a case perspective.

And, you know, the committee's view is that I think a lot of parties in the case are frustrated. We'd like to see a way to try to advance these cases and move them forward more quickly without the hardball tactic of saying we're not going to pay you rent. rent and let's see what you do. And without the need, honestly, to have hearings on, I think there are 24 motions to compel on the docket now. Maybe many of those get resolved, but that's an awful lot of time and expense that seems unnecessary to be brought before the court. It should be poured into the focus on trying to resolve this situation between the parties. So the committee urges the debtors to find a better path forward to do it quickly. We don't want to mire these cases in unnecessary litigation. We don't want to see a true administrative

insolvent estate and if there's a better model the committee has some ideas we're trying to work with the debtors we'd love to end the landlords by the way there's this this goes in many directions we'd like to try to see a way to advance this more quickly I also want to update the court on the status of the committee's investigation your honor before I sit down so mr. surgeon is correct there's been a lot of collaboration with the special committee and the debtors the committee has reviewed millions of documents The committee will be prepared, if need be, when the challenge period expires, to file a standing motion, along with a complaint which will outline the causes of action that it believes it exists.

Your Honor, the committee has also been evaluating in addition to causes of action, the propriety, the liens, whether the perfection of them, et cetera. So we'll be back in front of the court on that later if we need to be, but we continue to work with the parties as well. and there won't be any surprises to the parties in the room. We'll, we commit to talking to them before we file anything, which we've been doing along the way. We want to make sure, Your Honor, heard that from a status perspective. What is the confirmation this March? March 19th, Your Honor.

I didn't have anything else, Your Honor. All right. Thank you. Anyone on Zoom, Lord? Your Honor, Brennan Gage, bulletin stores on behalf of Landlord, 575, Fifth Office, Honor, LLC. We filed the Joinger for the motions to compel. back at number 1279.

Really don't have much to add after Mr. Gold, Mr. Bahrain's presentation, as well as Mr. Cohen's and the committees. We erode approximately $590,000 just for January alone, rent alone. We've been sitting waiting for the debtors to negotiate a lease amendment with us for two months now. January rent is very straightforward. It didn't pay it. don't and debtors have not done that across a whole host of landlords here. We think it's in the best interests of the estates here for, as Mr. Cohen alluded to, in order

directing them to pay January and February rent or at least provide a good faith basis for not doing so. To add into the cost, we're already in February. We're going to see another host of motions to compel for not paying February rent. why burden the estates and landlords who also have mortgages to pay additional cost over discovery as to whether or not the debtors paid renterment. So for the reasons previously stated, we would support a directive now that the debtors have to pay

January and February. We can't hear you, Your Honor. Sorry. No, not clearly, no. We're not sure what happened, but you sound like far, far back from the, I'm not sure. Slightly, but not as much as you were before. The legislation is about the process for the law is what it is. And if the debtors are not following the law,

then there are, I'm not going to decide the merits of this motion and so I read the papers, which have been followed here. Did you hear that, Mr. Cohn? Yes, thank you, Your Honor. I did hear that. Thank you. I think we all good.

Yes. Good morning, Your Honor. I'm sorry. I hope I'm not interrupting. It's hard to hear. This is Kizzy Jericho from Goodwin Proctor on behalf of Landlord Trinity Center LLC. I won't belabor at the point,

but I will echo what Mr. Coe and Mr. Gage, Mr. Golden, Mr. Lehane said earlier today. our client is owed both January and February rent and is looking forward to this issue being resolved in accordance with the bankruptcy codes, very clear rules as soon as possible. The only thing I would ask, Your Honor, I did hear representations by debtors' counsel earlier today that proposed stipulations would be circulated. We have not received any outreach from debtors' counsel on this as of yet. We would ask that we be included in any draft proposed stipulations,

and circulations of dates, et cetera, real time, and would like the debtors to represent that on the record. Trinity Center LLC. Our motion to compel was filed at docket 1-230. Thank you, again, Ivan Gold of Alan Mackins for our seven movements. I rise again to just focus on two things. First, if we're going to have a baseball analogy with hardball, I'd just remind everybody that not all pitches are legal.

A spitball has been banned for decades, and that would be my analogy to what the debtor is doing here. They may have a pitch, but it's not a legal pitch. With respect to process, which is why we're here. I think the two most important dates, Your Honor's already helped us out with the safety valve, if you will, of the 21st, and you've made reference to that. I think, Your Honor, we should proceed this way. First, we need a time period to endeavor to do the factual stipulations. And Mr. Serra-Jadini described certain things that debtor might be interested in.

The debtor might have a questionnaire or a bullet point list as to the kinds of things they want to put in the stipulation. I could imagine what ours will be. We attached our aging reports. here's the lease, here's the balance. So from my perspective, the stipulated facts is not a heavy lift, but the debtor obviously is interested in more facts than I am. So we should have a deadline for that, at least to shoot for. The other thing is the debtor's brief.

In terms of our motion and the other motions, ordinarily, I mean, you know, but the hearing. on the 20th, obviously if the 13th would be ordinary, is it going to be earlier, is it going to be the 13th? If it's going to be the 13th, one of the things we'll be discussing would be, you know, are there factual disputes after the brief? There's a couple ways we could do that. You could give us an opportunity for a quick reply, which I'm going to want anyway, on the legal issues? Do we have a process to identify maybe a joint status report or something by which what's factual, what's legal just in advance of the hearing? Because as your honor said, you can slice and dice.

You could decide all these facts I don't need to decide. I've decided on the law. Or, okay, there's a couple factual disputes. Here's my legal ruling. Let's go clean this up later. I mean, we need a vehicle or vehicles to communicate that to you. this rolls forward. But I think those are the two most, those two deadlines are way more important than hypothetical interrogatories and depositions that I don't know will ever need. If the debtor truly believes they're not getting what they need out of a stipulation fact and we can't resolve it informally, hey, here's a copy of the letter or credit, that type of thing, then we either report that to your honor or we save that. You know, your honor could rule.

you can't go to the letter of credit so what the amount is doesn't matter or you can go to the letter of credit let's have a hearing and figure out what the balance is. We have a lot of gatekeeping issues we have to get through before we get to a lot of the facts. So to us, the two most important things for you today. One is to establish a deadline for the debtor to respond to the motion if it's going to be different than what would be customary. And two, probably a deadline for stipulated facts. And if not, then maybe a joint status report as to what's in dispute, something like that. So, Your Honor, at least has a advance warning, even an advance of an agenda as to what we're looking at on the 20th and perhaps the 21st.

That would be my suggestion, Your Honor, for the record, Stephen Serge, Dean of Kirk Miles. We must be making progress because I agreed with a lot more of what Mr. Gold just said. I agree. Those are the key dates. Those are the dates I mentioned earlier. And again, Your Honor, I think we've targeted the 13th on the brief. Presumably that's okay for all the parties. And then with respect to the fact process, I'd like to spend a little bit of time because we haven't had, you know, this meeting was premature in some ways. We haven't had the opportunity to do that with Mr. Gold and Mr. O'Hane and some of the other parties here to establish a good back and forth on stipulated facts and, you know,

questionnaires, it may be, or whatever it may be, a set of requests from the debtors as the facts we need, and then time to resolve that and failure to resolve that appropriate briefing in front of your honor on the factual disputes. What about a reply? The Friday before the hearing? The 17th? No, no, no. The 16th. Mr. Gold? My answer might be obvious.

It's not. It's, depending on how extensive the debtor's brief is, it might be tight. It might be perfectly fine. Again, if it's primarily legal issues, it's probably fine. It's tight, acknowledge, but I'd also want to get in front of your honor, so you have the time in advance of the hearing. I respect that probably more than anything else,

so that you have the ability to work with it. So I think if we go through kind of a fact-finding protocol, as we've, I think, beginning to take shape, that that could work. And, you know, I'm not going to quibble. They do in many courts. I'm not going to stand up here. Well, maybe noon on the 13th, Your Honor.

No, it's fine. Yeah, I mean, listen, my, can you guys hear me on the phone? It seems to me. My microphone's working a lot better. Okay. Actually, I'm going to put it away from me because it's probably too loud. In terms of the facts and the stipulations, I assume the first step would be for the debtor to look at every motion and the factual assertions in every motion, and then go back to the particular landlord, including your six people, and say, you know, I can stipulate on this, this and this, but not this. if the thing that they can't stipulate to is important for the hearing, you know, we'll deal with it.

My attitude is, is the quicker, the best way to finish this is to start it. So let's get started and we'll see what happens. I'm not going to deny anybody due process, but it's hard to project what might happen. So why don't we just do, you know, stipulate facts as soon as possible. Debtors brief is due the 13th. Replies are due the 16th. And the hearing is on the 20th. And we'll see where we're at on the 20th.

And if you want to, in your reply, you know, raise any due process issues that you think you have or a practical solution to a contested factual issue, I'll hear you. All right? All right. Your Honor, I have a question on this, Samuel O'Connell, Dorsey, and Whitney. on behalf of two landlords. My question is that the debtors said that they're going to ask us for a witness list. We have two declarants on each of our landlords.

So why would we have to give a witness list if we've already submitted declarations? I think we're done with witness lists, Mr. Cohn. You don't have to do a witness list. Okay, thank you. I mean, you might have to call a witness if there's a factional. issue with one of your leases, in which case you talk to counsel for the debtor, and if your witness is local, maybe that person can come in. If not, then you can stipulate concerning Zoom testimony and admitting the declaration as the...

You know, we appreciate your Honor's direction here that the debtor's counsel will pick up the phone because they did not pick up the phone when we told them about January and February's they did not pick up the phone. Thank you. Okay. All right, Your Honor. Anything further, Your Honor, any other questions for us? Let me just see.

Not there is one other item on the agenda. No, I guess just to reiterate what I said before, I do think that the legal issues, again, I'm not going to prejudge any of your arguments until I read them, but these arguments have been made and will be made in real estate cases. But I think this is more of a negotiation situation than a legal one. And I would urge everyone to focus the moving landlords as well as the debtor. you know this is not a this is this is this isn't personal it's not bad faith it's business

and either there's going to be a negotiation that happens or it doesn't I think it's good that these leases that you really have to make a call on there on the number that you might accept from each particular landlord and the landlords have to make a call especially with a confirmation in mid-March and I think these are case-by-case locality-by-locality decisions. What's good in Texas might not be good in D.C. or New York. But if you need the court's assistance or mediation or anything like that, I'd be open to that.

But again, I think it's pretty straightforward business-disnesty. discussion and I think they should be accelerated. I think the debtor should pick up the phone. And I'm not saying that you're not. Another dispute of sign, Your Honor. Maybe you just didn't get Mr. Cohen's client yet. But he's right. You should pick up the phone. All right. So just for the record, the status conference has been held concerning the landlord's motions to compel. The parties were will endeavor to stipulate as to facts as soon as possible. The debtor's brief is due February 13th.

Replies are due February 16th, and the hearing will begin on February 20th at 2 p.m. And to the extent that any one wants to appear by Zoom, particularly witnesses, the party should meet and confer on that and let us know. You'll do, sir. All right.

Thank you very much. With that, I'll pass the podium to Mr. Paray. Okay. Good morning, Your Honor. For the record, Oliver Parre of Kirkland and Ellis on behalf of the debtors. I'll be taking us through the remaining item on the agenda, consideration of the debtor's cash management motion on a final basis. Your Honor, apart from it, welcome back.

Thank you, Your Honor. Apart from a limited objection filed by the United States trustee at docket number 1182, final approval of the cash management motion is unopposed. The debtors filed the revised proposed final. order at docket number 1210 and a reply to the U.S. Trustee's objection at docket number at 1244. The declaration of Matthew Veerling in support of the reply is attached at Exhibit A, and a summary of certain of the debtor's international bank accounts is also attached as Exhibit C. Mr. Verling came down with COVID late last week, but is available over Zoom should any party

wish to cross-examine him. So unless Your Honor has any questions, the debtors request that Your Honor move those exhibits, as well as the U.S. Trustees list of authorized depositories into evidence. All right, any objection to the court's admission of those documents? There's the declaration of Mr. Veerling, who's available for cross-examination by Zoom. Does anyone oppose the entry of those documents into evidence? All right. The Veerling declaration, which is attached to document 1244, is admitted into evidence. together with the exhibits. Does anyone want to cross-examine Mr. Veerling?

All right. All right. No cross-examination. Mr. Verling, I hope you feel better. Thank you, Judge. Okay. You look pretty good there. I'm doing better.

I turn the corner on Saturday, so thank you. All right. Thank you, Judge. So, Your Honor, the U.S. trustee's objection is quite narrow. It takes issue with the debtor's request that, Your Honor, waive the requirements of Section 345B, we expect to 45 bank accounts that are not held at authorized depositories. But fortunately, Your Honor, recognizing that the authorized depository requirement could serve to needlessly handcuff large, more sophisticated debtors, Congress created a waiver

in 345B for cause. Such cause, Your Honor, clearly exists here in this case where we work has 517 debtors and over 1,000 bank accounts. But again, Your Honor, only 45 of those accounts are noncompliant. 36 are held in Canada and are critical for collecting fees and making disbursements in the ordinary course of business in that jurisdiction. And the majority of the others are either used to run the WeWork workplace product or form the basis of the company's notional cash pool, which was deactivated pre-petition, but which may be reactivated upon emergence to help facilitate international cash transfers. And so without the requested waiver, Your Honor, the debtors would be forced to re-engineer their entire Canadian cash management system, disrupt the WeWork workplace product, and eliminate a cash management construct. that may play a critical role in the go-forward company. In addition, Your Honor, to being operationally disruptive, the changes may have severe adverse tax consequences

as well as foreign exchange expenses if the debtors were forced to continually repatriate and then redistribute cash to maintain ordinary course operations. And moreover, and extremely importantly, Your Honor, these bank accounts are all held at international branches of J.P. Morgan, one of the most well-collateralized institutions on the planet, and protected by local depository insurance similar to the FDIC. And, Your Honor, only one account of all of these 45, which is critical for funding disbursements in Canada, holds an amount in excess of the government insured amount in that jurisdiction.

How much in access? It is around $18 million. And the government insured amount in Canada is, I believe, around 100,000 Canadian. That's a J.P. Morgan account? That's right. It's JPM Toronto. Well, why is it necessary to have so much in that account? Because I think that was the one concern the trustee raised. That's right, Your Honor.

So that account is a concentration account that is used to fund. All of the other Canadian accounts are ZBA accounts, zero balance accounts. They accept funds from the concentration account that holds the $19 million. Those amounts are dispersed out. And given the volatility in payments, I understand that that amount is necessary to maintain operations undisrupted. Why can't they keep the money in the operating accounts up to the threshold and then push the excess. So those are the part of zero balance accounts.

They're automatically swept every day. And, yeah, it's not... So they'd have to change the nature of the zero balance accounts. That's right, Your Honor. All right. So in short, Your Honor, this is precisely the kind of complex cross-border case that Congress had in mind when it wrote this for-cause exception to 345B, and denying the waiver would severely harm the debtor's operations

with very little corresponding benefit of any. So, Your Honor, insured the money is safe. All parties in interest, recognize. that other than the United States trustee and the objections would be overruled. So with that, I'd happy to answer any of the questions you have, but otherwise would also be happy to cede the podium to the United States trustee. All right. Let's hear from the U.S. trustee. Thank you, Your Honor.

Good morning. Peter Dioria from the Department of Justice on behalf of the United States trustee. With me, Your Honor, this morning, my colleague Fran Steele and financial analyst Francine Arendas, also in court. Your Honor, first, we hope Your Honor finds the U.S. trustee's limited objection to be productive. We're endeavoring to focus attention on the specific accounts that we think warrant Your Honor's consideration for a ruling under 345. And we're here today at the end of a very long and collaborative process, extensive exchange of information. lots of communications, great effort by the debtors people and debtors council. And on my side, Your Honor, a number of my colleagues have labored over the cash management system,

the accounts in question, and the factual scenario of the debtor's needs. The underlying motion, Your Honor, starts by outlining a cash management system that contains 1,04 accounts, with 560 of them owned and controlled by debtors. And we're here today to talk about 45 of the accounts. We hope, Your Honor, finds that focus to be productive. There may be a 46th account. I realize it's sitting, looking at the exhibits. There may be a 46th account in the debtors chart attached to the reply, Your Honor,

but I don't think it changes anything about today's dialogue. The 46th account is a Canadian account at JPMorgan Chase. It's indicated to hold the balance of under $13,000. I don't think that changes any of the dialogue that we have because it candidly is similar to a couple of the others that we're going to talk about anyway. So we might have a chart wrong. I don't know.

It's possible that debtors have an account that has been closed on theirs and the number is 45. is possible the number is 46, but I don't think it's material. We'll get that right after Your Honor rules. Okay. Your Honor, the debtors further contributed to the progress by closing certain accounts. My colleagues studied the cash management system,

obviously identified non-conforming accounts, and there were certain accounts where it was not clear if they were needed. The debtors listened, and they're still working through closing certain Goldman Sachs accounts. So between us, we have a little asterisk on this point in that we haven't gotten confirmation yet that the accounts have been closed. It's been communicated to us that the accounts have been emptied.

There's no funds in the accounts. So we would ask Your Honor to indulge us in, we are going to write at the bottom of the order after Your Honor rules today. We're going to write a reservation of rights with regard to the continuing. closure of the Goldman Sachs accounts and continue to work through that. But our instincts, our shared instincts on that issue tell us it shouldn't hold up a final ruling today. What about the reporting to the U.S. trustees' office with regard to the 45 accounts? Are they going to report, even though, is the debt going to report to you on the status of the movement of money in those accounts as well as, I guess,

they're all at J.P. Morgan. Isn't that what you guys get under your agreement with J.P. Morgan in the U.S.? Your Honor, I very much appreciate that question, because that is at the heart of the concern. One stroke of luck we got with a large number of the 560 debtor accounts is that they are U.S.-based J.P. Morgan accounts. J.P. Morgan is a signatory to a uniform depository agreement in the District of New Jersey, and the United States Trustee Program will have visibility of the balances in those accounts, and to make sure those accounts are collateralized

at the Federal Reserve, according to the Uniform Depository Agreement, that will all happen for a great number of the accounts. It was a stroke of luck that the cash management system was built on a bank that is a uniformed depository. With regard to the 45, those banks will not report in that way. they are not uniform

depository accounts. They're foreign accounts. They are not United States-based accounts. They do not have uniformed depository agreements in the District of New Jersey. And our reporting on those accounts will come to us through information from the debtors. It will be in their monthly operating reports

or an account statements we request. So we have visibility of those accounts. But the... You don't have collateral. Correct. which is the whole point behind the 345 objection, Your Honor. And I again thank you for your question, because why are we here?

Why are we objecting after all this progress? Because those 45 accounts stand non-compliant. Your Honor, put your finger right on it. Now, one of them has its knitting out of money in it. Your Honor, put your finger on that too. a few of them have admittedly lesser amounts, but the amounts are $30,000 to $220,000 of balances, as of a date when they gave us balances, Your Honor, ongoing operations.

We recognize the numbers can change. But the point under $345 is, $345's requirements are that such accounts are insured or guaranteed by either the United States or an agency of the United States. So whether funds are insured by a foreign jurisdiction that is still not a technical satisfaction of 345. And admittedly, 345 allows your honor to review a cash management system, a complex one like this, review debtor's needs, and make a cause finding to allow the system to stay in place.

but to sum up on that point, those accounts stand as non-compliant accounts and even if they zero out or even if they are not part of the Canadian system that zeroes out accounts into the operating Canadian account, if there are other accounts that look like they have the minimis amounts or look like they might have zero balances at a given time, the debtors, as we understand it,

and as they argue in their reply, well, Those accounts need to be open for continued operations. They can hold funds at any time, and as a technical matter, those funds would be outside of compliance for 345. What about this HSBC account that was being closed in late January? Has that been closed, or is that still out there? Your Honor, I believe that account may well already be closed. We'd check with the company to be sure,

but it was in the process of being closed as of late last week. All right. I'm sorry, Mr. DeGio, I interrupted you. No, I thank you. Your Honor. Your Honor, in a very short amount of time, retracing what we've been doing for months. Bealilling this down to what matters. You guys did all the work.

What would you have them do with these 45 accounts? What is your advice? That's the hard part, Your Honor. That's the hard part. Transfer all the money of the United States every day and put the funds in a uniform depository agreement. That's 100% approach over here. The debtors argue that their cash management system

as a practical matter... How would the creditors in Canada feel about that? That's part of the debtors' argument. And that's what the debtors build into their argument for costs. Your Honor, when we were here on the letter of credit financing, I mentioned to your honor that one of the challenging things in 345 for the United States trustee and for the USSD program, we feel like we can't participate in the finding of cause and in agreeing that the debtors have established cause. We recognize that Your Honor is questioning the fact that the debtor's cash management system may indeed need these accounts,

and Your Honor may indeed find cause for what we've defined as subject. accounts. I thank the debtors, other than whether it's the 46th account or not, other than that, Your Honor, one important thing. We're here in agreement on what accounts we're talking about, and that's due to the effort made on both sides. I very much thank my colleagues, Your Honor. A lot of toil went into understanding the cash management system and which accounts were problematic. And with that, Your Honor, we hope I'm going to repeat that I hope, Your Honor, finds the limited objection to be productive in that it's focusing a possible ruling on 45-46 accounts, not 560. And that's a better ruling, Your Honor. Thank you.

Thank you, Your Honor. Not much more, Your Honor. We'll just reiterate that for the reason set forth in the papers and here at the hearing today, we believe college exists. to grant the exemption under 345B, which exists to protect the debtors from unreasonable risk of loss. There is not an unreasonable risk of loss here. All right. Well, let me thank both the debtor and the United States' trustees' office for focusing on this. It is important under 345 for the U.S. trustee to look at the debtor's bank account situation

and try to bring it into compliance with Section 345. There was clearly a lot of effort put in by both the U.S. trustees' office and the debtors people to substantially comply with Section 345B. The only accounts that are not in full compliance are 45 accounts out of over 500. And all those accounts are in Canada, Netherlands, Luxembourg, and the UK. And I will find cause for those accounts under Section 345B. This is a very complex cross-border case. I also note that there are economic stakeholders here who bear the risk of some sort of banking

crisis or catastrophe, and they're on board with this, and I think the debtor has worked hard to address the concerns of the U.S. trustee. So with regard to these 45 accounts, and for the reason, set forth in the debtor's reply at document 1244, before I'm going to overrule the trustee's limited objection. Do you have a final order on this? There is a final order on file, Your Honor, but we've discussed with the United States Trustee about adding the footnote regarding the reservation of rights with respect to Goldman accounts.

Will, if it's all right with Your Honor, discuss after the hearing and submit to chambers a revised proposed form of order? All right. We're going to mark this revised form of order to be submitted, so let's not sign the one that is on the docket. Thank you, Mr. DeGri. and Steele, thanks for your attention to this, as always.

Thank you very much, Your Honor. I'll see the podium to my colleague, Mr. Sagerjini. Okay. I'll be brief, Your Honor, nothing further. I appreciate the Court's time today, and we'll continue to work with the parties as we're moving forward here. All right, so we'll see again on February 20th. Anything before that?

No. All right. Well, that's it. The Court's in recess. Have a good day, everybody. Thank you, Judge.